<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
------------------------------
<TABLE>
<S> <C> <C>
MARYLAND 6282 52-2097010
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
401 EAST PRATT STREET
SUITE 2800
BALTIMORE, MARYLAND 21202
(410) 625-9656
(Address and Telephone Number of Principal Executive Office)
------------------------------
NATHAN A. CHAPMAN, JR., PRESIDENT
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
401 EAST PRATT STREET
28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
(Name, Address and Telephone Number of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ELIZABETH R. HUGHES, ESQ. FRANK S. JONES, JR., ESQ.
Venable, Baetjer and Howard, LLP Whiteford, Taylor & Preston L.L.P.
1800 Mercantile Bank & Trust Building Seven Saint Paul Street
Two Hopkins Plaza Baltimore, Maryland 21202-1626
Baltimore, Maryland 21201-2978 (410) 347-8707
(410) 244-7400
</TABLE>
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
MAXIMUM NO. OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES OFFERING PRICE AGGREGATE REGISTRATION FEE*
TO BE REGISTERED REGISTERED (1) PER SHARE OFFERING PRICE (1) (2)
<S> <C> <C> <C> <C>
Common Stock, 1,250,000 shares
par value $0.001 per share (1) $9.00 $11,250,000 $3,319
</TABLE>
(1) Estimated solely for purposes of determining the registration fee.
(2) Pursuant to Rule 457.
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>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: one for use in
connection with the offering by the Company of Common Stock (the "Prospectus")
and one for use in connection with the sales by The Chapman Co. of the Company's
Common Stock in market-making transactions (the "Market-Making Prospectus"). The
Prospectus and the Market-Making Prospectus are identical except for the
following: (i) the outside front cover page; (ii) page 32, which will contain
alternate language for the "Plan of Distribution" section; and (iii) the outside
back cover page. Alternate language for the Market-Making Prospectus is labeled
"Alternate Language for Market-Making Prospectus" and follows the outside back
cover page of the Prospectus.
<PAGE>
SUBJECT TO COMPLETION: DATED: MAY 5, 1998
THIS REGISTRATION STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS
REGISTRATION STATEMENT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
<PAGE>
PROSPECTUS
MINIMUM OFFERING: 850,000 SHARES
MAXIMUM OFFERING: 1,250,000 SHARES
CHAPMAN CAPITAL
[LOGO]
MANAGEMENT HOLDINGS, INC.
COMMON STOCK
------------------
Chapman Capital Management Holdings, Inc., a Maryland corporation (the
"Company"), is offering for sale up to 1,250,000 shares (the "Maximum") of its
common stock, $0.001 par value per share (the "Common Stock") (the offering made
is referred to herein as the "Offering"). A minimum of 850,000 shares of Common
Stock must be sold in order for the Offering to close (the "Minimum"). Prior to
the Offering, there has been no public market for the Common Stock and there can
be no assurance that any such market will develop in the future. The Company
intends to apply for quotation on the Nasdaq SmallCap Market (the "SmallCap
Market") under the symbol "CMGT". However, there can be no assurance that the
Company's Common Stock will be accepted for quotation on the SmallCap Market and
the Offering is not conditioned upon such listing. See "Risk Factors--Risks of
Low Priced Stocks." It is currently anticipated that the initial public offering
price of the shares of Common Stock offered by this Prospectus (the "Shares")
will be between $7.00 and $9.00 per share. The initial public offering price
will be determined by negotiation between the Company and a qualified
independent underwriter as required by the Rules of the National Association of
Securities Dealers, Inc. (the "NASD"). See "Plan of Distribution." Upon sale of
the Minimum, the current President of the Company will exercise voting control
over approximately 68% of the Company's outstanding Common Stock. See "Principal
Stockholders."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGE 6 AND "DILUTION"
ON PAGE 13.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1)(2) COMPANY(3)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total Minimum............................................ $ $ $
Total Maximum............................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify The Chapman Co. (the "Underwriter") and
the qualified independent underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Plan of Distribution."
(2) Includes fees payable to the qualified independent underwriter. See "Plan of
Distribution."
(3) Before deducting expenses payable by the Company that are estimated at
$300,000.
------------------------
The Shares are offered on a best efforts basis by the Underwriter, subject
to prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify the
Offering without notice and to reject any order in whole or in part.
The Offering is conditioned upon the sale of the Minimum. Until the Minimum
is sold, all funds received from purchasers will be held by UMB Bank, N.A. as
escrow agent and returned promptly if the Minimum is not sold by the termination
date, without interest or deduction. The termination date of the Offering is on
the earlier to occur of: the date selected by the Company; the date of the sale
of the Maximum; or, if the Minimum is not sold, 180 days after the date of this
Prospectus, unless extended by the Company for one or more additional periods
not to exceed an additional 30 days in the aggregate (the "Termination Date").
THE CHAPMAN CO.
, 1998
<PAGE>
------------------------
FURTHER INFORMATION
The Company will furnish to its stockholders annual reports containing
financial statements for each fiscal year audited by an independent accounting
firm.
DOMESTIC EMERGING MARKETS-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK
AND THE C-EAGLE LOGO-TM- (THE LOGO APPEARING ON THE FRONT AND BACK COVERS OF
THIS PROSPECTUS), DEM-TM-, DEM INDEX-TM-, DEM PROFILE-TM- AND DEM MULTI-
MANAGER-TM- ARE TRADEMARKS OF NATHAN A. CHAPMAN, JR.
2
<PAGE>
PROSPECTUS SUMMARY
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD
BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
CERTAIN OF THE INFORMATION CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE DISCUSSION APPEARING UNDER THE CAPTION "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," ARE
FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS,
SEE "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." ON JANUARY 8, 1998, CHAPMAN CAPITAL
MANAGEMENT HOLDINGS, INC., A NEWLY-FORMED CORPORATION (THE "COMPANY"), ISSUED
SHARES OF COMMON STOCK TO THE CHAPMAN CO., A MARYLAND CORPORATION, IN EXCHANGE
FOR ALL OF THE OUTSTANDING EQUITY SECURITIES OF CHAPMAN CAPITAL MANAGEMENT,
INC., A WASHINGTON, D.C. CORPORATION ("CCM"). ACCORDINGLY, CCM IS CURRENTLY A
WHOLLY-OWNED DIRECT SUBSIDIARY OF THE COMPANY. ON FEBRUARY 26, 1998, THE CHAPMAN
CO. AND ITS SOLE STOCKHOLDER, CHAPMAN HOLDINGS, INC., A MARYLAND CORPORATION
("CHI"), EFFECTED A TAX-FREE SPIN-OFF TRANSACTION (THE "SPIN-OFF") PURSUANT TO
WHICH THE OUTSTANDING COMMON STOCK OF THE COMPANY WAS DISTRIBUTED TO CHI AND,
IMMEDIATELY FOLLOWING SUCH DISTRIBUTION, SUCH COMMON STOCK WAS DISTRIBUTED TO
THE THEN-EXISTING STOCKHOLDERS OF CHI. UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO THE COMPANY HEREIN REFER TO CHAPMAN CAPITAL MANAGEMENT HOLDINGS,
INC. AND ITS WHOLLY-OWNED, DIRECT SUBSIDIARY, CHAPMAN CAPITAL MANAGEMENT, INC.
THE COMPANY
The Company is an African-American owned and controlled investment advisory
and investment management company. Through its wholly-owned subsidiary, CCM, the
Company is registered with the Securities and Exchange Commission (the
"Commission") as an investment advisor. The Company manages funds for two
registered open-end investment companies, the DEM Equity Fund and The Chapman
U.S. Treasury Money Fund, each a portfolio of The Chapman Funds, Inc., and for
DEM, Inc., a registered closed-end investment company. In December 1996, the
Company established a private group trust, the DEM-MET Fund for Qualified
Employee Benefit Plans (the "DEM-MET Trust") for which it provides investment
management services. As of March 31, 1998, the Company had approximately $511.8
million in total assets under management. The DEM Equity Fund, The Chapman U.S.
Treasury Money Fund and DEM, Inc. are sometimes referred to herein as the
"Funds."
The Company has implemented a strategic initiative called the Domestic
Emerging Markets ("DEM") strategy which seeks investment in domestic companies
controlled by African-Americans, Asian-Americans, Hispanic/Latino-Americans and
women (the "DEM Profile"). Based on its implementation of the DEM strategy to
date, the Company believes that there exists a demand, particularly from
government entities and large institutions, to invest in companies that meet the
DEM Profile ("DEM Companies") and has designed its investment products to
provide a single source for meeting this objective while achieving a competitive
rate of return. As of March 31, 1998, the Company has identified 159 public
companies that meet the DEM Profile.
To implement the DEM strategy, the Company has established and acts as
advisor to the DEM Equity Fund and DEM, Inc. through which investors can invest
in DEM Companies. DEM, Inc., established in November 1995, was the first
proprietary investment product established by the Company to implement the DEM
strategy and as of March 31, 1998, it had approximately $21.5 million in assets
under management. In April 1998, the Company commenced marketing of the DEM
Equity Fund and as of April 9, 1998, the fund had approximately $10 million in
assets under management.
In addition, in December 1996, the Company established and currently acts as
advisor to the DEM MET Trust. As advisor, the Company allocates investment
responsibility for the trust's assets among investment managers that meet the
DEM Profile ("DEM Investment Managers"). The Company introduced this strategy,
known as the DEM Multi-Manager strategy, through its introduction of the DEM-
3
<PAGE>
MET Trust and will seek to increase its assets under management through the
development of additional products using this strategy. As of March 31, 1998,
assets were allocated among fourteen DEM Investment Managers. The Company
evaluates such sub-advisors monthly and reallocates assets among existing and
new sub-advisors as necessary. As of March 31, 1998, the DEM-MET Trust had
assets of approximately $230.9 million.
The Company intends to establish and act as advisor and sub-advisor for
additional DEM investment vehicles and to seek additional opportunities to
manage individual and institutional separate accounts using the DEM and DEM
Multi-Manager strategies. As of March 31, 1998, the Company had $87.4 million
and $230.9 million in assets under management invested pursuant to the DEM and
DEM Multi-Manager strategies, respectively. In addition, in April 1998, the
Company commenced marketing of the DEM Equity Fund and as of April 9, 1998 the
fund had approximately $10 million in assets under management.
The Company is headquartered at the World Trade Center--Baltimore, 401 East
Pratt Street, 28th Floor, Baltimore, Maryland 21202 and its telephone number is
(410) 625-9656.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
Minimum:................... 850,000 Shares
Maximum:................... 1,250,000 Shares
Common Stock outstanding
Prior to the Offering:..... 2,486,543 Shares
After the Offering
Minimum:................. 3,336,543 Shares
Maximum:................. 3,736,543 Shares
Use of proceeds:............. The Company proposes to use the net proceeds from this
Offering to create new investment products, expand sales and
marketing efforts (primarily for such new products), further
promote the DEM and DEM Multi-Manager strategies, including
expanding the Company's research capabilities, repay
indebtedness to affiliates of the Company (See "Certain
Transactions") and for working capital and general corporate
purposes. Although the Company does not have any current
plans regarding mergers or acquisitions, the Company may use
a portion of the net proceeds of the Offering for such
purposes, although greater emphasis on such application will
be given, if at all, to the extent that net proceeds of the
Offering approaching the Maximum are received. The extent to
which the Company will implement the above objectives will
be determined by the total amount of proceeds raised in the
Offering. If only the Minimum is sold, the Company intends
to devote a substantial amount of the net proceeds to the
creation of new proprietary investment products, the sales
and marketing thereof and the repayment of indebtedness to
affiliates. To the extent net proceeds in excess of the
Minimum are received, the Company expects to devote such
amounts to the creation of new investment products,
marketing activities and the other listed uses of proceeds.
See "Use of Proceeds."
Risk Factors:................ Prospective investors should carefully consider the
information discussed under the heading "Risk Factors."
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary of financial information set forth below is derived from the
Company's audited financial statements for the years ended December 31, 1996 and
1997, which have been audited by Arthur Andersen LLP, independent public
accountants. The financial data for the three months ended March 31, 1997 and
1998, have been derived from unaudited financial statements of the Company. The
unaudited financial data, in the opinion of management, includes all
adjustments, consisting of normal recurring adjustments necessary for the fair
presentation of the financial condition and results of operations of the
Company. This information should be read in conjunction with such financial
statements, including the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
-------------------------- ---------------------------
1996 1997 1997 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA
Total revenue.................................. $ 849,872 $2,286,615 $ 509,516 $ 771,841
Income (loss) before income taxes.............. 92,157 88,101 (4,642) 40,565
Net income (loss).............................. $ 51,157 $ 48,101 $ (2,542) $ 26,365
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Basic and diluted earnings per share........... $ 0.02 $ 0.02 $ -- $ 0.01
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Weighted average shares outstanding............ 2,486,543 2,486,543 2,486,543 2,486,543
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
AS ADJUSTED (1)
---------------------------
ACTUAL MINIMUM MAXIMUM
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA
Cash............................................................ $ 8,405 $6,032,405 $ 9,008,405
Total assets.................................................... 1,076,662 7,100,662 10,076,662
Total long-term debt............................................ -- -- --
Total stockholders' (deficit) equity............................ (66,469) 5,957,531 8,933,531
</TABLE>
(1) As adjusted gives effect to the sale of the Minimum and Maximum,
respectively, at an assumed public offering price of $8.00 per share (the
mid-point of the range) less underwriting discounts, commissions and
estimated offering expenses.
5
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW AS WELL AS
THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS INCLUDING: (I)
THE COMPANY'S BUSINESS STRATEGY FOR FUTURE GROWTH, INCLUDING PLANS REGARDING
INCREASES IN PERSONNEL, EXPANSION OF SALES AND MARKETING EFFORTS, AND THE
CREATION OF NEW INVESTMENT PRODUCTS; AND (II) THE COMPANY'S ABILITY TO
DISTINGUISH ITSELF AND ITS STRATEGY FROM CURRENT AND FUTURE COMPETITORS. WHEN
USED IN THE PROSPECTUS, THE WORDS "BELIEVES," "INTENDS," "ANTICIPATES," AND
"EXPECTS," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S
CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES.
IN ADDITION TO THE OTHER RISKS DESCRIBED ELSEWHERE IN THIS "RISK FACTORS"
SECTION, IMPORTANT FACTORS TO CONSIDER IN EVALUATING SUCH FORWARD-LOOKING
STATEMENTS INCLUDE: (I) CHANGES IN EXTERNAL COMPETITIVE MARKET FACTORS WHICH
MIGHT IMPACT TRENDS IN THE COMPANY'S RESULTS OF OPERATIONS; (II) UNANTICIPATED
WORKING CAPITAL AND OTHER CASH REQUIREMENTS; (III) GENERAL CHANGES IN THE
INDUSTRY IN WHICH THE COMPANY COMPETES; AND (IV) VARIOUS OTHER COMPETITIVE OR
REGULATORY FACTORS THAT MAY PREVENT THE COMPANY FROM COMPETING SUCCESSFULLY IN
THE MARKETPLACE. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, MANY OF WHICH ARE
DESCRIBED IN GREATER DETAIL IN THE RISK FACTORS SET FORTH BELOW, ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
PROSPECTUS.
DIFFICULTY IN MANAGING GROWTH
The Company has experienced and expects to continue to experience
significant growth in its business activities. This growth has required and will
continue to require increased investment in personnel, financial and management
systems and controls and facilities. The Company intends to apply a portion of
the net proceeds of the Offering to create new proprietary investment products
and to expand its selling, research and marketing efforts. In addition, the
Company intends to add personnel to support the increase in assets under
management that the Company will seek in executing its DEM and DEM Multi-Manager
strategies. The absence of continued revenue growth, or the Company's inability
to manage such growth, could have a material adverse effect on the Company's
operations. Further, as is common in the investment advisory business, the
Company is and will continue to be highly dependent on the effective and
reliable operation of its communications and information systems. Any difficulty
in the operation of existing systems, the implementation of new systems or the
training of personnel could adversely affect the Company's ability to manage
growth. See "Business--Year 2000 Software Issue;" "--Strategy" and "Use of
Proceeds."
DEPENDENCE ON KEY INVESTMENT MANAGEMENT CLIENTS
All of the Company's agreements with its advisory clients are terminable by
the client upon short notice (typically 30-60 days prior written notice). As of
March 31, 1998, three clients represented approximately 70% of the Company's
total assets under management. As of March 31, 1998, DEM-MET Trust, with $230.9
million in assets under management, represented approximately 45.1% of the
Company's total assets under management. If the DEM-MET Trust or any of the
Company's key investment management clients were to terminate their advisory
arrangements with the Company, the Company's advisory fee revenue would be
materially and adversely affected. See "Business."
HIGHLY COMPETITIVE INDUSTRY
The investment advisory business is extremely competitive. The Company
encounters intense competition in all aspects of the investment advisory
business and competes directly with other firms, a significant number of which
have greater capital, experience and other resources than the Company.
Competition also exists for experienced personnel including technical personnel
and account executives. In addition to
6
<PAGE>
competition from firms currently in the investment advisory business, recently
there has been increasing competition from other sources, such as commercial
banks and insurance companies offering financial services. See
"Business--Competition."
UNPROVEN NATURE OF DOMESTIC EMERGING MARKETS STRATEGY
The Company has implemented and seeks to promote its DEM and DEM
Multi-Manager strategies which target those companies, individuals and
institutional investors seeking either to invest in DEM Companies or to have
their assets managed by DEM Investment Managers, respectively. As of March 31,
1998, the Company had approximately $87.4 million and $230.9 million in assets
under management using the DEM and DEM Multi-Manager strategies, respectively.
The success of the DEM and the DEM Multi-Manager strategies will be
dependent upon the Company's ability to attract funds for investment in DEM
Companies and for management by DEM Investment Managers, respectively. The
success of these strategies will also be dependent on the Company's ability to
identify appropriate investments from the universe of DEM Companies and to
identify successful DEM Investment Managers. Because each of these strategies is
in the initial stages of implementation, its market acceptance is unknown and
there can be no assurance that the Company will be able to attract significant
amounts of investment capital for management under such strategies. Moreover,
the Company's belief that the DEM and DEM Multi-Manager strategies offer a
significant opportunity for growth is not based upon marketing studies,
demographic, or feasibility reports, but is based solely upon the judgment of
the Company's management and the Company's experience to date from its limited
marketing of DEM and DEM Multi-Manager products. Further, the Company will incur
significant marketing, legal and accounting expenses in the creation of new
investment products. Such expenses are ordinarily incurred significantly in
advance of the introduction of such products. If such products do not gain broad
market acceptance, the Company would likely lose such initial investment.
Although, as of March 31, 1998, the Company has identified 159 publicly-traded
DEM Companies, there can be no assurance that the Company will be able to
identify additional DEM Companies or that such companies will provide successful
investment opportunities. The ability of the Company to successfully promote its
DEM and DEM Multi-Manager strategies is key to the Company's goal of
diversifying and growing its base of investment management clients. See
"Business--Strategy."
DEPENDENCE ON KEY PERSONNEL; DUTIES TO OTHER COMPANIES
For the foreseeable future, the Company will place substantial reliance upon
the personal efforts and abilities of Nathan A. Chapman, Jr., President of the
Company. The loss of the services of Mr. Chapman would have a material adverse
effect on the business, operations, revenue and/or prospects of the Company. The
Company does not maintain key executive insurance for Mr. Chapman. Mr. Chapman
also serves as President and Chairman of the Board of Directors of (i) CHI, a
publicly-traded holding company, and its wholly-owned subsidiary, The Chapman
Co., a full-service securities brokerage and investment banking firm that is a
member firm of the NASD and is registered as a broker-dealer with the Commission
and in approximately one-half of the states, and (ii) Chapman Insurance
Holdings, Inc., and its wholly-owned subsidiary, The Chapman Insurance Agency
Incorporated, a licensed insurance agency, which has had limited operations to
date. Further, at the Company's request, Mr. Chapman serves as President and
Chairman of the Board of DEM, Inc. and The Chapman Funds, Inc., investment
companies advised by the Company. Accordingly, Mr. Chapman will not devote all
of his time to the operation of the Company and will devote significant time to
duties owed to these other entities. Although there is no written agreement, the
Company expects that Mr. Chapman will devote approximately 50% of his time to
the operation of the Company and entities that he serves at the request of the
Company. See "Certain Transactions."
7
<PAGE>
POTENTIAL ADVERSE EFFECTS OF CHANGES IN ECONOMY AND MARKET CONDITIONS
The financial markets and the investment management and advisory industry in
general have experienced record performance and growth in recent years.
According to the Investment Company Institute, the U.S. economy in 1997 was once
again a favorable setting for mutual funds, experiencing its seventh year of
economic expansion. The financial markets and businesses operating in the
securities industry, however, are highly volatile and are directly affected by,
among other factors, domestic and foreign economic conditions and general trends
in business and finance, all of which are beyond the control of the Company.
There can be no assurance that broader market performance will be favorable in
the future. Any decline in the financial markets or a lack of sustained growth
may result in a corresponding decline in performance by the Company's investment
products and separate accounts which may adversely affect assets under
management and/or fees. The Company's revenues from investment management are
directly related to fluctuations in the dollar amount of assets under
management. According to the Investment Company Institute, assets in mutual
funds increased 27% in 1997 to $4.5 trillion, with net new cash flow rising for
the third straight year to a record $378 billion. Significant investor trends,
including a desire for alternatives to investment in either open- or closed-end
funds, or a significant change in overall market conditions, could have a
negative impact on the Company by reducing the total assets under management.
RELATIONSHIPS WITH OTHER CHAPMAN ENTITIES AND POTENTIAL CONFLICTS OF INTEREST
The Company acts as investment advisor, pursuant to investment advisory
agreements, for three active registered investment portfolios: DEM, Inc., a
closed-end investment company, the DEM Equity Fund and The Chapman U.S. Treasury
Money Fund. The Company's revenues in connection with these related-party
agreements (excluding the DEM Equity Fund which became active on April 9, 1998)
accounted for 30.2%, 12.4% and 11.3% of the Company's revenues in the years
ended December 31, 1996, 1997 and for the three months ended March 31, 1998,
respectively. At the request of the Company, Nathan A. Chapman, Jr., the
Company's President and Chairman of the Board; Earl U. Bravo, Sr., the Company's
Vice President, Secretary and Assistant Treasurer; and M. Lynn Ballard, the
Company's Treasurer, Assistant Secretary and Controller; serve as President and
Chairman of the Board; Secretary and Assistant Treasurer; and Treasurer,
Assistant Secretary and Controller, respectively, of each of these investment
companies. In addition, several of the Company's key executives, including Mr.
Chapman, are also officers and/or directors of holding companies owning all of
the outstanding equity securities of The Chapman Co. and The Chapman Insurance
Agency Incorporated. 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, allocations of shared expenses
for overhead (including compensation of shared employees, lease payments and
other expenses) and the allocation of business opportunities between the Company
and such other companies. For example, the Company has engaged and expects to
continue to engage The Chapman Co. as the principal distributor of the Company's
investment products. See "Certain Transactions." Further, because the key
executives of the Company are also senior executives of other companies, the
Company's management will not be able to devote all of its time to the business
affairs of the Company. Management intends to have all business transactions and
allocations of overhead between the Company and such other companies approved by
a committee of the Board of Directors composed of independent, outside
directors. Furthermore, the compensation of the Company's President will be
approved by the Compensation Committee of the Board of Directors, all of the
members of which are independent, outside directors.
As of March 31, 1998, the Company owed CHI $771,889, as evidenced by a
10-year note executed as of October 31, 1997 in the amount of $763,367, which
accrues interest at 6.68% per annum. The advances by CHI to the Company were
used by the Company for expenses incurred in the introduction of the DEM-MET
Trust and for a related non-competition agreement. As of March 31, 1998, the
Company has not made any payments on this note. In December 1995, Mr. Chapman
loaned CCM $100,000, payable on
8
<PAGE>
demand. In March 1996, Mr. Chapman loaned CCM an additional $45,000, payable on
demand, with a fixed interest payment of $14,500 due at the time of repayment.
As of March 31, 1998, the Company had made payments in the amount of $145,627 on
these loans from Mr. Chapman and owed Mr. Chapman $13,873. The advances by Mr.
Chapman were used by the Company for the purchase of common stock of an
affiliate. As of December 31, 1997 and March 31, 1998, the Company also owed CHI
$28,782 and $106,267 pursuant to certain allocation arrangements pertaining to
shared overhead and other expenses of the Company and CHI. The Company expects
to use part of the net proceeds of the Offering to repay all of its indebtedness
to CHI and Mr. Chapman. See "Use of Proceeds" and "Certain Transactions."
POTENTIAL CONFLICTS CAUSED BY SELF-UNDERWRITING; NEED FOR QUALIFIED INDEPENDENT
UNDERWRITER
The Chapman Co. is the Underwriter of the Offering on a best efforts basis.
Nathan A. Chapman, Jr., the Company's President, Chairman of the Board and
majority stockholder is President, Chairman of the Board and majority
stockholder of CHI, the sole stockholder of the Underwriter. The Chapman Co.'s
role as Underwriter may involve certain conflicts of interest. Pursuant to the
Conduct Rules of the NASD, the Shares are being offered at a price no higher
than that recommended by Ferris Baker Watts, Incorporated, which is acting as
the qualified independent underwriter (the "QIU"). Although the QIU has
participated in the preparation of the Registration Statement of which this
Prospectus forms a part and is required to exercise the usual standards of "due
diligence" with respect thereto, there can be no assurance that certain
conflicts will not arise with respect to this Offering, or if conflicts do
arise, that they will be resolved in a manner favorable to investors. Ferris
Baker Watts, Incorporated is not expected to receive an allocation of Shares for
sale in the Offering and does not intend to participate in any selling efforts.
See "Plan of Distribution."
ARBITRARY NEGOTIATED OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The initial price to the public for the Shares will be determined through
negotiation between the Company and the QIU and may not be indicative of the
market price of the Common Stock after the Offering. For a discussion of the
factors considered in determining the offering price, see "Plan of
Distribution." Certain factors, such as subsequent sales of Common Stock into
the market by existing stockholders and market conditions generally, could cause
the market price of the Common Stock to fluctuate substantially. Furthermore,
there can be no assurance that the offering price will correspond to the price
at which the Common Stock will trade in the public market at any time subsequent
to the Offering. See "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
The sale of the Minimum at an assumed public offering price of $8.00 per
share (the mid-point of the range) will involve immediate and substantial
dilution of $6.41 per share, or 80.1%, to investors because the net tangible
book value per share of Common Stock upon the sale of the Minimum would be
substantially less than the assumed public offering price of $8.00 per share.
See "Dilution."
EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
As of the Minimum closing, the Company will have 3,336,543 shares of Common
Stock outstanding, of which 2,285,143 will be beneficially owned by Nathan A.
Chapman, Jr. With the exception of 2,285,143 shares of Common Stock owned by Mr.
Chapman, all of the shares outstanding prior to the Offering may be available
for resale in the public market, under Rule 144 promulgated pursuant to the
Securities Act, 90 days after the date of this Prospectus. Mr. Chapman has
agreed not to publicly sell any of the shares of Common Stock that he owns as of
the date of this Prospectus until February 25, 1999. 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. See "Shares Eligible for
Future Sale."
9
<PAGE>
BEST EFFORTS NATURE OF OFFERING; UNDERWRITER HAS NO COMMITMENT TO PURCHASE
SHARES
The Underwriter shall use its best efforts to sell the Shares; however,
there is no commitment by the Underwriter or any other person to purchase the
Shares. Consequently, the Company can give no assurance that any of the Shares
will be sold. Although the Offering will not close unless the Minimum is
achieved, the Company's ability to implement the DEM and DEM Multi-Manager
strategies and expand its operations will be diminished to the extent that less
than the Maximum is sold. See "Use of Proceeds" and "Plan of Distribution."
REGULATORY RISKS
The Company's business, and the investment management industry generally,
are subject to extensive regulation at both the federal and state levels. These
regulations are designed primarily for the protection of the Company's customers
rather than the Company's stockholders. Failure to comply with any of the laws,
rules or regulations of any state or federal regulatory authority could result
in a fine, injunction, suspension or expulsion from the industry, which could
have a material adverse impact upon the Company. Although the Company has
implemented procedures designed to achieve compliance with such laws, rules and
regulations, there can be no assurance that any failure to so comply will not
have a material adverse effect upon the Company. Furthermore, amendments to
existing statutes and regulations or the adoption of new statutes and
regulations could require the Company to alter its methods of operation at costs
which could be substantial. See "Business--Government Regulation" and "--Legal
Proceedings."
CONTROL BY PRINCIPAL STOCKHOLDER
Nathan A. Chapman, Jr. will beneficially own approximately 68% and 61% of
the outstanding shares of Common Stock assuming the Minimum and Maximum,
respectively, are sold in the Offering. Accordingly, Mr. Chapman will control
the outcome of all matters submitted to the stockholders for approval, including
the election of directors of the Company. See "Management" and "Principal
Stockholders."
NO PRIOR PUBLIC MARKET FOR AND POSSIBLE PRICE VOLATILITY OF THE SHARES
Prior to the Offering, there has been no public trading market for the
Common Stock and there is no assurance that an active public market for the
Common Stock will develop or, if developed, that it will continue after the
Offering. In the absence of an active public trading market, an investor may be
unable to liquidate an investment in the Shares. The trading price of the Shares
could be subject to wide fluctuations in response to quarterly variations in
operating results, announcements of material business events by the Company or
its competitors and other events or factors. The Company believes that there
will be sufficient market-makers to qualify for and maintain a SmallCap Market
listing; 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.
RISKS OF LOW PRICED STOCKS
There is currently no public market for the Common Stock. The Company
intends to apply for quotation on the SmallCap Market under the symbol "CMGT";
however, there can be no assurance that the Nasdaq Stock Market will approve the
Company's application and the Offering is not conditioned on
10
<PAGE>
receiving such approval. A summary of the current financial requirements for
initial quotation and maintenance of such quotation on the SmallCap Market as
currently in effect are set forth below:
<TABLE>
<CAPTION>
INITIAL
ATTRIBUTE QUOTATION MAINTENANCE
- --------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Net Tangible Assets $4,000,000 or $2,000,000 or
or
Market Capitalization $50,000,000 or $35,000,000 or
or
Net Income (latest year or
two of last three years) $750,000 $500,000
and
Public Float (Shares) 1,000,000 500,000
Market Value of Public Float $5,000,000 $1,000,000
Stockholders 300 300
Minimum Bid Price $4.00 $1.00
Number of Market Makers 3 2
</TABLE>
The Company expects that at the time of the Minimum closing it will meet the
current initial quotation and maintenance requirements. In addition, in order to
be eligible for quotation on the SmallCap Market, the Company must have two
independent directors. As of the date of this Prospectus, the Company has only
one independent director and is seeking an additional independent director to
meet this SmallCap Market requirement. However, the Offering is not conditioned
on achieving listing on the SmallCap Market, and there can be no assurance that
a market will develop for the Common Stock, or that the Company will continue to
meet the other requirements for quotation. Until such time as the Company's
application is approved and the Common Stock is quoted on the SmallCap Market,
trading in the Common Stock, should a market develop, could be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's Electronic
Bulletin Board.
NO DIVIDENDS
To date, the Company has not paid any cash dividends on its Common Stock and
does not expect to declare or pay any cash dividends in the foreseeable future.
The Company intends to retain all earnings, if any, for the foreseeable future
for the Company's continued growth. See "Dividend Policy."
DISCRETIONARY USE OF PROCEEDS
The Company will have broad discretion as to the application of the offering
proceeds. At an assumed public offering price of $8.00 per share (the mid-point
of the range), if the Minimum is sold, 14.6% and 14.8% of the net proceeds to
the Company from the sale of the Shares will be applied to general corporate
purposes, such as working capital and repayment of indebtedness to affiliates,
respectively. In the event the Maximum is sold, 14.6% and 9.9% of the net
proceeds will be used in connection with such general corporate purposes and
repayment of indebtedness to affiliates, respectively. The Company may also use
a portion of the offering proceeds to effectuate suitable business combinations,
including mergers, consolidations and/or corporate acquisitions, although the
Company has no current plans in this regard. See "Use of Proceeds."
11
<PAGE>
USE OF PROCEEDS
The Company proposes to use the net proceeds from this Offering to create
new investment products, expand sales and marketing efforts (primarily for such
new products), implement and promote the DEM and DEM Multi-Manager strategies,
including expanding the Company's research capabilities, repay indebtedness to
affiliates of the Company and for working capital and general corporate
purposes.
<TABLE>
<CAPTION>
MINIMUM PERCENT MAXIMUM PERCENT
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Creation of new investment products............................... $ 2,000,000 33.2% $ 3,000,000 33.3%
Expand sales and marketing efforts................................ 1,250,000 20.8 1,800,000 20.0
Promote DEM strategies............................................ 1,000,000 16.6 2,000,000 22.2
Repayment of indebtedness to affiliates of the Company............ 892,031 14.8 892,031 9.9
Working capital and general corporate purposes.................... 881,969 14.6 1,307,969 14.6
------------ --------- ------------ ---------
Totals............................................................ $ 6,024,000 100% $ 9,000,000 100%
------------ --------- ------------ ---------
------------ --------- ------------ ---------
</TABLE>
Although the Company does not have any current plans regarding mergers and
acquisitions, the Company may use a portion of the net proceeds from this
Offering for such purposes.
As of March 31, 1998, the Company owed CHI $771,889, as evidenced by a
10-year note executed as of October 31, 1997 in the amount of $763,367, which
accrues interest at 6.68% per annum. As of March 31, 1998, the Company has not
made any payments on this note. In December 1995, Mr. Chapman loaned CCM
$100,000, payable on demand, for the purchase of common stock of an affiliate.
In March 1996, Mr. Chapman loaned CCM an additional $45,000, payable on demand,
with a fixed interest payment of $14,500 due at the time of repayment. As of
March 31, 1998, the Company had made payments in the amount of $145,627 and owed
Mr. Chapman $13,873 on the indebtedness above. The Company expects to use part
of the net proceeds of the Offering to repay its indebtedness to CHI and Mr.
Chapman. Further, to the extent part of the net proceeds of the Offering are
used for working capital and general corporate purposes, a portion of the net
proceeds may be used for payments to CHI in connection with shared overhead and
other expenses. See "Certain Transactions."
The above proposed allocation represents the Company's best estimate based
upon current plans and certain assumptions regarding industry and general
economic conditions and the Company's future revenue and expenditures. If any of
these factors change, the Company may find it necessary or advisable to
reallocate some of the proceeds within the above-described categories, use
portions thereof for other purposes or seek additional financing. There can be
no assurance that additional financing will be available to the Company on
acceptable terms, or at all. Any failure to obtain additional financing, if
required, could have a material adverse effect on the Company, including
possibly requiring the Company to curtail its operations. Since a portion of the
net proceeds will be applied to general corporate purposes and working capital,
the Company will have broad discretion as to the application of such net
proceeds. See "Risk Factors--Discretionary Use of Proceeds."
The Company intends to invest net proceeds not immediately required for the
purposes described above, principally in The Chapman U.S. Treasury Money Fund or
directly in United States' government securities, short-term certificates of
deposit, other money market funds or other short-term interest-bearing
investments.
12
<PAGE>
DILUTION
The difference between the public offering price per share of Common Stock
and the net tangible book value per share of Common Stock after this Offering
constitutes dilution to purchasers of the Shares. Net tangible book value per
share is determined by dividing the net tangible book value (total tangible
assets less total liabilities) by the number of outstanding shares of Common
Stock.
The net tangible book value of the Company as of March 31, 1998, is
$(702,469) or $(0.28) per share of Common Stock. After giving effect to the sale
of the Minimum at the assumed public offering price of $8.00 per Share (after
deducting underwriting discounts, commissions and estimated offering expenses)
the net tangible book value at that date would have been $5,321,531 or $1.59 per
share. This represents an immediate increase in net tangible book value of $1.87
per share to existing stockholders and an immediate dilution of $6.41 per share
to the purchasers of the Shares.
The following table illustrates the per share dilution effect as of March
31, 1998:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................................ $ 8.00
Net tangible book value before this Offering................................. $ (0.28)
Increase attributable to new investors....................................... 1.87
---------
Net tangible book value after this Offering.................................. 1.59
---------
Dilution to new investors.................................................... $ 6.41
---------
---------
</TABLE>
The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid and the average price per share paid by existing stockholders and by the
purchasers of the Shares, at an assumed public offering price of $8.00 per share
(the mid-point of the range) and the sale of the Minimum:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............................. 2,486,543 74.5% $ 2,487 0.0% $ 0.00
New Investors...................................... 850,000 25.5 6,800,000 100.0 8.00
------------ ----- ------------ -----
Total.............................................. 3,336,543 100.0% $ 6,802,487 100.0% $ 2.04
------------ ----- ------------ ----- -----
------------ ----- ------------ ----- -----
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, and as adjusted to give effect to the sale of the Minimum number of
Shares offered hereby at an assumed price of $8.00 per share (the mid-point of
the range) and the receipt of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
AS ADJUSTED
ACTUAL MINIMUM
---------- ------------
<S> <C> <C>
Long-term debt:......................................................................... $ -- $ --
---------- ------------
Stockholders' equity:
Common Stock--$.001 par value, 20,000,000 shares authorized, 2,486,543 and 3,336,543
shares issued and outstanding, respectively........................................... 2,487 3,337
Additional paid-in capital.............................................................. -- 6,023,150
Accumulated Deficit..................................................................... (68,956) (68,956)
---------- ------------
Total Stockholders' (Deficit) Equity.................................................... (66,469) 5,957,531
---------- ------------
Total Capitalization.................................................................... $ (66,469) $ 5,957,531
---------- ------------
---------- ------------
</TABLE>
14
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate doing so in the foreseeable future. The payment of cash
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 capital
requirements and financial condition, and other relevant factors. The Company
intends to retain any earnings in the foreseeable future for the Company's
continued development and expansion of its business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Strategy."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, including the notes thereto, and the Summary Financial Data included
elsewhere in this Prospectus.
OVERVIEW AND GENERAL INDUSTRY CONDITIONS
Advisory and administrative revenue is earned by the Company through
investment advisory and administrative services. For the fiscal year ended
December 31, 1997, the Company generated revenue of $2,286,615 and income before
income taxes of $88,101. For the quarter ended March 31, 1998, the Company
generated revenue of $771,841 and income before income taxes of $40,565. The
Company's total assets under management were approximately $351.1 million,
$429.6 million and $511.8 million as of December 31, 1996, 1997 and as of March
31, 1998, respectively.
The Company's primary sources of revenue are advisory and administrative
fees. The Company's principal business activities are affected by many factors,
including general economic and financial conditions, movement of interest rates
and competitive conditions. Although the Company seeks to maintain cost
controls, a significant portion of the Company's expenses are fixed and do not
vary greatly with the factors listed above. As a result, substantial
fluctuations can occur in the Company's revenue and net income from period to
period.
RESULTS OF OPERATIONS
The following table reflects items in the Statements of Operations as dollar
amounts and as percentages of total revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
-------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1997 1997 1998
---------------------------- -------------------------- ---------------------------- -----------
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNTS TOTAL REVENUE AMOUNTS TOTAL REVENUE AMOUNTS TOTAL REVENUE AMOUNTS
----------- --------------- --------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Advisory and
administrative....... $ 832,970 98.0% $2,284,054 99.9% $ 509,052 99.9% $ 768,953
Other income........... 16,902 2.0 2,561 0.1 464 0.1 2,888
----------- ----- --------- ----- ----------- ----- -----------
Total revenue........ 849,872 100.0 2,286,615 100.0 509,516 100.0 771,841
----------- ----- --------- ----- ----------- ----- -----------
OPERATING EXPENSE:
Management fees........ -- -- 869,355 38.0 200,802 39.4 306,903
Compensation and
benefits............. 291,155 34.3 594,993 26.0 185,502 36.4 174,734
General and
administrative....... 261,271 30.7 492,644 21.5 63,724 12.5 179,891
Amortization........... 19,000 2.2 228,000 10.0 57,000 11.2 57,000
Interest............... 77,806 9.2 13,522 0.6 7,130 1.4 12,748
----------- ----- --------- ----- ----------- ----- -----------
Total Operating
expense............ 649,232 76.4 2,198,514 96.1 514,158 100.9 731,276
----------- ----- --------- ----- ----------- ----- -----------
Loss on sale of
securities........... 108,483 12.8 -- -- -- -- --
----------- ----- --------- ----- ----------- ----- -----------
Income (loss) before
income tax
provision.......... 92,157 10.8 88,101 3.9 (4,642) (-0.9) 40,565
Income tax provision
(benefit)............ 41,000 4.8 40,000 1.8 (2,100) (-0.4) 14,200
----------- ----- --------- ----- ----------- ----- -----------
Net income (loss)...... $ 51,157 6.0% $ 48,101 2.1% ($ 2,542) (-0.5)% $ 26,365
----------- ----- --------- ----- ----------- ----- -----------
----------- ----- --------- ----- ----------- ----- -----------
<CAPTION>
<S> <C>
PERCENTAGE OF
TOTAL REVENUE
---------------
<S> <C>
REVENUE:
Advisory and
administrative....... 99.6%
Other income........... 0.4
-----
Total revenue........ 100.0
-----
OPERATING EXPENSE:
Management fees........ 39.8
Compensation and
benefits............. 22.6
General and
administrative....... 23.3
Amortization........... 7.4
Interest............... 1.7
-----
Total Operating
expense............ 94.8
-----
Loss on sale of
securities........... --
-----
Income (loss) before
income tax
provision.......... 5.2
Income tax provision
(benefit)............ 1.8
-----
Net income (loss)...... 3.4%
-----
-----
</TABLE>
16
<PAGE>
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Total revenue increased by $262,325, or 51.5%, to $771,841 in the quarter
ended March 31, 1998 from $509,516 in the prior comparable period. Advisory and
administrative fee revenue increased by $259,901, or 51.1%, to $768,953 in the
quarter ended March 31, 1998 from $509,052 in the prior comparable period
reflecting an increase in assets under management due largely to the
introduction of the DEM-MET Trust. As of March 31, 1998, three clients accounted
for 78% of the Company's revenue.
Total expense increased by $217,118, or 42.2%, to $731,276 in the quarter
ended March 31, 1998 from $514,158 in the prior comparable period. As a
percentage of total revenue, total expense decreased to 94.8% in the quarter
ended March 31, 1998 compared to 100.9% in the prior comparable period due to
the increase in revenues because of the increase in assets under management and
certain economies of scale resulting therefrom.
Management fee expense increased by $106,101, or 52.8%, to $306,903 in the
quarter ended March 31, 1998 from $200,802 in the prior comparable period
reflecting the increase in assets under management of the DEM-MET Trust.
Compensation and benefits expense decreased by $10,768, or 5.8%, to $174,734
in the quarter ended March 31, 1998 from $185,502 in the prior comparable period
due primarily to the payment of certain bonuses in the prior comparable period
that were not repeated in the quarter ended March 31, 1998 which was partially
offset by the addition of five new employees and annual pay increases. As a
percentage of total revenue, compensation and benefits expense decreased to
22.6% in the quarter ended March 31, 1998 from 36.4% in the prior comparable
period.
General and administrative expense increased by $116,167, or 182.3%, to
$179,891 in the quarter ended March 31, 1998 from $63,724 in the prior
comparable period due to advertising and travel expense pertaining to increased
marketing activities during the period. As a percentage of total revenue,
general and administrative expense increased to 23.3% in the quarter ended March
31, 1998 from 12.5% in the prior comparable period.
Interest expense was $12,748, in the quarter ended March 31, 1998 compared
to $7,130 in the prior comparable period.
The Company's income tax provision increased by $16,300 to $14,200 in the
quarter ended March 31, 1998 versus a $2,100 tax benefit in the prior comparable
period due to an increase in income before income taxes during the period.
Net income increased by $28,907 to $26,365 in the quarter ended March 31,
1998 from a loss of $2,542 in the prior comparable period as a result of the
items discussed above.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1996.
Total revenue increased by $1,436,743, or 169.1%, to $2,286,615 in 1997 from
$849,872 in 1996. Advisory and administrative fee revenue increased by
$1,415,084, or 174.2%, to $2,284,054 in 1997 from $832,970 in 1996 reflecting
increased fees as a result of an increase in total assets under management due
largely to the introduction of the DEM-MET Trust.
Total expense increased by $1,549,282, or 238.6%, to $2,198,514 in 1997 from
$649,232 in 1996. As a percentage of total revenue, total expense increased to
96.1% in 1997 compared to 76.4% in 1996. The increase of total expense as a
percentage of total revenue in 1997 compared to 1996 is due primarily to an
increase in compensation and benefits expense because of additional employees,
amortization expense related to DEM-MET Trust, an increase in professional fees
related to a proposed financing that was postponed and advertising and travel
expense pertaining to increased marketing activities during the period.
17
<PAGE>
Management fee expense, which consists primarily of the Company's payments
to sub-advisors in connection with its multi-manager investment product, the
DEM-MET Trust, was $869,355 in 1997. Management fee expense was not incurred in
1996 prior to the commencement of operations of the DEM-MET Trust.
Compensation and benefits expense increased by $303,838, or 104.4%, to
$594,993 in 1997 from $291,155 in 1996 due primarily to the addition of new
employees, annual pay increases and bonuses. As a percentage of total revenue,
compensation and benefits expense decreased to 26.0% for 1997 from 34.3% for
1996.
General and administrative expense increased by $231,373, or 88.6%, to
$492,644 in 1997 from $261,271 in 1996 due to professional fees incurred in
connection with a proposed financing that was postponed and advertising and
travel expense pertaining to increased marketing activities during the period.
As a percentage of total revenue, general and administrative expense decreased
to 21.5% for 1997 from 30.7% in 1996.
Amortization of intangible assets increased in 1997, reflecting twelve
months of amortization of the DEM-MET Trust start-up cost for the year 1997 as
compared to only one month of amortization in 1996.
Interest expense decreased by $64,284, or 82.6%, to $13,522 in 1997 from
$77,806 in 1996 substantially due to the elimination of a securities position
held on margin.
The Company's income tax provision decreased by $1,000, or 2.4%, to $40,000
in 1997 from $41,000 in 1996 due to a reduction in income before income taxes.
Net income decreased by $3,056, or 6.0%, to $48,101 for 1997 from $51,157
for 1996 as a result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through capital
contributions from its principal stockholder, loans from affiliates and cash
flow from operations.
A substantial majority of the Company's assets are illiquid consisting
primarily of certain intangibles related to non-competition agreements and
rights and interests in the DEM-MET Trust. The Company's liquid assets consist
primarily of receivables from advisory clients. A relatively small percentage of
the Company's total assets are fixed. The Company's total assets as of December
31, 1997 and March 31, 1998 were $1,085,308 and $1,076,662, respectively.
The final payment of $150,000 on a noncompete agreement pertaining to the
DEM-MET Trust is due in the third quarter of 1998. Management expects that the
Company's liquid assets and cash provided by operations will be sufficient to
make this payment. As of March 31, 1998, the Company owes $771,889 to an
affiliated company. See "Certain Transactions." The Company currently intends to
use a portion of the estimated net proceeds from this Offering to repay this
debt. The Company may seek lines of credit following this Offering.
The Company's overall capital and funding needs are continually reviewed to
ensure that the capital base can support the estimated needs of the business.
Based upon these reviews, the Company believes it will require the increased
capital provided by the estimated net proceeds of this Offering or alternative
financing to fully implement the Company's DEM and DEM Multi-Manager strategies.
The Company's cash was $8,405 as of March 31, 1998 as compared to $8,677 as
of December 31, 1997.
EFFECTS OF INFLATION
The Company's assets are to a large extent illiquid in nature and are not
significantly affected by inflation. However, the rate of inflation affects the
Company's expenses, such as employee compensation and occupancy expenses, 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 position and results of operations.
18
<PAGE>
BUSINESS
GENERAL
The Company is an African-American owned and controlled investment advisory
and investment management company. Through its wholly-owned subsidiary, CCM, the
Company is registered with the Commission as an investment advisor and manages
the assets of registered investment companies, a private group trust, and the
funds of individual and institutional investors on a separate account basis. As
of March 31, 1998, the Company had approximately $511.8 million in total assets
under management. As of March 31, 1998, three clients represented approximately
70% of the Company's total assets under management.
The Company manages assets for two registered open-end investment
portfolios, the DEM Equity Fund and The Chapman U.S. Treasury Money Fund, each a
portfolio of The Chapman Funds, Inc., and for DEM, Inc., a registered closed-end
investment company. In December 1996, the Company established a private group
trust, the DEM-MET Trust for qualified employee benefit plans for which it
provides investment management services. As of March 31, 1998, DEM-MET Trust,
with $230.9 million in assets under management, represented approximately 45.1%
of the Company's total assets under management.
The Company is headquartered at the World Trade Center--Baltimore, 401 East
Pratt Street, 28th Floor, Baltimore, Maryland 21202 and its telephone number is
(410) 625-9656. The Company was incorporated in Maryland on January 8, 1998. Its
wholly-owned subsidiary, CCM, a District of Columbia corporation, was
established as an investment advisor in 1988.
STRATEGY
The Company has implemented a strategic initiative called the Domestic
Emerging Markets or DEM strategy which seeks investment in domestic companies
controlled by African-Americans, Asian-Americans, Hispanic/Latino-Americans and
women, the DEM Profile. Based on its implementation of the DEM strategy to date,
the Company believes that there exists a substantial demand, particularly from
government entities and large institutions, to invest in companies that meet the
DEM Profile and has designed its investment products to provide a single source
for meeting this objective while achieving a competitive rate of return.
In addition, in December 1996, the Company established and currently acts as
advisor to the DEM MET Trust. As advisor, the Company allocates investment
responsibility for the trust's assets among DEM Investment Managers. The Company
introduced this strategy, known as the DEM Multi-Manager strategy, through the
introduction of the DEM-MET Trust and will seek to increase its assets under
management through the development of additional products under this strategy.
As of March 31, 1998, the Company had $87.4 million and $230.9 million
invested pursuant to the DEM and DEM Multi-Manager strategies, respectively. In
addition, in April 1998, the Company commenced marketing of the DEM Equity Fund
and as of April 9, 1998 the fund had approximately $10 million in assets under
management.
The Company's DEM and DEM Multi-Manager strategies are in the early stages
of implementation. The Company has not conducted any marketing, demographic or
feasibility surveys to test their viability nor has the Company engaged in any
significant marketing of these strategies. Therefore, the viability of the DEM
and DEM Multi-Manager strategies and their level of market acceptance is largely
unknown. The Company intends to devote a substantial amount of the net proceeds
of the Offering and its other resources to the implementation and promotion of
the DEM and DEM Multi-Manager strategies, as well as the creation of new
investment products and services that further such strategies. See "Risk
Factors" and "Use of Proceeds."
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<PAGE>
INVESTMENT PRODUCTS
The Company currently manages three registered investment portfolios, the
DEM Equity Fund, The Chapman U.S. Treasury Money Fund, each a portfolio of The
Chapman Funds, Inc., and DEM, Inc., a registered closed-end investment company.
The Company has formed and manages one private investment trust, the DEM-MET
Trust. The Company also advises corporate, institutional and individual
investors on a separate account basis.
DEM EQUITY FUND is a newly created non-diversified portfolio of The Chapman
Funds, Inc., an open-end investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). The principal
investment objective of the DEM Equity Fund is aggressive long-term growth
through investment in equity securities of companies meeting the DEM Profile. As
of April 9, 1998, the DEM Equity Fund had approximately $10.0 million in assets
under management.
THE CHAPMAN U.S. TREASURY MONEY FUND, also a portfolio of The Chapman Funds,
Inc., invests solely in short-term direct obligations of the U.S. Government and
repurchase agreements collateralized fully by direct obligations of the U.S.
Government. This fund is intended primarily for state and local governments and
their authorities and agencies. As of March 31, 1998, The Chapman U.S. Treasury
Money Fund had approximately $50.3 million in assets. A third portfolio of The
Chapman Funds, Inc., The Chapman Institutional Cash Management Fund, invests in
short-term money market securities, including U.S. Government obligations,
commercial paper, bank instruments and repurchase agreements. This fund is
intended primarily for corporations, pension and endowment funds and other
institutions and is currently inactive.
DEM, INC. is a registered, non-diversified closed-end investment company.
The principal investment objective of DEM, Inc. is aggressive long-term growth
from investment in securities of companies meeting the DEM Profile. See
"--Strategy." Although it has conducted no market survey, the Company believes
that DEM, Inc. is the first registered investment company focusing on companies
meeting the DEM Profile. As of March 31, 1998, DEM, Inc. had approximately $21.5
million in assets under management.
DEM-MET TRUST, or the DEM-MET Group Trust for Employee Benefit Plans, was
organized in 1996 under New York law. The DEM-MET Trust is intended to qualify
as a tax-exempt pooled trust for qualified employee benefit plans and certain
governmental plans. The DEM-MET Trust is the first product introduced by the
Company that employs the DEM Multi-Manager strategy. See "--Strategy." The DEM-
MET Trust allocates assets to investment portfolios managed by DEM Investment
Managers. These money managers invest their allocated assets in the securities
of domestic and foreign issuers which may consist of common stock, or other
types of equity investments, convertible preferred stocks, bonds, debentures,
notes or other fixed income investments. The Company acts as investment advisor
to the DEM-MET Trust and in such capacity is responsible for selecting and
monitoring the sub-advisors, all of whom meet the DEM Profile. As of March 31,
1998, the Company had subadvisory relationships with fourteen DEM Investment
Managers. The Company evaluates such sub-advisors monthly and reallocates assets
among existing and new sub-advisors as necessary. See "--Strategy." The DEM-MET
Trust was created in December 1996 pursuant to an agreement between The Chapman
Co. and Bankers Trust Company, as custodial trustee of the Trust. As of March
31, 1998, the DEM-MET Trust had approximately $230.9 million in assets and the
beneficial interests in the DEM-MET Trust were held by four institutional
investors.
SEPARATE ACCOUNTS The Company also provides investment advisory services to
separate accounts under individually tailored investment advisory agreements.
The Company manages portfolios with varied investment objectives including
long-term capital appreciation, current income or portfolio diversification. As
of March 31, 1998, approximately 31.5% of separate account assets under
management incorporate the DEM strategy as an investment objective. The Company
will continue to attempt to differentiate itself from other investment managers
by providing the DEM strategy as an investment objective. Compensation for
individual investment advisory services include both fixed fee arrangements and
fees based upon assets under management. As of March 31, 1998, the Company
managed approximately $209.0 million in assets
20
<PAGE>
under management for separate accounts, with $65.9 million invested in DEM
Companies. Two of the Company's clients represented 60.7% of the assets managed
on a separate account basis as of March 31, 1998.
All of the Company's investment advisory services including portfolio
management, marketing, research and customer service are provided from the
Company's Baltimore headquarters and each of Company's affiliated investment
companies maintains its office at the Baltimore headquarters.
MARKETING AND CUSTOMER SERVICE
The Company's marketing strategy is to provide a single source for investing
in DEM Companies while achieving a competitive rate of return. The Company
intends to aggressively market to large corporations, government entities and
other institutions seeking such targeted investments.
The Company targets its marketing to the various types of customers that use
its investment advisory and asset management services. The Company's separate
accounts are typically high net worth individuals and large institutional
investors. The Company markets to these accounts through customer support
activities and personal sales efforts by officers of the Company. This strategy
has also been utilized with the DEM-MET Trust due to the small number of large
investors that have invested in the trust.
The Company's proprietary investment products are distributed by The Chapman
Co., an affiliate of the Company. To date, the Company's investment product
marketing activities have been providing "wholesale" marketing assistance to
support The Chapman Co.'s direct retail selling efforts. The Company intends to
offer proprietary investment funds to banks, insurance companies, providers of
401(k) deferred compensation plans and other institutions ("Institutional
Resellers") for resale to their customers. The Company will provide support to
The Chapman Co. in marketing to Institutional Resellers and to the Institutional
Resellers' own retail sales forces. The Company may also commence some limited
advertising of its proprietary investment products.
In addition to separate accounts and proprietary investment products, the
Company will seek to enter into agreements with other investment advisors
whereby the Company will act as a sub-advisor with respect to their proprietary
investment products. The Company will provide wholesale marketing assistance to
the distributors of such third-party proprietary investment products to ensure
that such products are effectively marketed by the third-party distributors to
the investment community.
RESEARCH
As of March 31, 1998, the Company employed three portfolio managers. The
Company intends to hire additional portfolio managers to support existing
investment advisory and management services and to facilitate the introduction
and maintenance of new investment products.
The Company currently employs a buy-side analyst to assist portfolio
managers in investment research, monitoring of investment opportunities and the
development and maintenance of the Company's proprietary DEM valuation and
screening model. The Company also utilizes the research services of The Chapman
Co. for coverage on a substantial number of companies meeting the DEM Profile.
The Company intends to expand its research staff by hiring additional buy-side
analysts. See "Use of Proceeds."
INDUSTRY
Revenues in the investment management industry are fee based and determined
primarily by total assets under management. Therefore, the principal determinant
of industry growth is the growth of total assets under management. The major
factors which influence changes in assets under management are changes in the
market value of securities; net cash flow into or out of existing accounts; and
the introduction of new products by the industry or by particular firms.
21
<PAGE>
In general, assets under management in the industry have increased steadily.
According to the Investment Company Institute, the combined assets of the
nation's mutual funds increased by $185.2 billion in March 1998 to a total of
approximately $5 trillion under management. Assets under management rose
approximately 27% for the year 1997, reflecting both increased performance of
the stock markets as well as new investment by mutual fund owners. Net new cash
flow into mutual funds rose for the third straight year to a record $378 billion
in 1997 with increases in all fund categories including equity, bond and income,
and money market.
GOVERNMENT REGULATION
The Company's business is subject to various federal and state laws and
regulations. These laws and regulations are primarily intended to protect
investment advisory clients and stockholders of registered investment companies.
Under these laws and regulations, agencies that regulate investment advisors
have broad administrative powers, including the power to limit, restrict, or
prohibit an advisor from carrying on its business in the event that it fails to
comply with applicable laws and regulations. Possible sanctions that may be
imposed include the suspension of individual employees, limitations on engaging
in certain lines of business for specified periods of time, revocation of
investment advisor and other registrations, censures, and fines. The Company
believes that it is in substantial compliance with all material laws and
regulations.
The Company is registered with the Commission under the Investment Advisers
Act of 1940, as amended (the "Advisers Act"), and is subject to examination by
the Commission. Under Section 206 of the Advisers Act, it is unlawful for any
investment advisor to: (i) employ any device, scheme, or artifice to defraud any
client or prospective client; (ii) engage in any transaction, practice, or
course of business which operates as a fraud or deceit upon any client or
prospective client; or (iii) engage in any act, practice, or course of business
which is fraudulent, deceptive or manipulative. The Advisers Act imposes
numerous other obligations on registered investment advisors including fiduciary
duties, recordkeeping requirements, operational requirements, and disclosure
obligations. The Commission is authorized to institute proceedings and impose
sanctions for violations of the Advisers Act, ranging from censure to
termination of an investment advisor's registration. The failure of the Company
to comply with the requirements of the Commission could have a material adverse
effect on the Company.
An investment advisor to a registered investment company, its principals,
and its employees may also be subject to proceedings initiated by the Commission
to impose remedial sanctions for violation of any provision of the federal
securities laws and the regulations adopted thereunder, and the Commission may
prohibit such investment advisor to an investment company from continuing to act
in such capacity. Stockholders of registered investment companies or the
Commission may also bring an action against the officers, directors, and
investment advisor for breach of fiduciary duty in establishing the compensation
paid to the investment advisor.
The Funds are registered with the Commission under the Investment Company
Act and the sale of shares in the Funds has been registered under the Securities
Act of 1933, as amended (the "Securities Act"). Investment companies such as
DEM, Inc. and The Chapman Funds, Inc. and any future registered investment
companies established and/or advised by the Company, are subject to considerable
substantive regulation. Such companies must comply with periodic reporting
requirements. Proxy solicitations are subject to the general proxy rules as well
as to special proxy rules applicable only to investment companies. Shares of
open-end investment companies such as the DEM Equity Fund and The Chapman U.S.
Treasury Money Fund, can only be offered at a uniform public offering price
based on the current net asset value per share plus the sales load. No more than
60% of the directors of registered investment companies can be interested
persons, defined to include, among others, persons affiliated with the
management company or underwriter, and a majority of the directors must not be
affiliated with the underwriter. The advisory agreement must initially be
approved by a majority of the outstanding shares and, after two years, must be
annually approved, either by the board or by the outstanding voting shares. The
advisory agreement must be subject to termination upon 60 days notice by the
board or by the outstanding voting shares. The
22
<PAGE>
underwriting agreement must be annually approved by the board or by a vote of a
majority of the outstanding voting shares, and must provide for automatic
termination in the event of an assignment. With limited exceptions, transactions
between the investment company and an affiliate can be entered into only if
approved by the Commission, after notice and opportunity for hearing, as fair
and equitable.
The Company derives a large portion of its revenues from its investment
management agreements. Under the Advisers Act, the Company's investment
management agreements terminate automatically if assigned without the client's
consent. Under the Investment Company Act, advisory agreements with registered
investment companies such as the Funds terminate automatically upon assignment.
The term "assignment" is broadly defined and includes direct assignments as well
as assignments that may be deemed to occur, under certain circumstances, upon
the transfer, directly or indirectly, of a controlling interest in the Company.
COMPETITION
The Company's investment advisory business competes with a number of larger,
more established investment advisors and securities firms. Competition is
influenced by various factors, including product offering, quality of service
and price. All aspects of Company's advisory business are competitive, including
competition for assets to manage. The investment advisory industry is
characterized by relatively low cost of entry and the formation of new
investment advisory entities which may compete directly with the Company. Large
national firms, often with more personnel, have much greater marketing,
financial, technical, research, and other capabilities. These firms offer a
broader range of financial services than the Company and compete not only with
the Company and among themselves but also with commercial banks, insurance
companies and others for retail and institutional clients. The investment funds
managed by the Company are similarly subject to competition from nationally and
regionally distributed funds offering equivalent financial products with returns
equal to or greater than those offered by the Company's affiliated investment
funds.
A large number of investment products including closed-end companies and
mutual funds, are sold to the public by investment management firms,
broker/dealers, insurance companies and banks in competition with the investment
products offered by the Company. Many of the Company's competitors apply
substantial resources to advertising and marketing their investment products
which may adversely affect the ability of the Company's investment products to
attract new assets. The Company expects that there will be increasing pressures
among investment advisors to obtain and hold market share. See "Risk Factors--
Competition."
YEAR 2000 SOFTWARE ISSUE
As the year 2000 approaches, existing application software programs and
operating systems need to be critically reviewed to determine if they can
accommodate information that employs dates after December 31, 1999. Management
is working with its software vendors to prepare the Company for the year 2000.
Based on information currently available, management does not anticipate that
the Company will be required to incur material costs in order to be year 2000
compliant. The Company is, however, still analyzing and modifying its systems
and requirements. In addition, the Company has relationships with third parties
that have computer systems that may not be year 2000 compliant. To the extent
such third parties' systems are not fully year 2000 compliant, there can be no
assurance that potential systems interruptions or the cost necessary to update
software would not have a material adverse effect on the Company's business,
financial condition, results of operations or business prospects.
23
<PAGE>
PERSONNEL
At March 31, 1998, the Company had approximately eight full-time employees
and shares four employees with affiliated companies. None of the Company's
employees is covered by a collective bargaining agreement. Management considers
the Company's relationship with 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. The
Company does not presently maintain an errors and omissions insurance policy
insuring against these risks.
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 shares approximately 10,000 square feet of office space
under a lease maintained by The Chapman Co. The Chapman Co.'s lease for these
premises expires in 2000. The Company is allocated furniture and equipment
leased by The Chapman Co. from an affiliated entity. See "Certain Transactions."
24
<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............... 40 President, Chairman of the Board and Director
Earl U. Bravo, Sr................... 50 Vice President, Secretary, Assistant Treasurer and Director
Theron Stokes....................... 47 Director
M. Lynn Ballard..................... 55 Treasurer, Assistant Secretary and Controller
</TABLE>
The Board of Directors is actively recruiting an additional independent
member and intends to have an additional independent Director added to the Board
prior to the closing of the Offering. The Board of Directors intends to
designate an Audit Committee of the Board of Directors consisting of two
independent Directors, that will review the scope of accounting audits, review
with the independent public accountants the corporate accounting practices and
policies and recommend to whom reports should be submitted within the Company,
review with the independent public accountants their final report, review with
the independent public accountants overall accounting and financial controls,
and be available to the independent public accountants during the year for
consultation purposes. The Board of Directors intends to designate a
Compensation Committee of the Board of Directors consisting of two independent
Directors, which will review the performance of senior management, recommend
appropriate compensation levels and approve 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, Chairman of the Board and a
Director of the Company since its inception. Mr. Chapman founded the Company's
subsidiary, CCM in 1988, and has been President of CCM since 1996 and President
and Chairman of the Board of Chapman Holdings, Inc. and its investment banking
and brokerage subsidiary, The Chapman Co., and The Chapman Insurance Agency
Incorporated since the inception of each such entity. Mr. Chapman was a broker
for Alex. Brown and Sons, Incorporated from 1982 to 1987. Mr. Chapman is a
Certified Public Accountant, a General Securities Principal, a Financial and
Operations Principal, a Registered Options Principal, and a Registered Municipal
Principal. Mr. Chapman is a Director of Chapman Holdings, Inc., DEM, Inc. and
The Chapman Funds, Inc.
EARL U. BRAVO, SR. has been Vice President, Secretary, Assistant Treasurer
and a Director of the Company since its inception. Mr. Bravo has been Senior
Vice President, Secretary and Assistant Treasurer of Chapman Holdings, Inc.
since 1997. He has been a senior executive of The Chapman Co. since 1992 and CCM
since 1990. Mr. Bravo is a General Securities Principal, Financial and
Operations Principal, and Registered Representative. Mr. Bravo holds an MBA from
the University of Maryland and is a Director of Chapman Holdings, Inc.
THERON STOKES has been a director of the Company since its inception. He has
been an attorney for the Alabama Education Association since 1982.
M. LYNN BALLARD has been Treasurer, Assistant Secretary and Controller of
the Company since its inception. Ms. Ballard has been Treasurer, Assistant
Secretary and Controller of Chapman Holdings, Inc. since 1997. Ms. Ballard has
been Controller of The Chapman Co. and CCM since 1988, Treasurer of CCM since
1990 and Treasurer of The Chapman Co. since 1997.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by
the Company during the year ended December 31, 1997, for all services rendered
in all capacities to the Company and its subsidiary, CCM, to the Chief Executive
Officer. No other executive officer of the Company received salary and bonus of
$100,000 or more during such year.
25
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
<S> <C> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ----------------------------------------------------------------------------------- --------- --------- ---------
Nathan A. Chapman, Jr. 1997 $ 79,500 $ 15,000
Chief Executive Officer..........................................................
</TABLE>
The Board of Directors of the Company has established the 1998 Chapman
Capital Management 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 will be administered by the Compensation
Committee of the Board of Directors. No securities have been issued pursuant to
the Plan as of the date of this Prospectus.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of April 30, 1998, and
assuming the Minimum and Maximum are sold in the Offering, by (i) each person
known by the Company to own beneficially 5% or more of its outstanding shares of
Common Stock prior to the Offering, (ii) each Director, (iii) each executive
officer, 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>
PERCENT OF CLASS
NAME AND ADDRESS OF AMOUNT AND NATURE OF APRIL ----------------------------
BENEFICIAL OWNER BENEFICIAL OWNERSHIP 30, 1998 MINIMUM MAXIMUM
- ---------------------------------------------------------- -------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr..................................... 2,285,143 shares 91.9% 68.5% 61.2%
401 E. Pratt Street
Baltimore, MD 21202
Earl U. Bravo, Sr. ....................................... 2,375 shares * * *
Theron Stokes............................................. 8,750 shares * * *
All Directors and Executive
Officers as a Group..................................... 2,296,268 shares 92.3% 68.8% 61.5%
</TABLE>
- ------------------------
* Represents less than one percent of the outstanding shares of Common Stock.
27
<PAGE>
CERTAIN TRANSACTIONS
On January 8, 1998, the Company, a newly-formed Maryland corporation, issued
shares of Common Stock to The Chapman Co. in exchange for all of the outstanding
equity securities of CCM, a registered investment advisor. Accordingly, CCM is
currently a wholly-owned direct subsidiary of the Company. On February 26, 1998,
The Chapman Co. and its sole stockholder, CHI effected a tax-free Spin-Off
transaction pursuant to which all the outstanding Common Stock of the Company
was distributed to CHI and, immediately following such distribution, such Common
Stock was distributed to the then-existing stockholders of CHI.
The Chapman Co. is registered as a broker-dealer with the Commission and in
approximately one-half of the states and the District of Columbia. The Chapman
Co. is a member firm of the NASD with revenue primarily deriving from brokerage
services, corporate finance and government finance activities.
Nathan A. Chapman, Jr., the President, Chairman of the Board, a Director and
controlling stockholder of the Company, is the President, Chairman of the Board
and a Director of CHI and The Chapman Co. and controlling stockholder of CHI. At
the request of the Company, Mr. Chapman also serves as President and Chairman of
the Board of CCM, DEM, Inc. and The Chapman Funds, Inc. Earl U. Bravo, Sr., the
Vice President, Secretary, Assistant Treasurer and a Director of the Company, is
Senior Vice President, Secretary, Assistant Treasurer and a Director of CHI and
Vice President, Secretary and Assistant Treasurer of The Chapman Co. M. Lynn
Ballard, Treasurer, Assistant Secretary and Controller of the Company is
Treasurer, Assistant Secretary and Controller of CHI and The Chapman Co. At the
request of the Company, Mr. Bravo and Ms. Ballard serve as Secretary and
Assistant Treasurer and Treasurer, Assistant Secretary and Controller,
respectively, of CCM, DEM, Inc. and The Chapman Funds, Inc. At the request of
the Company, Mr. Bravo also serves as Vice President of DEM, Inc.
DEM, Inc., a closed-end investment company and The Chapman Funds, Inc., a
multi-series open-end investment company, are registered under the Investment
Company Act and were organized by the Company.
The Company is the investment advisor and administrator of DEM, Inc.
pursuant to an Investment Advisory and Administrative Services Agreement. In
connection therewith, the Company was paid $53,041, $138,614 and $48,847 in
advisory and administrative fees in the years ended December 31, 1996, 1997 and
the three months ended March 31, 1998, respectively.
The Company is the investment advisor and administrator of The Chapman U.S.
Treasury Money Fund, a portfolio of The Chapman Funds, Inc., pursuant to an
Advisory and Administrative Services Agreement. In connection therewith, the
Company was paid $203,827, $144,935 and $38,147 in advisory and administrative
fees in the years ended December 31, 1996, 1997 and the three months ended March
31, 1998, respectively.
The Company is the investment advisor and administrator of the DEM Equity
Fund, a series of The Chapman Funds, Inc., pursuant to an Advisory and
Administrative Services Agreement. The DEM Equity Fund became active in April
1998 and has not paid any fees to the Company.
In December 1995, Mr. Chapman loaned CCM $100,000, payable on demand, for
the purchase of common stock of an affiliate. In March 1996, Mr. Chapman loaned
CCM an additional $45,000, payable on demand, with a fixed interest payment of
$14,500 due at the time of repayment. As of March 31, 1998, the Company had made
payments on these loans in the amount of $145,627 and owed Mr. Chapman $13,873.
As of December 31, 1997, the Company owed CHI $771,889 as reflected in a
10-year note executed as of October 31, 1997 in the amount of $763,367 which
accrues interest at 6.68% per annum. The note requires annual principal payments
equal to 10% of the original principal amount of the note. The proceeds of this
loan, as reflected by the note, were used by CCM to pay start-up costs in
connection with its development of a proprietary investment product and for a
non-competition agreement. A portion of
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<PAGE>
the proceeds of this Offering will be used to repay all the indebtedness of the
Company owed to Mr. Chapman and CHI. See "Use of Proceeds."
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 Chapman Co. leases furniture and equipment from the
Partnership, with part of such cost being allocated to the Company. The lease
requires monthly payments of $9,846 and contains one year renewable terms, at
the option of The Chapman Co., through September 2000, at which time The Chapman
Co. can purchase the furniture and equipment at fair market value. Rent expense
allocated to the Company under this lease agreement was $29,538 and $39,384 in
1996 and 1997, and $14,769 for the three months ended March 31, 1998. Management
believes that the terms of these transactions were substantially as favorable to
the Company as those available from non-affiliates.
The Company shares office space, certain employees and other overhead with
certain other entities controlled by Mr. Chapman including The Chapman Co. and
The Chapman Insurance Agency Incorporated, a licensed insurance agency that has
not engaged in significant operations to date. The Company is allocated
compensation and benefits expense based upon the estimated percentage of such
employees' time spent performing services for the Company. The Company is
charged for other expenses based on actual or estimated usage. Pursuant to such
expense allocation arrangements the Company owed CHI, $28,782 and $106,267 as of
December 31, 1997 and as of the three months ended March 31, 1998, respectively.
The Company treats such outstanding allocation amounts as normal expenses 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."
The Company and Mr. Chapman have entered into a non-exclusive, royalty-free
licensing agreement pertaining to the Company's use of the DEM, Domestic
Emerging Markets and stylized C-Eagle trademarks that are owned by Mr. Chapman.
The Company intends that all future transactions with affiliates of the
Company will be approved by a majority of the Board of Directors, including a
majority of the disinterested, independent Directors, and the Company intends
that such transactions will be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20 million shares of
Common Stock, par value $0.001 per share.
COMMON STOCK
As of the date of this Prospectus, there are 2,486,543 shares of Common
Stock issued and outstanding, held of record by 20 stockholders. 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, if any, 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 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, and
the Common Stock to be outstanding upon completion of this Offering will be,
duly authorized, validly issued, fully paid and nonassessable.
MARYLAND LAW AND CERTAIN CHARTER PROVISIONS
The Articles of Incorporation of the Company (the "Charter") 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 amended from time to time (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 MGCL 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 Underwriting Agreement, the Company has agreed to indemnify
the Underwriter and the Underwriter 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. Pursuant to the QIU Agreement, the Company
has also agreed to indemnify the QIU for liabilities in connection with the
Offering.
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, no Director or officer 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
30
<PAGE>
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
Prior to this Offering, there has been no trading market for the Common
Stock. Although the Company will apply for quotation of the Common Stock on the
SmallCap Market, there can be no assurance that the Company's application will
be approved or that an active trading market for the Common Stock will develop
or, if developed, will continue after the Offering. The quotation of the Common
Stock on the SmallCap Market is conditioned upon the Company meeting certain
asset, capital and surplus, stock price and public float tests. There can be no
assurance that the public offering price will correspond to the price at which
the Common Stock will trade in the public market subsequent to the Offering.
Further, the Company will be required to elect one additional independent
director. See "Risk Factors--Risks of Low Priced Stocks."
As of the date of the Minimum closing, the Company will have 3,336,543
shares of Common Stock outstanding. The Company is offering up to a Maximum of
1,250,000 Shares and, accordingly, upon sale of the Maximum, the Company will
have outstanding 3,736,543 shares of Common Stock. All shares acquired in this
Offering, other than shares that may be acquired by "affiliates" of the Company
as defined by Rule 144 under the Securities Act, will be freely transferable
without restriction or further registration under the Securities Act. 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 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.
As of April 30, 1998, Mr. Chapman beneficially owned 2,285,143 shares of
Common Stock or approximately 68% and 61% of the Company's outstanding Common
Stock assuming the sale of the Minimum and Maximum, respectively. Mr. Chapman
has agreed not to sell any shares of Common Stock that he owns as of the date of
this Prospectus until February 25, 1999. Accordingly, following the sale of the
Minimum up to 1,051,400 shares of Common Stock or approximately 32% of the
Company's outstanding Common Stock may be eligible for sale 90 days following
the Offering pursuant to Rule 144.
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.
31
<PAGE>
PLAN OF DISTRIBUTION
The Company is offering up to a Maximum of 1,250,000 Shares. The Shares will
be offered on a "best-efforts" basis by the Underwriter, The Chapman Co., acting
as the exclusive dealer-manager solely on an agency basis. The Offering has an
aggregate Minimum of 850,000 Shares. The Termination Date of the Offering is on
the earlier to occur of: the date selected by the Company; the date of the sale
of the Maximum; or, if the Minimum is not sold, 180 days after the date of this
Prospectus, unless extended by the Company for one or more additional periods
not to exceed an additional 30 days in the aggregate. All proceeds from
subscriptions will be deposited promptly into an escrow account with UMB Bank,
N.A. as escrow agent. Funds will be transmitted to the escrow agent for deposit
into the escrow account no later than noon of the business day following
receipt. All checks must be made payable to "UMB Bank, N.A., as escrow agent for
Chapman Capital Management Holdings, Inc." If the Minimum is not sold by the
Termination Date, all funds will be returned promptly to investors without
deduction or interest. During the escrow period, investors who purchase Shares
will not be entitled to a refund of their payments. If the Minimum is sold
before the Termination Date, a Minimum closing will be held at the offices of
the Company. At such Minimum closing, the funds in escrow will be released to
the Company and the investors will become stockholders of the Company.
The minimum investment requirement is 100 Shares. Investors who purchase
Shares must pay for the Shares by the third business day following the date of
the confirmation of their purchase of such Shares. Investors should consult
their brokers concerning the manner and method of payment for the Shares. The
Company and the Underwriter reserve the right to withdraw, cancel or modify the
Offering with respect to any specific Shares without notice prior to the closing
of the sale of such Shares and to reject any order in whole or in part in the
exercise of their sole discretion.
Prior to this Offering, there has been no public market for the Common
Stock. An application has been made to have the Common Stock quoted on the
SmallCap Market. There can be no assurance that the Common Stock will qualify
for initial quotation on the SmallCap Market or that, if achieved, such
quotation will be maintained. The Offering is not conditioned upon the
acceptance of the Common Stock for quotation on the SmallCap Market. Until such
listing is received or if such listing is not received it is anticipated that
the Common Stock will be quoted on the Nasdaq Electronic Bulletin Board or in
the so-called "pink sheets" over the counter market. See "Risk Factors--No Prior
Market" and "--Risks of Low Prices Stocks."
Pursuant to the Conduct Rules of the NASD, when a member of the NASD, such
as The Chapman Co., participates in the public distribution of its own or an
affiliate's securities, the public offering price can be no higher than
recommended by a qualified independent underwriter, the QIU. In accordance with
this requirement, the QIU, Ferris Baker Watts, Incorporated, has agreed to
recommend an initial public offering price for the Shares. As part of its
compliance with Rule 2720 of the NASD's Conduct Rules, the QIU has participated
in the preparation of the Registration Statement of which this Prospectus forms
a part and has performed "due diligence" with respect thereto.
The initial price to the public for the Shares has been determined by
negotiation between the Company and the QIU. The factors considered in
determining the offering price were prevailing market and economic conditions,
the Company's revenue and earnings, estimates of its business operations, an
assessment of its management, the consideration of these factors in relation to
the market valuation of comparable companies in related businesses and the
current condition of the markets in which the Company operates.
The Shares will be offered directly to the public at the public offering
price set forth on the cover of this Prospectus. The Underwriter will be paid a
management fee of $ per Share sold. In addition, the Underwriter and any
other broker-dealer participating in the selling group will be paid a commission
not in excess of $ per Share sold. For acting as a qualified independent
underwriter,
32
<PAGE>
the QIU will receive fees equal to the greater of $ or % of the
aggregate public offering price of Shares sold in the Offering.
Both the Underwriter and the QIU will be reimbursed their counsel fees and
for their actual out-of-pocket expenses and will receive fees as described
above. In the QIU Agreement, the Company has agreed to indemnify the QIU (and
their controlling persons) with respect to certain liabilities, including
liabilities under the Securities Act.
The Underwriter has informed the Company that it does not intend to confirm
sales to any accounts over which it exercises discretionary authority.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and the QIU Agreement and does not purport to be complete. Reference
is made to the foregoing documents which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGENT, ESCROW AGENT AND REGISTRAR
The transfer agent, escrow 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. The Underwriter has not been
separately represented by counsel in this Offering. Whiteford, Taylor & Preston
L.L.P. has acted as counsel for the QIU in connection with this Offering.
EXPERTS
The audited 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 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, D.C. 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.
33
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 (Unaudited)....................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1997, and for the Three
Months Ended March 31, 1997 and 1998 (Unaudited)......................................................... F-4
Consolidated Statements of Changes In Stockholders' Deficit for the Years Ended December 31, 1996 and
1997, and for the Three Months Ended March 31, 1998 (Unaudited).......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1997, and for the Three
Months Ended March 31, 1997 and 1998 (Unaudited)......................................................... 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 Capital Management Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Chapman
Capital Management Holdings, Inc. (a Maryland corporation) and subsidiary as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for the years ended December 31,
1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chapman
Capital Management Holdings, Inc. and subsidiary as of December 31, 1997, and
the results of their operations and their cash flows for the years ended
December 31, 1996 and 1997, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
February 25, 1998
F-2
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash................................................................................. $ 8,677 $ 8,405
Management fees receivable:
From proprietary funds............................................................. 73,921 94,641
From individually managed accounts................................................. 179,081 202,490
Receivables from affiliates.......................................................... 35,533 34,588
Advances to officer.................................................................. 72,000 --
Office equipment, net................................................................ 5,204 4,205
Prepaids and other assets............................................................ 8,645 19,603
Intangible assets, net............................................................... 693,000 636,000
Investment in affiliate.............................................................. 9,247 10,730
Deferred taxes....................................................................... -- 66,000
------------ ------------
Total assets..................................................................... $1,085,308 $ 1,076,662
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued expenses................................................ $ 150,997 $ 193,169
Due to affiliated company............................................................ 800,672 771,889
Due to officer....................................................................... 28,473 13,873
Income taxes payable................................................................. 48,000 14,200
Noncompete agreement obligation...................................................... 150,000 150,000
------------ ------------
Total liabilities................................................................ 1,178,142 1,143,131
------------ ------------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 20,000,000 shares authorized, 2,486,543 issued and
outstanding...................................................................... 2,487 2,487
Accumulated deficit................................................................ (95,321) (68,956)
------------ ------------
Total stockholders' deficit...................................................... (92,834) (66,469)
------------ ------------
Total liabilities and stockholders' deficit...................................... $1,085,308 $ 1,076,662
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheet.
F-3
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative fees....................... $ 832,970 $ 2,284,054 $ 509,052 $ 768,953
Other income........................................... 16,902 2,561 464 2,888
------------ ------------ ------------ ------------
Total revenues....................................... 849,872 2,286,615 509,516 771,841
------------ ------------ ------------ ------------
OPERATING EXPENSE:
Management fees........................................ -- 869,355 200,802 306,903
Compensation and benefits.............................. 291,155 594,993 185,502 174,734
General and administrative............................. 261,271 492,644 63,724 179,891
Amortization........................................... 19,000 228,000 57,000 57,000
Interest............................................... 77,806 13,522 7,130 12,748
------------ ------------ ------------ ------------
Total operating expense.............................. 649,232 2,198,514 514,158 731,276
------------ ------------ ------------ ------------
LOSS ON SALE OF SECURITIES............................... 108,483 -- -- --
------------ ------------ ------------ ------------
Income (loss) before income tax provision............ 92,157 88,101 (4,642) 40,565
INCOME TAX PROVISION (BENEFIT)........................... 41,000 40,000 (2,100) 14,200
------------ ------------ ------------ ------------
Net income (loss).................................... $ 51,157 $ 48,101 $ (2,542) $ 26,365
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic and Diluted Earnings per Share..................... $ 0.02 $ 0.02 $ -- $ 0.01
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted Average Shares Outstanding...................... 2,486,543 2,486,543 2,486,543 2,486,543
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT DEFICIT
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE, December 31, 1995................................................. $ 2,487 $ (194,579) $ (192,092)
Net income............................................................... -- 51,157 51,157
----------- ------------ ------------
BALANCE, December 31, 1996................................................. 2,487 (143,422) (140,935)
Net income............................................................... -- 48,101 48,101
----------- ------------ ------------
BALANCE, December 31, 1997................................................. 2,487 (95,321) (92,834)
Net income............................................................... -- 26,365 26,365
----------- ------------ ------------
BALANCE, March 31, 1998 (Unaudited)........................................ $ 2,487 $ (68,956) $ (66,469)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
------------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 51,157 $ 48,101 $ (2,542) $ 26,365
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 22,791 231,982 57,983 57,999
Loss on sale of stock.................................. 108,483 -- -- --
Effect of changes in assets and liabilities-
Management fees receivable........................... 49,486 (71,508) (16,130) (44,129)
Due from affiliates.................................. 14,319 (30,654) 2,879 945
Advances to officer.................................. (19,327) (84,200) (10,000) 72,000
Prepaids and other assets............................ (2,529) (4,326) 1,930 (10,958)
Accounts payable and accrued expenses................ 43,144 134,295 12,319 42,172
Income taxes payable................................. 41,000 (134,000) (14,100) (33,800)
Deferred tax asset................................... -- -- -- (66,000)
Due to affiliated company............................ 305,279 151,104 26,511 (28,783)
------------- ----------- ----------- -----------
Net cash provided by operating activities.......... 613,803 240,794 58,850 15,811
------------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment............................. -- (5,250) (5,250) --
Purchase of intangible assets............................ (640,000) -- -- --
Investment in affiliate.................................. (2,954,842) (29) -- (1,483)
Proceeds from sale of investment......................... 2,937,146 -- -- --
------------- ----------- ----------- -----------
Net cash used in investing activities.............. (657,696) (5,279) (5,250) (1,483)
------------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) due to officer.............. 45,000 (85,000) (60,000) (14,600)
Payment of noncompete agreement.......................... -- (150,000) -- --
------------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities....................................... 45,000 (235,000) (60,000) (14,600)
------------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH............................ 1,107 515 (6,400) (272)
CASH, beginning of year/period............................. 7,055 8,162 8,162 8,677
------------- ----------- ----------- -----------
CASH, end of year/period................................... $ 8,162 $ 8,677 $ 1,762 $ 8,405
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND MARCH 31, 1998
1. ORGANIZATION:
During January 1998, Chapman Capital Management Holdings, Inc. (the
"Company"), a newly formed corporation, became the parent of Chapman Capital
Management, Inc. ("CCM"). The Company was a wholly-owned subsidiary of Chapman
Holdings, Inc. prior to a spinoff from Chapman Holdings, Inc. effective on the
date of the initial public offering (IPO) of Chapman Holdings, Inc. The
accompanying financial statements include the activity of the Company and CCM.
The Company plans an initial public offering ("IPO") of common stock. The
IPO will be on a best efforts basis, conditioned upon the sale of a minimum of
850,000 shares of common stock and a maximum of 1,250,000 shares of common
stock. The proceeds will be used to create new investment products, expand its
sales and marketing efforts, repayment of indebtedness to affiliates of the
Company and for working capital to support growth and other general corporate
purposes.
The Company's operations are subject to certain risks, including the
Company's strategic initiative it calls "Domestic Emerging Markets," the
unproven nature of this strategy, dependence on key personnel, market conditions
and its ability to maintain or increase its investment dollars managed.
The Chapman Co., Chapman Holdings Inc.'s wholly-owned subsidiary, pays for
routine operating expenses and provides certain management, data processing,
accounting and administrative services to the Company, for which The Chapman Co.
is reimbursed. The Chapman Co. also pays salary and benefit expenses of which
the Company is allocated a portion. The Chapman Co. allocates those salary and
benefit expenses to the Company based on actual salaries related to the Company.
These financial statements may not necessarily be indicative of the financial
results that would have existed had the Company been operated as a unaffiliated
corporation.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Significant intercompany transactions 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.
ACQUISITIONS
In December 1996, the Company started DEM-MET, a tax-exempt pooled interest
trust for qualified employee benefit plans. As part of the start-up of this
trust, the Company entered into a noncompete agreement for $300,000 and paid
$640,000 in cost related to starting the trust. These amounts are included in
intangible assets (see Note 3).
The management fees included in the accompanying consolidated statements of
operations are related to DEM-MET Trust.
INTERIM FINANCIAL STATEMENT
The financial statements for the three months ended March 31, 1997 and 1998,
are unaudited, but, in the opinion of management, such financial statements have
been presented on the same basis as the audited financial statements for the
year ended December 31, 1997. These financial statements include all
F-7
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND MARCH 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
adjustments, consisting of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations and cash flows
for these periods. The Company's operating results are significantly effected by
the size of the portfolio it manages, and, thus, the operating results for the
three months ended March 31, 1997 and 1998, are not necessarily representative
of the results of operations for the year.
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, 1997, and for the
three months ended March 31, 1998, accumulated depreciation was $14,502 and
$15,501, respectively. Depreciation expense for the years ended December 31,
1996 and 1997, and the three months ended March 31, 1997 and 1998, was $3,791,
$3,982, $983 and $999, respectively.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying consolidated balance
sheets for cash, receivables, and accounts payable and accrued expenses
approximate fair value.
EARNINGS PER SHARE
As of December 31, 1997, the Company adopted the Statement of Financial
Accounting Standards 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 equivalents would not be considered
in the compilation of basic earnings per share) and diluted earnings per share.
The adoption of this pronouncement did not have a material effect on earnings
per share.
Earnings per share are based on the weighted average number of common shares
outstanding during the period the calculation is made. The weighted average
shares outstanding for all periods presented are 2,486,543, for both basic and
diluted earnings per share.
NEW ACCOUNTING STANDARD
During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
becomes effective during the Company's 1998 fiscal year. Under SFAS No. 131, a
company must disclose certain information about the operating segments in the
financial statements of the company and information about their products and
services, the geographic areas in which they operate and their major customers.
The Company does not expect the adoption of this pronouncement to have a
material effect on its financial statement presentation.
INCOME TAXES
The Company was included in the consolidated Federal income tax return of
The Chapman Co. on a cash basis through the date it was spun off. The Chapman
Co. allocated Federal tax expense to the Company based on its portion of
consolidated taxable income calculation on a stand-alone basis. After the spin
off, the Company will file a separate Federal income tax return. The tax
provision for the three months ended March 31, 1997 and 1998, are based of the
Company's estimate of its effective tax rate for the year. The Company files a
separate state income tax return.
F-8
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND MARCH 31, 1998
3. INTANGIBLE ASSETS:
Intangible assets consists of a noncompete agreement and acquisition costs.
The $300,000 noncompete agreement is being amortized over 3 years, the term of
the agreement. The $640,000 in acquisition costs are being amortized over 5
years. The noncompete agreement is to be paid in two equal installments in 1997
and 1998. Accumulated amortization as of December 31, 1997, and March 31, 1998,
is $247,000 and $304,000, respectively. Amortization expense for the years ended
December 31, 1996 and 1997, and for the three months ended March 31, 1997 and
1998, was $19,000, $228,000, $57,000 and $57,000, respectively.
4. COMMON STOCK:
The Company effected a 25% stock split effected as a stock dividend. As
such, all share data related to the Company prior to the stock split have been
restated.
5. TRANSACTIONS WITH AFFILIATES:
The Company provides investment advisory and administrative services to The
Chapman Funds, Inc. (the Funds), an affiliated group of mutual funds, under an
investment advisory and administrative services agreement which sets forth the
services to be provided and the fees to be charged. The agreement also provides
that expense reimbursements be made to the Funds for specified expenses and to
the extent that any Funds' expenses exceed specified limitations. Included in
the accompanying consolidated statements of operations for the years ended
December 31, 1996 and 1997, and for the three months ended March 31, 1997 and
1998, are management fees related to The Chapman Funds totaling $203,827,
$144,935, $15,285 and $38,147, respectively.
The Company provides investment advisory and administrative services to DEM,
Inc. (DEM), a registered non-diversified closed-ended management investment
company, under an investment advisory and administrative services agreement
which sets forth the services to be provided and the fees to be charged.
Included in the accompanying consolidated statements of operations for the years
ended December 31, 1996 and 1997, and for the three months ended March 31, 1997
and 1998, is management fees related to DEM totalling $53,041, $138,614, $27,951
and $48,847, respectively. In November 1995, the Company purchased 6,667 shares
for $100,005 of common stock in DEM. In 1996, the Company purchased 196,333
additional shares of DEM stock. During 1996, the stock was sold at a loss of
$108,483.
Included in management fees receivable as of December 31, 1997, and March
31, 1998, is $73,921 and $94,641, respectively, due from proprietary funds for
services provided under the above-described agreement.
Included in receivable from affiliates as of December 31, 1997, and March
31, 1998, is $25,526 and $31,876, respectively, due from Chapman Insurance
Agency ("CIA") for expenses paid on their behalf.
As of December 31, 1997, the Company has outstanding advances to the
majority stockholder of The Chapman Co. of $72,000, which is recorded as due to
affiliated company in the accompanying consolidated balance sheets.
As of December 31, 1997, and the three months ended March 31, 1998, the
Company owes The Chapman Co. $800,672 and $771,889, respectively, which is
recorded as due to affiliated company in the accompanying consolidated balance
sheets.
In December 1995, the majority stockholder of the Company loaned the Company
$100,000, payable on demand, for the purchase of DEM stock. In March 1996, the
majority stockholder of the Company
F-9
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, AND MARCH 31, 1998
5. TRANSACTIONS WITH AFFILIATES: (CONTINUED)
loaned the Company an additional $45,000, payable on demand. During fiscal year
1997, the majority stockholder of the Company collected $85,000 of this payable.
As of December 31, 1997, and March 31, 1998, the net due to officer was $28,473
and $13,873, respectively.
The Chapman Co. has entered into an agreement in which it leases furniture
and equipment from Chapman Limited Partnership, an entity in which certain
officers and stockholders of the Company are partners. The Chapman Co.,
allocates a portion of the $9,846 monthly payment to the Company based on the
space used by the Company. The Chapman Co. allocated $29,538, $39,384, $9,846
and $14,769 during the years ended December 31, 1996 and 1997, and for the three
months ended March 31, 1997 and 1998, respectively, to the Company.
6. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosures for the years ended December 31, 1996 and
1997, for the three months ended March 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ------------------------
1996 1997 1997 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Noncompete agreement obligation............................... $ 300,000 $ -- $ -- $ --
Dividend reinvestment in affiliate............................ 9,218 29 -- 29
Cash paid for:
Interest.................................................... 77,806 5,000 5,000 --
Income taxes................................................ 5,000 174,000 -- 114,000
</TABLE>
7. CONCENTRATION OF CREDIT RISKS:
Two clients accounted for 55%, 72% and 76% of the Company's advisory and
administrative fees for the years ended December 31, 1996 and 1997, and for the
three months ended March 31, 1997, respectively. One client accounted for 63% of
the Company's advisory and administrative fees for the three months ended March
31, 1998. As of December 31, 1997, and March 31, 1998, receivables due from
these clients were $114,002 and $63,450, respectively.
8. STOCK OPTION PLANS:
In 1998, the Company established the Chapman Capital Management Holdings,
Inc. Omnibus Stock Plan (the Plan) to enable the Company to grant equity
compensation to the Company's directors, officers, employees and consultants.
Under the Plan, 150,000 shares of common stock have been reserved for issuance
upon exercise of stock options granted. The price per share of each option
exercised will be determined by the Compensation Committee of the Board of
Directors. No options have been issued pursuant to this Plan as of March 31,
1998.
F-10
<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 UNDERWRITER. 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
Use of Proceeds.................................. 12
Dilution......................................... 13
Capitalization................................... 14
Dividend Policy.................................. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 16
Business......................................... 19
Management....................................... 25
Principal Stockholders........................... 27
Certain Transactions............................. 28
Description of Capital Stock..................... 30
Shares Eligible for Future Sale.................. 31
Plan of Distribution............................. 32
Transfer Agent, Escrow Agent and Registrar....... 33
Legal Matters.................................... 33
Experts.......................................... 33
Additional Information........................... 33
Index to Financial Statements.................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
MINIMUM 850,000 SHARES
MAXIMUM 1,250,000 SHARES
[LOGO]
CHAPMAN CAPITAL
MANAGEMENT HOLDINGS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
THE CHAPMAN CO.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE LANGUAGE FOR MARKET MAKING PROSPECTUS]
SUBJECT TO COMPLETION DATED: MAY 5, 1998
PROSPECTUS
CHAPMAN CAPITAL
[LOGO]
MANAGEMENT HOLDINGS, INC.
COMMON STOCK
------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGE 6 AND "DILUTION"
ON PAGE 13.
The Common Stock is quoted on the Nasdaq SmallCap Market (the "SmallCap
Market") under the symbol "CMGT."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus will be used by The Chapman Co. in connection with offers
and sales of the shares of Common Stock of Chapman Capital Management Holdings,
Inc. 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 principal or agent in such transactions.
------------------------
THE CHAPMAN CO.
The date of this Prospectus is , 1998
<PAGE>
[ALTERNATE LANGUAGE FOR MARKET-MAKING PROSPECTUS]
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 develop or 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.
32
<PAGE>
[ALTERNATE LANGUAGE FOR MARKET--MAKING PROSPECTUS]
<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 UNDERWRITER. 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
Use of Proceeds.................................. 12
Dilution......................................... 13
Capitalization................................... 14
Dividend Policy.................................. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 16
Business......................................... 19
Management....................................... 25
Principal Stockholders........................... 27
Certain Transactions............................. 28
Description of Capital Stock..................... 30
Shares Eligible for Future Sale.................. 31
Plan of Distribution............................. 32
Transfer Agent, Escrow Agent and Registrar....... 33
Legal Matters.................................... 33
Experts.......................................... 33
Additional Information........................... 33
Index to Financial Statements.................... F-1
</TABLE>
[LOGO]
CHAPMAN CAPITAL
MANAGEMENT HOLDINGS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
THE CHAPMAN CO.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Company 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 Company,
or while a director, is or was serving at the request of the Company 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 Company, 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 Company. 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 Company'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 Company 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 Company or in which the director was
adjudged to be liable on the basis that a personal benefit was improperly
received, the Company 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 Company's
Charter, the Company: (i) shall (a) indemnify an officer of the Company 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 Company 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 Company 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 Company's Board of
Directors or contract.
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 MGCL, as from time to time
amended. If approved by the Board of Directors, the Company 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 Company 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 Company's Charter provides that, to the fullest extent permitted by the
MGCL, as amended or interpreted, no director or officer of the Company shall be
personally liable to the Company or its stockholders for monetary damages in
connection with events occurring at the time such person served as a director or
officer.
Pursuant to the Underwriting and the Qualified Independent Underwriter
Agreements filed as Exhibits 1.1 and 1.2 to this Registration Statement, the
Company has agreed to indemnify the Underwriter the QIU, and their respective
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 of 1933, as amended (the "Securities Act").
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this Registration Statement (other than the underwriting
discount and commissions and reasonable expense allowance) will be as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 3,000
NASD filing fee................................................... 3,500
Nasdaq SmallCap Stock Market listing fee.......................... 5,000
Printing and engraving expenses................................... 50,000
Accounting fees and expenses...................................... 50,000
Legal fees and expenses (including Blue Sky)...................... 167,500
Miscellaneous..................................................... 21,000
---------
Total......................................................... $ 300,000
---------
---------
</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 January 8, 1998, the Company issued 1,989,235 shares of Common stock to
The Chapman Co. in exchange for all of the outstanding shares of capital stock
of Chapman Capital Management, Inc. 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 April 30, 1998, the Company issued 497,308 shares of Common Stock to its
stockholders of record as of April 29, 1998 as a stock dividend. This
transaction was exempt from registration under the Securities Act because it did
not involve the sale of a security.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement between the Company and The Chapman Co. (2)
1.2 Form of Qualified Independent Underwriter Agreement between the Company and Ferris
Baker Watts Incorporated (2)
1.3 Form of Escrow Agreement between the Company and UMB Bank, N.A (2).
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4 Form of Common Stock Certificate (1)
5 Opinion of Venable, Baetjer and Howard, LLP (2)
10.1 Advisory and Administrative Services Agreement between Chapman Capital Management,
Inc. and DEM Equity Fund dated October 28, 1997 (1)
10.2 Advisory and Administrative Services Agreement between Chapman Capital Management,
Inc. and The Chapman Funds, Inc. dated April 30, 1997 (1)
10.3 Advisory and Administrative Services Agreement between Chapman Capital Management,
Inc. and DEM, Inc. dated November 30, 1995 (1)
10.4 Chapman Capital Management Holdings, Inc. 1997 Omnibus Stock Plan (1)
10.5 Advisory Agreement for Separate Account dated June 1, 1995 (2)
10.6 Agreement & Declaration of Trust between Chapman Capital Management, Inc. and Bankers
Trust Company dated November 1, 1996 (1)
10.7 Agreement between Bankers Trust Company and Chapman Capital Management, Inc. dated
November 1, 1996 (1)
10.8 Agreement between Bankers Trust Company and Chapman Capital Management, Inc. dated
November 1, 1996, Tremont Partners, Inc. and Stamberg Prestia, Ltd. (1)
10.9 Agreement between the Company and Chapman Holdings, Inc. as to Allocation of Shared
Expenses dated as of April, 1998 (2)
10.10 License Agreement between the Company and Nathan A. Chapman, Jr. dated as of April,
1998 (2)
10.11 Lock-up Agreement between the Company and Nathan A. Chapman, Jr. dated December 28,
1997 (2)
21 Subsidiaries of Company (1)
23.1 Consent of Arthur Andersen LLP (1)
23.2 Consent of Venable, Baetjer and Howard, LLP (included in Exhibit 5)
24 Power of Attorney (1)
27 Financial Data Schedule (1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) To be filed by amendment.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned Company 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.
(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 Company 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 Company pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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 Company 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 Company 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 Company 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Act"), the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorizes this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Baltimore, state of Maryland, on May 5, 1998.
<TABLE>
<S> <C> <C>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
PRESIDENT
</TABLE>
Pursuant to the requirements of the Act, the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------ -------------------------------------------- -----------------
<C> <S> <C>
/s/ NATHAN A. CHAPMAN, JR.
-------------------------------------- President, Chairman of the Board and May 5, 1998
Nathan A. Chapman, Jr. Director (Principal Executive Officer)
/s/ M. LYNN BALLARD Treasurer and Controller (Principal
-------------------------------------- Financial Officer and Principal Accounting May 5, 1998
M. Lynn Ballard Officer)
The Entire Board of Directors
Nathan A. Chapman, Jr.
Earl U. Bravo, Sr.
Theron Stokes
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ NATHAN A. CHAPMAN, JR.
--------------------------------
Nathan A. Chapman, Jr. May 5, 1998
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
3.1 Articles of Incorporation
3.2 Bylaws
4 Form of Common Stock Certificate
10.1 Advisory and Administrative Services Agreement between Chapman Capital Management, Inc. and
DEM Equity Fund dated October 28, 1997
10.2 Advisory and Administrative Services Agreement between Chapman Capital Management, Inc. and
The Chapman Funds, Inc. dated April 30, 1997
10.3 Advisory and Administrative Services Agreement between Chapman Capital Management, Inc. and
DEM, Inc. dated November 30, 1995
10.4 Chapman Capital Management Holdings, Inc. 1997 Omnibus Stock Plan
10.6 Agreement & Declaration of Trust between Chapman Capital Management, Inc. and Bankers Trust
Company dated November 1, 1996
10.7 Agreement between Bankers Trust Company and Chapman Capital Management, Inc. dated November
1, 1996
10.8 Agreement between Bankers Trust Company and Chapman Capital Management, Inc. dated November
1, 1996, Tremont Partners, Inc. and Stamberg Prestia, Ltd.
21 Subsidiaries of Company
23.1 Consent of Arthur Andersen, LLP
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
FIRST: The undersigned, Michael W. Conron, whose post office
address is 1800 Mercantile Bank and Trust Building, 2 Hopkins Plaza, Baltimore,
Maryland 21201, being over eighteen years of age and acting as incorporator,
hereby forms a Corporation under the Maryland General Corporation Law.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is: Chapman Capital Management Holdings, Inc.
THIRD: The purposes for which the Corporation is formed are as
follows:
(a) To engage in the business of providing investment advice
with respect to stocks, bonds, debentures, and other securities and investments
and issuing reports with respect thereto and of providing related financial
services, acting as a holding company with respect to other companies engaged in
any of the businesses listed above or any other business and to do any and all
matters and things incident thereto.
(b) To carry on any and all business, transactions and
activities permitted by the Maryland General Corporation Law which may be deemed
desirable by the Board of Directors of the Corporation, whether or not identical
with or related to the business described in the foregoing paragraph of this
Article, as well as all activities and things necessary and incidental thereto,
to the full extent empowered by such laws.
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FOURTH: The post office address of the principal office of the
Corporation in this State is 11 East Chase Street, Suite 9-E, Baltimore,
Maryland 21202. The resident agent of the Corporation in this State is
CSC-Lawyers Incorporating Service Company, whose post office address is 11 East
Chase Street, Suite 9-E, Baltimore, Maryland 21202. Said resident agent is a
citizen of the State of Maryland, and actually resides therein.
FIFTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is Twenty Million (20,000,000) shares of
Common Stock, par value One Mill ($0.001) per share. The aggregate par value of
all shares having par value is Twenty Thousand Dollars ($20,000.00).
SIXTH: The Corporation shall have two (2) Directors (which number
may be increased or decreased, but to not less than the lesser of three (3) or
the number of stockholders, pursuant to the Bylaws of the Corporation), and
Nathan A. Chapman, Jr., and Earl U. Bravo, Sr. shall act as such until the first
annual meeting or until their successors are duly chosen and qualified.
SEVENTH: The following provisions are hereby adopted for the purpose
of defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(a) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of its stock of
any class, whether now or hereafter authorized, and securities convertible into
shares of its stock, of
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any class or classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
(b) No contract or other transaction between this Corporation
and any other corporation, partnership, individual or other entity and no act of
this Corporation shall in any way be affected or invalidated by the fact that
any of the directors of this Corporation are directors, principals, partners or
officers of such other entity, or are pecuniarily or otherwise interested in
such contract, transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed to the Board of Directors or to
a committee of the Board of Directors if the matter involves a committee
decision, and the contract, transaction or act shall be authorized, approved or
ratified by a majority of disinterested directors on the Board or on such
committee, as the case may be, even if the number of disinterested directors
constitutes less than a quorum or (ii) the contract, transaction or act shall be
authorized, ratified or approved in any other manner permitted by the Maryland
General Corporation Law.
(c) The Corporation reserves the right to make, from time to
time, any amendments of its charter which may now or hereafter be authorized by
law, including any amendments which alter the contract rights of any class of
outstanding stock as expressly set forth in the charter.
(d) The Board of Directors shall have the power to classify or
reclassify any unissued stock, whether now or hereafter authorized, by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions,
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limitations as to dividends, qualifications, or terms or conditions of
redemption of such stock.
(e) Notwithstanding any provision of law requiring any action to
be taken or authorized by the affirmative vote of the holders of a designated
proportion of the votes of all classes or of any class of stock of the
Corporation, such action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon, except as otherwise provided in this charter.
(f) Unless otherwise provided by the Board of Directors, no
holder of stock of any class shall be entitled to preemptive rights to subscribe
for or purchase or receive any part of any new or additional issue of stock of
any class of the Corporation or securities convertible into stock of any class
of the Corporation.
(g) The Corporation elects not to be governed by Subtitle 6 of
Title 3 of the Maryland General Corporation Law with respect to any "business
combination" as defined in such Subtitle. In addition, any acquisition of any
shares of stock of the Corporation, including any acquisition of voting rights
or other interests in any such stock, shall be exempt from the provisions of
Title 3, Subtitle 7 of the Maryland General Corporation Law. Accordingly, the
provisions of Title 3, Subtitle 6 (Business Combination) and Subtitle 7 (Control
Shares) of the Maryland General Corporation Law shall not apply to this
Corporation.
EIGHTH:
(a) The Corporation shall indemnify its currently acting and its
former directors and officers against any and all liabilities and expenses
incurred in
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connection with their services in such capacities to the maximum extent
permitted by the Maryland General Corporation Law, as from time to time amended.
(b) If approved by the Board of Directors, the Corporation 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.
(c) The Corporation 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.
(d) The Board of Directors may, by bylaw, resolution or
agreement, make further provision for indemnification of directors, officers,
employees and agents.
(e) To the maximum extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, as
from time to time amended, no director or officer of the Corporation shall have
any liability to the Corporation or its stockholders for money damages. This
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.
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(f) No amendment or repeal of any section of this Article, or
the adoption of any provision of the Corporation's Charter inconsistent with
this Article, shall apply to or affect in any respect the rights to
indemnification or limitation of liability of any director or officer of the
Corporation with respect to any alleged act or omission which occurred prior to
such amendment, repeal or adoption.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation on
the 8th day of January 1998, and have acknowledged such Articles to be my act.
/s/ MICHAEL W. CONRON
--------------------------
Michael W. Conron
Incorporator
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Exhibit 3.2
BYLAWS
OF
CHAPMAN CAPITAL MANAGEMENT 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 April 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 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
<PAGE>
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 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-
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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.
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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.
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.
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.
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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.
(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.
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(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.
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.
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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 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
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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.
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.
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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
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
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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.
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
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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
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
11
<PAGE>
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.
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.
12
<PAGE>
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.
13
<PAGE>
Exhibit 4
STATE OF MARYLAND
NUMBER SHARES
SPECIMEN ------
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
COMMON STOCK
PAR VALUE -- $0.001
Fully Paid Non-Assessable
THIS CERTIFIES THAT SPECIMEN is the registered holder of __________
(_____) Shares of the Common Stock of Chapman Capital Management Holdings,
Inc. transferable only on the books of the Corporation by the holder hereof
in person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ____ day of ____ A.D. 1998.
- ------------------------------------- --------------------------------------
Earl U. Bravo, Sr., Secretary Nathan A. Chapman, Jr., President
Par Value
$0.001
<PAGE>
Exhibit 10.1
ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202
October 28, 1997
Chapman Capital Management, Inc.
The World Trade Center-Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
Ladies and Gentlemen:
This will confirm the agreement between the undersigned (the
"Corporation") and you as follows:
1. General. The Corporation is an open-end management
investment company which has multiple investment portfolios including, the
Domestic Emerging Markets Equity Fund (the "Fund"). The Corporation proposes to
engage in the business of investing and reinvesting the assets of the Fund in
the manner and in accordance with the investment objectives, policies and
limitations specified in the Corporation's Prospectus and Statement of
Additional Information (the "Prospectus") included in the Corporation's
Registration Statement pertaining to the Fund, as amended and/or supplemented
from time to time (the "Registration Statement"), filed under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Securities Act of
1933, as amended. Copies of the Prospectus have been furnished to you. Any
amendments to the Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval
of the Corporation's Board of Directors, you will provide investment management
of the Fund's portfolio in accordance with the Fund's investment objectives,
policies and limitations as stated in the Prospectus as from time to time in
effect. In connection therewith, you will obtain and provide investment research
and will supervise the Fund's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of the Fund's
assets. You will place orders for the purchase and sale of
<PAGE>
Chapman Capital Management, Inc.
October 28, 1997
Page 2
portfolio securities and will solicit brokers to execute transactions, including
The Chapman Co., in accordance with the policies and restrictions regarding
brokerage allocations of the Fund and the Corporation. You will furnish to the
Corporation such statistical information with respect to the investments which
the Corporation may hold or contemplate purchasing as the Corporation may
reasonably request.
3. Administrative Services. You will supply office facilities,
data processing services, clerical, internal auditing services, executive and
other administrative services; provide stationery and office supplies; prepare
reports to the Fund's stockholders, tax returns and reports to and filings with
the Securities and Exchange Commission and state Blue Sky authorities; calculate
the net asset value of the Fund's shares; provide persons to serve as the
Corporation's officers at the request of the Corporation's Board of Directors
and generally assist in all aspects of the Fund's operations.
4. Assistance. You may employ or contract with other persons
to assist you in the performance of this Agreement. Such persons may include
other investment advisory or management firms and officers or employees who are
employed by both you and the Corporation. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the
Corporation's behalf to any such person.
5. Record Keeping and Other Information. You will
create and maintain all records required of you pursuant to your duties
hereunder in accordance with all applicable laws, rules and regulations,
including records required by Section 31(a) of the 1940 Act. All such records
will be the property of the Corporation and will be available upon request of
the Corporation for inspection, copying and use by the Corporation and will be
surrendered to the Corporation upon the request of the Corporation. Where
applicable, such records will be maintained by you for the periods and in the
places required by Rule 31a-2 under the 1940 Act. Upon termination of this
Agreement, you will promptly surrender all such records to the Corporation or
such person as the Corporation may designate.
6. Fees. In consideration of the advisory services rendered
pursuant to this Agreement, the Corporation, on behalf of the Fund, will pay you
on the first business day of each month a fee at the annual rate of .9 of 1% of
the value of the Fund's average weekly net assets during the preceding month. In
consideration of the administrative services rendered pursuant to this
Agreement, the Fund will pay you on the first business day of each month a fee
at the annual rate of .15 of 1% of the value of the Fund's average weekly net
assets during the preceding month. Net asset value shall
<PAGE>
Chapman Capital Management, Inc.
October 28, 1997
Page 3
be computed in the manner, on such days and at such time or times as described
in the Prospectus from time to time. The fee for the period from the effective
date of the Registration Statement to the end of the first month thereafter
shall be pro-rated according to the proportion which such period bears to the
full monthly period, and upon any termination of this Agreement before the end
of any month, the fee for such part of a month shall be pro-rated according to
the proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
7. Expenses.
(a) You will bear all expenses in connection
with the performance of your services under this Agreement. All other expenses
to be incurred in the operation of the Fund will be borne by the Fund, except to
the extent specifically assumed by you. The expenses to be borne by the Fund
include, without limitation, the following: organizational costs, taxes,
interest, brokerage fees and commissions and other expenses in any way related
to the execution, recording and settlement of portfolio security transactions,
fees of Directors who are not also your officers, Securities and Exchange
Commission fees, state Blue Sky qualification fees, charges of custodians,
transfer and dividend paying agents' premiums for directors and officers
liability insurance, costs of fidelity bonds, industry association fees, outside
auditing and legal expenses, costs of maintaining corporate existence, costs of
maintaining required books and accounts, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
stockholders' reports and meetings, costs of preparing, printing and mailing
share certificates, proxy statements and prospectuses, and any extraordinary
expenses.
(b) If in any fiscal year the aggregate
expenses of a Fund (including fees paid to you pursuant to this Agreement, but
excluding interest on borrowings, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over the Fund,
the Fund may deduct from the payment to be made to you under this Agreement, or
you will bear, such excess expense to the extent required by state law. Your
obligation pursuant hereto will be limited to the amount of your fees hereunder.
Such deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.
8. Liability. You shall exercise your best judgment in
rendering the services to be provided to the Fund. The Corporation, on behalf of
the Fund, agrees as an inducement to you and to others who may assist you in
providing services to the Fund that you and such other persons shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Corporation and the Fund and the
<PAGE>
Chapman Capital Management, Inc.
October 28, 1997
Page 4
Corporation agree to indemnify and hold harmless you and such other persons
against and from any claims, liabilities, actions, suits, proceedings, judgments
or damages (and expenses incurred in connection therewith, including the
reasonable cost of investigating or defending same, including, but not limited
to attorneys' fees) arising out of any such error of judgment or mistake of law
or loss; provided, however, that the Corporation's obligation with respect to
such claims, liabilities, actions, suits, proceedings, judgments or damages (and
expenses incurred in connection therewith, including the reasonable cost of
investigating or defending same, including, but not limited to attorneys' fees)
arising out of any such error of judgment or mistake of law or loss shall be
limited to the "assets belonging to" (as such expression is defined in the
Corporation's charter) the Fund and further provided that nothing herein shall
be deemed to protect or purport to protect you or any other such person against
any liability to the Corporation or to its security holders to which you or they
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties hereunder, or by reason of reckless
disregard of the obligations and duties hereunder.
9. Other Accounts. The Corporation understands that you and
other persons with whom you contract to provide the services hereunder may from
time to time act as investment adviser to one or more other investment companies
and fiduciary or other managed accounts, and the Corporation has no objection to
your or their so acting. When purchase or sale of securities of the same issuer
is suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities will be allocated in a manner believed by you and such
other persons to be equitable to the Fund and any other account. It is
recognized that in some cases this procedure may adversely affect the price paid
or received by the Fund or the size of the position obtainable for or disposed
of by the Fund.
In addition, it is understood that you and the persons with
whom you contract to assist in the performance of your duties hereunder will not
devote their full time to such service and nothing contained herein shall be
deemed to limit or restrict your or their right to engage in and devote time and
attention to similar or other businesses.
10. Term. This Agreement shall continue with respect to the
Fund until December 29, 1998 and thereafter shall continue automatically for
successive annual periods ending on the anniversary of such date, provided such
continuance with respect to the Fund is specifically approved at least annually
by the Corporation's Board of Directors or a vote of the lesser of (a) 67% of
the shares of the Fund represented at a meeting if holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund, provided that in either event
its continuance also is approved by a majority of the Corporation's
<PAGE>
Chapman Capital Management, Inc.
October 28, 1997
Page 5
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable with respect to
the Fund without penalty, on 60 days' notice, by you or by the Corporation's
Board of Directors or by vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
11. "Chapman," "Domestic Emerging Markets" and "DEM" Names.
The Corporation recognizes that from time to time your directors, officers and
employees may serve as directors, trustees, partners, officers and employees of
other corporations, business trusts, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"Chapman," "Domestic Emerging Markets" and/or "DEM" as part of their name. You
or your affiliates may enter into investment advisory or other agreements with
such other entities. If you cease to act as the Fund's investment adviser, the
Corporation agrees that, at your request, the Corporation will take all
necessary action to change the name of the Fund to a name not including
"Chapman," "Domestic Emerging Markets" and/or "DEM" in any form or combination
of words.
<PAGE>
Chapman Capital Management, Inc.
October 28, 1997
Page 6
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
THE CHAPMAN FUNDS, INC., on
behalf of DOMESTIC EMERGING
MARKETS EQUITY FUND
By: /S/ NATHAN A. CHAPMAN, JR.
---------------------------
Name: Nathan A. Chapman, Jr.,
Title: President
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Name: Nathan A. Chapman, Jr.
Title: President
<PAGE>
Exhibit 10.2
ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
THE CHAPMAN FUNDS, INC.
The World Trade Center-Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
April 30, 1997
Chapman Capital Management, Inc.
The World Trade Center-Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") and you as follows:
1. General. The Company is an open-end investment company
which currently has two investment portfolios -- The Chapman US Treasury Money
Fund and The Chapman Institutional Cash Management Fund (individually, a "Fund"
and collectively, "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of each Fund in the manner and in
accordance with the investment objectives, policies and limitations specified
with respect to each Fund in the Company's Prospectus and Statement of
Additional Information (the "Prospectus") included in the Company's Registration
Statement, as amended from time to time (the "Registration Statement"), filed
under the Investment Company Act of 1940, as amended (the "1940 Act"), and the
Securities Act of 1933, as amended. Copies of the Prospectus have been furnished
to you. Any amendments to the Prospectus shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval
of the Company's Board of Directors, you will provide investment management of
each Fund's portfolio in accordance with such Fund's investment
objectives, policies and limitations as stated in the Prospectus as from time to
time in effect. In connection therewith, you will obtain and provide investment
research and will supervise each Fund's investments and conduct a continuous
program of investment, evaluation and, if appropriate, sale and reinvestment of
such Fund's assets. You will place orders for the purchase and sale of
<PAGE>
portfolio securities and will solicit brokers to execute transactions, including
The Chapman Co., in accordance with the Funds' policies and restrictions
regarding brokerage allocations. You will furnish to each Fund such statistical
information with respect to the investments which such Fund may hold or
contemplate purchasing as the Fund may reasonably request.
3. Administrative Services. You will supply office facilities,
data processing services, clerical, accounting and bookkeeping services,
internal auditing services, executive and other administrative services; provide
stationery and office supplies; prepare reports to each Fund's stockholders, tax
returns and reports to and filings with the Securities and Exchange Commission
and state Blue Sky authorities; calculate the net asset value of each Fund's
shares; provide persons to serve as the Company's officers and generally assist
in all aspects of each Fund's operations.
4. Assistance. You may employ or contract with other persons
to assist you in the performance of this Agreement. Such persons may include
other investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
5. Fees. In consideration of the advisory services rendered
pursuant to this Agreement, each Fund will pay you on the first business day of
each month a fee at the annual rate of .5 of 1% of the value of the Fund's
average daily net assets during the preceding month. In consideration of the
administrative services rendered pursuant to this Agreement, each Fund will pay
you on the first business day of each month a fee at the annual rate of .1 of 1%
of the value of such Fund's average daily net assets during the preceding month.
Net asset value shall be computed in the manner, on such days and at such time
or times as described in the Funds' Prospectus from time to time. The fee for
the period from the effective date of the Registration Statement to the end of
the first month thereafter shall be pro-rated according to the proportion which
such period bears to the full monthly period, and upon any termination of this
Agreement before the end of any month, the fee for such part of a month shall be
pro-rated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
6. Expenses.
(a) You will bear all expenses in connection
with the performance of your services under this Agreement. All other expenses
to be incurred in the operation of the Funds will be borne by the Funds, except
to the extent specifically assumed by you. The expenses to be borne by the Funds
include, without limitation, the following: organizational costs, taxes,
interest, brokerage fees and commissions and
2
<PAGE>
other expenses in any way related to the execution, recording and settlement of
portfolio security transactions, fees of Directors who are not also your
officers, Securities and Exchange Commission fees, state Blue Sky qualification
fees, charges of custodians, transfer and dividend paying agents' premiums for
directors and officers liability insurance, costs of fidelity bonds, industry
association fees, outside auditing and legal expenses, costs of maintaining
corporate existence, costs of maintaining required books and accounts, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of shareholders' reports and meetings, costs of
preparing, printing and mailing share certificates, proxy statements and
prospectuses, and any extraordinary expenses.
(b) You will bear or will pay all expenses
of each Fund (excluding income, excise and other taxes and any extraordinary
expenses) to the extent they exceed .75% of the average daily net assets of the
Fund in any year. Such expenses may be borne through a reduction in the advisory
and administrative fees payable pursuant to this Agreement and will not exceed
the total of such fee. Reductions or payments, if any, will be estimated,
reconciled, and effected or paid monthly. If in any month such expenses do not,
on an annual basis, exceed .75% of the average daily net assets of such Fund
during such month, any prior reductions or payments shall be repaid to Advisor
to the extent such repayment shall not cause the expenses of such Fund to exceed
.75% of the average daily net assets of such Fund during such month. The expense
limitation set forth in this subparagraph 6(b) shall be in effect until December
31, 1997 at which time it may be extended as is,
increased, decreased or eliminated solely at your option. Notwithstanding the
provisions of this subparagraph 6(b), you may, at your option at any time and
from time to time, without the agreement of either Fund, further lower the
expense limitation for such periods as you see fit.
(c) If in any fiscal year the aggregate
expenses of a Fund (including fees paid to you pursuant to this Agreement, but
excluding interest on borrowings, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over a Fund, such
Fund may deduct from the payment to be made to you under this Agreement, or you
will bear, such excess expense to the extent required by state law. Your
obligation pursuant hereto will be limited to the amount of your fees hereunder.
Such deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.
7. Liability. You shall exercise your best judgment in
rendering the services to be provided to each Fund. Each Fund agrees as an
inducement to you and to others who may assist you in providing services to the
Funds that you and such other persons shall not be liable for any error of
judgment or mistake of law or for any loss suffered by such Fund or the Company
and each Fund and the Company agree to indemnify and hold harmless you and such
other persons against and from any claims,
3
<PAGE>
liabilities, actions, suits, proceedings, judgments or damages (and expenses
incurred in connection therewith, including the reasonable cost of investigating
or defending same, including, but not limited to attorneys' fees) arising out of
any such error of judgment or mistake of law or loss; provided that nothing
herein shall be deemed to protect or purport to protect you or any other such
person against any liability to the Company or to its security holders to which
you or they would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties hereunder, or by reason
of reckless disregard of the obligations and duties hereunder.
8. Other Accounts. The Company understands that you and other
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities will be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtainable for or disposed of by a Fund.
In addition, it is understood that you and the persons with
whom you contract to assist in the performance of your duties hereunder will not
devote their full time to such service and nothing contained herein shall be
deemed to limit or restrict your or their right to engage in and devote time and
attention to similar or other businesses.
9. Term. This Agreement shall continue with respect to each
Fund until December 29, 1998 and thereafter shall continue automatically for
successive annual periods ending on the anniversary of such date, provided such
continuance with respect to each Fund is specifically approved at least annually
by the Company's Board of Directors or vote of the lesser of (a) 67% of the
shares of such Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of such Fund, provided that in either event
its continuance also is approved by a majority of the Company's Directors who
are not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to either Fund or
both Funds without penalty, on 60 days' notice, by you or by the Company's Board
of Directors or by vote of the lesser of (a) 67% of the shares of such Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of such Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
4
<PAGE>
10. "Chapman" Name. The Company recognizes that from time to
time your directors, officers and employees may serve as directors, trustees,
partners, officers and employees of other corporations, business trusts,
partnerships or other entities (including other investment companies) and that
such other entities may include the name "Chapman" as part of their name. You or
your affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Company's investment adviser, the
Company agrees that, at your request, the Company will take all necessary action
to change the name of the Company and its Funds to a name not including
"Chapman" in any form or combination of words.
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
THE CHAPMAN FUNDS, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.,
President
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
President
5
<PAGE>
Exhibit 10.3
ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
DEM, INC.
The World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
November 30, 1995
Chapman Capital Management, Inc.
The World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
This will confirm the agreement between the undersigned (the
"Company") and you as follows:
1. General. The Company is a closed-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Company proposes to engage in the
business of investing and reinvesting its assets in the manner and in accordance
with the investment objectives, policies and limitations specified in the
Company's Prospectus and Statement of Additional Information (collectively, the
"Prospectus"), included in the Company's Registration Statement, as amended or
supplemented from time to time (the "Registration Statement"), filed under the
1940 Act, and the Securities Act of 1933, as amended. Copies of the Prospectus
have been furnished to you. Any amendments or supplements to the Prospectus
shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval
of the Company's Board of Directors, you will provide investment management of
the Company's portfolio in accordance with the Company's investment objectives,
policies and limitations as stated in the Prospectus as from time to time in
effect. In connection therewith, you will obtain and provide investment research
and will supervise the Company's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of the
Company's assets. You will place orders for the purchase and sale of portfolio
securities and will solicit brokers to execute transactions, including The
Chapman Co., in accordance with the Company's policies and restrictions
regarding brokerage allocations. You will furnish to the Company such
statistical information with respect to the investments which the Company may
hold or contemplate purchasing as the Company may reasonably request.
<PAGE>
3. Administrative Services. You will supply office facilities,
data processing services, clerical, accounting and bookkeeping services,
internal auditing services, executive and other administrative services; provide
stationery and office supplies; prepare reports to the Company's stockholders,
tax returns and reports to and filings with the Securities and Exchange
Commission and state Blue Sky authorities; calculate the net asset value of the
Company's shares; provide persons to serve as the Company's officers and
generally assist in all aspects of the Company's operations.
4. Assistance. You may employ or contract with other persons
to assist you in the performance of this Agreement. Such persons may include
Axe-Houghton Management, Inc. or other investment advisory or management firms
and officers or employees who are employed by both you and the Company. The fees
or other compensation of such persons shall be paid by you and no obligation may
be incurred on the Company's behalf to any such person.
5. Fees. In consideration of the advisory services rendered
pursuant to this Agreement, the Company will pay you on the first business day
of each month a fee at the annual rate of .90 % of the value of the Company's
average weekly net assets during the preceding month. In consideration of the
administrative services rendered pursuant to this Agreement, the Company will
pay you on the first business day of each month a fee at the annual rate of .15%
of the value of the Company's average weekly net assets during the preceding
month. Net asset value shall be computed in the manner, on such days and at such
time or times as described in the Company's Prospectus from time to time. The
fee for the period from the effective date of the Registration Statement to the
end of the first month thereafter shall be pro-rated according to the proportion
which such period bears to the full monthly period, and upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be pro-rated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
6. Expenses.
(a) You will bear all expenses in connection
with the performance of your services under this Agreement. All other expenses
to be incurred in the operation of the Company will be borne by the Company,
except to the extent specifically assumed by you. The expenses to be borne by
the Company include, without limitation, the following: organizational costs,
taxes, interest, brokerage fees and commissions and other expenses in any way
related to the execution, recording and settlement of portfolio security
transactions, fees of Directors who are not also your officers, Securities and
Exchange Commission fees, state Blue Sky qualification fees, charges of
custodians, transfer and dividend paying agents' premiums for directors and
officers liability insurance, costs of fidelity bonds, industry association
fees, outside auditing and legal expenses, costs of maintaining corporate
existence, costs of maintaining required books and accounts, costs attributable
to investor services (including, without limitation, telephone and personnel
expenses), costs of shareholders'
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reports and meetings, costs of preparing, printing and mailing share
certificates, proxy statements and prospectuses, and any extraordinary expenses.
(b) If in any fiscal year the aggregate expenses
of the Company (including fees paid to you pursuant to this Agreement, but
excluding interest on borrowings, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over the Company,
the Company may deduct from the payment to be made to you under this Agreement,
or you will bear, such excess expense to the extent required by state law. Your
obligation pursuant hereto will be limited to the amount of your fees hereunder.
Such deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.
7. Liability. You shall exercise your best judgment in
rendering the services to be provided to the Company. The Company agrees as an
inducement to you and to others who may assist you in providing services to the
Company that you and such other persons shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Company and the
Company agrees to indemnify and hold harmless you and such other persons against
and from any claims, liabilities, actions, suits, proceedings, judgments or
money damages (and expenses incurred in connection therewith, including the
reasonable cost of investigating or defending same, including, but not limited
to attorneys' fees) arising out of any such error of judgment or mistake of law
or loss; provided that nothing herein shall be deemed to protect or purport to
protect you or any other such person against any liability to the Company or to
its security holders to which you or they would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
duties hereunder, or by reason of reckless disregard of the obligations and
duties hereunder.
8. Other Accounts. The Company understands that you and other
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities will be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
the Company or the size of the position obtainable for or disposed of by the
Company.
In addition, it is understood that you and the persons with
whom you contract to assist in the performance of your duties hereunder will not
devote their full time to such service and nothing contained herein shall be
deemed to limit or restrict your or their right to engage in and devote time and
attention to similar or other businesses.
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9. Term. This Agreement shall continue with respect to the
Company until the expiration of two years from the date of this Agreement and
thereafter shall continue automatically for successive annual periods ending on
the anniversary of the date of this Agreement, provided such continuance with
respect to the Company is specifically approved at least annually by the
Company's Board of Directors or vote of the lesser of (a) 67% of the shares of
the Company represented at a meeting if holders of more than 50% of the
outstanding shares of the Company are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Company, provided that in either event
its continuance also is approved by a majority of the Company's Directors who
are not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to the Company
without penalty, on 60 days' notice, by you or by the Company's Board of
Directors or by vote of the lesser of (a) 67% of the shares of the Company
represented at a meeting if holders of more than 50% of the outstanding shares
of the Company are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Company. This Agreement will terminate automatically
in the event of its assignment (as defined in the 1940 Act).
10. "Chapman" Name. The Company recognizes that from time to
time your directors, officers and employees may serve as directors, trustees,
partners, officers and employees of other corporations, business trusts,
partnerships or other entities (including other investment companies) and that
such other entities may include the name "Chapman" as part of their name. You or
your affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Company's investment adviser, the
Company agrees that, at your request, the Company will take all necessary action
to ensure that the name of the Company does not include "Chapman" in any form or
combination of words.
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
DEM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.,
Chairman and President
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.,
President
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Exhibit 10.4
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
1998 OMNIBUS STOCK PLAN
1. Establishment, Purpose and Types of Awards
Chapman Capital Management Holdings, Inc. hereby establishes the CHAPMAN
CAPITAL MANAGEMENT HOLDINGS, INC. 1998 OMNIBUS STOCK PLAN (the "Plan"). The
purpose of the Plan is to promote the long-term growth and profitability of
Chapman Capital Management Holdings, Inc. (the "Corporation") by (i)
providing key people with incentives to improve stockholder value and to
contribute to the growth and financial success of the Corporation, and (ii)
enabling the Corporation to attract, retain and reward the best available
persons for positions of substantial responsibility.
The Plan permits the granting of stock options (including nonqualified
stock options and incentive stock options qualifying under Section 422 of the
Code), stock appreciation rights (including free-standing, tandem and limited
stock appreciation rights), restricted or unrestricted share awards, phantom
stock, performance awards, or any combination of the foregoing (collectively,
"Awards").
The Plan is a compensatory benefit plan within the meaning of Rule 701
under the Securities Act of 1933 (the "Securities Act"). Except to the
extent any other exemption from the Securities Act is expressly relied upon
in connection with any agreement entered into pursuant to the Plan or the
securities issuable hereunder are registered under the Securities Act, the
issuance of Common Stock pursuant to the Plan is intended to qualify for the
exemption from registration under the Securities Act provided by Rule 701.
To the extent that an exemption from registration under the Securities Act
provided by Rule 701 is unavailable, all unregistered offers and sales of
Awards and shares of Common Stock issuable upon exercise of an Award are
intended to be exempt from registration under the Securities Act in reliance
upon the private offering exemption contained in Section 4(2) of the
Securities Act, or other available exemption, and the Plan shall be so
administered.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Change in Control" shall mean (i) any sale, exchange or other
disposition of substantially all of the Corporation's assets; or (ii) any
merger, share exchange, consolidation or other reorganization or business
combination in which the Corporation is not the surviving or continuing
corporation, or in which the Corporation's stockholders become entitled to
receive cash, securities of the Corporation other than voting common stock, or
securities of another issuer.
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(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations issued thereunder.
(e) "Committee" shall mean the Board or committee of Board members
appointed pursuant to Section 3 of the Plan to administer the Plan.
(f) "Common Stock" shall mean shares of the Corporation's common stock,
par value of one-tenth cent ($0.001) per share.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" of a share of the Corporation's Common Stock for
any purpose on a particular date shall be determined in a manner such as the
Committee shall in good faith determine to be appropriate; provided, however,
that if the Common Stock is publicly traded, then Fair Market Value shall mean
the last reported sale price per share of Common Stock, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, or if the Common Stock is not so listed or admitted to
trading or included for quotation, the last quoted price, or if the Common Stock
is not so quoted, the average of the high bid and low asked prices, regular way,
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices, regular way, as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Committee or by such other source or sources as shall be
selected in good faith by the Committee; and provided further, that in the case
of incentive stock options, the determination of Fair Market Value shall be made
by the Committee in good faith in conformance with the Treasury Regulations
under Section 422 of the Code. If, as the case may be, the relevant date is not
a trading day, the determination shall be made as of the next preceding trading
day. As used herein, the term "trading day" shall mean a day on which public
trading of securities occurs and is reported in the principal consolidated
reporting system referred to above, or if the Common Stock is not listed or
admitted to trading on a national securities exchange or included for quotation
on the Nasdaq-National Market, any day other than a Saturday, a Sunday or a day
in which banking institutions in the State of New York are closed.
(i) "Grant Agreement" shall mean a written agreement between the
Corporation and a grantee memorializing the terms and conditions of an Award
granted pursuant to the Plan.
(j) "Grant Date" shall mean the date on which the Committee formally acts
to grant an Award to a grantee or such other date as the Committee shall so
designate at the time of taking such formal action.
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(k) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in Section
424(e) of the Code, or any successor thereto of similar import.
(l) "Rule 16b-3" shall mean Rule 16b-3 as in effect under the Exchange Act
on the effective date of the Plan, or any successor provision prescribing
conditions necessary to exempt the issuance of securities under the Plan (and
further transactions in such securities) from Section 16(b) of the Exchange Act.
(m) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto of similar import.
3. Administration
(a) Procedure. The Plan shall be administered by the Board. In the
alternative, the Board may appoint a Committee consisting of not less than two
(2) members of the Board to administer the Plan on behalf of the Board, subject
to such terms and conditions as the Board may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board. From
time to time, the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and, thereafter, directly administer the Plan.
Members of the Board or Committee who are either eligible for Awards
or have been granted Awards may vote on any matters affecting the administration
of the Plan or the grant of Awards pursuant to the Plan, except that no such
member shall act upon the granting of an Award to himself or herself, but any
such member may be counted in determining the existence of a quorum at any
meeting of the Board or the Committee during which action is taken with respect
to the granting of an Award to him or her.
The Committee shall meet at such times and places and upon such notice
as it may determine. A majority of the Committee shall constitute a quorum.
Any acts by the Committee may be taken at any meeting at which a quorum is
present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.
(b) Procedure After Registration of Common Stock. Notwithstanding the
provisions of subsection (a) above, in the event that the Common Stock or any
other capital stock of the Corporation becomes registered under Section 12 of
the Exchange Act, the Plan shall be administered by a Committee appointed by the
Board, and all members of the Committee shall be persons who qualify as "outside
directors" as defined in Section 162 of the Code. The Board may require that
all members of the Committee also be "non-employee directors" as defined in Rule
16b-3 of the Securities and Exchange Commission. Unless otherwise provided by
the Board, the Compensation Committee of the Board (or such
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members of the Compensation Committee as shall constitute "outside directors" if
all such members do not constitute "outside directors") shall constitute the
Committee hereunder.
(c) Powers of the Committee. The Committee shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Grant
Agreements evidencing such Awards and establish programs for granting Awards.
The Committee shall have full power and authority to take all other actions
necessary to carry out the purpose and intent of the Plan, including, but not
limited to, the authority to:
(i) determine the eligible persons to whom, and the time or
times at which Awards shall be granted,
(ii) determine the types of Awards to be granted,
(iii) determine the number of shares to be covered by or used
for reference purposes for each Award,
(iv) impose such terms, limitations, restrictions and conditions
upon any such Award as the Committee shall deem appropriate,
(v) modify, extend or renew outstanding Awards, accept the
surrender of outstanding Awards and substitute new Awards, provided
that no such action shall be taken with respect to any outstanding
Award which would adversely affect the grantee without the grantee's
consent,
(vi) accelerate or otherwise change the time in which an Award
may be exercised or becomes payable and to waive or accelerate the
lapse, in whole or in part, of any restriction or condition with
respect to such Award, including, but not limited to, any restriction
or condition with respect to the vesting or exercisability of an Award
following termination of any grantee's employment, and
(vii) to establish objectives and performance-based conditions,
if any, for earning Awards and determining whether Awards will be paid
after the end of a performance period.
The Committee shall have full power and authority to administer and interpret
the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Committee deems necessary or advisable and to interpret same,
all within the Committee's sole and absolute discretion.
(d) Limited Liability. To the maximum extent permitted by law, no member
of the Board or Committee shall be liable for any action taken or decision made
in good faith relating to the Plan or any Award thereunder.
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(e) Indemnification. To the maximum extent permitted by law, the members
of the Board and Committee shall be indemnified by the Corporation in respect of
all their activities under the Plan.
(f) Effect of Committee's Decision. All actions taken and decisions and
determinations made by the Committee on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Committee's sole
and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee of the Corporation, and their respective successors
in interest.
4. Shares Available for the Plan; Maximum Awards
The maximum aggregate number of shares of stock that may be issued with
respect to Awards granted under the Plan shall not exceed 150,000 shares of
Common Stock. The Corporation shall reserve said number of shares for Awards
under the Plan. If any Award, or portion of an Award, under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares without the delivery of
shares of Common Stock or other consideration, the shares subject to such Award
shall thereafter be available for further Awards under the Plan.
The maximum aggregate number of shares of Common Stock that may be
delivered or purchased or used for reference purposes (with respect to stock
appreciation rights, phantom stock units, or performance awards payable in cash)
that may be granted during any one calendar year to any one individual shall be
limited to 50,000; provided, however, that shares of Common Stock underlying a
tandem grant of options and corresponding stock appreciation rights shall be
counted only once in calculating this limit. If an Award of Common Stock
subject to this per individual limit is terminated, surrendered or canceled, the
shares of Common Stock under this Award shall continue to be counted against the
per individual limit.
The maximum aggregate number of shares of Common Stock that may be issued
under this Plan as a whole and to each individual shall be subject to adjustment
as provided in Section 12.
5. Participation
Participation in the Plan shall be open to all employees, officers,
directors and consultants of the Corporation, or of any Parent or Subsidiary of
the Corporation, as may be selected by the Committee from time to time.
Notwithstanding the foregoing, participation in the Plan with respect to Awards
of incentive stock options shall be limited to employees of the Corporation or
of any Parent or Subsidiary of the Corporation. To the extent necessary to
comply with Rule 16b-3 or to constitute an "outside director" within the meaning
of Section 162(m) of the Code, and only in the event that Rule 16b-3 or Section
162(m) of the Code is applicable to the Plan or an Award made thereunder,
Committee members shall not be eligible to participate in the Plan while members
of the Committee.
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Awards may be granted to such eligible persons and for or with respect to
such number of shares of Common Stock as the Committee shall determine, subject
to the limitations in Section 4 of the Plan. A grant of any type of Award made
in any one year to an eligible person shall neither guarantee nor preclude a
further grant of that or any other type of Award to such person in that year or
subsequent years.
6. Stock Options
Subject to the other applicable provisions of the Plan, the Committee may
from time to time grant to eligible participants Awards of nonqualified stock
options or incentive stock options as that term is defined in Section 422 of the
Code. The stock option Awards granted shall be subject to the following terms
and conditions.
(a) Grant of Option. The grant of a stock option shall be evidenced by a
Grant Agreement, executed by the Corporation and the grantee, stating the number
of shares of Common Stock subject to the stock option evidenced thereby and the
terms and conditions of such stock option, in such form as the Committee may
from time to time determine.
(b) Price. The price per share payable upon the exercise of each stock
option ("exercise price") shall be determined by the Committee; provided,
however, that in the case of incentive stock options, the exercise price shall
not be less than 100% of the Fair Market Value of the shares on the date the
stock option is granted.
(c) Payment. Stock options may be exercised in whole or in part by
payment of the exercise price of the shares to be acquired in accordance with
the provisions of the Grant Agreement, and/or such rules and regulations as the
Committee may have prescribed, and/or such determinations, orders, or decisions
as the Committee may have made. Payment may be made in cash (or cash
equivalents acceptable to the Committee) or, unless otherwise determined by the
Committee, in shares of Common Stock or a combination of cash and shares of
Common Stock, or by such other means as the Committee may prescribe. The Fair
Market Value of shares of Common Stock delivered on exercise of stock options
shall be determined as of the date of exercise. Shares of Common Stock
delivered in payment of the exercise price may be previously owned shares or, if
approved by the Committee, shares acquired upon exercise of the stock option.
Any fractional share will be paid in cash. The Corporation may make or
guarantee loans to grantees to assist grantees in exercising stock options and
satisfying any related withholding tax obligations.
If the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, the Committee, subject to such limitations as it may determine,
may authorize payment of the exercise price, in whole or in part, by delivery of
a properly executed exercise notice, together with irrevocable instructions, to:
(i) a brokerage firm designated by the Corporation to deliver promptly to the
Corporation the aggregate amount of sale or loan proceeds to pay the exercise
price and any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Corporation to deliver the certificates for such
purchased shares directly to such brokerage firm.
(d) Terms of Options. The term during which each stock option may be
exercised shall be determined by the Committee; provided, however, that in no
event shall a
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stock option be exercisable more than ten years from the date it is granted.
Prior to the exercise of the stock option and delivery of the share certificates
represented thereby, the grantee shall have none of the rights of a stockholder
with respect to any shares represented by an outstanding stock option.
(e) Reload Options. The terms of a stock option may provide for the
automatic grant of a new stock option Award when the exercise price of the stock
option and/or any related tax withholding obligation is paid by tendering shares
of Common Stock, provided that such automatic replenishment feature shall be
limited to any extent required by rules, regulations, or interpretations under
the Exchange Act with respect to any particular grant of an Award in the case of
a grantee who is or becomes subject to Section 16 of the Exchange Act. Any
stock option Award which would automatically be granted pursuant to this Section
6(e) without any further Committee action may be exercisable for not more than
the number of shares tendered to exercise the initial stock option and/or to pay
any tax withholding obligation related to such exercise, shall have an exercise
price set at the then Fair Market Value of such shares, and shall have a term
that does not extend beyond the term of the initial stock option. The Committee
may include such a reload feature in a stock option Award at the time of the
initial grant of the Award or may add such a reload feature to an outstanding
stock option Award as the Committee deems desirable; provided, however, that a
reload feature shall not be added to any outstanding incentive stock option
Award without the consent of the grantee.
(f) Restrictions on Incentive Stock Options. Incentive stock option
Awards granted under the Plan shall comply in all respects with Code Section 422
and, as such, shall meet the following additional requirements:
(i) Grant Date. An incentive stock option must be granted within 10
years of the earlier of the Plan's adoption by the Board of Directors or
approval by the Corporation's shareholders.
(ii) Exercise Price and Term. The exercise price of an incentive
stock option shall not be less than 100% of the Fair Market Value of the
shares on the date the stock option is granted. Also, the exercise price
of any incentive stock option granted to a grantee who owns (within the
meaning of Section 422(b)(6) of the Code, after the application of the
attribution rules in Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of shares of the Corporation or its
Parent or Subsidiary corporations (within the meaning of Sections 422 and
424 of the Code) shall be not less than 110% of the Fair Market Value of
the Common Stock on the grant date and the term of such stock option shall
not exceed five years.
(iii) Maximum Grant. The aggregate Fair Market Value (determined
as of the Grant Date) of shares of Common Stock with respect to which all
incentive stock options first become exercisable by any grantee in any
calendar year under this or any other plan of the Corporation and its
Parent and Subsidiary corporations may not exceed $100,000 or such other
amount as may be permitted from time to time under Section 422 of the Code.
To the extent that such aggregate Fair Market Value shall exceed $100,000,
or other applicable amount, such stock options shall be treated as
nonqualified stock options. In such case, the Corporation may designate
the shares
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of Common Stock that are to be treated as stock acquired pursuant to the
exercise of an incentive stock option by issuing a separate certificate for
such shares and identifying the certificate as incentive stock option
shares in the stock transfer records of the Corporation.
(iv) Grantee. Incentive stock options shall only be issued to
employees of the Corporation, or of a Parent or Subsidiary of the
Corporation.
(v) Designation. No stock option shall be an incentive stock option
unless so designated by the Committee at the time of grant or in the Grant
Agreement evidencing such stock option.
(g) Other Terms and Conditions. Stock options may contain such other
provisions, not inconsistent with the provisions of the Plan, as the Committee
shall determine appropriate from time to time.
7. Stock Appreciation Rights
(a) Award of Stock Appreciation Rights. Subject to the other applicable
provisions of the Plan, the Committee may at any time and from time to time
grant stock appreciation rights ("SARs") to eligible participants, either on a
free-standing basis (without regard to or in addition to the grant of a stock
option) or on a tandem basis (related to the grant of an underlying stock
option), as it determines. SARs granted in tandem with or in addition to a
stock option may be granted either at the same time as the stock option or at a
later time; provided, however, that a tandem SAR shall not be granted with
respect to any outstanding incentive stock option Award without the consent of
the grantee. SARs shall be evidenced by Grant Agreements, executed by the
Corporation and the grantee, stating the number of shares of Common Stock
subject to the SAR evidenced thereby and the terms and conditions of such SAR,
in such form as the Committee may from time to time determine. The term during
which each SAR may be exercised shall be determined by the Committee. However,
in no event shall an SAR be exercisable more than ten years from the date it is
granted. The grantee shall have none of the rights of a stockholder with
respect to any shares of Common Stock represented by an SAR.
(b) Restrictions of Tandem SARs. No incentive stock option may be
surrendered in connection with the exercise of a tandem SAR unless the Fair
Market Value of the Common Stock subject to the incentive stock option is
greater than the exercise price for such incentive stock option. SARs granted
in tandem with stock options shall be exercisable only to the same extent and
subject to the same conditions as the stock options related thereto are
exercisable. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any such tandem SAR.
(c) Amount of Payment Upon Exercise of SARs. An SAR shall entitle the
grantee to receive, subject to the provisions of the Plan and the Grant
Agreement, a payment having an aggregate value equal to the product of (i) the
excess of (A) the Fair Market Value on the exercise date of one share of Common
Stock over (B) the base price per share specified in the Grant Agreement times
(ii) the number of shares specified by the SAR, or portion thereof, which is
exercised. In the case of exercise of a tandem SAR, such payment shall be
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made in exchange for the surrender of the unexercised related stock option (or
any portion or portions thereof which the grantee from time to time determines
to surrender for this purpose).
(d) Form of Payment Upon Exercise of SARs. Payment by the Corporation of
the amount receivable upon any exercise of an SAR may be made by the delivery of
Common Stock or cash, or any combination of Common Stock and cash, as determined
in the sole discretion of the Committee from time to time. If upon settlement
of the exercise of an SAR a grantee is to receive a portion of such payment in
shares of Common Stock, the number of shares shall be determined by dividing
such portion by the Fair Market Value of a share of Common Stock on the exercise
date. No fractional shares shall be used for such payment and the Committee
shall determine whether cash shall be given in lieu of such fractional shares or
whether such fractional shares shall be eliminated.
8. Stock Awards (Including Restricted and Unrestricted Shares and Phantom
Stock)
(a) Stock Awards, In General. Subject to the other applicable provisions
of the Plan, the Committee may at any time and from time to time grant stock
Awards to eligible participants in such amounts and for such consideration,
including no consideration or such minimum consideration as may be required by
law, as it determines. A stock Award may be denominated in shares of Common
Stock or stock-equivalent units ("phantom stock"), and may be paid in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Committee from time to time.
(b) Restricted Shares. Each stock Award shall specify the applicable
restrictions, if any, on such shares of Common Stock, the duration of such
restrictions, and the time or times at which such restrictions shall lapse with
respect to all or a specified number of shares of Common Stock that are part of
the Award. Notwithstanding the foregoing, the Committee may reduce or shorten
the duration of any restriction applicable to any shares of Common Stock awarded
to any grantee under the Plan. Share certificates with respect to restricted
shares of Common Stock granted pursuant to a stock Award may be issued at the
time of grant of the stock Award, subject to forfeiture if the restrictions do
not lapse, or upon lapse of the restrictions. If share certificates are issued
at the time of grant of the stock Award, the certificates shall bear an
appropriate legend with respect to the restrictions applicable to such stock
Award or, alternatively, the grantee may be required to deposit the certificates
with the Corporation during the period of any restriction thereon and to execute
a blank stock power or other instrument of transfer therefor. Except as
otherwise provided by the Committee, during such period of restriction following
issuance of share certificates, the grantee shall have all of the rights of a
holder of Common Stock, including but not limited to the rights to receive
dividends (or amounts equivalent to dividends) and to vote with respect to the
restricted shares. If share certificates are issued upon lapse of restrictions
on a stock Award, the Committee may provide that the grantee will be entitled to
receive any amounts per share pursuant to any dividend or distribution paid by
the Corporation on its Common Stock to stockholders of record after grant of the
stock Award and prior to the issuance of the share certificates.
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(c) Phantom Stock. The grant of phantom stock units shall be evidenced by
a Grant Agreement, executed by the Corporation and the grantee, that
incorporates the terms of the Plan and states the number of phantom stock units
evidenced thereby and the terms and conditions of such phantom stock units in
such form as the Committee may from time to time determine. Phantom stock units
granted to a participant shall be credited to a bookkeeping reserve account
solely for accounting purposes and shall not require a segregation of any of the
Corporation's assets. Phantom stock units may be exercised in whole or in part
by delivery of an appropriate exercise notice to the Committee in accordance
with the provisions of the Grant Agreement, and/or such rules and regulations as
the Committee may prescribe, and/or such determinations, orders, or decisions as
the Committee may make. Except as otherwise provided in the applicable Grant
Agreement, the grantee shall have none of the rights of a stockholder with
respect to any shares of Common Stock represented by a phantom stock unit as a
result of the grant of a phantom stock unit to the grantee. Phantom stock units
may contain such other provisions, not inconsistent with the provisions of the
Plan, as the Committee shall determine appropriate from time to time.
9. Performance Awards
The Committee may in its discretion grant performance Awards. Performance
goals shall be based upon one or more of the following business criteria as
applied to an individual participant, a business unit or the Corporation as a
whole:
- earnings per share
- share price
- revenue growth
- return on equity
- return on assets or net assets
- timely completion of specific projects
- retention or hiring of key employees
- earnings before interest, taxes, depreciation, and amortization
- income or net income (before or after taxes)
- sales
- operating income or net operating income
- operating margin
- return on operating revenue
- market share
- cash flow
- costs
- total shareholder equity
- return on capital
The Committee may adopt other performance goals in its sole and absolute
discretion, provided, however, that in the event the Committee determines to
adopt performance goals based on criteria other than those stated above, the
Committee shall obtain shareholder
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approval of such criteria if such performance goals are intended to comply with
Section 162 of the Code.
Performance Awards may be paid by the delivery of Common Stock or cash, or
any combination of Common Stock and cash, as determined in the sole discretion
of the Committee from time to time.
10. Withholding of Taxes
The Corporation may require, as a condition to the grant of any Award under
the Plan or exercise pursuant to such Award or to the delivery of certificates
for shares issued or payments of cash to a grantee pursuant to the Plan or a
Grant Agreement (hereinafter collectively referred to as a "taxable event"),
that the grantee pay to the Corporation, in cash or, unless otherwise determined
by the Corporation, in shares of Common Stock, including shares acquired upon
grant of the Award or exercise of the Award, valued at Fair Market Value on the
date as of which the withholding tax liability is determined, any federal, state
or local taxes of any kind required by law to be withheld with respect to any
taxable event under the Plan. The Corporation, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee any federal, state or
local taxes of any kind required by law to be withheld with respect to any
taxable event under the Plan, or to retain or sell without notice a sufficient
number of the shares to be issued to such grantee to cover any such taxes.
11. Transferability
Unless otherwise provided by the Committee, no Award granted under the Plan
shall be transferable by a grantee except by will or the laws of descent and
distribution. Unless otherwise determined by the Committee in accord with the
provisions of the immediately preceding sentence, an Award may be exercised
during the lifetime of the grantee, only by the grantee or, during the period
the grantee is under a legal disability, by the grantee's guardian or legal
representative.
12. Adjustments; Business Combinations
In the event of a reclassification, recapitalization, stock split, stock
dividend, combination of shares, or other similar event, the maximum number and
kind of shares reserved for issuance or with respect to which Awards may be
granted under the Plan as provided in Section 4 shall be adjusted to reflect
such event, and the Committee shall make such adjustments as it deems
appropriate and equitable in the number, kind and price of shares covered by
outstanding Awards made under the Plan, and in any other matters which relate to
Awards and which are affected by the changes in the Common Stock referred to
above.
In the event of any proposed Change in Control, the Committee shall take
such action as it deems appropriate and equitable to effectuate the purposes of
this Plan and to protect the grantees of Awards, which action may include, but
without limitation, any one or more of the following: (i) acceleration or
change of the exercise dates of any Award; (ii) arrangements with grantees for
the payment of appropriate consideration to them for the
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<PAGE>
cancellation and surrender of any Award; and (iii) in any case where equity
securities other than Common Stock of the Corporation are proposed to be
delivered in exchange for or with respect to Common Stock of the Corporation,
arrangements providing that any Award shall become one or more Awards with
respect to such other equity securities.
The Committee is authorized to make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in the
preceding two paragraphs of this Section 12) affecting the Corporation, or the
financial statements of the Corporation or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
In the event the Corporation dissolves and liquidates (other than pursuant
to a plan of merger or reorganization), then notwithstanding any restrictions on
exercise set forth in this Plan or any Grant Agreement, or other agreement
evidencing a stock option, stock appreciation right or restricted stock Award:
(i) each grantee shall have the right to exercise his stock option or stock
appreciation right, or to require delivery of share certificates representing
any such restricted stock Award, at any time up to ten (10) days prior to the
effective date of such liquidation and dissolution; and (ii) the Committee may
make arrangements with the grantees for the payment of appropriate consideration
to them for the cancellation and surrender of any stock option, stock
appreciation right or restricted stock Award that is so canceled or surrendered
at any time up to ten (10) days prior to the effective date of such liquidation
and dissolution. The Committee may establish a different period (and different
conditions) for such exercise, delivery, cancellation, or surrender to avoid
subjecting the grantee to liability under Section 16(b) of the Exchange Act.
Any stock option or stock appreciation right not so exercised, canceled, or
surrendered shall terminate on the last day for exercise prior to such effective
date; and any restricted stock as to which there has not been such delivery of
share certificates or that has not been so canceled or surrendered, shall be
forfeited on the last day prior to such effective date. The Committee shall
give to each grantee written notice of the commencement of any proceedings for
such liquidation and dissolution of the Corporation and the grantee's rights
with respect to his outstanding Award.
13. Termination and Modification of the Plan
The Board, without further approval of the stockholders, may modify or
terminate the Plan or any portion thereof at any time, except that no
modification shall become effective without prior approval of the stockholders
of the Corporation if stockholder approval is necessary to comply with any tax
or regulatory requirement or rule of any exchange or Nasdaq System upon which
the Common Stock is listed or quoted; including for this purpose stockholder
approval that is required for continued compliance with Section 162(m) of the
Code or Rule 16b-3, or stockholder approval that is required to enable the
Committee to grant incentive stock options pursuant to the Plan.
The Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may be
dictated by requirements of federal
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<PAGE>
or state laws applicable to the Corporation or that may be authorized or made
desirable by such laws. The Committee may amend or modify the grant of any
outstanding Award in any manner to the extent that the Committee would have had
the authority to make such Award as so modified or amended.
14. Non-Guarantee of Employment
Nothing in the Plan or in any Grant Agreement thereunder shall confer any
right on an employee to continue in the employ of the Corporation or shall
interfere in any way with the right of the Corporation to terminate an employee
at any time.
15. Termination of Employment
For purposes of maintaining a grantee's continuous status as an employee
and accrual of rights under any Award, transfer of an employee among the
Corporation and the Corporation's Parent or Subsidiaries shall not be considered
a termination of employment. Nor shall it be considered a termination of
employment for such purposes if an employee is placed on military or sick leave
or such other leave of absence which is considered as continuing intact the
employment relationship; in such a case, the employment relationship shall be
continued until the date when an employee's right to reemployment shall no
longer be guaranteed either by law or contract.
16. Written Agreement
Each Grant Agreement entered into between the Corporation and a grantee
with respect to an Award granted under the Plan shall incorporate the terms of
this Plan and shall contain such provisions, consistent with the provisions of
the Plan, as may be established by the Committee.
17. Non-Uniform Determinations
The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive Awards, the form, amount and timing of
such Awards, the terms and provisions of such Awards and the agreements
evidencing same) need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, Awards under the Plan, whether
or not such persons are similarly situated.
18. Limitation on Benefits
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
19. Listing and Registration
If the Corporation determines that the listing, registration or
qualification upon any securities exchange or upon any listing or quotation
system established by the National Association of Securities Dealers, Inc.
("Nasdaq System") or under any law, of shares subject to any Award is necessary
or desirable as a condition of, or in connection with, the granting of same or
the issue or purchase of shares thereunder, no such Award may be exercised in
whole or in part and no restrictions on such Award shall lapse, unless such
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<PAGE>
listing, registration or qualification is effected free of any conditions not
acceptable to the Corporation.
20. Compliance with Securities Law
The Corporation may require that a grantee, as a condition to exercise of
an Award, and as a condition to the delivery of any share certificate, provide
to the Corporation, at the time of each such exercise and each such delivery, a
written representation that the shares of Common Stock being acquired shall be
acquired by the grantee solely for investment and will not be sold or
transferred without registration or the availability of an exemption from
registration under the Securities Act and applicable state securities laws. The
Corporation may also require that a grantee submit other written representations
which will permit the Corporation to comply with federal and applicable state
securities laws in connection with the issuance of the Common Stock, including
representations as to the knowledge and experience in financial and business
matters of the grantee and the grantee's ability to bear the economic risk of
the grantee's investment. The Corporation may require that the grantee obtain a
"purchaser representative" as that term is defined in applicable federal and
state securities laws. The stock certificates for any shares of Common Stock
issued pursuant to this Plan may bear a legend restricting transferability of
the shares of Common Stock unless such shares are registered or an exemption
from registration is available under the Securities Act and applicable state
securities laws. The Corporation may notify its transfer agent to stop any
transfer of shares of Common Stock not made in compliance with these
restrictions. Common Stock shall not be issued with respect to an Award granted
under the Plan unless the exercise of such Award and the issuance and delivery
of share certificates for such Common Stock pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any national securities exchange or Nasdaq System upon which the
Common Stock may then be listed or quoted, and shall be further subject to the
approval of counsel for the Corporation with respect to such compliance to the
extent such approval is sought by the Committee.
21. No Limit on Other Compensation Arrangements
Nothing contained in the Plan shall prevent the Corporation or its Parent
or Subsidiary corporations from adopting or continuing in effect other
compensation arrangements (whether such arrangements be generally applicable or
applicable only in specific cases) as the Committee in its discretion determines
desirable, including without limitation the granting of stock options, stock
awards, stock appreciation rights or phantom stock units otherwise than under
the Plan.
22. No Trust or Fund Created
Neither the Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Corporation and a grantee or any other person. To the extent that any grantee
or other person acquires a right to receive payments from the Corporation
pursuant to an Award, such right shall be no greater than the right of any
unsecured general creditor of the Corporation.
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23. Governing Law
The validity, construction and effect of the Plan, of Grant Agreements
entered into pursuant to the Plan, and of any rules, regulations, determinations
or decisions made by the Board or Committee relating to the Plan or such Grant
Agreements, and the rights of any and all persons having or claiming to have any
interest therein or thereunder, shall be determined exclusively in accordance
with applicable federal laws and the laws of the State of Maryland, without
regard to its conflict of laws rules and principles.
24. Plan Subject to Charter and By-Laws
This Plan is subject to the Charter and By-Laws of the Corporation, as they
may be amended from time to time.
25. Effective Date; Termination Date
The Plan is effective as of the date on which the Plan was adopted by the
Board, subject to approval of the stockholders within twelve months before or
after such date. No Award shall be granted under the Plan after the close of
business on the day immediately preceding the tenth anniversary of the effective
date of the Plan. Subject to other applicable provisions of the Plan, all
Awards made under the Plan prior to such termination of the Plan shall remain in
effect until such Awards have been satisfied or terminated in accordance with
the Plan and the terms of such Awards.
Date Approved by the Board: April 7, 1998
Date Approved by the Shareholders: April 23, 1998
15
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Exhibit 10.6
DEM-MET
GROUP TRUST
FOR EMPLOYEE BENEFIT PLANS
AGREEMENT AND DECLARATION OF TRUST ("Declaration of Trust") dated as
of November 1, 1996, by and between CHAPMAN CAPITAL MANAGEMENT, INC., a
corporation duly organized under the laws of the District of Columbia (the
"Investment Manager"), and BANKERS TRUST COMPANY, a New York banking corporation
(the "Trustee"), to establish the DEM-MET Group Trust for Employee Benefit Plans
(the "Trust").
W I T N E S S E T H:
WHEREAS, the Investment Manager desires to establish the Trust in
order to enable qualified employee benefit plans that wish to participate in the
Trust to commingle assets for investment purposes and the Trustee has agreed to
act as trustee hereunder;
NOW, THEREFORE, the Investment Manager and the Trustee hereby agree,
and the Trustee declares, that the Trustee will hold, administer and deal with
all money and property received or purchased by it hereunder, IN TRUST, upon the
following terms and conditions:
<PAGE>
ARTICLE I
DEFINITIONS
1.1. Certain Definitions. Wherever used in this Declaration of
Trust, unless the context otherwise clearly requires, the masculine gender shall
include both sexes, the singular shall include the plural, the plural shall
include the singular, and the following words shall have the meanings set forth
below:
"Advisers Act" shall mean the Investment Advisers Act of 1940, as
amended from time to time, and the rules and regulations issued thereunder.
"Business Day" shall mean a day on which the Trustee is open for
business.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations issued thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations issued thereunder.
"Fiscal Year" shall mean the fiscal year of the Trust as established
from time to time by the Trustee, at the direction of the Investment Manager.
"Participating Plan" shall mean a Qualified Plan which has made a
deposit in the Trust and has a beneficial interest therein.
"Plan Sponsor" shall mean the employer (as defined in Section 3(5)
of ERISA), named fiduciary (as defined in
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Section 402(a) (2) of ERISA) or governmental unit which controls the investment
of the assets of a Participating Plan.
"Qualified Plan" shall mean a pension or profit sharing plan: (i)
which has a trust that is exempt from federal income taxation under Section
501(a) of the Code and qualified within the meaning of Section 401(a) of the
Code; (ii) which incorporates by reference this Declaration of Trust and adopts
the Trust as part of such plan; (iii) which has total assets in excess of
$5,000,000; and (iv) the Plan Sponsor with respect to which has entered into an
Adoption Agreement in the form attached as Exhibit A hereto. The term "Qualified
Plan" shall also include moneys of any plan or governmental unit described in
Sections 401(a) (24) and 818(a) (6) of the Code that satisfies conditions (ii)
through (iv) of this paragraph as applied to such plan or governmental unit.
1.2. Other Terms. The following terms are defined in the Sections
indicated:
<TABLE>
<CAPTION>
<S> <C>
"Claims" 9.1
"Collective Trust" 3.4
"General Declaration of Trust" 3.4
"Description" 3.1
"Foreign Entity" 4.4
"Fund" 3.1
"Valuation Date" 5.2
"Units" 5.1
</TABLE>
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<PAGE>
ARTICLE II
PURPOSE AND POLICIES
2.1. Purpose. The Trust is intended to constitute a qualified trust
under Section 401(a) of the Code. Assets comprising the Trust shall be managed
for the exclusive purpose of providing benefits to employees and their
beneficiaries entitled to benefits under the Participating Plans and defraying
the reasonable expenses of administering the Participating Plans.
2.2. No Individual Ownership. The assets of the Trust shall be owned
exclusively by the Trustee and no Plan Sponsor or the participants or
beneficiaries of any Participating Plan shall be deemed to have any ownership in
any particular asset or investment of the Trust.
2.3. Non-Diversion of Assets. No part of the principal or income of
the Trust which equitably belongs to any Participating Plan shall be used for or
diverted to any purposes other than for the exclusive benefit of the employees
or their beneficiaries who are entitled to benefits under such Participating
Plan.
2.4. No Assignment. Except as otherwise required by law, the
beneficial interest of a Participating Plan in the Trust shall not be assignable
nor subject to attachment or receivership, nor shall it pass to any trustee in
bankruptcy or be reached or applied by any legal process for the payment of any
obligations of any Participating Plan. The Investment Manager shall not be
permitted to assign any
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of its rights or obligations under this Declaration of Trust.
2.5. Domestic Trust. The Trust shall at all times be maintained as a
domestic trust in the United States.
ARTICLE III
ESTABLISHMENT OF FUNDS
3.1. Establishment of Funds. The Trust shall initially consist of
one or more separate investment funds (collectively, the "Funds," and
individually, a "Fund") as may have been established by the Trustee upon the
direction of the Investment Manager. At any time and from time to time the
Trustee shall, if so directed by the Investment Manager, establish within the
Trust one or more additional Funds. The Investment Manager shall adopt and
maintain a written description of each Fund (hereinafter referred to as the
"Description"). The Description, as amended from time to time by the Investment
Manager pursuant to Section 8.1 of this Declaration of Trust, shall set forth
the purposes, objectives, characteristics and restrictions of such Fund, its
permissible investments and the arrangements for the compensation of the
Investment Manager. All Descriptions of Funds whenever established or revised
under this Declaration of Trust are incorporated by reference in and made a part
of this Declaration of Trust. The Investment Manager shall not direct the
Trustee to transfer the assets of any Participating Plan to any Fund unless and
until the
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Investment Manager has provided a copy of the Description relating to such Fund
to the Trustee and the Plan Sponsor of such Participating Plan. No amendment to
any Description shall become effective until the day following a valuation Date
which is not less than sixty (60) days after a copy of such revision shall have
been furnished to the Trustee and the Plan Sponsor of each Participating Plan.
The determination by the Investment Manager as to whether or not an investment
is within the category of investments permissible under the Description for any
Fund shall be conclusive.
3.2. Funds Independent. Each Fund shall be independent of each other
Fund and shall be separately managed, administered, valued, invested,
reinvested, distributed, accounted for and otherwise dealt with. No Fund shall
be answerable for any obligation assumed or liability incurred by any other
Fund.
3.3. Certain Short Term Investments. Notwithstanding the
characteristics and restrictions set forth in the Description of any Fund, the
Investment Manager may invest all or any portion of the assets of any Fund in
government securities, commercial paper, repurchase agreements, bankers
acceptances, time deposits, certificates of deposit (including those issued by
domestic and foreign banks and their branches) or savings or other deposit
accounts (including those issued by the Trustee or any banking affiliate of the
Trustee), and other short term debt obligations.
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<PAGE>
3.4. Collective Investment Funds. Notwithstanding the provisions
governing any Participating Plan, this Declaration of Trust or the Description
of any Fund to the contrary, the Trustee may, in its discretion, if authorized
by the Investment Manager, transfer any cash balances held in any Fund to the
Directed Account Short-Term Investment Fund or any other short-term investment
fund established under and forming part of the BT Pyramid Trust (the "Collective
Trust") created by Banker Trust Company under a Declaration of Trust effective
June 30, 1991, as amended from time to time (the "General Declaration of
Trust"). The Trustee is hereby expressly authorized to permit the commingling of
any or all of the assets of any Fund, through the medium of the Collective
Trust, with the assets of other trusts eligible to participate in the Collective
Trust under the terms of the General Declaration of Trust. To the extent of the
interest of any Fund in the Collective Trust, the Collective Trust shall
constitute part of the Trust and the General Declaration of Trust shall be
incorporated herein by this reference. The Trustee may withdraw all or any part
of any interest of any Fund in the Collective Trust in accordance with the terms
of the General Declaration of Trust. The Trustee shall not be liable for
interest on any cash balances in any Fund which it holds uninvested to the
extent authorized by the Investment Manager, or to the extent that the
Investment Manager has not delivered instructions for the investment thereof. In
the absence of
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<PAGE>
direction or authorization from the Investment Manager, the Trustee shall have
no power, duty or authority to invest the assets of any Fund.
ARTICLE IV
INVESTMENTS
4.1. Making of Investments. The Investment Manager shall invest and
reinvest the principal and income of each Fund and shall keep the same invested,
without distinction between principal and income, in any property and in such
proportions as the Investment Manager, in its sole discretion, shall deem
appropriate, subject only to the terms and conditions of this Declaration of
Trust. Without limiting the generality of the foregoing, the Investment Manager
is authorized and empowered from time to time to invest in such common or
capital stocks, preferred stocks, bonds, notes, debentures, securities
convertible into common or capital stocks, options to purchase or sell
securities, mortgages, equipment trust certificates, investment trust
certificates, shares of investment companies, certificates of indebtedness,
acceptances, bills of exchange, treasury bills, bank savings deposits,
commercial paper (including participations in pooled commercial paper accounts),
financial futures contracts and forward currency contracts, cash, real and
personal property either tangible or intangible or wherever situated, and in
such other property, investments and securities of any kind, class or character,
whether domestic or foreign. Such investments shall not be
-8-
<PAGE>
restricted to securities or property of the character authorized for investment
by trustees under any present or future laws of any state.
4.2. Transactions. All transactions of any kind with respect to the
assets of a Fund and of the Trust, except as otherwise provided in Section 3.4,
shall be made on such terms and conditions and with such principals and through
such agents as the Investment Manager shall direct and the Trustee shall effect
and settle all transactions in accordance with instructions given by the
Investment Manager to the Trustee or to such agents of the Trustee as may be
appropriate.
4.3. Income Added to Principal. Any income or distributions earned
or received on assets of each Fund shall be added to the principal of such Fund
and invested and reinvested as part thereof. Profits or losses of each Fund
shall be credited to or charged against such Fund.
4.4. Foreign Investments. The Investment Manager is authorized to
invest the assets of any Fund in any property the indicia of ownership of which
is maintained outside the jurisdiction of the District Courts of the United
States. To the extent permitted by regulations promulgated by the Secretary of
Labor pursuant to Section 404(b) of ERISA, the Trustee may enter into custodian
agreements with one or more banks or other entities located outside the United
States (a "Foreign Entity").
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<PAGE>
4.5. Limitations on Trustee's Duties. Nothing contained in this
Declaration of Trust shall be construed to imply directly or indirectly any
duty, obligation or responsibility on the part of the Trustee with respect to
(i) the investment or reinvestment of assets of any Fund (other than with
respect to investment decisions made by the Trustee pursuant to Section 3.4 of
this Declaration of Trust), and the Trustee shall have no duty to review any
investment decisions made by the Investment Manager or to otherwise determine
that any investments made pursuant to such decisions comply with applicable law,
or (ii) the timing or nature of any disposition of any assets in any Fund in
connection with the withdrawal of any Participating Plan from such Fund, except,
in each case, to comply with the directions with respect thereto delivered to
the Trustee by the Investment Manager who shall have the sole responsibility for
all decisions with respect to such matters. The Trustee shall incur no liability
(x) for any failure to act with respect to such matters in the absence of
instructions from the Investment Manager, (y) for any action taken in reliance
upon the decisions, instructions, actions, and directions of the Investment
Manager, or (z) for any loss (including any diminution in value) or expense to
any Fund, except to the extent caused by negligence, bad faith or willful
misconduct on the part of the Trustee in performing the duties expressly
undertaken by the Trustee hereunder.
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<PAGE>
4.6. Certification by Investment Manager. Any direction of the
Investment Manager shall constitute a certification to the Trustee (i) that the
transaction will not constitute a prohibited transaction under ERISA or the
Code, (ii) that the investment is authorized under the terms of this Declaration
of Trust and any other agreement or law affecting the Investment Manager's
authority to deal with the Trust, (iii) that any contract, agency, joinder,
adoption, participation or partnership agreement, deed, assignment or other
document of any kind which the Trustee is required to execute to effectuate the
transaction has been reviewed by the Investment Manager and, to the extent it
deems advisable and prudent, its counsel, and that such instrument or document
is in proper form for execution by the Trustee, and (iv) that all other acts to
perfect and protect the rights of the Trust have been taken, and the Trustee
shall have no duty to make any independent inquiry or investigation as to any of
the foregoing before acting upon such direction.
ARTICLE V
UNITS OF PARTICIPATION
5.1. Units. The beneficial interest of each Participating Plan in
each Fund shall be represented by units (the "Units"), each one of which shall
be of equal value to every other, and the total number of which may be, from
time to time, diminished or increased as hereinafter provided. Each Unit of a
Fund shall represent an undivided
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<PAGE>
proportionate interest in all assets and liabilities of such Fund and all
income, profits, losses and expenses of such Fund shall be allocated equally to
all Units of such Fund. The Trustee or its agent shall keep books in which shall
be recorded the number of Units standing to the credit of each Participating
Plan.
5.2. Valuation Dates. The last Business Day of each month and the
close of business on each other date as may be agreed upon by the Investment
Manager and the Trustee shall be a "Valuation Date" for all purposes of this
Declaration of Trust.
5.3. Valuation of Units. The initial value of each Unit shall be
$100, with the value of each Unit thereafter carried to at least three decimal
places. As of the close of business on each Valuation Date after the inception
of a Fund, the Trustee shall determine the then value of each Unit of such Fund
by dividing the net value of the assets of such Fund by the number of Units of
such Fund allocated to Participating Plans as of such Valuation Date. For
purposes of such valuation, the net value of the assets of a Fund shall equal
the aggregate value of the assets of such Fund less the aggregate value of
liabilities (including accrued expenses) of the Trust allocable to such Fund.
The Unit value of each Fund shall be determined as of each Valuation Date before
taking into account additions to and withdrawals from such Fund as of such
Valuation Date. Each valuation shall be completed within fifteen (15) Business
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<PAGE>
Days following each Valuation Date. All publicly traded assets of each Fund will
be valued by the Trustee by reference to prices on one or more national
securities or commodities exchanges or generally accepted pricing services
selected by the Trustee and utilized by it on a uniform basis. In the absence of
readily ascertainable market values for any assets, the Trustee will value such
assets in accordance with generally accepted valuation principles consistently
followed and uniformly applied. The reasonable and equitable decision of the
Trustee regarding the valuation of the assets of each Fund shall be conclusive
and binding upon all persons, natural or legal, having an interest, direct or
indirect, in the Trust. An investment purchased and awaiting payment against
delivery shall be included for valuation purposes as a security held, and the
accounts payable of the Trust and each of its respective Funds shall be adjusted
to reflect the net purchase price, which includes brokers' commissions and other
expenses incurred in the purchase thereof but not disbursed as of the Valuation
Date. Investments sold but not delivered pending receipt of proceeds shall be
valued at the net sales price.
5.4. Change in Units. As of any valuation Date, the Trustee, at the
direction of the Investment Manager, may make a uniform change in the number of
Units of any Fund, either by creating a larger number of smaller Units or a
smaller number of larger Units, in each case having an aggregate current value
at that Valuation Date equal to the
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<PAGE>
current value of such Fund at such Valuation Date, provided that the
proportionate interest of each Participating Plan in the Fund is not thereby
changed.
ARTICLE VI
DEPOSITS AND WITHDRAWALS
6.1. Deposits and Withdrawals on Valuation Date. The Trustee shall
accept deposits for each Fund only with the consent of the Investment Manager
who shall determine that such deposit is being made by or on behalf of a
Qualified Plan. Deposits to and withdrawals from a Fund shall be permitted by
the Trustee only as of a Valuation Date, and only upon the authorization or
direction of the Investment Manager. Notwithstanding the foregoing, if, with the
consent of the Investment Manager, the Trustee receives cash for a deposit into
any Fund prior to a Valuation Date for the purpose of making a deposit into any
Fund, the Trustee shall, if directed by the Investment Manager, invest such cash
in accordance with the provisions of Section 3.4 of this Declaration of Trust in
any short-term investment fund established under and forming part of the
Collective Trust. All income credited to the Participating Plan from such
short-term investment fund shall be taken into account in determining the number
of Units to be credited to the account of such Participating Plan pursuant to
Section 6.2 of this Declaration of Trust.
6.2. Deposits. Deposits into any Fund of the Trust may be made only
after prior notice by the Investment
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Manager to the Trustee and shall consist only of cash or such other property as
the Investment Manager shall, in its sole discretion, deem to be a suitable and
permissible investment for such Fund on such Valuation Date. Assets other than
money shall be valued by the Trustee in the manner set forth in Section 5.3 as
of the Valuation Date of the deposit. The Trustee shall credit to the account of
the Participating Plan which makes a deposit that number of Units of a Fund
which the deposit will purchase at the then value of the Units.
6.3. Withdrawals. Withdrawals from any Fund may be made upon at
least ten (10) days' advance written notice by the Investment Manager to the
Trustee or such lesser period to which the Trustee and the Investment Manager
may agree. Any withdrawal shall be as of the Valuation Date on or next
succeeding the expiration of the notice period and shall be effected within
sixty (60) days following such Valuation Date, or such other time as may be
agreed to by the Investment Manager and the Plan Sponsor of the Participating
Plan making such withdrawal, provided that such withdrawal may be delayed if the
Trustee determines that it cannot reasonably make such distribution on account
of any order, directive or legal impediment by an official or agency of any
government or any other cause reasonably beyond its control. Upon the withdrawal
of Units from any Fund, the Trustee shall distribute to the Participating Plan
making such withdrawal an amount equal to the number of
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Units withdrawn multiplied by the value of each such Unit as of the Valuation
Date. The Trustee shall, at the direction of the Investment Manager, distribute
such amount in cash or in property or in a combination of both. Without limiting
the right of the Trustee to make any other charges or adjustments, it shall have
the right on behalf of a Fund to charge back to and/or collect from each
Participating Plan (whether or not any assets of the Participating Plan are then
held by the Trustee) that part of the amount withdrawn from such Fund by such
Participating Plan which represented a payment of accrued income that was not
subsequently collected at the time fixed for its payment. The total number of
Units of a Fund shall be reduced as of a Valuation Date by the number of Units
withdrawn as of such Valuation Date and the amount due to a Participating Plan
upon such withdrawal shall be reflected as a liability of such Fund as of such
Valuation Date.
6.4. Disqualification of Participating Plan. The Investment Manager
and the Plan Sponsor of each Participating Plan shall promptly notify the
Trustee if such Participating Plan has been, or is likely to be, disqualified
under Section 401(a) of the Code. When the Trustee receives notice that a
Participating Plan has lost its qualified status or ceased to be exempt from
income tax under Section 501(a) of the Code, or if for any reason the Investment
Manager determines that a Participating Plan should withdraw from the Trust and
so notifies the Trustee, the Units of
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<PAGE>
such Participating Plan shall be withdrawn, in the manner provided in Section
6.3, as of the earliest practicable date, which shall be a Valuation Date.
ARTICLE VII
POWERS AND DUTIES OF TRUSTEE: ANNUAL AUDIT
7.1. Investment Manager's Powers. In furtherance and not in
limitation of the powers otherwise specified herein or conferred upon the
Investment Manager by law, the Investment Manager shall be vested with the
following powers and discretions with respect to the assets of the Trust, and
upon the direction of the Investment Manager, the Trustee shall make, execute,
acknowledge and deliver any and all documents of transfer and conveyance and any
and all other instruments that may be necessary or appropriate to enable the
Investment Manager to carry out such powers and discretions:
(a) To purchase or otherwise acquire property for the Trust
and to sell, exchange, convey, transfer or otherwise dispose of and grant
options with respect to any property held in the Trust from time to time,
by private contract or at public auction, for cash or on credit, and no
person dealing with the Trustee or the Investment Manager shall be bound
to see to the application of the money or to inquire into the validity,
expediency or propriety of any such sale or other disposition.
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(b) To vote upon any stocks, bonds, or other securities held
by the Trust; to give general or special proxies or powers of attorney
with or without power of substitution; to exercise any conversion
privileges, subscription rights or other options and to make any payments
incidental thereto; to consent to or otherwise participate in corporate
reorganizations or other changes affecting corporate securities and to pay
any assessments or charges in connection therewith.
(c) To make commitments either alone or in company with others
to purchase at any future date any property permitted under Article IV
hereof for the account of any Fund.
(d) To purchase for the account of any Fund part interests in
real property or in mortgages on real property, wherever such real
property may be situated, with the right to take title in its name
individually or as Trustee or in the name of a nominee, either alone or
jointly with the holder or holders of other part interests therein or
their nominees.
(e) To lease to others for any term without regard to the
duration of the Trust any real property or part interest in real property
held by it for the account of any Fund.
(f) To delegate to a manager or the holder or holders of a
majority interest in any real property or mortgage on real property, the
management and
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operation of any part interest in such real property or mortgage held by
the Trustee for the account of any Fund, and the authority to sell such
real property or mortgage or otherwise carry out the decisions of such
manager or holder or holders of such majority interest.
(g) To exercise generally any of the powers of an owner with
respect to stocks, bonds, securities or other property held in the Trust,
except to the extent that such powers are expressly conferred upon the
Trustee by the terms of this Declaration of Trust.
(h) To organize and own one or more corporations for the
exclusive purpose of holding title to any property of the Trust,
collecting income therefrom, and turning over the entire amount thereof,
less expenses, to the Trustee.
7.2. Trustee's Powers. In furtherance and not in limitation of the
powers otherwise specified herein, the Trustee shall have the following
additional powers, which shall be exercised in the discretion of the Trustee:
(a) To make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted.
(b) To register securities held in any Fund in its own name or
in the name of a nominee and to hold any security in bearer form, and to
combine certifi-
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cates representing such securities with certificates of the same issue
held by the Trustee in other fiduciary capacities or to deposit or to
arrange for the deposit of such securities in any qualified central
depository, in federal "book entry" form or in any other depository which
is a national bank, or state chartered trust company or, subject to the
requirements of Section 4.4 hereof, a Foreign Entity, even though, when so
deposited, such securities may be merged and held in bulk in the name of
the nominee of such depository with other securities deposited therein by
any other person, but the books and records of the Trustee shall, at all
times, show that all such securities are part of such Fund.
(c) To employ suitable agents and counsel, domestic or
foreign.
(d) To settle, compromise or abandon all claims and demands in
favor of or against the Trust or any Fund.
(e) To do all other acts which in the judgment of the Trustee
are reasonably necessary or desirable to carry out the duties expressly
conferred upon it by this Declaration of Trust for the proper
administration of the Trust even though the power to do such acts is not
specifically set forth herein.
7.3. Audit. As of the close of each Fiscal Year, the Investment
Manager shall cause independent certified
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public accountants to audit the operations of the Funds for such Fiscal Year.
The report of each such audit shall be available for inspection during regular
business hours by any Plan Sponsor, by the Trustee, or by any removed, resigned
or former Plan Sponsor of a Participating Plan. The expenses of each such audit
shall be paid from each Fund in such equitable proportion as may be determined
by the Investment Manager.
7.4. Accounts and Records. The Trustee shall keep accurate and
detailed accounts of all investments, receipts, disbursements and other
transactions with respect to each Fund, and all accounts, books and records
relating thereto shall be open to inspection and audit at all reasonable times
by any person entitled to an accounting from the Trustee pursuant to Section
7.5.
7.5. Annual Account. Annually, within ninety (90) days after the
close of each Fiscal Year, and within ninety (90) days after removal or
resignation of the Trustee, the Trustee shall furnish a written account for the
preceding Fiscal Year, or for the period from the close of the last Fiscal Year
to the date of such removal or resignation, setting forth the operations of the
Trust, including with respect to each Fund the receipts and disbursements
thereof and the investments or other transactions effected, to the Investment
Manager and the Plan Sponsor of each Participating Plan having an interest in
such Fund and to any other party to which the Investment Manager has directed
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the Trustee to deliver an accounting. If objections to specific items in such
account are filed with the Trustee within ninety (90) days after the account has
been furnished and the Trustee believes such objections to be valid, the Trustee
may adjust the account in such manner as it deems equitable under the
circumstances. Each person to whom the Trustee furnishes an account shall be
notified by the Trustee of any adjustments so made. If (a) all persons to whom
such account is furnished approve such account; or (b) no objections to specific
items in any account or any adjusted account are filed with the Trustee within
ninety (90) days after such account has been furnished; or (c) the Trustee shall
give notice of an adjustment of the account and no objections to specific items
in such account, as adjusted, are filed with the Trustee within ninety (90) days
after notice of such adjustment has been furnished; then, and in any of said
events, the account of the Trustee with respect to all matters contained therein
(as originally furnished if no adjustment was made, or as adjusted if an
adjustment was made), shall be deemed to have been approved with the same effect
as though judicially approved by a court of competent jurisdiction in a
proceeding in which all persons interested were made parties and were properly
represented before such court. The Trustee, nevertheless, shall have the right
to have its accounts settled by judicial proceeding if it so elects, in which
case the only necessary parties shall be the Trustee and each person to
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whom the Trustee is required to furnish an account. Any expenses incurred by the
Trustee in connection therewith shall be charged to and paid from the Trust as
an expense of administration.
7.6. Compensation and Expenses. The Trustee shall be entitled to
charge to and receive compensation for the services it undertakes to provide
with respect to the Trust as may be agreed upon by the Investment Manager and
the Trustee. Such compensation and reimbursement of all expenses incurred by the
Trustee in the performance of its duties, including but not limited to fees for
legal services rendered to the Trustee, and all other proper charges and
disbursements of the Trustee in connection with the administration of the Trust,
shall be paid from each Fund in such equitable proportion as may be determined
by the Trustee. Anything in the preceding sentence to the contrary
notwithstanding, the Investment Manager shall reimburse the Trustee for any such
expenses if for any reason such expenses are not paid out of the Trust. The
Trustee's entitlement to payment hereunder shall not be affected by the
resignation or removal of the Trustee or by the termination of the Trust. All
taxes of any and all kinds whatsoever that may be levied or assessed under
existing or future laws upon or in respect of any Fund or the income thereof
shall be a charge against such Fund.
7.7. Legal Actions. The Trustee shall not be required to institute
any legal action or to appear or
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participate in any legal action to protect or preserve the property of the
Trust, or its title thereto, unless the Trustee is in possession of assets in
the Trust sufficient for the payment of, or shall have first been indemnified
to its satisfaction for, all loss, cost and liability related thereto; provided,
however, that this provision shall not be construed so as to require anyone to
indemnify the Trustee from expenses or liabilities as to any suits or
proceedings against the Trustee for its own acts or omissions in violation of
applicable laws or for its negligence in performing the duties expressly
undertaken by the Trustee hereunder or for its willful misconduct or bad faith
in failing to carry out its duties under the Trust.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1. Amendments. This Declaration of Trust may be amended from time
to time by written agreement of the Investment Manager and of the Trustee,
except that the Description of any Fund may be amended solely by the Investment
Manager. No amendment to this Declaration of Trust or to the Description of any
Fund shall become effective until the day following a Valuation Date which is
not less than thirty (30) days after a copy of such amendment shall have been
furnished to the Plan Sponsor of each Participating Plan; provided, however,
that any amendment which is adopted for the purpose of complying with any
restriction or requirement imposed, or using any
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latitude granted, by any applicable statute or regulation (including provisions
relating to exemption from federal income taxation), or any amendment thereof,
may be declared to take effect as of the effective date of such amendment,
including retroactively. In no event shall any amendment either directly or
indirectly operate to deprive any Participating Plan of its beneficial interest
under the Trust as it is then constituted.
8.2. Termination. The Trustee, solely at the direction of the
Investment Manager, may terminate this Trust or any Fund, as of any Valuation
Date, without advance notice, by withdrawal from the Trust or the respective
Fund and distribution of the assets of the Trust or the respective Fund in the
same manner as provided in Section 6.3.
8.3. Removal and Resignation of Trustee. The Trustee may be removed
by the Investment Manager at any time upon not less than thirty (30) days'
notice in writing to the Trustee with the removal taking place as of the monthly
Valuation Date in the month following the month in which such notice was
received by the Trustee. The Trustee may resign at any time upon sixty (60)
days' notice in writing to the Investment Manager. Upon such removal or
resignation of the Trustee, the Investment Manager shall appoint a successor
Trustee who shall have the same powers and duties as those conferred upon the
Trustee hereunder and, upon acceptance of such appointment by the successor
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trustee, the Trustee shall assign, transfer and pay over to such successor
trustee the assets and properties then constituting each of the Funds. If, for
any reason, the Investment Manager cannot or does not act promptly to appoint a
successor trustee or designate an insurance company in the event of the
resignation or removal of the Trustee, the Trustee may apply to a court of
competent jurisdiction for the appointment of a successor trustee. Any expenses
incurred by the Trustee in connection therewith shall be charged to and paid
from the Trust as an expense of administration.
8.4. Reserve Upon Termination. On termination of the Trust in
accordance with Section 8.2, the Trustee may reserve, in connection with any
transfer or distribution of assets, an amount adequate to assure it payment of
its fees and expenses and to provide for any other liabilities of the Trust or
any of its respective Funds properly incurred or to be incurred, and finally
shall dispose of any balance of such amount to the same parties and in the same
proportions as the rest of the assets were disposed of.
ARTICLE IX
UNDERTAKINGS BY THE INVESTMENT MANAGER
9.1. Indemnification of Trustee. In consideration of the Trustee's
agreeing to enter into this Declaration of Trust and serving and continuing to
serve as trustee hereunder, subject to Section 9.2 of this Declaration of Trust,
the Investment Manager hereby agrees, and by
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executing an Adoption Agreement in the form attached as Exhibit A hereto the
Plan Sponsor of each Participating Plan confirms that this Declaration of Trust
has been adopted as part of such Participating Plan and that, upon such
adoption, such Plan Sponsor agrees, to hold harmless the Trustee, individually
and as Trustee, and the Trustee's directors, officers, and employees, from and
against all amounts, including without limitation taxes, expenses (including
reasonable counsel fees), liabilities, claims, damages, actions, suits or other
charges (collectively, the "Claims"), incurred by or assessed against the
Trustee, individually or as Trustee, or its directors, officers, or employees,
arising (i) as a direct or indirect result of anything done in good faith, or
alleged to have been done, by or on behalf of the Trustee in reliance upon the
directions of the Investment Manager or anything omitted to be done in good
faith, or alleged to have been omitted, in the absence of such directions, or
(ii) as a direct or indirect result of any act or omission of the Investment
Manager or the failure of the Investment Manager, directly or indirectly, to
adequately, carefully and diligently discharge its fiduciary responsibilities
with respect to the Participating Plans.
9.2. Limitation on Indemnification. Anything herein to the contrary
notwithstanding, the Investment Manager and the Plan Sponsor of each
Participating Plan shall have no responsibility to the Trustee under Section
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9.1 if (a) the Trustee knowingly participated in or knowingly concealed any act
or omission of the Investment Manager giving rise to such Claim knowing that
such act or omission constituted a breach of the fiduciary responsibilities of
the Investment Manager; or (b) such Claim arose as a direct or indirect result
of the failure of the Trustee (i) to perform any of the duties specifically
undertaken by it under the provisions of this Declaration of Trust, or (ii) to
act in conformity with duly given and authorized directions hereunder.
9.3. Waiver of Defense. Subject to Section 9.2 of the Declaration of
Trust, the Investment Manager hereby waives, and, by adopting this Declaration
of Trust, the Plan Sponsor of each Participating Plan waives, and the Investment
Manager and such Plan Sponsor shall be forever estopped from asserting as a
defense against the Trustee, or any of its directors, officers or employees, in
any action to enforce the undertaking set forth in Section 9.1, that any one of
them failed to discharge any obligation he, she or it may have, or be deemed to
have had, under any statute governing the conduct of fiduciaries in following
the directions of the Investment Manager. The Investment Manager and the Plan
Sponsor further agree that the undertakings made in this Article IX shall be
binding on their successors or assigns and shall survive termination, amendment
or restatement of this Declaration of Trust, or the resignation or removal of
the Trustee, and that this
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Article IX shall be construed as a contract among the Investment Manager, the
Plan Sponsor of each of the participating Plans and the Trustee according to the
laws of the State of New York in effect from time to time.
9.4. Definition of Knowledge. While the Trustee will perform certain
duties (such as custodial, reporting, recording, valuation and bookkeeping
functions) with respect to each Fund, such duties will not involve the exercise
of any discretionary authority to manage or control the assets of the Funds
(except as provided in Section 3.4 of this Declaration of Trust), and such
duties will be the responsibility of officers or other employees of the Trustee
who are unfamiliar with and have no responsibility for investment management.
Therefore, the Investment Manager hereby agrees and, by adopting this
Declaration of Trust, the Plan Sponsor of each participating Plan agrees that,
in the event that knowledge on the part of the Trustee shall be a prerequisite
to imposing a duty upon or to determining liability of the Trustee under this
Declaration of Trust or any statute regulating the conduct of the Trustee with
respect to the Funds or relieving the Investment Manager or the Plan Sponsors of
their undertakings under this Article IX, the Trustee will not be deemed to have
knowledge of, or to have participated in, any act or omission of the Investment
Manager involving the investment of assets of the Trust as a result of the
receipt and processing of information in the course of performing such duties.
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9.5. Fiduciary Responsibilities. The Investment Manager hereby
acknowledges that it is a "fiduciary," as defined in ERISA, with respect to the
Trust and each Participating Plan. Investment decisions shall be made by the
Investment Manager with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character with like aims. The Investment Manager agrees to carry out its
responsibilities provided for in this Declaration of Trust and to comply with
all applicable provisions of the various agreements pursuant to which it has
been or shall be designated to act as investment manager of each of the
Participating Plans, as such term is defined in ERISA.
ARTICLE X
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE INVESTMENT MANAGER
10.1. Representations, Warranties and Covenants. The Investment
Manager represents and warrants to, and covenants with, the Trustee with respect
to this Declaration of Trust:
(a) This Declaration of Trust has been duly authorized,
executed and delivered by the Investment Manager and constitutes the valid
and legally binding obligation of the Investment Manager enforceable
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against the Investment Manager in accordance with its terms.
(b) The establishment of the Trust and the consummation of the
transactions herein contemplated do not and will not (i) conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, any document or other agreement to which the Investment
Manager is a party or by which it, or a substantial portion of its
property or assets, is bound or affected or (ii) contravene any law,
regulation or judgment applicable to the Investment Manager.
(c) The Investment Manager is duly registered as an investment
adviser under the Advisers Act and will maintain said registration at all
times while it is the Investment Manager under this Declaration of Trust.
(d) The Investment Manager shall determine that each
prospective participant in the Trust is a Qualified Plan and is authorized
to participate in the Trust prior to giving the consent of the Investment
Manager to the acceptance of any deposit to be made in the Trust by such
prospective participant.
(e) Notwithstanding subsection 10.1(c) above, in the event
that the Investment Manager shall cease to be registered as an investment
adviser under the Advisers Act, it shall give written notice of such
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fact within ten (10) days to the Trustee and the Plan Sponsors of each of
the Participating Plans.
10.2. Continuing Representations. Each representation and warranty
of the Investment Manager set forth in Section 10.1 shall for the term hereof be
deemed to be a continuing representation and warranty of the Investment Manager.
10.3. Bonding. The Investment Manager will comply with any
applicable bonding requirements of Section 412 of ERISA and, to the extent
necessary to comply with the requirements, will cause its directors, partners,
officers and employees to be appropriately bonded.
ARTICLE XI
GENERAL PROVISIONS
11.1. Governing Law. To the extent that state law shall not have
been preempted by the provisions of ERISA or any other law of the United States
heretofore or hereafter enacted, this Declaration of Trust shall be
administered, construed and enforced according to the laws of the State of New
York.
11.2. Entire Agreement. The Trustee's duties and responsibilities to
the Investment Manager or any Participating Plan or any person interested
therein shall be limited to those specifically set forth in this Declaration of
Trust. All persons at any time interested in any Participating Plan shall be
bound by the provisions of this Declaration of Trust and, in the event of any
conflict
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between this Declaration of Trust and the provisions of a Participating Plan,
the provisions of this Declaration of Trust shall control. No amendment to any
Participating Plan or agreement or instrument affecting any Participating Plan
or any other document shall enlarge the Trustee's duties or responsibilities
hereunder without its prior written consent.
11.3. Mistake. No mistake made in good faith and in the exercise of
due care in connection with the administration of the Trust or any of its
respective Funds shall be deemed to be a breach of the Trustee's duties if,
promptly after discovery of the mistake, the Trustee takes whatever action may
be practicable in the circumstances to remedy the mistake.
11.4. Reliance on Experts. The Trustee may consult with experts (who
may be experts employed by the Investment Manager), including legal counsel,
appraisers, pricing services, accountants or actuaries, selected by it with due
care with respect to the meaning and construction of this Declaration of Trust
or any provision hereof, or concerning its powers and duties hereunder, and
shall be protected for any action taken or omitted by it in good faith pursuant
to or on the basis of the opinion of any such expert.
11.5. Successor to the Trustee. Any successor, by merger or
otherwise, to substantially all of the trust business of the Trustee shall
automatically and
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without further action become the Trustee hereunder, subject to all the terms
and conditions and entitled to all the benefits and immunities hereof.
11.6. Notices to Trustee. Except as otherwise agreed in writing by
the Investment Manager and the Trustee from time to time with respect to certain
matters specified in such agreement, all directions, notices, instructions and
consents given by the Investment Manager to the Trustee shall be given in any
manner which is agreeable to the Investment Manager and the Trustee, and the
Trustee shall act in accordance therewith. However, all such directions,
notices, instructions and consents shall be either given or confirmed in writing
by an authorized representative of the Investment Manager. The Investment
Manager shall from time to time certify to the Trustee the name of the person or
persons authorized to act on behalf of the Investment Manager in this regard,
and shall furnish to the Trustee a specimen of the signature of any such person.
Any person so certified shall be deemed to be the authorized representative of
the Investment Manager. When any person so certified shall cease to have
authority to act on behalf of the Investment Manager, it shall promptly give
notice to that effect to the Trustee; until such notice is received by the
Trustee, such person shall be deemed to continue to be an authorized
representative. The Trustee shall incur no liability under this Declaration or
Trust for any failure to act pursuant to any notice, direction of any other
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communication for the Investment Manager of its authorized representative unless
and until it shall have received instructions in form satisfactory to it.
11.7. Notices to Other Parties. All notices, reports, annual
accounts and other communications to the Investment Manager or the Plan Sponsor
or any other person shall be deemed to have been duly given if mailed, postage
prepaid, or delivered in hand to such person at its address appearing on the
records of the Trustee, which address shall be filed with the Trustee at the
time of the establishment of each Fund and shall be kept current thereafter by
the Investment Manager.
11.8. No Waiver: Reservation of Rights. The rights, remedies,
privileges and immunities expressed hereto are cumulative and are not exclusive,
and the Trustee shall be entitled to claim all other rights, remedies,
privileges and immunities to which it may be entitled under applicable law.
11.9. Descriptive Headings. The captions in this Declaration of
Trust are solely for convenience of reference and shall not define or limit the
provisions hereof.
IN WITNESS WHEREOF, this instrument has been executed by CHAPMAN
CAPITAL MANAGEMENT, INC. and by BANKERS TRUST COMPANY, as trustee, by their duly
authorized officers as of the date first hereinabove written.
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(Seal) CHAPMAN CAPITAL MANAGEMENT, INC.
ATTEST:
By: /s/ NATHAN A. CHAPMAN, JR.
- -------------------------------- --------------------------------
Title: Title: President
(Seal) BANKERS TRUST COMPANY
ATTEST:
By: /s/ TIMOTHY F. KEANEY, M.D.
- -------------------------------- --------------------------------
Title: Title: Managing Director
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STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
On this 31st day of October 1996, before me came Nathan A. Chapman, Jr.,
to me known, who, being by me duly sworn, did depose and say that he resides at
_____________________________________; that he is a President of Chapman Capital
Management, Inc., the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such seal; that it was so affixed by order of the Board of
Directors of said corporation; and that he signed his name thereto by like
order.
/s/ M. LYNN BALLARD
-----------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 31st day of October 1996, before me came Timothy F. Keaney, to
me known, who, being by me duly sworn, did depose and say that he resides at
Hoboken, N.J.; that he is a Managing Director of BANKERS TRUST COMPANY, the
banking corporation described in and which executed the foregoing instrument;
that he knows the seal of said banking corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of
the Board of Directors of said banking corporation; and that he signed his
name thereto by like order.
/s/ MARIE B. COLANINNO
-----------------------
Notary Public
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EXHIBIT A
ADOPTION AGREEMENT
FOR THE DEM-MET
FUND OF THE
DEM-MET
GROUP TRUST FOR EMPLOYEE BENEFIT PLANS
AGREEMENT made as of the _________ day of ____________ 199_ by and
between ______________ (the "Plan Sponsor"), and Chapman Capital Management,
Inc. (the "Investment Manager").
W I T N E S S E T H
WHEREAS, the Plan (the "Plan") is an employee benefit plan which is
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") or a plan or governmental unit described in Section 401(a)(24) and
818(a)(6) of the Code (a "Governmental Plan");
WHEREAS, the Plan Sponsor is the "employer" with respect to the
Plan, as defined in Section 3(5) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or the "Named Fiduciary" of the Plan, as defined
in Section 402(a)(2), or a governmental unit (if the Plan is a Governmental
Plan) and, as such, the Plan Sponsor is vested with the authority to designate
trustees and "investment managers," as defined in Section 3(38) of ERISA, with
respect to the assets of the Plan;
<PAGE>
WHEREAS, the Investment Manager is an investment adviser registered
under the Investment Advisers Act of 1940, as amended;
WHEREAS, the Plan Sponsor has designated or has determined to
designate the Investment Manager as investment manager with respect to certain
assets of the Plan and the Investment Manager and the Plan Sponsor have
determined that such assets of the Plan can be more efficiently managed if such
assets are commingled in a group trust;
WHEREAS, the Investment Manager has organized the DEM-MET Group
Trust for Employee Benefit Plans (the "Trust") as a group trust for the
collective investment of commingled assets and the DEM-MET Fund (the "Fund") has
been established as a fund of the Trust;
WHEREAS, the Plan Sponsor has determined that the assets of the Plan
are to be invested by the Investment Manager in the Fund; and
WHEREAS, the Investment Manager and the Plan Sponsor desire that
Bankers Trust Company (the "Trustee") act as trustee with respect to the assets
of the Plan to be invested in the Fund and the Trustee has agreed to so act
pursuant to the Agreement and Declaration of Trust dated as of June __, 1996
(the "Declaration of Trust") between the Investment Manager and the Trustee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Investment
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<PAGE>
Manager and the Plan Sponsor hereby covenant and agree as follows:
1. Designation of Investment Manager. The Plan Sponsor hereby
designates the Investment Manager as "Investment Manager," as defined under
Section 3(38) of ERISA, to manage, acquire and dispose of the assets of the Plan
which are invested from time to time in the Trust and to do and perform all such
other acts and things with respect to the Plan as may be required of it under
the Declaration of Trust.
2. Designation of Trustee. The Plan Sponsor hereby designates the
Trustee as a trustee of the Plan with respect to the interest of the Plan in
assets of the Trust or of any collective investment fund established under and
forming part of the BT Pyramid Trust (the "Collective Trust") created by the
Trustee under a Declaration of Trust effective June 30, 1991, as amended from
time to time (the "General Declaration of Trust").
3. Adoption of Trusts. By execution of this Adoption Agreement, the
Plan Sponsor hereby adopts for and as part of the Plan the Trust and the
Collective Trust and agrees to be bound by the provisions of the Declaration of
Trust and the General Declaration of Trust.
4. Acceptance by Investment Manager. The Investment Manger hereby
acknowledges and accepts its appointment as investment manager as provided in
Paragraph 1 hereof, agrees to act as investment manager as provided in
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<PAGE>
the Declaration of Trust and this Adoption Agreement, and acknowledges that it
is a "fiduciary" as that term is defined in Section 3(21) of ERISA, with respect
to the Plan.
5. Investment Management Services. The Investment Manager hereby
acknowledges that it will render investment management services with respect to
the assets of the Plan invested in the Trust in conformance with the objectives,
policies and guidelines set forth in the description of the Fund (the "Fund
Description"), which has been incorporated by reference into the Declaration of
Trust pursuant to section 3.1 of the Declaration of Trust.
6. Brokerage. The Investment Manager hereby acknowledges that, in
issuing to brokers or dealers instructions to purchase, sell or otherwise trade
in or deal with any security for the account of the Trust, the Investment
Manager shall use all reasonable efforts to obtain for the Trust the most
favorable price and execution available. However, the Investment Manager may, to
the extent authorized by law (including without limitation section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and section
406(b)(3) of ERISA), cause the Trust to pay a broker or dealer who provides
brokerage and research services to the Investment Manager an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that
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<PAGE>
transaction, in recognition of such additional services rendered by the broker
or dealer.
7. Representations and Warranties of the Plan Sponsor. The Plan
Sponsor represents and warrants for the benefit of the Investment Manager, the
Trust and the Trustee, as follows:
(a) The Plan Sponsor is the "employer" with respect to the
Plan, as defined in Section 3(5) of ERISA, the "named fiduciary" of the
Plan, as defined in Section 402(a)(2) of ERISA, or the governmental unit
if the Plan is a Governmental Plan.
(b) The Plan is a pension or profit-sharing plan which is
qualified under Section 401(a) of the Code or a Governmental Plan and the
trust established thereunder (the "Separate Trust") is exempt from
taxation under Section 501(a) of the Code.
(c) The Separate Trust has total assets in excess of
$5,000,000 and no more than 10% of the assets of the Separate Trust as of
the date hereof will be invested in the Trust.
(d) The Plan Sponsor has full power and authority under the
provisions of the applicable instruments or legislation governing the Plan
to execute, deliver and perform this Adoption Agreement on behalf of
itself and the Plan, and the Adoption Agreement constitutes the valid and
binding undertaking
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<PAGE>
of the Plan Sponsor and the Plan in accordance with its terms.
(e) Under the provisions of the applicable instruments or
legislation governing the Plan, the assets of the Plan may be commingled
for investment purposes with the assets of other loans through the medium
of the Trust or the Collective Trust, and the provisions of the
Declaration of Trust and of the General Declaration of Trust are, to the
extent of the participation of the Plan in the trusts thereunder, a part
of the Plan.
(f) The Plan Sponsor, together with any advisors the Plan
Sponsor may have employed (collectively, the "Investor"), has received and
reviewed the Confidential Offering Brochure dated ___________ relating to
the Fund (the "Brochure"), any documents referenced therein and any other
information such investor deems relevant to its decision to invest assets
of the Separate Trust in the Fund, and the Investor possesses such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the Fund.
The Plan Sponsor acknowledges that it has reviewed the portions of the
Brochure regarding use of an affiliate of the Investment Manager to
perform brokerage transactions and investment of the Fund in mutual funds
managed by the Investment Manager
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<PAGE>
or sub-advisor and specifically authorizes such practices in accordance
with the restrictions therein described.
(g) The Investor has had an opportunity to (1) ask questions
of and receive answers from representatives of the Investment Manager
concerning the terms and conditions of this investment and the proposed
operations of the Fund and the risks thereof and (2) obtain information
necessary to verify the accuracy of the information provided to the
Investor as specified above.
(h) Any interests in the Trust acquired at any time by the
Separate Trust will be acquired solely for investment purposes and not
with a view to distribution, and the Plan Sponsor is aware that such
interests are not transferable.
(i) The Plan Sponsor shall notify the Investment Manager and
the Trustee before or immediately upon the occurrence of any event which
causes a change in the representations and warranties hereunder or which:
(1) makes participation of the Plan in the Trust or the Collective Trust
unlawful; (2) would jeopardize the tax qualification of the Plan, the
Separate Trust, the Trust or the Collective Trust; or (3) would operate to
limit or terminate the authority of the Plan Sponsor or Investment Manager
with respect to the Trust or the Collective Trust.
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<PAGE>
8. Binding Agreement. The Plan Sponsor and the Investment Manager
agree to be bound by the terms of the Declaration of Trust insofar as those
terms pertain to the participation of the Plan and the Separate Trust in the
Trust, including, without limitation, the provisions regarding indemnification
of the Trustee as set forth in Article IX of the Declaration of Trust, which
provisions are hereby expressly adopted by the Plan Sponsor in order to induce
the Trustee to act as trustee thereunder, to accept the participation of the
Plan in the Trust pursuant to this Adoption Agreement and to accept the
designation of the Trustee as a trustee of the Plan as set forth in Paragraph 2
hereof.
9. Authorization of Manager with Respect to Collective Trusts. The
Investment Manager is hereby authorized in its discretion to direct the Trustee
to transfer any assets of the Plan held in the Trust to any collective
investment fund of the Collective Trust or to withdraw all or any part of the
interest of the Plan from any such fund; provided, however, that the time,
frequency and manner of any such transfers or withdrawals shall be subject to
the provisions of the General Declaration of Trust.
10. Receipt of Documents. The Plan Sponsor acknowledges receipt of
(a) a current version of Part II of the Investment Manager's Form ADV as filed
with the United States Securities and Exchange Commission and (h) a copy of
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<PAGE>
the Declaration of Trust, including a copy of the Description (as defined in
Section 3.1 of the Declaration of Trust) relating to the Fund.
11. Concerning the Trustee. The Trustee, pursuant to the terms of
the Agreement of Trust, will be responsible for the custody and valuation of the
assets of the Fund and will invest such assets in accordance with the directions
of the Investment Manager. The Trustee shall not be subject to any liability to
the Plan Sponsor, the Separate Trust, the Plan, or to any other person, firm or
organization (including beneficiaries of the Plan) for any investment made at
the direction of the Investment Manager or for any loss or diminution of assets
of the Fund resulting from any action taken or omitted by the investment Manager
or by the Trustee at the direction of the Investment Manager. The Trustee has
not participated in the sponsorship of the Fund or the formulation of the
investment policies to be followed with respect to the Fund by the Investment
Manager. Except as otherwise expressly provided in the Declaration of Trust, the
investment management of the assets of the Fund is the exclusive responsibility
of the Investment Manager. Furthermore, the Trustee has no duty, obligation or
intention to review the investment of assets of the Fund, to advise the
Investment Manager or to question directions given to it by the Investment
Manager.
12. Assignment. This Adoption Agreement may not be assigned by the
Investment Manager.
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<PAGE>
13. Term. The term of this Adoption Agreement shall run from the
date hereof until the date the Separate Trust ceases to be a Participating Plan,
as defined in the Declaration of Trust.
14. Fee for Services. The Investment Manager will receive from the
Plan a fee for services performed in accordance with the fee schedule set forth
in the Fund Description.
15. Independent Decision. The Plan Sponsor did not rely upon the
advice of, nor receive any compensation from, the Investment Manager or its
affiliates, in connection with the investment of the Plan in the Trust.
IN WITNESS WHEREOF, the parties have executed this Adoption
Agreement as of the date and year first above written.
CHAPMAN CAPITAL MANAGEMENT, INC.
By:
-----------------------------
[PLAN SPONSOR]
By:
-----------------------------
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<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On this __ day of _____________, 19__, before me personally came
__________________, on behalf of ___________________, to me known, who being
duly sworn, did depose and say that he/she is the duly authorized Plan Sponsor,
as referenced in the above Adoption Agreement and that the foregoing has been
executed by the Plan Sponsor as its free act and deed.
-------------------------
Notary Public
Expires:
----------------
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<PAGE>
Exhibit 10.7
AGREEMENT dated as of November 1, 1996 by and between BANKERS TRUST
COMPANY, a New York banking corporation (the "Bank"), having an address at One
Bankers Trust Plaza, New York, New York 10006, and CHAPMAN CAPITAL MANAGEMENT,
INC., a District of Columbia corporation ("CCM"), having an address at World
Trade Center, 401 East Pratt Street, Baltimore, Maryland 21202.
INTRODUCTION
The Bank is the trustee of the Minority Equity Trust Fund (the "MET"),
which was established effective as of January 1, 1991 as a fund within the BT
Pyramid Trust, a collective investment trust maintained by the Bank. The Bank
has heretofore entered into contracts with the corporate and government
retirement plan investors identified on Schedule A hereto for the investment of
designated portions of their assets in the MET (such investors as of the date
hereof being collectively referred to as the ("Investors"). The MET emphasizes
investment of corporate and government retirement plan assets in equities and
other securities using the services of minority (including, but not limited to,
women's)-owned investment advisory firms and minority-owned consultants to
advise the Bank in selecting investments and to provide certain services to the
MET. CCM is a minority-owned registered investment advisor which desires to
manage the assets of
<PAGE>
the Investors now invested in the MET and of other retirement plans. The Bank
desires to discontinue the MET and is willing to cooperate with CCM in the
establishment of a group trust which may form an alternative to the MET for
those Investors and others similarly situated to pursue the objective of
directing management of a part of their portfolio to minority-owned businesses,
all subject to the terms and conditions hereof.
AGREEMENT
In consideration of the premises and other good and valuable
consideration, the receipt of which the parties hereto hereby acknowledge, the
parties hereby agree as follows:
1. Establishment of The CCM Trust. (a) Concurrent with the execution
hereof, CCM and the Bank are entering into that certain Declaration of Trust
dated as of the date hereof (the "CCM Trust Declaration") which establishes a
group trust known as the DEM-MET Group Trust for Employee Benefit Plans (the
"CCM Trust"), and which is intended to satisfy the requirements of Internal
Revenue Service ("IRS") Revenue Ruling 81-100 (the "Revenue Ruling"). Pursuant
to the CCM Trust Declaration the Bank shall act as a fully directed trustee of
the CCM Trust for CCM as the sponsor of the CCM Trust and as its investment
advisor. The duties and obligations of the Bank as trustee of the CCM Trust
shall be
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<PAGE>
solely as set forth in the CCM Trust Declaration, which agreement shall not be
subject to this Agreement in any respect.
(b) CCM shall at its sole cost and expense and within 15 days from
the date hereof prepare and file with the IRS an application for a favorable
determination letter under Section 14 of Rev. Proc. 96-6 (an "IRS Letter") with
respect to the status of the CCM Trust as a tax-exempt group trust as described
in the Revenue Ruling and as to the continued tax qualification of trusts
participating therein. The Bank agrees to cooperate in the preparation of such
application to the IRS as appropriate for a fully directed trustee and at the
cost of CCM. CCM shall, concurrent with such filing with the IRS, deliver a copy
of the final application to the Bank. CCM shall give the Bank prompt notice of
any written or oral response or comments of the IRS with respect to the
application and of any written or oral response of CCM thereto and of the
issuance of the IRS Letter and shall with any such notice furnish to the Bank a
copy of any such written responses or comments and of the IRS Letter.
2. Termination of the MET. (a) The Bank shall not later than 30 days from
the date hereof give the Investors appropriate notice under the MET and their
investment agreements that the Bank will: (i) terminate and commence winding up
the MET as of a date which shall be the later of six (6) months from the date
hereof or thirty (30) days after the Bank has received notice from the IRS or
CCM of the issuance of the IRS
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<PAGE>
Letter; and (ii) coincident with the termination of the MET, terminate any
investment agreements with the Investors as and to the extent that they relate
to the MET.
(b) Notwithstanding anything to the contrary herein, CCM
acknowledges and agrees that any employee pension benefit plans (as defined in
Section 3(2)(A) of the Employee Retirement Income Security Act of 1974 as
amended) now existing or hereafter established or otherwise sponsored by (i) the
Chrysler Corporation (or any of its subsidiaries or affiliates) (collectively
"Chrysler") or to which Chrysler may contribute (collectively, "Chrysler Plans")
or (ii) the Bank (or any of its subsidiaries or affiliates) is not an "Investor"
for the purposes hereof and the relationship of the Bank with (i) Chrysler and
the Chrysler Plans or (ii) the employee pension benefit plans of the Bank (or
any of its subsidiaries or affiliates) shall not be covered by this Agreement
(including but not limited to Section 3(a) hereof).
(c) From and after the date hereof the Bank shall, at the request of
CCM, made from time to time, introduce CCM to Investors so that CCM may solicit
the transfer to the CCM Trust of the investment of the Investor in the MET;
provided, however, that the Bank shall not be required to furnish or make any
recommendation to the Investor with respect to an investment in the CCM Trust or
the prospects of the CCM Trust. CCM shall not make any statement or claim that
the Bank has recommended or otherwise endorsed the CCM Trust or its prospects.
CCM agrees to furnish to any Investor to which it shall be introduced by the
Bank the following
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<PAGE>
forms: the complete and current Form ADV for CCM (including but not limited to
Schedule E thereof) and any additional document or information required under
the Investment Advisers Act of 1940 as amended (the "Act") or any applicable
state securities law. Nothing in the CCM Trust Declaration shall limit the
requirements of the preceding sentence. CCM acknowledges that the Bank may
disclose to Investors the consideration which it will receive from CCM for the
noncompetition covenant of the Bank herein.
(d) CCM acknowledges that any transfer of assets by an Investor from
the MET to the CCM Trust will require the proper written consent of, and
direction by, the Investor and that the Bank shall not be responsible for
obtaining any such consent or direction. The Bank agrees, to the extent
practicable and not otherwise in violation of any agreement, trust declaration
or applicable law, to effect in kind transfers of assets between the MET and the
CCM Trust for those Investors electing to convert all or a portion of their
investment in the MET to an investment in the CCM Trust. CCM acknowledges that
in accordance with, and subject to the MET and any investment agreement with an
Investor, the Bank shall cause the MET to distribute to each Investor its share
of the MET upon its request and/or upon final termination and winding up of MET
whether or not CCM has had an opportunity to discuss the CCM Trust with the
Investor.
3. No Solicitation Covenant. (a) The Bank covenants and agrees with CCM
that for a period of three (3) years commencing on the
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<PAGE>
date on which it publicly announces the termination of the MET, the Bank shall
not solicit corporate or government retirement plans (other than from Chrysler
or Chrysler Plans) within the United States for the management of a portion of
their assets through a separate trust, separate pooled fund, subtrust or
separate subfund if such vehicle emphasizes the use by the Bank of the services
of minority-owned investment advisers and minority-owned consultants in managing
such assets and servicing such investment vehicle. As consideration for such
covenant, CCM shall: (i) pay the Bank the aggregate amount of THREE HUNDRED
THOUSAND ($300,000) DOLLARS (the "Lump Sum Payment"), payable ONE HUNDRED FIFTY
THOUSAND ($150,000) DOLLARS on June 30, 1997 and ONE HUNDRED FIFTY THOUSAND
($150,000) DOLLARS on June 30, 1998; and (ii) make certain payments for the
benefit of the Bank pursuant to the Consultant Termination Agreement (as defined
in Section 4 hereof).
(b) As security for its obligation to make the Lump Sum Payment, CCM
is delivering to the Bank on the date hereof a $300,000 standby irrevocable
letter of credit (the "Letter of Credit") issued to the Bank as obligee by
National Commerce Bank and in form and substance satisfactory to the Bank. CCM
agrees that the Bank may draw on the Letter of Credit if CCM fails to pay all or
any installment or other portion of the Lump Sum Payment as specified in Section
3(a)(i) or if there shall be commenced a voluntary or involuntary proceeding by
or in respect of CCM
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<PAGE>
or any substantial portion of its property under any bankruptcy, insolvency,
receivership, reorganization or similar law now or hereafter in effect.
(c) Without limiting the generality of Section 10 hereof, CCM
acknowledges and agrees that the Bank has made no representation or warranty as
to the prospects of the CCM Trust or the likelihood that any Investor will
invest in the CCM Trust or as to the performance by the Consultants of their
undertakings to CCM under the Consultant Termination Agreement and all of CCM's
payments, undertakings and other obligations hereunder and under the Consultant
Termination Agreement are independent of the success of the CCM Trust or of the
performance by the Consultants of their covenants to CCM under the Consultant
Termination Agreement.
4. Certain Other Agreements and Payments. On the date hereof and
concurrent herewith CCM, the Bank, Tremont Partners, Inc. ("Tremont") and
Stamberg Prestia Ltd. ("SPL") (Tremont and SPL being collectively referred to as
the "Consultants") and Moses & Singer LLP, as escrow agent, are entering into an
agreement (the "Consultant Termination Agreement"), pursuant to which CCM is, as
additional consideration for the noncompetition covenant of the Bank set forth
in Section 3(a) hereof, making certain payments concurrent with the execution
hereof aggregating $640,000 for the benefit of the Bank, which payments will be
held in escrow by the escrow agent pursuant to escrow provisions set forth in
the
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<PAGE>
Consultant Termination Agreement and will be released by the escrow agent to the
Consultants in accordance with the Consultant Termination Agreement and the
escrow provisions thereof. The Consultant Termination Agreement also provides
for the delivery into escrow of releases by the Consultants of certain contracts
to which the Consultants are parties with the Bank in respect of the MET and
further provides for their agreement not to solicit certain business from the
Investors for a period of six (6) months from the date hereof, all as set forth
therein. CCM agrees and acknowledges that its full performance under the
Consultant Termination Agreement is a condition to the continued performance of
the Bank hereunder.
5. Use of Met Name. The Bank hereby grants and quitclaims to CCM any
right, title or interest which the Bank may have in the name "Minority Equity
Trust" (the "Name"); provided, however, that the Bank reserves the right to use
the Name or any derivative thereof: (i) in connection with the MET; (ii) as part
of and in connection with the Chrysler Minority Equity Trust; and (iii) to the
extent required by its duties as a directed trustee of the CCM Trust. CCM
acknowledges that the Bank has not filed any application for a state mark or
federal trademark or copyright for the Name or otherwise formally claimed such
an exclusive right.
6. Representations and Warranties of CCM. CCM hereby represents and
warrants to the Bank that: (i) it is a registered investment
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<PAGE>
adviser under the Act and has complied in all material respects with all
applicable laws, regulations and orders has all appropriate Federal, state and
local permits, licenses or other authorities to conduct its current business and
as it intends to conduct the CCM Trust; (ii) it has disclosed to the Bank all
proceedings, civil suits or disciplinary actions by any person, including
without limitation, any regulatory body or authority, whether Federal, state,
local or securities industry association, to which CCM or its affiliates or any
of its or their shareholders, officers, directors, or employees have been a
party or to which any of them has been subject within the 10 year period
preceding the date hereof or which CCM knows to be currently pending or
threatened against CCM or any of its affiliates or any of its or their
shareholders, officers, directors or employees; (iii) it is a corporation duly
organized validly existing and in good standing under the laws of the District
of Columbia and this Agreement and the Consultant Termination Agreement have
been authorized by all necessary corporate and/or shareholder action and
constitute the binding obligations of CCM enforceable against it in accordance
with their terms; and (iv) no representation or warranty by CCM or any of its
affiliates or its or their officers, directors, shareholders or employees made
herein or in any other document, certificate or other writing heretofore
furnished to the Bank by any of them contains any misstatement of a material
fact necessary to make any statement contained herein or therein not misleading
or omits to state a material fact necessary to make any statement contained
herein or therein not misleading.
-9-
<PAGE>
7. Representations and Warranties of the Bank. The Bank hereby represents
and warrants to CCM that this Agreement has been authorized by all necessary
corporate action and represents the binding agreement of the Bank enforceable
against it in accordance with its terms.
8. Survival of Representations and Warranties. The representations and
warranties of the parties made herein shall survive for a period of three years
from the date hereof.
9. Certain Indemnifications. (a) Except as otherwise provided herein, each
of the parties hereby agrees to pay, defend, indemnify and hold the other and
its stockholders, affiliates, officer, directors, employees and representatives
harmless from and against, for and in respect to:
(i) any damages, liabilities, losses and expenses of any kind or
nature whatsoever which may be asserted against, or be incurred, sustained
or suffered by a party hereto, by virtue of a breach by the other party
hereto of, any representation, warranty, covenant, undertaking, agreement,
or indemnification made by such party in this Agreement or in the
Consultant Termination Agreement, or by virtue of any claim (including any
action, proceeding or demand) against a party hereto by a third person
(which term includes an individual, trust or any other entity) (a "third
party claim") made or brought against
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<PAGE>
such party by reason of, or attributable to, or arising, directly or
indirectly, from any act or omission of the other party hereto which
constitutes a non-performance or breach by such other party hereto of any
representation, warranty, covenant, undertaking, agreement or other
obligation made by or incurred by such other party in this Agreement or in
the Consultant Termination Agreement; and
(ii) all reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred by a party in connection
with any action, suit, proceeding, demand, claim, assessment or judgment
incident to any of the matters set forth in Section 9(a)(i).
(b) If a claim for indemnification hereunder does not relate to a
third party claim, the party claiming indemnification shall make a demand
therefor against the other party hereto and if it shall not have received the
full amount demanded from such other party within 30 days, the claiming party
may thereafter bring suit or commence an action against the party from which
indemnification is sought in accordance with applicable law and Section 14
hereof at any time within four years from the date hereof and such claiming
party shall with any recovery also be entitled to its reasonable attorneys' fees
and expenses incurred in prosecuting such indemnification action.
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<PAGE>
(c) The procedures to be followed by the parties hereto with respect
to indemnification hereunder regarding third party claims shall be as follows:
(i) Promptly after receipt by a party hereto of the assertion of any
claim against such party by a third party which the party hereto receiving
such assertion has reason to believe may result in a claim by it against
the other party hereto for indemnity pursuant to this Agreement, such
receiving party shall give a written notice of such third party claim to
the other party hereto setting forth the nature of claim, including copies
of any written correspondence from such third party to the party seeking
indemnification hereunder. The party hereto against which indemnification
is sought for such third party claim shall be entitled, at its own cost
and expense, to participate in the defense of such claim, unless: (A) the
third party claim involved seeks (and continues to seek) solely monetary
damages, (B) within 45 days after notice of the claim the indemnifying
party fully and without reservation acknowledges in writing its obligation
to indemnify and hold harmless the other party with respect to such
damages in their entirety pursuant hereto, and (C) within 45 days after
notice of the claim the party hereto against which indemnification is
brought shall have made written provision satisfactory to the party hereto
which is to be indemnified to satisfy any adverse judgment or settlement
as a result of such party's
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<PAGE>
indemnification obligation with respect to such third party claim, in
which case, if each of the requirements of (A), (B), and (C) is satisfied
and continues at all times thereafter to be satisfied, then such
indemnifying party shall thereafter be entitled to assume and control such
defense with counsel chosen by such party and approved by the party hereto
seeking indemnification. The party hereto entitled to such indemnification
shall be entitled to copies of all pleadings or other papers filed with
the court or served on any litigant and to written progress and status
reports promptly on request. Any settlement of a third party claim for
which indemnification is sought hereunder shall require the consent of
each of the parties hereto, which consent shall not be unreasonably
withheld.
(ii) With respect to third party claims as to which the indemnifying
party: (A) does not have the right hereunder to assume the defense, or (B)
shall not have exercised or timely exercised its right to assume the
defense, the party seeking indemnification shall continue to control the
defense of and contest such action and the party seeking indemnification
shall have full and exclusive rights to dispose of the third party claim.
The indemnifying party shall in such case be obligated to make payment in
accordance with this Section 9 from time to time as the party to be
indemnified incurs an indemnifiable expense; provided that any suit or
action to compel such indemnification is commenced by the party seeking
indemnification in
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<PAGE>
accordance with Section 14 (whether for actual recovery or a declaratory
judgment of its indemnification rights) and within four years from the
date hereof, and the party so seeking indemnification shall also be
entitled to its reasonable attorneys' fees and expenses incurred in
prosecuting such action or proceeding against the other party hereto for
such indemnification.
10. Entire Agreement. This Agreement and the Consultant Termination
Agreement represent the entire agreement of the parties hereto with respect to
the subject matter hereof and thereof and supersede any prior undertakings,
inducements, agreements or understandings, express or implied, oral or written,
with respect hereto or thereto and CCM acknowledges that the Bank has made no
representations or warranties to CCM with respect to the subject matter hereof
or thereof except as expressly set forth herein or therein.
11. No Parol Modification. Neither this Agreement nor any term or
condition hereof may be discharged, terminated, modified, supplemented or
waived, except by a writing signed by the party against which the same is to be
enforced. A waiver by a party of a breach of a term or condition hereof shall
not be deemed to constitute a waiver of any other breach of the same term or
condition or of any other term or condition.
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<PAGE>
12. Notices. All notices of or other communications given hereunder shall
be in writing and shall be deemed to been given when delivered in person or by
facsimile (directed to the actual fax number of the responsible officer to which
the same is directed and subject to oral or written confirmation of receipt) or,
if mailed, then 5 days after being deposited in the U.S. Mail, certified or
registered, postage prepaid, return receipt requested, and in each case
addressed to a responsible officer of the party to which the same is directed at
the address for such party first hereinabove set forth or at such other address
as such party shall have given notice hereunder.
13. No Assignment. Neither this Agreement nor any of the rights or
obligations of the parties hereunder shall be assigned or otherwise transferred
without the prior written consent of the other party.
14. Applicable Law. (a) This Agreement shall be governed by the law of the
State of New York applicable to agreements wholly to be performed therein.
(b) Each of the parties hereby consents to the personal jurisdiction
of the Supreme Court of the State of New York, County of New York, and of the
Federal District Court for the Southern District of New York in any action or
proceeding brought by a party with respect to any claim directly or indirectly
arising hereunder or in respect hereof, agrees that such
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<PAGE>
courts shall have exclusive jurisdiction thereof and waives any claim of forum
non conveniens or improper venue to the fullest extent permitted by law.
15. No Joint Venture. This Agreement shall not be construed as creating
any partnership, joint venture or employment relationship between the parties.
16. Binding Effect. This Agreement and the terms and conditions hereof
shall bind and enure to the successors of the parties and their permitted
assigns.
17. No Third Party Beneficiaries. There shall be no third party
beneficiary of this Agreement or any term or condition hereof.
18. Captions. Captions herein are solely for use of reference and shall
not be used to interpret or construe this Agreement.
19. Counterparts. This Agreement may be executed in counterpart originals,
all of which shall constitute one and the same instrument.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
by their duly authorized officers as of the date first hereinabove written.
BANKERS TRUST COMPANY
By: /s/ Timothy F. Keaney, M.D.
--------------------------------
Name: TIMOTHY F. KEANEY, M.D.
Title:
CHAPMAN CAPITAL MANAGEMENT, INC.
By:
--------------------------------
Name:
Title:
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
by their duly authorized officers as of the date first hereinabove written.
BANKERS TRUST COMPANY
By:
--------------------------------
Name:
Title:
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /s/ Nathan A. Chapman, Jr.
--------------------------------
Name: Nathan A. Chapman, Jr.
Title: President
-17-
<PAGE>
Exhibit 10.8
AGREEMENT dated as of November 1, 1996 by and among BANKERS TRUST
COMPANY, a New York banking corporation (the "Bank"), having an address at One
Bankers Trust Plaza, New York, New York 10006, CHAPMAN CAPITAL MANAGEMENT, INC.,
a District of Columbia corporation ("CCM"), having an address at World Trade
Center, 401 East Pratt Street, Baltimore, Maryland 21202, TREMONT PARTNERS,
INC., a Connecticut corporation ("Tremont"), having an address at 555 Theodore
Fremd Avenue, Rye, New York 10580, and STAMBERG PRESTIA LTD., a Connecticut
corporation ("SPL"), having an address at 27 Cattle Pen Lane, Ridgefield,
Connecticut 06877.
INTRODUCTION
A. The Bank is the trustee of the Minority Equity Trust Fund (the
"MET") which was established effective as of January 1, 1991 as a fund within BT
Pyramid Trust, a collective investment trust maintained by the Bank. The MET
emphasizes investment of corporate and government retirement plan assets in
equities and other securities using the services of minority (including, but not
limited to, women's)-owned investment advisory firms and minority-owned
consultants to advise the Bank in selecting investments and to provide certain
services to the MET. The Bank entered
<PAGE>
into contracts with the corporate and government retirement plan investors
identified on Schedule A hereto for the investment of designated portions of
their assets in the MET (such investors as of the date hereof being collectively
referred to as the "lnvestors"). CCM is a minority-owned registered investment
advisor which desires to manage the assets of the Investors now Invested In the
MET and of other retirement plans. Pursuant to that certain Agreement of even
date herewith by and between the Bank and CCM (the "Bank-CCM Agreement") the
Bank has agreed to discontinue the MET and to cooperate with CCM in the
establishment of a group trust (the "CCM Trust"), of which CCM would be the
settlor and the Bank the directed trustee, which may form an alternative to the
MET for those Investors and others similarly situated to pursue the objective of
directing management of a part of their portfolio to minority-owned investment
advisers.
B. The Bank and Tremont are parties to that certain Consulting
Services Contract dated as of September 30, 1991 (the "Tremont Agreement"). The
Bank and SPL are parties to that certain Consulting Services Contract dated as
of June 16, 1992 (the "SPL Agreement"). (The Tremont Agreement and the SPL
Agreement are hereinafter sometimes collectively referred to as the "Consulting
Agreements" and Tremont and SPL are hereinafter sometimes collectively referred
to as the "Consultants".) The Consultants render certain services to the Bank in
connection with the MET and in connection with the Chrysler
-2-
<PAGE>
Minority Equity Trust (the "Chrysler Fund"). The Bank desires to be released
from its obligations to the Consultants and the Consulting Agreements, except
and solely to the extent the Consulting Agreements relate to the Chrysler Fund
(which Chrysler Fund is the subject of a separate termination agreement of even
date herewith between the Bank and SPL). The Consultants are willing to furnish
such releases, subject to and in accordance with the terms and conditions
hereof, and CCM is willing, as contemplated by the Bank-CCM Agreement, to
furnish certain consideration to the Consultants on behalf of the Bank for such
releases.
AGREEMENT
In consideration of the premises and other good and valuable
consideration, the receipt of which the parties hereto hereby acknowledge, the
parties hereby agree as follows:
1. Certain Releases. (a) On the date hereof and concurrent herewith:
(i) each of the Consultants is executing and delivering to Moses & Singer LIP
(the "Escrow Agent") its release of the Bank under the appropriate Consulting
Agreement (collectively, the "Consultant Releases") in substantially the forms
of Exhibits A-1 and A-2 hereto; (ii) each of the Consultants is executing and
delivering to the Escrow Agent its release of CCM and the CCM Trust in
substantially the forms of Exhibits A-3 and A-4 hereto (collectively, the
"Consultant-CCM Releases"); (iii) CCM is executing and delivering to the Escrow
Agent its release of each of the Consultants
-3-
<PAGE>
(collectively, the "CCM Releases") in substantially the forms of Exhibits A-5
and A-6 hereto; and (iv) the Bank is executing and delivering to the Escrow
Agent its release of each of the Consultants (collectively, the "Bank Releases")
in substantially the forms of Exhibits A-7 and A-B hereto. The Escrow Agent
shall hold the Consultant Releases, the Consultant-CCM Releases, the CCM
Releases and the Bank Releases in escrow in accordance herewith and subject to
the escrow terms annexed hereto as Exhibit B (the "Standard Escrow Terms"), and
shall release from escrow the Consultant Releases, the Consultant-CCM Releases,
the CCM Releases and the Bank Releases (all such releases collectively, the
"Agreement Releases" and individually, an "Agreement Release") and deliver them
to the parties being released thereunder as provided in Section 5 hereof. The
parties acknowledge that the Agreement Releases are undated and the parties
agree that the Escrow Agent shall insert as the date of each of the Agreement
Releases the date on which the particular Agreement Release is delivered from
escrow and such date shall be its effective date.
(b) The Bank acknowledges and agrees that the Consultant Releases
shall not release the Bank's obligations under the Consulting Agreements to the
Consultants to extent that such obligations are solely attributable: (i) to the
services of the Consultants to the Bank heretofore or hereafter rendered with
respect to the Chrysler Fund or to any termination payments in connection
therewith, or (ii) the compensation contemplated under Section 2 hereof with
respect to the MET.
-4-
<PAGE>
2. Consultants' Continuation of Services to the MET. (a) The
Consultants shall continue in accordance with the Consulting Agreements to
furnish their customary services with respect to the MET until its final
termination and shall receive compensation from the Bank in respect of their
services heretofore or hereafter rendered in connection therewith as otherwise
provided under the Consulting Agreements as in effect on the date hereof.
(b) Notwithstanding any delivery of the Consultant Releases by
the Escrow Agreement to the Bank under Section 5 the Consultants shall continue
to observe and comply with, in the case of SPL Sections 8, 10 and 12 and the
final sentence of Section 15 of its Consulting Agreement in all respects and, in
the case of Tremont Sections 8, 10 and the final sentence of Section 14 of its
Consulting Agreement in all respects.
3. Certain Cooperation of the Consultants with CCM and
Nonsolicitation Covenants. For additional consideration of Ten Dollars and other
good and valuable consideration received from CCM. each of the Consultants, for
itself and its affiliates, covenants and agrees with CCM that for a period of
six (6) months from the date hereof: (i) it shall not negatively comment in any
manner to Investors in the MET with respect to CCM or the CCM Trust; and (ii) it
shall not solicit, nor cause a person under its control to solicit, the
Investors or any trustee or other fiduciary handling all or a portion of the
assets of the Investors for an investment by such Investor (or for an investment
by its trustee or other fiduciary on behalf of the Investor) in any
-5-
<PAGE>
entity similar to the MET or in any other product which emphasizes investment in
securities and the use in connection therewith of the advisory services of one
or more minority-controlled investment advisory firms (including firms
controlled by women) and such minority-controlled Investment advisory firms are
responsible for (or are projected to be responsible for) the management of at
least fifty percent by value of the assets of any such entity.
4. Certain Payments to the Consultants. On the date hereof and
concurrent herewith CCM has, for the benefit of the Bank, as additional
consideration for the noncompetition covenant of the Bank set forth in the
Bank-CCM Agreement, and as consideration to the Consultants for their Consultant
Releases and their CCM Releases and for their covenants under Section 3 hereof,
wired to the Escrow Agent the sum of $320,000 to be held in escrow for each of
the Consultants (or an aggregate payment of $640,000) (the "Release Payments")
in accordance herewith and with the Standard Escrow Terms. The Escrow Agent
hereby acknowledges receipt of the Release Payments. The Release Payments shall
be released by the Escrow Agent to the Consultants as provided in Section 5
hereof.
5. The Escrow Release.
(a) On the earlier of (x) the fifth business day (the
"Issuance Notice Release Date") after the date on which the Escrow Agent shall
have given notice to the parties that it has received notice from CCM or the
Bank (or directly from the internal Revenue Service) that a favorable
-6-
<PAGE>
determination letter has been issued by the Internal Revenue Service with
respect to the CCM Trust as contemplated by Section 14 of Revenue Procedure 96-6
and Revenue Ruling 81-100, or (y) December 15, 1996, the Escrow Agent shall,
unless it shall have received an objection from CCM in the form described in the
next sentence at least two days prior to the Issuance Notice Release Date or
December 15, 1996, whichever is earlier, release and deliver: (i) to Tremont (x)
$320,000 of the Release Payments, and (y) the Bank Release and the CCM Release
issued to Tremont as releasee, (ii) to the Bank (x) any interest accrued in
escrow on the portion of the Release Payments so released to Tremont from
escrow, and (y) the Consultant Release issued by Tremont to the Bank as
releasee; and (iii) to CCM the Consultant-CCM Release issued by Tremont to CCM
as releasee. Any objection by CCM to the release by the Escrow Agent of the
aforesaid escrow funds or other documents to Tremont shall be in writing and
shall be based solely on a breach by Tremont or any of its affiliates of its
obligations under Section 3 of the Agreement, shall state with specificity such
breach and the circumstances thereof and shall be given by CCM to Tremont and
the Bank concurrently with the delivery thereof to the Escrow Agent. If the
Escrow Agent shall have received a timely objection to such releases from escrow
from CCM in proper form it shall give prompt notice thereof to the Bank and
Tremont and shall not release any of the items described in this Section 5(a)
except upon the written agreement of CCM and Tremont or at the direction of a
court, all subject to and in accordance with the Standard
-7-
<PAGE>
Escrow Terms. In the event of such a delayed release of such items to Tremont,
Tremont shall also receive the interest which accrued on its portion of the
Release Payments after the date on which the Escrow Agent would have released
the same to Tremont hereunder but for the written objection of CCM and the
balance of the interest shall be paid to the Bank. In determining the amount of
Interest so to be paid to Tremont and to the Bank the Escrow Agent shall pro
rate the aggregate accrued interest on such portion of the Release Payments on a
per diem basis based upon the actual number of days which it held such funds in
escrow. If any portion of the Release Payments otherwise payable to Tremont is
ultimately returned by the Escrow Agent to CCM, any interest accrued thereon
while in escrow shall be paid to CCM.
(b) On the earlier of (x) the Issuance Notice Release Date, or
(y) December 15, 1996, the Escrow Agent shall, unless it shall have received an
objection from CCM in the form described in the next sentence at least two days
prior to the Issuance Notice Release Date or December 15, 1996, whichever is
earlier, release and deliver: (i) to SPL (x) $320,000 of the Release Payments,
and (y) the Bank Release and the CCM Release issued to SPL as releasee, (ii) to
the Bank (x) any interest accrued in escrow on the portion of the Release
Payments so released to SPL from escrow, and (y) the Consultant Release issued
by SPL to the Bank as releasee; and (iii) to CCM the Consultant-CCM Release
issued by SPL to CCM as releasee. Any objection by CCM to the release by the
Escrow Agent of the aforesaid
-8-
<PAGE>
escrow funds or other documents to SPL shall be in writing and shall be based
solely on a breach by SPL or any of its affiliates of its obligations under
Section 3 of the Agreement, shall state with specificity such breach and the
circumstances thereof and shall be given by CCM to SPL and the Bank concurrently
with the delivery thereof to the Escrow Agent. If the Escrow Agent shall have
received a timely objection to such releases from escrow from CCM in proper form
it shall give prompt notice thereof to the Bank and SPL and shall not release
any of the items described in this Section 5(b) except upon the written
agreement of CCM and SPL or at the direction of a court, all subject to and in
accordance with the Standard Escrow Terms. In the event of such a delayed
release of such items to SPL, SPL shall also receive the interest which accrued
on its portion of the Release Payments after the date on which the Escrow Agent
would have released the same to SPL hereunder but for the written objection of
CCM and the balance of the interest shall be paid to the Bank. In determining
the amount of interest so to be paid to SPL and to the Bank the Escrow Agent
shall pro rate the aggregate accrued interest on such portion of the Release
Payments on a per diem basis based upon the actual number of days which it held
such funds in escrow. If any portion of the Release Payments otherwise payable
to SPL is ultimately returned by the Escrow Agent to CCM, any interest accrued
thereon while in escrow shall be paid to CCM.
6. Representations and Warranties of CCM. CCM hereby represents and
warrants to the Bank and the Consultants that: (i) it is a
-9-
<PAGE>
corporation duly organized, validly existing and in good standing under the laws
of the District of Columbia; (ii) it is a registered investment advisor under
the Investment Advisers Act of 1940; and (iii) the execution, delivery and
performance of this Agreement by CCM has been authorized by all necessary
corporate and/or shareholder action and constitutes the binding obligation of
CCM enforceable against it in accordance with its terms.
7. Representations and Warranties of the Bank. The Bank hereby
represents and warrants to CCM and the Consultants that the execution, delivery
and performance of this Agreement by the Bank has been authorized by all
necessary corporate action and represents the binding agreement of the Bank
enforceable against it in accordance with its terms.
8. Representations and Warranties of the Consultants. Each of the
Consultants severally and solely for itself represents and warrants to the Bank
and CCM that: (i) it is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation as hereinabove set
forth; (ii) the execution, delivery and performance of this Agreement by such
Consultant has been authorized by all necessary corporate and/or shareholder
actions of such Consultant and constitutes the binding obligation of such
Consultant enforceable against it in accordance with its terms; (iii) it has not
pledged, granted any lien in, assigned or otherwise transferred any right or
obligation under its Consulting Agreement with the Bank or any right to receive
any moneys therefrom or thereunder, nor has it suffered any of the same to
occur; (iv) its observance of the
-10-
<PAGE>
provisions of Section 3(i) hereof will not violate the terms of any contract to
which such Consultant is a party or any duty owed by such Consultant to any
person; and (v) neither it nor its affiliates has taken action prohibited by
Section 3(i) hereof at any time within the 90 day period preceding the date
hereof.
9. Survival of Representations and Warranties. The representations
and warranties of the parties made herein shall survive for a period of three
years from the date hereof.
10. Certain Indemnifications. (a) CCM hereby agrees to pay, defend,
indemnify and hold the Consultants, their officers, directors, and employees
(collectively, the "Indemnitees") harmless from and against, for and in respect
of any damages, liabilities, losses, costs and expenses (including but not
limited to reasonable attorney fees) of any kind or nature whatsoever, which
arise from or are attributable to any claims which may be asserted by any of the
Investors (or their participants or beneficiaries) against an Indemnitee by
virtue of the observance of the Consultants of their obligations set forth in
Section 3(i) hereof.
(b) If CCM shall make a claim against Tremont or SPL to the
Escrow Agent in accordance with the procedures set forth in Section 5(a) or (b)
hereof, as the case may be, that such party violated any of its respective
obligations under Section 3 hereof, then upon resolution of such claim the
prevailing party shall be entitled recover from the party which did not prevail
in the prosecution or defense of such claim, as the case may be,
-11-
<PAGE>
all costs and expenses incurred by such prevailing party in the defense or
prosecution of such claim including, but not limited to, reasonable attorneys
fees.
11. Entire Agreement. Subject to the next sentence hereof, this
Agreement represents the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes any prior undertakings, inducements,
agreements or understandings, express or implied, oral or written, with respect
hereto or thereto. The Bank and CCM are parties to the Bank-CCM Agreement and
the Bank and SPL are parties to a separate termination agreement with respect to
the Chrysler Fund.
12. No Parol Modification. Neither this Agreement nor any term or
condition hereof may be discharged, terminated, modified, supplemented or
waived, except by a writing signed by the party against which the same is to be
enforced. A waiver by a party of a breach of a term or condition hereof shall
not be deemed to constitute a waiver of any other breach of the same term or
condition or of any other term or condition.
13. Notices. All notices of or other communications given hereunder
shall be in writing and shall be deemed to been given when delivered in person
or by facsimile (directed to the actual fax number of the responsible officer to
which the same is directed and subject to oral or written confirmation of
receipt) or, if mailed, then 5 days after being deposited in the U.S. Mail,
certified or registered, postage prepaid, return receipt requested, and in each
case addressed to a responsible officer of the
-12-
<PAGE>
party to which the same is directed at the following address for such party or
at such other address as such party shall have given notice hereunder:
If to CCM, to:
Chapman Capital Management, Inc.
World Trade Center
401 E. Pratt Street
Baltimore, Maryland 21202
Attention: The President
Fax:(410) 625-9313
with a copy to
Beth Hughes, Esq.
Venable, Baetjer and Howard
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201
Fax: (410) 244-7742
If to Tremont, to:
Tremont Partners, Inc.
555 Theodore Fremd Avenue
Rye, New York 10580
Attention: The President
Fax: (914) 921-3490
with a copy to:
Michael G. Tannenbaum, Esq.
Newman Tannenbaum Helpern Syracuse
& Hirschtritt, LIP
900 Third Avenue
New York, New York 10022
Fax: (212) 371-1084
If to SPL, to:
Stamberg Prestia Ltd.
27 Cattle Pen Lane
Ridgefield, Connecticut 06877
Attention: Angela Prestia and Amie Stamberg
-13-
<PAGE>
Fax: (203) 431-7671
with a copy to:
Merrie F. Witkin, Esq.
Marcus Montgomery P.C.
53 Wall Street
New York, New York 10005
Fax: (212) 858-5201
If to the Bank, to:
Bankers Trust Company
280 Park Avenue
New York, New York 10017
Attention: David I. Abramson, Esq.
Fax: (212) 250-4713
If to the Escrow Agent, to:
Moses & Singer LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Steven Glaser, Esq.
Fax: (212) 554-7700
14. No Assignment. Neither this Agreement nor any of the rights or
obligations of the parties hereunder shall be assigned or otherwise transferred
without the prior written consent of the other parties.
15. Applicable Law. (a) This Agreement shall be governed by the law
of the State of New York applicable to agreements wholly to be performed
therein.
(b) Each of the parties hereby consents to the personal
jurisdiction of the Supreme Court of the State of New York, County of New York,
and of the Federal District Court for the Southern District of
-14-
<PAGE>
New York in any action or proceeding brought by any party with respect to any
claim directly or indirectly arising hereunder or in respect hereof, agrees that
such courts shall have exclusive jurisdiction thereof and waives any claim of
forum non conveniens or improper venue to the fullest extent permitted by law.
16. Binding Effect. This Agreement and the terms and conditions
hereof shall bind and enure to the successors of the parties and any permitted
assigns.
17. Captions. Captions herein are solely for convenience of
reference and shall not be used to interpret or construe this Agreement.
18. Counterparts. This Agreement may be executed in counterpart
originals, all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement by their duly authorized officers as of the date first hereinabove
written.
BANKERS TRUST COMPANY
By: /s/ Timothy F. Keaney, M.D.
-------------------------------
Name: Timothy F. Keaney, M.D.
Title:
-15-
<PAGE>
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /s/ Nathan A Chapman Jr.
-------------------------------
Name: Nathan A Chapman Jr.
Title: President
TREMONT PARTNERS, INC.
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
STAMBERG PRESTIA, LTD.
By: /s/ Annie D. Stambers
-------------------------------
Name: Annie D. Stambers
Title: President
MOSES & SINGER LLP, as escrow agent only
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title: Partner
-16-
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
CHAPMAN CAPITAL MANAGEMENT, INC., a District of Columbia 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 Andersen LLP
Baltimore, Maryland,
May 4, 1998
<PAGE>
Exhibit 24
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Directors and
Executive Officers of Chapman Capital Management 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
attorneys-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/or Executive Officers of Chapman Capital
Management Holdings, Inc., 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: May 5, 1998
/s/ NATHAN A. CHAPMAN JR. /s/ THERON STOKES
- --------------------------------- ------------------------
Nathan A. Chapman, Jr., President Thereon Stokes, Director
Chairman of Board of Directors and
Director (Principal Executive Officer and
Principal Financial Officer)
/s/ EARL U. BRAVO, SR. /s/ M. LYNN BALLARD
- --------------------------------- ------------------------
Earl U. Bravo, Sr., Director M. Lynn Ballard, Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 12-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998 DEC-31-1996 MAR-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1997 MAR-31-1998 DEC-31-1996 MAR-31-1997
<CASH> 8,677 8,405 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 253,002 297,131 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 387,104 436,457 0 0
<PP&E> 19,706 19,706 0 0
<DEPRECIATION> 14,502 15,501 0 0
<TOTAL-ASSETS> 1,085,308 1,076,662 0 0
<CURRENT-LIABILITIES> 1,178,142 1,143,131 0 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 2,487 2,487 0 0
<OTHER-SE> (95,321) (68,956) 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,085,308 1,076,662 0 0
<SALES> 2,284,054 768,953 832,970 509,052
<TOTAL-REVENUES> 2,286,615 771,841 849,872 509,516
<CGS> 2,198,514 731,276 649,232 514,158
<TOTAL-COSTS> 2,198,514 731,276 649,232 514,158
<OTHER-EXPENSES> 0 0 108,483 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 88,101 40,565 92,157 (4,642)
<INCOME-TAX> 40,000 14,200 41,000 (2,100)
<INCOME-CONTINUING> 48,101 26,365 51,157 (2,542)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 48,101 26,365 51,157 (2,542)
<EPS-PRIMARY> .02 .01 .02 0
<EPS-DILUTED> .02 .01 .02 0
</TABLE>
