<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1998
REGISTRATION NO. 333-51883
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
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. / /
--------------------------
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 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 31, which contains
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: JUNE 22, 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 has
applied 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 minimum investment requirement is 100 shares.
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-, DEM UNIVERSE-TM-, DEM
COMPANY-TM-, CHAPMAN-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 mutual
funds, the DEM Equity Fund and The Chapman U.S. Treasury Money Fund, each a
portfolio of The Chapman Funds, Inc., a registered open-end investment company,
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 operations 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 on a discretionary basis. 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.
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
MINIMUM (1)
------------
ACTUAL (UNAUDITED)
------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA
Cash.............................................................................. $ 8,405 $6,032,405
Total assets...................................................................... 1,076,662 7,100,662
Total long-term debt.............................................................. -- --
Total stockholders' (deficit) equity.............................................. (66,469) 5,957,531
Total tangible stockholders' (deficit) equity..................................... (702,469) 5,321,531
</TABLE>
(1) As adjusted gives effect to the sale of the Minimum 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 and three clients represented approximately 78% of
the Company's revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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. Approximately 59.2% and 73.9% of
the Company's total assets under management and revenues, respectively, were
atributable to clients that are affiliates of the Company as of March 31, 1998.
See "Certain Transactions." 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."
6
<PAGE>
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 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,
7
<PAGE>
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."
POTENTIAL ADVERSE EFFECTS OF CHANGES IN ECONOMY AND MARKET CONDITIONS
The financial markets and businesses operating in the securities industry
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
broad 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. Although as of
March 31, 1998, the Company's assets under management attributable to mutual
funds are approximately 9.8% of the Company's total assets under management, the
Company intends to emphasize the creation of new mutual fund investment products
as part of its ongoing strategy. There can be no assurance that the cash inflows
to mutual funds described above will continue in the future and, to the extent
that such cash inflows slow, stop or reverse, such change may have a material
adverse effect on the success of the Company's strategy by slowing the growth
of, or reducing, the Company's total assets under management.
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."
RELATIONSHIPS WITH OTHER CHAPMAN ENTITIES AND POTENTIAL CONFLICTS OF INTEREST
The Company acts as investment advisor, pursuant to investment advisory
agreements, for three active investment portfolios: DEM, Inc., a closed-end
investment company and the DEM Equity Fund and The Chapman U.S. Treasury Money
Fund, each a portfolio of The Chapman Funds, Inc., a registered open-end
investment company. 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
8
<PAGE>
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.
REPAYMENT OF INDEBTEDNESS TO AFFILIATED ENTITIES AND INDIVIDUALS
As of May 31, 1998, the Company owed CHI $793,135, 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 May 31, 1998, the Company has not made
any payments on this note. In December 1995, Mr. Chapman loaned CCM $100,000,
payable on demand. In March 1996, Mr. Chapman loaned CCM an additional $45,000,
payable on demand. These loans provided for a fixed interest payment of $14,500,
or an effective flat rate of 10% of the principal. As of May 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."
DISCRETIONARY USE OF PROCEEDS
The management of the Company will have broad discretion as to the initial
application of the offering proceeds and the re-allocation thereafter from the
uses as stated in the "Use of Proceeds" section. At an assumed public offering
price of $8.00 per share (the mid-point of the range), if the Minimum is sold,
14.3% and 15.1% 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, 14.4% and 10.1% 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."
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
9
<PAGE>
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."
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.
Pursuant to the National Securities Markets Improvement Act of 1996, regulatory
oversight of investment advisors is divided between the Commission and state
regulatory authorities. Because the Company has assets under management in
excess of $25 million, the Company is required to be registered with, and is
subject to regulation by, the Commission and, with the exception of state
anti-fraud regulation, the Company is generally exempt from registration and
regulation at the state level. 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."
10
<PAGE>
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 has
applied 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 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. 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."
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. As specified below, the Company currently intends to devote a
substantial portion of the net proceeds from this Offering to the creation of
new investment products, including, but not limited to, internal and external
market research to identify potential product opportunities, start-up costs
pertaining to new products including open-end investment companies and private
funds that will be affiliated with the Company and additional advisory, research
and management personnel to support such new products. See "Business--Strategy."
<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............ 913,275 15.1 913,275 10.1
Working capital and general corporate purposes.................... 860,725 14.3 1,286,725 14.4
------------ --------- ------------ ---------
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 May 31, 1998, the Company owed CHI $793,135, 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 May 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. These
loans provided for a fixed interest payment of $14,500, or an effective flat
rate of 10% of the principal. As of May 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 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 generally
allocated compensation and benefits expense based upon the estimated percentage
of such employees' time spent performing services for the Company pursuant to an
expense allocation agreement. 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 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 or municipal securities, short-term
certificates of deposit, other money market funds or the Company's bank account.
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,
or 80.1%, 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 and Maximum
at an assumed price of $8.00 per share (the mid-point of the range) and the
receipt of estimated net proceeds therefrom:
<TABLE>
<CAPTION>
AS ADJUSTED
--------------------------
ACTUAL MINIMUM MAXIMUM
---------- ------------ ------------
<S> <C> <C> <C>
Long-term debt:........................................................... $ -- $ -- $ --
---------- ------------ ------------
Stockholders' equity:
Common Stock--$.001 par value, 20,000,000 shares authorized, 2,486,543,
and 3,336,543 and 3,736,543 shares issued and outstanding,
respectively............................................................. 2,487 3,337 3,737
Additional paid-in capital................................................ -- 6,023,150 8,998,750
Accumulated Deficit....................................................... (68,956) (68,956) (68,956)
---------- ------------ ------------
Total Stockholders' (Deficit) Equity...................................... (66,469) 5,957,531 8,933,531
---------- ------------ ------------
Total Capitalization...................................................... $ (66,469) $ 5,957,531 $ 8,933,531
---------- ------------ ------------
---------- ------------ ------------
</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. Approximately 59.2% and 73.9% of the Company's total
assets under management and revenues, respectively, were attributable to clients
that are affiliates of the Company as of March 31, 1998.
The Company's primary sources of revenue are advisory and administrative
fees. Advisory services include investment research, supervision of investments,
conducting the client's investment program, including evaluation, sale and
reinvestment of assets, the placement of orders for purchase and sale of
securities, solicitation of brokers to execute transactions and the preparation
and distribution of reports and statistical information. Administrative services
include fees for the use of office facilities, data processing services,
clerical and accounting and bookkeeping services. 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 approximately 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, which consists primarily of the Company's payments
to sub-advisors in connection with its multi-manager investment product, the
DEM-MET Trust, 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 May 31, 1998, the Company owed $793,135 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 active mutual funds, the DEM Equity Fund
and The Chapman U.S. Treasury Money Fund, each a portfolio of The Chapman Funds,
Inc. a registered open-end investment company, 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 operations 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."
19
<PAGE>
INVESTMENT PRODUCTS
The Company currently manages three investment portfolios, the DEM Equity
Fund and The Chapman U.S. Treasury Money Fund, each a portfolio of The Chapman
Funds, Inc. a registered open-end investment company, 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. This wholesale
marketing assistance includes participation in the preparation of marketing
materials and education of brokers with respect to the Company's investment
approach and products. 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.
As of March 31, 1998, the Company employed 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 generally 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
21
<PAGE>
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.
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. Although as of March 31, 1998, the Company's assets under
management attributable to mutual funds are approximately 9.8% of the Company's
total assets under management, the trends indicated above tend to support the
Company's strategy of emphasizing the creation of new mutual fund investment
products. There can, however, be no assurance that these trends will continue
and, to the extent that such trends change, such changes may have a material
adverse effect on the success of the Company's strategy.
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
22
<PAGE>
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 investment advisor 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 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
23
<PAGE>
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.
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
Although the Company is not currently involved in any material pending legal
proceedings, many aspects of the Company's business involve substantial risks of
liability, including, but not limited to, exposure under federal and state
securities laws. The Company does not currently 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
Robert L. Wallace................... 41 Director
M. Lynn Ballard..................... 55 Treasurer, Assistant Secretary and Controller
</TABLE>
The Board of Directors has designated an Audit Committee of the Board of
Directors, currently consisting of its two independent Directors. The Audit
Committee shall 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 has also designated a Compensation Committee of
the Board of Directors, currently consisting of its two independent Directors.
The Compensation Committee shall review the performance of senior management,
approve the compensation of the President, recommend appropriate compensation
levels for officers other than the President 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 Chapman Insurance Holdings, Inc.
and its insurance subsidiary, 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. Mr.
Stokes has been an attorney for the Alabama Education Association since 1982.
ROBERT L. WALLACE has been a Director of the Company since June, 1998. Mr.
Wallace has been President of the BITH Group, Inc. since 1993. Mr. Wallace is
the author of the book "Black Wealth Through Black Entrepreneurship."
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.
25
<PAGE>
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.
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.
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 * * *
Robert L. Wallace......................................... 0 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.
26
<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 portfolio of The Chapman Funds, Inc., pursuant to an Advisory and
Administrative Services Agreement. The DEM Equity Fund became active in April
1998 and did not paid any fees to the Company for the three months ended March
31, 1998.
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. These loans provided for a fixed
interest payment of $14,500, or an effective flat rate of 10% of the principal.
As of May 31, 1998, the Company had made payments on these loans in the amount
of $145,627 and owed Mr. Chapman $13,873.
As of May 31, 1997, the Company owed CHI $793,135 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
27
<PAGE>
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 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. Pursuant to an expense allocation
agreement, 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; Relations With Other Chapman Entities;
Conflicts of Interest."
As of June 9, 1998, the Company and Mr. Chapman had entered into a
non-exclusive, royalty-free service mark licensing agreement pertaining to CCM's
and the Company's use of the DEM, Domestic Emerging Markets, DEM Index, DEM
Profile, DEM Universe, DEM Company, DEM Multi-Manager, Chapman, 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.
28
<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
29
<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.
30
<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. Any interest earned on the subscription proceeds held by
the escrow agent will be paid to the Company. 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
31
<PAGE>
commission not in excess of $ per Share sold. For acting as a qualified
independent underwriter, the QIU will receive fees equal to the greater of
$100,000 or 30% of the aggregate underwriting discount.
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. Whiteford, Taylor & Preston L.L.P.
has acted as counsel for the Underwriter and 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, or on the EDGAR database through the Commission's Web
site noted below. 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.
32
<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. This amount due to affiliate is reflected in a 10-year note, 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 note is expected
to be repaid from the proceeds of the proposed inital public offering.
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)
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 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........................... 26
Certain Transactions............................. 27
Description of Capital Stock..................... 29
Shares Eligible for Future Sale.................. 30
Plan of Distribution............................. 31
Transfer Agent, Escrow Agent and Registrar....... 32
Legal Matters.................................... 32
Experts.......................................... 32
Additional Information........................... 32
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: JUNE 22, 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.
31
<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........................... 26
Certain Transactions............................. 27
Description of Capital Stock..................... 29
Shares Eligible for Future Sale.................. 30
Plan of Distribution............................. 31
Transfer Agent, Escrow Agent and Registrar....... 32
Legal Matters.................................... 32
Experts.......................................... 32
Additional Information........................... 32
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 (2)
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. 1998 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 June 19, 1998 (2)
10.10 Service Mark License Agreement between the Company, Chapman Capital Managemnt, Inc.
and Nathan A. Chapman, Jr. dated as of June 9, 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 (2)
23.2 Consent of Venable, Baetjer and Howard, LLP (included in Exhibit 5)
24.1 Power of Attorney (1)
24.2 Power of Attorney (2)
27 Financial Data Schedule (1)
</TABLE>
- ------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-51883) as filed with the Securities and Exchange
Commission on May 5, 1998.
(2) Filed herewith.
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 June 19, 1998.
<TABLE>
<S> <C> <C>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
By: /s/ EARL U. BRAVO, SR.
-----------------------------------------
Earl U. Bravo, Sr.
VICE 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
- --------------------------------------------- ------------------------------------------------- ---------------
<S> <C> <C>
Nathan A. Chapman, Jr. President, Chairman of the Board and Director
(Principal Executive Officer) June 19, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ EARL U. BRAVO, SR.
--------------------------------
Earl U. Bravo, Sr.
ATTORNEY-IN-FACT
/s/ M. LYNN BALLARD Treasurer and Controller (Principal
-------------------------------- Financial Officer and Principal
M. Lynn Ballard Accounting Officer) June 19, 1998
</TABLE>
The Entire Board of Directors
Nathan A. Chapman, Jr.
Earl U. Bravo, Sr.
Theron Stokes
Robert L. Wallace
<TABLE>
<S> <C> <C>
By: /s/ EARL U. BRAVO, SR.
--------------------------------
Earl U. Bravo, Sr. June 19, 1998
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement between the Company and
The Chapman Co.............................................................................
1.2 Form of Qualified Independent Underwriter Agreement between the Company and Ferris, Baker
Watts, Incorporated........................................................................
1.3 Form of Escrow Agreement between the Company and UMB Bank, N.A.............................
4 Form of Common Stock Certificate
5 Opinion of Venable, Baetjer and Howard, LLP................................................
10.5 Advisory Agreement for Separate Account dated June 1, 1995.................................
10.9 Agreement between the Company and Chapman Holdings, Inc. as to Allocation of Shared
Expenses dated as of June 19, 1998.........................................................
10.10 Service Mark License Agreement between the Company, Chapman Capital Managemnt, Inc. and
Nathan A. Chapman, Jr. dated as of June 9, 1998............................................
10.11 Lock-up Agreement between the Company and Nathan A. Chapman, Jr. dated December 28, 1997...
23.1 Consent of Arthur Andersen LLP.............................................................
24.2 Power of Attorney..........................................................................
</TABLE>
<PAGE>
Exhibit 1.1
1,250,000 Shares Maximum
850,000 Shares Minimum
Common Stock
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
PLACEMENT AGENCY AGREEMENT
____________, 1998
The Chapman Co.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
Chapman Capital Management Holdings, Inc., a Maryland corporation (the
"Company"), and parent of its wholly-owned subsidiary, Chapman Capital
Management, Inc. ("CCM"), proposes to cause to be issued, and sold (the
"Offering") through The Chapman Co. (the "Placement Agent") on a "best
efforts" basis, a minimum of 850,000 (the "Minimum") and a maximum of
1,250,000 (the "Maximum") shares (the "Shares") of common stock, $0.001 par
value per share (the "Common Stock"), at a public offering price of $____ per
share (the "Offering Price").
SECTION 1. APPOINTMENT
The Company hereby appoints the Placement Agent, and the Placement Agent
hereby agrees, to act as an agent of the Corporation and to use its best
efforts to solicit subscriptions for the Shares for the period and on the
terms set forth in this Agreement. In connection therewith, the Company has
delivered to the Placement Agent copies of its Articles of Incorporation and
Bylaws, the Corporation's Registration Statement on Form SB-2 (File No.
333-51883) and all amendments thereto (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), and the
Company's current prospectus (as currently in effect and as amended or
supplemented, the "Prospectus") and shall promptly furnish the Placement
Agent with all amendments of or supplements to the foregoing.
SECTION 2. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Placement Agent that:
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 2
(a) The Company has an authorized capitalization as set forth in
the Prospectus under the caption "Capitalization"; the outstanding shares of
capital stock of the Company and CCM, have been duly and validly authorized
and issued and are fully paid and non-assessable; except as disclosed in the
Prospectus, there are no outstanding (i) securities or obligations of the
Company or CCM convertible into or exchangeable for any capital stock of the
Company or CCM, (ii) warrants, rights or options to subscribe for or purchase
from the Company or CCM any such capital stock or any such convertible or
exchangeable securities or obligations, or (iii) obligations of the Company
or CCM to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or
options;
(b) the Company's only subsidiary is CCM and the Company and CCM
each has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its respective jurisdiction of incorporation
with full corporate power and authority to own its respective properties and
to conduct its respective business as described in the Registration Statement
and the Prospectus;
(c) the Company and CCM are duly qualified or licensed by each
jurisdiction in which they conduct their respective businesses and in which
the failure, individually or in the aggregate, to be so qualified or licensed
could reasonably be expected to have a material adverse effect on the assets,
operations, business, prospects or condition (financial or otherwise) of the
Company and CCM taken as a whole, and the Company and CCM are duly qualified,
and are in good standing, in each jurisdiction in which they own or lease
real property or maintain an office and in which such qualification is
necessary, except where, individually or in the aggregate, the failure to be
so qualified and in good standing would not have a material adverse effect on
the assets, operations, business, prospects or condition (financial or
otherwise) of the Company and CCM taken as a whole; except as disclosed in
the Prospectus, CCM is not prohibited or restricted, directly or indirectly,
from paying dividends to the Company, or from making any other distribution
with respect to CCM's capital stock or from paying the Company any loans or
advances to CCM from the Company or from transferring CCM's property or
assets to the Company;
(d) the Company and CCM are in compliance with all applicable
federal, state, local and foreign laws, rules and regulations, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the Investment Advisers Act of 1940,
as amended, and the regulations promulgated thereunder (collectively, the
"Securities Laws"), orders, decrees and judgments, including those relating
to transactions with affiliates, except where, individually or in the
aggregate, the failure to be in compliance in a material respect therewith
would not have a material adverse
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 3
effect on the assets, operations, business, prospects or condition (financial
or otherwise) of the Company and CCM taken as a whole;
(e) neither the Company nor CCM is in breach of, or in default
under, nor has any event occurred which with giving of notice, lapse of time,
or both would constitute a breach of, or default under, its respective
articles of incorporation or charter or by-laws or in the performance or
observance of any obligation, agreement, covenant or condition contained in
any license, indenture, mortgage, deed of trust, loan or credit agreement or
other agreement or instrument to which the Company or CCM is a party or by
which any of them or their respective properties is bound, except for such
breaches or defaults which, individually or in the aggregate, would not have
a material adverse effect on the assets, operations, business, prospects or
condition (financial or otherwise) of the Company and CCM taken as a whole,
and the execution, delivery and performance of this Agreement and the
Qualified Independent Underwriter Agreement, by and between the Company and
Ferris Baker Watts Incorporated (the "QIU Agreement") and consummation of the
transactions contemplated hereby and thereby will not result in the creation
or imposition of any lien, charge, claim or encumbrance upon any property or
asset of the Company or CCM, or conflict with, or result in any breach of, or
constitute a default under, or constitute an event which with giving of
notice, lapse of time, or both would constitute a breach of, or default
under, (i) any provision of the articles of incorporation or charter or
by-laws of the Company or CCM, or (ii) any provision of any license,
indenture, mortgage, deed of trust, loan or credit agreement or other
agreement or instrument to which the Company or CCM is a party or by which
either of them or their respective properties may be bound or affected, or
(iii) any federal, state, local or foreign law, regulation or rule,
including, without limitation, the Securities Laws, or any decree, judgment
or order applicable to the Company or CCM, except in the case of this clause
(iii) for such breaches or defaults which, individually or in the aggregate,
would not have a material adverse effect on the assets, operations, business,
prospects or condition (financial or otherwise) of the Company and CCM taken
as a whole;
(f) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, and by general principles
of equity, and except to the extent that the indemnification and contribution
provisions of Section 11 hereof may be limited by federal or state securities
laws and public policy considerations in respect thereof;
(g) no approval, authorization, consent or order of or filing with
any federal, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the execution,
delivery and performance of this Agreement and the QIU Agreement, the
consummation of
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 4
the transactions contemplated hereby and thereby, or the sale and delivery of
the Shares by the Company as contemplated hereby other than (i) such as have
been obtained, or will have been obtained at each Closing Date under the
Securities Act, (ii) such approvals as have been obtained or will have been
obtained by the Initial Closing Date in connection with the approval of the
quotation of the Shares on the Nasdaq SmallCap Market (the "SmallCap Market")
and (iii) any necessary qualification under the securities or blue sky laws
of the various jurisdictions in which the Shares are being offered through
the Placement Agent;
(h) each of the Company and CCM has all necessary licenses,
authorizations, consents and approvals and has made all necessary filings
required under any federal, state, local and foreign law, regulation and
rule, including, without limitation, the Securities Laws, and has obtained
all necessary authorizations, consents and approvals from other persons,
required in order to conduct their respective businesses as described in the
Prospectus, except to the extent that any failure to have any such licenses,
authorizations, consents or approvals, to make any such filings or to obtain
any such authorizations, consents or approvals would not, individually or in
the aggregate, have a material adverse effect on the assets, operations,
business, prospects or condition (financial or otherwise) of the Company and
CCM taken as a whole; neither the Company nor CCM is in violation of, in
default under, or has received any notice regarding a possible violation,
default or revocation of any such license, authorization, consent or approval
applicable to the Company or CCM, the effect of which, individually or in the
aggregate, could be material and adverse to the assets, operations, business,
prospects or condition (financial or otherwise) of the Company and CCM taken
as a whole; and no such license, authorization, consent or approval contains
a materially burdensome restriction that is not adequately disclosed in the
Registration Statement and the Prospectus;
(i) each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the Securities Act and no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the Securities Act
and no proceedings for that purpose have been instituted or are pending or,
to the knowledge of the Company, are threatened by the Commission, and any
request on the part of the Commission for additional information has been
complied with;
(j) the Preliminary Prospectus and the Registration Statement
comply and the Prospectus and any further amendments or supplements thereto
will, when they have become effective or are filed with the Commission, as
the case may be, comply in all material respects with the requirements of the
Securities Act and the regulations promulgated thereunder (the "Securities
Act Regulations"); the Registration Statement did not, and any amendment
thereto
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 5
will not, in each case as of the applicable effective date, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and the
Preliminary Prospectus does not, and the Prospectus or any amendment or
supplement thereto will not, as of the applicable filing date and at each
Closing Date contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no warranty
or representation with respect to any statement contained in the Registration
Statement or the Prospectus in reliance upon and in conformity with the
information concerning The Placement Agent and furnished in writing by or on
behalf of the Placement Agent to the Company expressly for use in the
Registration Statement or the Prospectus (that information being limited to
that described in Section 11(e) hereof);
(k) the Preliminary Prospectus was and the Prospectus delivered to
the Placement Agent for use in connection with the Offering will be identical
in all material respects to the versions of the Preliminary Prospectus and
the Prospectus created to be transmitted to the Commission for filing via the
Electronic Data Gathering Analysis and Retrieval System ("EDGAR"), except to
the extent permitted by Regulation S-T;
(l) all legal or governmental proceedings, contracts or documents
of a character required to be filed as exhibits to the Registration Statement
or to be summarized or described in the Prospectus have been so filed,
summarized or described as required and any such summaries or descriptions
present fairly the information required to be shown;
(m) there are no actions, suits, proceedings, inquiries or
investigations pending or, to the Company's knowledge, threatened against the
Company or CCM or any of their respective officers or directors or to which
the properties, assets or rights of either entity are subject, at law or in
equity, before or by any federal, state, local or foreign court, governmental
or regulatory commission, board, body, authority, arbitration panel or agency
which, individually or in the aggregate, could result in a judgment, decree,
award or order having a material adverse effect on the assets, operations,
business, prospects or condition (financial or otherwise) of the Company and
CCM taken as a whole;
(n) the financial statements, including the notes thereto,
included in the Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and CCM as of the dates
indicated and the consolidated results of operations and changes in
stockholders' equity and cash flows of the Company and CCM for the periods
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 6
specified; such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as indicated in the notes thereto); the
financial statement schedules included in the Registration Statement and the
amounts in the Prospectus under the captions "Prospectus Summary --Summary
Financial Data," "Capitalization," "Dilution" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" fairly present
the information shown therein and have been compiled on a basis consistent
with the financial statements included in the Registration Statement and the
Prospectus;
(o) Arthur Andersen LLP, whose report on the consolidated
financial statements of the Company and CCM are filed with the Commission as
part of the Registration Statement and Prospectus, are and were during the
periods covered by their reports independent public accountants as required
by the Securities Act and the Securities Act Regulations;
(p) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may be
otherwise stated in the Registration Statement or the Prospectus, there has
not been (i) any material adverse change, in the assets, liabilities,
capital, operations, business or condition (financial or otherwise), present
or prospective, of the Company and CCM taken as a whole, whether or not
arising in the ordinary course of business, (ii) any transaction, which is
material to the Company and CCM taken as a whole, contemplated or entered
into by the Company or CCM, (iii) any obligation, contingent or otherwise,
directly or indirectly incurred by the Company or CCM, which is material to
the Company and CCM taken as a whole or (iv) any dividend or distribution of
any kind declared, paid or made by the Company or CCM on any class of capital
stock;
(q) the Company is not, and upon the sale of the Shares as herein
contemplated will not be, an investment company which is required to register
under the Investment Company Act;
(r) the Shares will conform in all material respects to the
description thereof contained in the Registration Statement and the
Prospectus;
(s) except as disclosed in the Prospectus, there are no persons
with registration or other similar rights to have any equity securities
registered pursuant to the Registration Statement or otherwise registered by
the Company under the Securities Act;
(t) the Shares have been duly authorized and, when the Shares have
been issued and duly delivered against payment therefor as contemplated by
this Agreement and the Prospectus, the Shares will be validly issued, fully
paid and nonassessable, free and clear of any pledge, lien, encumbrance,
security interest, mortgage or other claim whatsoever, and the
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 7
issuance and sale of the Shares by the Company is not subject to preemptive
or other similar rights arising by operation of law, under the articles of
incorporation or by-laws of the Company, under any agreement to which the
Company or CCM is a party, or otherwise;
(u) the Company has not taken, and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares;
(v) any certificate signed by any officer of the Company or CCM
delivered to the Placement Agent or to counsel for the Placement Agent
pursuant to or in connection with this Agreement shall be deemed a
representation and warranty by the Company to each of the Placement Agent and
its counsel as to the matters covered thereby;
(w) the form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the articles of incorporation and by-laws
of the Company, and with the requirements of the SmallCap Market;
(x) in connection with the Offering, the Company has not offered
and will not offer its Common Stock or any other securities convertible into
or exchangeable or exercisable for Common Stock in a manner in violation of
the Securities Act;
(y) except as disclosed in the Prospectus, the Company has not
incurred any liability for any finder's fees or similar payments in
connection with the transactions herein contemplated; and
(z) The Company, CCM and their predecessors have filed all
necessary federal, state and foreign income and franchise tax returns that
they were required to file and have paid all taxes shown as due thereon
(including, but not limited to, all penalties, interest and other additions
thereto), except for failures to file or pay which would not, individually or
in the aggregate, have a material adverse effect on the assets, operations,
business, prospects or condition (financial or otherwise) of the Company and
CCM taken as a whole. All such tax returns were correct and complete in all
material respects. All tax liabilities are adequately provided for on the
books of the Company and CCM, except to such extent as would not,
individually or in the aggregate, have a material adverse affect on the
assets, operations, business, prospects or condition (financial or otherwise)
of the Company and CCM taken as a whole. The Company, CCM and their
predecessors have made all necessary payroll and employment tax payments and
are current and up-to-date with respect to such tax payments as of the date
of this Agreement, except where failure to
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 8
make any such payment would not, individually or in the aggregate, have a
material adverse affect on the assets, operations, business, prospects or
condition (financial or otherwise) of the Company and CCM taken as a whole.
The Company and CCM have no knowledge of any tax proceedings or other action
pending or threatened against the Company or CCM which, individually or in
the aggregate, could have a material adverse affect on the assets,
operations, business, prospects or condition (financial or otherwise) of the
Company and CCM taken as a whole.
SECTION 3. DISTRIBUTION SERVICES
Subject to the direction and control of the Company's Board of Directors
(the "Board"), the Placement Agent shall solicit subscriptions for the Shares
to be sold in the Offering.
(a) As agent of the Company, the Placement Agent shall offer, and
solicit offers to subscribe to, the Shares as shall then be effectively
registered under the Securities Act and applicable state securities laws. All
subscriptions for the Shares obtained by the Placement Agent shall be
directed to the Company for acceptance and shall not be binding on the
Company until accepted by it. The Placement Agent shall have no authority to
make binding subscriptions on behalf of the Company. The Placement Agent's
rights hereunder shall not apply to shares of Common Stock issued in
connection with the reinvestment by the Company's stockholders of dividends
or other distributions or any other offering by the Company of securities to
its stockholders.
(b) The Placement Agent shall use its best efforts to obtain
subscriptions to the Shares upon the terms and conditions contained herein
and in the Prospectus, including the Offering Price. The Company shall
furnish to the Placement Agent from time to time, for use in connection with
the Offering, such information with respect to the Company and the Shares as
the Placement Agent may reasonably request. The Company shall supply the
Placement Agent with such copies of the Prospectus as the Placement Agent may
request. The Placement Agent may use its employees, agents and other persons
who need not be its employees, at its cost and expense, to assist it in
carrying out its obligations hereunder, but no such employee, agent or other
person shall be deemed to be an agent of the Company or have any rights under
this Agreement.
(c) The Company reserves the right to suspend the Offering at any time,
in the absolute discretion of the Board of Directors, and upon notice of such
suspension the Placement Agent shall cease to offer the Shares.
(d) The Company and the Placement Agent will cooperate with each other
in taking such action as may be necessary to qualify the Shares for sale
under the securities laws of such states as the Company may designate. The
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 9
Company shall pay all fees and expenses of registering the Shares under the
Securities Act and of registering or qualifying the Shares and the Company's
qualification under applicable state securities laws. The Placement Agent
shall pay all expenses relating to its broker-dealer qualification.
(e) The Company shall advise the Placement Agent immediately: (i) of
any request by the Commission for amendments to the Company's Registration
Statement or Prospectus or for additional information; (ii) in the event of
the issuance by the Commission of any stop order suspending the effectiveness
of the Company's Registration Statement or Prospectus or the initiation of
any proceedings for that purpose; (iii) of the happening of any material
event which makes untrue any statement made in the Company's Registration
Statement or Prospectus or which requires the making of a change in either
thereof in order to make the statements therein not misleading; and (iv) of
all action of the Commission with respect to any amendments to the Company's
Registration Statement or Prospectus which may from time to time be filed
with the Commission under the Securities Act.
(f) The Company will advise the Placement Agent promptly of the
happening of any event known to the Company within the time during which a
Prospectus relating to the Shares is required to be delivered under the
Securities Act Regulations which, in the judgment of the Company, would
require the making of any change in the Prospectus then being used so that
the Prospectus would not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, and, during such time, the Company will
prepare and furnish, at the Company's expense, to the Placement Agent
promptly such amendments or supplements to such Prospectus as may be
necessary to reflect any such change and to furnish to the Placement Agent a
copy of such proposed amendment or supplement before filing any such
amendment or supplement with the Commission.
(g) The Company will furnish promptly to the Placement Agent a signed
copy of the Registration Statement, as initially filed with the Commission,
and of all amendments or supplements thereto (including all exhibits filed
therewith or incorporated by reference therein) and such number of conformed
copies of the foregoing as the Placement Agent may reasonably request.
(h) The Company will furnish to the Placement Agent, not less than one
business day before filing with the Commission subsequent to the effective
date of the Registration Statement and during the period referred to in
paragraph (f) above, a copy of any document proposed to be filed with the
Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act.
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 10
SECTION 4. EXPENSES
The Company will pay all fees, costs and expenses incident to the
performance by the Company of its obligations hereunder, including: (a) the
preparation, printing, filing and distribution of the Registration Statement
(including the exhibits thereto), all amendments and supplements thereto and
the Prospectus; (b) the preparation, printing, and issuance of the Shares
including any stamp taxes and transfer agent and registrar fees payable in
connection with the original issuance of the Shares; (c) the registrations or
qualifications referred to in Section 2 hereof including fees and
disbursements of counsel relating to such registrations or qualifications;
(d) the fees and expenses of the Company's accountants and the fees and
expenses of counsel for the Company; (e) the expenses of delivery to the
Placement Agent of copies of the Prospectus, as may be requested for use in
connection with the Offering; (f) any filings required to be made by the
Placement Agent with the National Association of Securities Dealers, Inc.;
and (g) the fees and expenses incurred with respect to the quotation of the
Shares on the Nasdaq SmallCap Market. In the event the Offering is
terminated pursuant to Section 6 hereof, the Placement Agent will be entitled
to reimbursement only for its actual accountable out-of-pocket expenses and
fees and expenses of legal counsel.
SECTION 5. TERMS OF THE OFFERING
(a) The Offering shall commence upon the effectiveness of the
Registration Statement (the "Effective Date"). All subscription proceeds
shall be transmitted directly to an escrow account established at UMB Bank,
N.A. (the "Escrow Agent") by 12:00 noon, Central Time, of the next business
day after receipt thereof by the Placement Agent. 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 the date that is 180 days
after the Effective Date, unless extended by the Company for one or more
additional periods not to exceed an additional 30 days in the aggregate, in
which case, on that date which the last such additional period expires (the
"Termination Date"). If the Minimum is not sold by 5:00 p.m. Baltimore Time
on the Termination Date, the Offering shall terminate and all subscription
proceeds shall be returned to prospective investors, without discount and
without interest.
(b) On such date after the sale of the Minimum and on or before the
Termination Date as shall be determined by the Company and subject to the
terms and conditions of this Agreement, a closing shall occur pursuant to
which the Shares shall be issued to subscribers against release of the
Offering proceeds held in escrow with respect to such subscribers'
subscriptions ("Initial Closing"). After the Initial Closing, subscription
proceeds will be held by the Escrow Agent pending a subsequent closing.
Subject to the terms and conditions of this Agreement, subsequent closings
("Subsequent Closings") shall be held thereafter with respect to additional
sales of the Shares on a monthly basis or on
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 11
such a more frequent basis as the Company and Placement Agent shall agree
until the earlier of the Termination Date or termination of the Offering as
provided herein. The Initial Closing or a Subsequent Closing is hereinafter
referred to sometimes as a Closing. The Offering Price will be $___ per
Share. The minimum subscription will be for 100 Shares. The Placement Agent
shall be paid a selling concession of up to seven percent (7.0%) of the
subscription proceeds ($0.___ per share) from all sales of the Shares all, or
any portion, of which the Placement Agent may reallow to other selling agents
or any qualified independent underwriter. The Company shall have the right
to accept or reject in whole or in part subscriptions for the Shares.
SECTION 6. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, (i) by the Board of Directors of the Company, on 10 days' written
notice to the Placement Agent or (ii) by the Placement Agent on 10 days'
written notice to the Company. This Agreement shall automatically terminate
in the event of its assignment.
SECTION 7. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND
WARRANTIES
The respective indemnities of the Company and the Placement Agent and
the representations and warranties of the Company set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless
of any termination or cancellation of this Agreement or any investigation by
or on behalf of the Company or the Placement Agent or any controlling person
referred to in Section 11 hereof, and shall survive the issuance of the
Shares, and any successor or assign of the Placement Agent or the Company or
any such controlling person or any legal representative of such controlling
person shall be entitled to the benefit of the respective indemnities,
agreements, warranties and representations.
SECTION 8. ACTIVITIES OF PLACEMENT AGENT
Except to the extent necessary to perform its obligations under this
Agreement, nothing herein shall be deemed to limit or restrict the Placement
Agent's right, or the right of any of its officers, directors or employees
(whether or not they are a director, officer, employee or other affiliated
person of the Company) to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other company, corporation, firm, individual or association.
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 12
SECTION 9. CERTAIN COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees with the Placement Agent that:
(a) The Company will apply the net proceeds of the sale of the
Shares in accordance with its statements under the caption "Use of Proceeds"
in the Prospectus.
(b) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the end of
the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement complying
with the provisions of Section 11(a) of the Securities Act (in form, at the
option of the Company, complying with the provisions of Rule 158 of the
Securities Act Regulations) covering a period of 12 months beginning after
the effective date of the Registration Statement.
(c) The Company will use its best efforts to effect and maintain
the quotation of the Shares on the SmallCap Market and to file with the
SmallCap Market all documents and notices required of companies that have
securities included for quotation on the SmallCap Market.
(d) At no time prior to the completion of the Offering will the
Company issue any press releases or other communications directly or
indirectly and will hold no press conferences with respect to the Company or
CCM, on the financial condition, results of operations, business, properties,
assets or liabilities of the Company or CCM, or the Offering of the Shares,
without the prior written consent of the Placement Agent.
SECTION 10. CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS:
The obligations of the Placement Agent hereunder are subject to the
accuracy of the representations and warranties on the part of the Company in
all material respects on the date hereof and on each Closing Date, the
performance by the Company of its obligations hereunder in all material
respects and to the following further conditions:
(a) The Company shall furnish to the Placement Agent on the date
hereof and on each Closing Date an opinion of Venable, Baetjer and Howard,
LLP, counsel for the Company, addressed to the Placement Agent and dated as
of each such Closing Date, and in a form reasonably satisfactory to
Whiteford, Taylor & Preston L.L.P., counsel for the Placement Agent, stating
that:
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 13
(i) the Company has an authorized capitalization as set
forth in the Prospectus under the caption "Capitalization;" the
outstanding shares of capital stock of the Company and CCM have been
duly and validly authorized and issued and are fully paid and
non-assessable; except as disclosed in the Prospectus, to such
counsel's knowledge, there are no outstanding (A) securities or
obligations of the Company or CCM convertible into or exchangeable for
any capital stock of the Company or CCM, (B) warrants, rights or
options to subscribe for or purchase from the Company or CCM any such
capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or CCM to issue any
shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options;
(ii) the Company and CCM each has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its respective jurisdiction of
incorporation with full corporate power and authority to own its
respective properties and to conduct its respective business as
described in the Registration Statement and the Prospectus and to
execute and deliver this Agreement and the QIU Agreement;
(iii) the execution, delivery and performance of this
Agreement and the QIU Agreement by the Company and the
consummation by the Company of the transactions contemplated
under this Agreement or the QIU Agreement, as the case may be, do
not and will not (A) conflict with, or result in any breach of,
or constitute a default under, or constitute an event which with
giving of notice, lapse of time, or both would constitute a
breach of or default under, (I) any provisions of the articles of
incorporation, charter or by-laws of the Company or CCM, (II) to
the best of such counsel's knowledge, any provision of any
material license, indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument to which the
Company or CCM is a party or by which either of them or their
respective properties may be bound or affected, or (III) to the
best of such counsel's knowledge, any law or regulation,
including, without limitation, the Securities Laws, or any
decree, judgment or order applicable to the Company or CCM,
except in the case of clause (II) for such conflicts, breaches or
defaults which, individually or in the aggregate, would not have
a material adverse effect on the assets, operations, business,
prospects or condition (financial or otherwise) of the Company
and CCM taken as a whole; or (B) to such counsel's knowledge,
result in the creation or imposition of
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 14
any lien, charge, claim or encumbrance upon any property or assets of
the Company or CCM;
(iv) to such counsel's knowledge, no approval,
authorization, consent or order of or filing with any federal or
state governmental or regulatory commission, board, body,
authority or agency is required in connection with the execution,
delivery and performance of this Agreement and the QIU Agreement,
the consummation of the transactions contemplated hereby and
thereby, the sale and delivery of the Shares by the Company as
contemplated hereby other than such as have been obtained or made
under the Securities Act, and except that such counsel need
express no opinion as to any necessary qualification under the
rules of the NASD or the state securities or blue sky laws of the
various jurisdictions in which the Shares are being offered by
the Placement Agent;
(v) the Company is not, and upon the sale of the
Shares as herein contemplated will not be, an investment company
required to be registered under the Investment Company Act;
(vi) the Shares have been duly authorized and, when
the Shares have been issued and duly delivered against payment
therefor as contemplated by this Agreement, the Shares will be
validly issued, fully paid and nonassessable, free and clear of
any pledge, lien, encumbrance, security interest, mortgage or
other claim whatsoever;
(vii) the issuance and sale of the Shares by the
Company is not subject to preemptive or other similar rights
arising by operation of law, under the articles of incorporation
or by-laws of the Company, under any agreement known to such
counsel to which the Company or CCM is a party or, to the best of
such counsel's knowledge, otherwise;
(viii) the form of certificate used to evidence the
Common Stock complies in all material respects with all
applicable statutory requirements, with any applicable
requirements of the articles of incorporation and by-laws of the
Company and the requirements of the SmallCap Market;
(ix) the Registration Statement has become effective
under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement has been issued and,
to
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 15
the best of such counsel's knowledge, no proceedings with respect
thereto have been commenced or threatened;
(x) as of the Effective Date, the Registration
Statement and the Prospectus (except as to the financial
statements and other financial and statistical data contained in
such Registration Statement or Prospectus, as to which such
counsel need express no opinion) complied as to form in all
material respects with the requirements of the Securities Act and
the Securities Act Regulations;
(xi) the statements under the captions
"Capitalization," "Risk Factors -- Regulatory Risks," "Business
-- Government Regulation," "Certain Transactions," "Description
of Capital Stock," and "Shares Eligible for Future Sale," in the
Registration Statement and the Prospectus, insofar as such
statements constitute a summary of the legal matters referred to
therein, constitute accurate summaries thereof in all material
respects; and
(xii) except as set forth in the Prospectus, to the
best of such counsel's knowledge, there are no material legal or
governmental proceedings pending or threatened against, or
involving the properties of the Company or CCM required to be
disclosed in the Prospectus; provided that for this purpose such
counsel need not regard any litigation or governmental
proceedings to be "threatened" unless the potential litigant or
governmental authority has manifested to the Company or CCM, or
to their management, a present intention to initiate such
proceedings.
(xiii) to such counsel's knowledge, there are no
contracts or documents of a character which are required to be
filed as exhibits to the Registration Statement or to be
described or summarized in the Prospectus which have not been so
filed, summarized or described.
In addition, such counsel shall state that they have participated in the
preparation of the Prospectus and the Registration Statement and in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company and
with the Placement Agent at which the contents of the Prospectus and the
Registration Statement and related matters were discussed and, although such
counsel is not passing upon and does not assume responsibility for the
accuracy, completeness or fairness of the statements contained in the
Prospectus and the Registration Statement and have not made any independent
investigation or
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 16
verification thereof, nothing has come to their attention during the course
of such participation that leads them to believe that at the time the
Registration Statement became effective, the Prospectus and the Registration
Statement (other than the financial statements and schedules and other
financial and statistical data and information included therein or omitted
therefrom, as to which they need express no opinion) contained or contains an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) the Placement Agent shall have received, on each of the date
hereof and each Closing Date, a letter dated the date hereof or such Closing
Date, as the case may be, in form and substance satisfactory to the Placement
Agent, from Arthur Andersen LLP, independent public accountants, confirming
that they are independent public accountants within the meaning of the
Securities Act and the Securities Act Regulations and stating that in their
opinion the financial statements examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Securities Act and the Securities
Act Regulations; and containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus.
(c) No amendment or supplement to the Registration Statement or
the Prospectus shall have been filed to which the Placement Agent has
objected in writing.
(d) Prior to the completion of the Offering (i) no stop order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus shall have been issued by the Commission, (ii) no suspension of
the qualification of the Shares for offering or sale in any jurisdiction
shall have occurred, and no proceeding for such suspension shall have been
initiated or threatened; and (iii) the Registration Statement and the
Prospectus shall not contain an untrue statement of material fact or omit to
state a material fact, individually or in the aggregate, required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(e) Between the time of execution of this Agreement and each
Closing Date (i) no material and unfavorable change in the assets,
operations, business, prospects or condition (financial or otherwise) of the
Company and CCM taken as a whole shall have occurred or become known (whether
or not arising in the ordinary course of business), and (ii) no transaction
which is material
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 17
and unfavorable to the Company shall have been entered into by the Company
or CCM
.
(f) On the Effective Date, the QIU Agreement shall have been
entered into and delivered by all required parties.
(g) On each Closing Date, all filings required to have been made
pursuant to Rules 424 or 430A under the Securities Act have been made.
(h) On the Initial Closing Date, the Shares shall have been
approved for listing upon notice of issuance on the SmallCap Market.
(i) The NASD shall not have raised any objection with respect to
the fairness and reasonableness of the underwriting terms and arrangements.
(j) the Placement Agent shall have received a letter from Nathan A.
Chapman, Jr., in form and substance satisfactory to the Placement Agent,
confirming his agreement that until February 25, 1999 he will not sell any
shares of Common Stock, or any securities convertible into or exchangeable
for any shares of Common Stock, or any option, warrant or other right to
acquire any shares of Common Stock, or publicly announce any intention to do
any of the foregoing, without the prior written consent of the Placement
Agent, which consent may be withheld in their sole discretion.
(k) The Company shall, on the date hereof and at each Closing
Date, deliver to the Placement Agent a certificate of its president and its
chief financial officer to the effect that, to each of such officer's
knowledge, the representations and warranties of the Company set forth in
this Agreement and the conditions set forth in paragraphs (c) through (h)
inclusive of this Section 10 have been met and are true and correct as of
such date.
(l) The Company shall have furnished to the Placement Agent such
other documents and certificates as to the accuracy and completeness of any
statement in the Registration Statement and the Prospectus, the
representations, warranties and statements of the Company contained herein,
and the performance by the Company of the covenants contained herein, and the
fulfillment of any conditions contained herein or therein, as of each Closing
Date as the Placement Agent may reasonably request.
(m) The Company shall have performed such of its obligations under
this Agreement as are to be performed by the terms hereof at or before each
Closing Date.
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 18
SECTION 11. INDEMNIFICATION AND CONTRIBUTION
(a) The Company agrees to indemnify and hold harmless the
Placement Agent and its directors, officers and each person, if any, who
controls the Placement Agent within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments and any
amount paid in settlement of, any action, suit or proceeding commenced or any
claim asserted), to which the Placement Agent may become subject under the
Securities Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, related to, based upon or arising out
of (i) an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any preliminary prospectus (unless, with respect to
any preliminary prospectus, corrected in the Prospectus), or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading (unless,
with respect to any preliminary prospectus, corrected in the Prospectus) , or
(ii) any breach or alleged breach by the Company of its representations,
warranties and agreements contained in this Agreement.
The Placement Agent agrees to indemnify and hold harmless the Company,
its directors and officers, and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Company to the Placement Agent, but only with respect to (i) any breach or
alleged breach by the Placement Agent of its representations, warranties and
agreements contained in this Agreement or (ii) information relating to the
Placement Agent furnished in writing by the Placement Agent expressly for use
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any preliminary prospectus; provided, however, that the foregoing
indemnity by the Placement Agent shall not apply to any untrue statement or
omission contained in any preliminary prospectus which is not contained in
the Prospectus.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought under this Section 11, such person
shall promptly notify each indemnifying party in writing and such
indemnifying party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to such indemnified party, and the payment
of all fees and expenses of such counsel, as incurred. Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 19
shall be at the expense of such indemnified party unless (i) the employment
of such counsel by such indemnified party shall have been specifically
authorized in writing by the indemnifying parties, (ii) the indemnifying
party shall have failed to assume the defense of such action or employ
counsel reasonably satisfactory to the indemnified party, or (iii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party, and the indemnified party shall
have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of
the indemnified party). In any such case, the indemnifying party shall not,
in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by the Placement
Agent, in the case of parties indemnified pursuant to the first paragraph of
Section 11(a), and by the Company, in the case of the parties indemnified
pursuant to the second paragraph of Section 11(a). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any
and all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii)
effected without its written consent if the settlement is entered into more
than twenty business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expense
of counsel (in any case where such fees and expenses are at the expense of
the indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement
request. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement or compromise of, or consent to
the entry of judgment with respect to, any pending or threatened action in
respect of which the indemnified party is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
on claims that are or could have been the subject matter of such action and
(ii) does not include a statement as to or an admission of fault, culpability
or a failure to act, by or on behalf of the indemnified party.
(c) To the extent the indemnification provided for in Section 11a)
is unavailable to, or insufficient to hold harmless any indemnified party
under Section 11(a), in respect of any loss, claim, damage, liability or
judgment referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate
to reflect the relative benefits
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 20
received by the Company, on the one hand, and the Placement Agent, on the
other, from the Offering or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, or if the indemnified party failed
to give the notice required under Section 11(b), in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company, on the one hand, and
the Placement Agent, on the other, in connection with the Placement Agent 's
activities under this Agreement or the statements or omissions that resulted
in such losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative benefits received by
the Company, on the one hand, and the Placement Agent, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the
Offering (after deducting expenses) bear to the total fee paid to the
Placement Agent pursuant to Section 5. The relative fault of the Company, on
the one hand, and of the Placement Agent, on the other, shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Placement Agent, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 11(c) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 11, the Placement Agent shall not be required to
contribute any amount in excess of the amount by which the fee paid to the
Placement Agent pursuant to Section 5 exceeds the amount of any damages the
Placement Agent has otherwise been required to pay by reason of such
activities under this Agreement or such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) The remedies provided for in this Section 10 are not exclusive
and shall not limit any rights or remedies which may otherwise be available
to any indemnified party at law or in equity.
(e) The statements under the caption "Plan of Distribution" in the
Prospectus constitute the only information furnished to the Company in
writing
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 21
on behalf of the Placement Agent expressly for use in the Registration
Statement, the Prospectus or any amendment or supplement thereto, or any
preliminary prospectus.
(f) The indemnity and contribution agreements contained in this
Section 11, and the covenants, representations and warranties of the Company
in this Agreement, shall remain operative and in full force and effect
regardless of (i) any investigation made by the Placement Agent or on its
behalf or by or on behalf of any person who controls the Placement Agent or
(ii) any termination of this Agreement or the Offering.
SECTION 12. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
(c) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(d) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have
been properly given.
(e) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Maryland without reference to
principles of conflict of law.
(f) This Agreement has been and is made solely for the benefit of the
Placement Agent, the Corporation and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares merely because of such purchase.
(g) This Agreement embodies the entire agreement between the
Corporation and the Placement Agent relating to the subject matter hereof and
supersedes all prior agreements, representations and understandings, if any,
relating to the subject matter hereof.
<PAGE>
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 22
(h) Please confirm that the foregoing correctly sets forth the
agreement between the Corporation and the Placement Agent.
Very truly yours,
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
By:
--------------------------------
Nathan A. Chapman, Jr.
President
Accepted,
THE CHAPMAN CO.
By:
---------------------------
Nathan A. Chapman, Jr.
President
<PAGE>
Exhibit 1.2
____________, 1998
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
World Trade Center - Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
The Chapman Co.
World Trade Center - Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
Re: Agreement to Act as "Qualified Independent Underwriter"
Ladies and Gentlemen:
You have advised us that Chapman Capital Management Holdings, Inc. (the
"Company"), a Maryland corporation, has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2 (Reg. No.
333-51883), relating to the offering by the Company of up to 1,250,000 shares of
the common stock, par value $.001 per share, of the Company (the "Common Stock"
or the "Shares").
The Company intends to engage The Chapman Co. (sometimes referred to
herein as the "Underwriter") to sell the Common Stock in an initial public
offering on a best-efforts basis (the "Offering"). The Underwriter will not
purchase the Shares from the Company but rather will act on an agency basis
pursuant to an Underwriting Agreement to be entered into by the Company and
the Underwriter (the "Underwriting Agreement").
We understand that, as a member of the National Association of Securities
Dealers, Inc. ("NASD"), the Underwriter may participate in the Offering only if
the price at which the Common Stock is to be offered to the public is no higher
than the price recommended by a "Qualified Independent Underwriter" (as such
term is defined in Rule 2720(b)(15) of the NASD Conduct Rules) and such
Qualified Independent Underwriter participates in the preparation of the
registration statement and prospectus relating to the Offering and exercises the
usual standards of due diligence with respect thereto. This Agreement describes
the terms on which Ferris Baker Watts, Incorporated ("FBW") agrees to serve as
a
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 2
Qualified Independent Underwriter in connection with the Offering. In
connection with the services to be provided by FBW hereunder and based upon the
representations and warranties of, and subject to the performance of the
covenants by, the Company herein set forth and FBW's satisfaction with the
results of its due diligence review, FBW agrees to deliver to the Company and
the Underwriter, and file with the NASD, a letter (the "Letter"), substantially
in the form of Appendix A hereto, on the date the Registration Statement (as
hereinafter defined) is first declared effective by the Commission (the
"Effective Date") or, if the Offering is not priced on the Effective Date, on
the date of the pricing of the Offering (the "Pricing Date"), and at each
subsequent Closing Date (as defined). As a condition to the delivery of the
Letter, the Registration Statement and each amendment thereto will include any
revisions that in the reasonable judgment of FBW and its legal counsel are
required to enable FBW to deliver the Letter.
As herein used, the term "Registration Statement" means the registration
statement on Form SB-2 (including the related prospectuses, financial
statements, exhibits, schedules and all other documents filed as parts thereof
or incorporated therein) for the registration of the Common Stock under the
Securities Act of 1933, as amended (the "Securities Act"), in the form declared
effective, filed with the Commission and any amendments thereto. The term
"Prospectus" means the prospectus, including any preliminary or final prospectus
(including the form of prospectus first filed with the Commission pursuant to
Rule 424(b) or 430A under the Securities Act after the Registration Statement
with respect to such Offering becomes effective or, if no such filing is
required, each prospectus in the form included in the Registration Statement
with respect to such Offering at the time it is first declared effective), and
any amendment or supplement thereto, to be used in connection with the Offering.
1. NASD Requirement. FBW hereby confirms its agreement to act in
connection with the Offering as a "Qualified Independent Underwriter" within the
meaning of Rule 2720 of the NASD Conduct Rules and represents that FBW satisfies
or will satisfy at the times designated in Rule 2720(b)(15) the requirements set
forth therein.
2. Consent. FBW hereby consents to be named in the Registration
Statement and Prospectus with respect to the Offering as having acted as the
Qualified Independent Underwriter and to the filing of this Agreement as an
exhibit to the Registration Statement. All references to FBW in the
Registration
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 3
Statement or Prospectus or in any other filing, report, document, release or
other communication prepared, issued or transmitted in connection with the
Offering by the Company or the Underwriter or any entity controlling, controlled
by or under common control with, or by any of them, shall be subject to FBW's
prior consent with respect to location, form and substance. FBW's obligation to
act as a Qualified Independent Underwriter hereunder shall terminate if the
Company shall breach in any material respect any representation, warranty or
covenant hereunder and such breach shall not be cured within ten days of written
notice thereof to the Company.
3. Fees and Expenses. The Company agrees to pay FBW a fee equal to the
greater of $100,000 or 30% of the aggregate underwriting discount of 7.0% for
each share of Common Stock sold in the Offering (the "Fee") for its services
hereunder, which shall be payable on each date on which payment for and delivery
of any of the Shares are made (each a "Closing Date"). The Company also agrees
to reimburse FBW for all reasonable out-of-pocket expenses, including all
reasonable fees and expenses of FBW's counsel (including accrued expenses),
incurred by FBW in connection with this Agreement and the Offering. If, for
whatever reason, it is determined that the Offering shall not commence or will
not be consummated, FBW shall be entitled to be paid in full for the
above-mentioned expenses, including fees and expenses of counsel, promptly
following such determination, and shall continue to be entitled to any amount
payable to FBW under Section 7 hereof.
4. Representations, Warranties and Covenants of the Company. The
Company represents and warrants to FBW that:
(a) On January 8, 1998, Chapman Capital Management, Inc. ("CCM")
became a wholly-owned subsidiary of the Company when: (i) The Chapman Co.
caused the Company to be organized; and (ii) The Chapman Co. transferred all
of the outstanding equity securities of CCM to the Company in exchange for
the issuance of shares of common stock of the Company. The formation of the
Company and the subsequent transfer of CCM's equity securities (collectively,
the "Formation Transactions") were conducted in accordance with all
applicable Federal and state laws and regulations, was duly authorized,
approved and adopted by all requisite corporate action of all constituent
corporations and under Section 1032(a) of the Code, the Company did not
recognize gain or loss as a result of the Formation Transactions.
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 4
(b) On February 26, 1998, The Chapman Co. and its sole
stockholder, Chapman Holdings, Inc. ("CHI"), effected a spin-off transaction
pursuant to which all of the outstanding equity securities of the Company were
distributed by The Chapman Co. to CHI and, immediately following such
distribution, all of such securities were distributed by CHI to its then
existing stockholders (the "Spin-offs"). The Spin-offs were conducted in
accordance with all applicable Federal and state laws and regulations, and
were duly authorized, approved and adopted by all requisite corporate action
of all constituent corporations.
(c) The Company has an authorized capitalization as set forth in the
Prospectus under the caption "Capitalization;" the outstanding shares of capital
stock of the Company and CCM, have been duly and validly authorized and issued
and are fully paid and non-assessable; except as disclosed in the Prospectus,
there are no outstanding (i) securities or obligations of the Company or CCM
convertible into or exchangeable for any capital stock of the Company or CCM,
(ii) warrants, rights or options to subscribe for or purchase from the Company
or CCM any such capital stock or any such convertible or exchangeable securities
or obligations, or (iii) obligations of the Company or CCM to issue any shares
of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options;
(d) the Company's only subsidiary is CCM and the Company and CCM
each has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its respective jurisdiction of incorporation
with full corporate power and authority to own its respective properties and
to conduct its respective business as described in the Registration Statement
and the Prospectus;
(e) the Company and CCM are duly qualified or licensed by each
jurisdiction in which they conduct their respective businesses and in which the
failure, individually or in the aggregate, to be so qualified or licensed could
reasonably be expected to have a material adverse effect on the
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 5
assets, operations, business, prospects or condition (financial or otherwise) of
the Company and CCM taken as a whole; except as disclosed in the Prospectus, CCM
is not prohibited or restricted, directly or indirectly, from paying dividends
to the Company, or from making any other distribution with respect to CCM's
capital stock or from paying the Company any loans or advances to CCM from the
Company or from transferring CCM's property or assets to the Company;
(f) the Company and CCM are in compliance with all applicable
federal, state, local and foreign laws, rules and regulations, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Investment Company Act of 1940, as amended
(the "Investment Company Act"), the Investment Advisers Act of 1940, as amended,
and the regulations promulgated thereunder (collectively, the "Securities
Laws"), orders, decrees and judgments, including those relating to transactions
with affiliates, except where, individually or in the aggregate, the failure to
be in compliance in a material respect therewith would not have a material
adverse effect on the assets, operations, business, prospects or condition
(financial or otherwise) of the Company and CCM taken as a whole;
(g) neither the Company nor CCM is in breach of, or in default
under, nor has any event occurred which with giving of notice, lapse of time,
or both would constitute a breach of, or default under, its respective
articles of incorporation or charter or by-laws or in the performance or
observance of any obligation, agreement, covenant or condition contained in
any license, indenture, mortgage, deed of trust, loan or credit agreement or
other agreement or instrument to which the Company or CCM is a party or by
which any of them or their respective properties is bound, except for such
breaches or defaults which, individually or in the aggregate, would not have
a material adverse effect on the assets, operations, business, prospects or
condition (financial or otherwise) of the Company and CCM taken as a whole,
and the execution, delivery and performance of this Agreement and the
Underwriting Agreement, and consummation of the transactions contemplated
hereby and thereby will not result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the Company or
CCM, or conflict with, or result in any breach of, or constitute a default
under, or constitute an event which with giving of notice, lapse of time, or
both would constitute a breach of, or default under, (i) any provision of the
articles of incorporation or charter or by-laws of the Company or CCM, or
(ii) any provision of any license, indenture, mortgage, deed of trust, loan
or credit agreement or other
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 6
agreement or instrument to which the Company or CCM is a party or by which
either of them or their respective properties may be bound or affected, or (iii)
any federal, state, local or foreign law, regulation or rule, including, without
limitation, the Securities Laws, or any decree, judgment or order applicable to
the Company or CCM, except in the case of this clause (iii) for such breaches or
defaults which, individually or in the aggregate, would not have a material
adverse effect on the assets, operations, business, prospects or condition
(financial or otherwise) of the Company and CCM taken as a whole;
(h) this Agreement has been duly authorized, executed and delivered
by the Company and is a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, and by general principles of equity, and
except to the extent that the indemnification and contribution provisions of
Section 7 hereof may be limited by federal or state securities laws and public
policy considerations in respect thereof;
(i) no approval, authorization, consent or order of or filing with
any federal, state or local governmental or regulatory commission, board, body,
authority or agency is required in connection with the execution, delivery and
performance of this Agreement and the Underwriting Agreement, the consummation
of the transactions contemplated hereby and thereby, or the sale and delivery of
the Shares by the Company as contemplated hereby other than (i) such as have
been obtained, or will have been obtained at each Closing Date under the
Securities Act, (ii) such approvals as have been obtained or will have been
obtained by the Initial Closing Date in connection with the approval of the
quotation of the Shares on the Nasdaq SmallCap Market (the "SmallCap Market")
and (iii) any necessary qualification under the securities or blue sky laws of
the various jurisdictions in which the Shares are being offered through the
Underwriter;
(j) each of the Company and CCM has all necessary licenses,
authorizations, consents and approvals and has made all necessary filings
required under any federal, state, local and foreign law, regulation and rule,
including, without limitation, the Securities Laws, and has obtained all
necessary authorizations, consents and approvals from other persons, required in
order to conduct their respective businesses as described in the Prospectus,
except to the extent that any failure to have any such licenses, authorizations,
consents or
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 7
approvals, to make any such filings or to obtain any such authorizations,
consents or approvals would not, individually or in the aggregate, have a
material adverse effect on the assets, operations, business, prospects or
condition (financial or otherwise) of the Company and CCM taken as a whole;
neither the Company nor CCM is in violation of, in default under, or has
received any notice regarding a possible violation, default or revocation of any
such license, authorization, consent or approval applicable to the Company or
CCM, the effect of which, individually or in the aggregate, could be material
and adverse to the assets, operations, business, prospects or condition
(financial or otherwise) of the Company and CCM taken as a whole; and no such
license, authorization, consent or approval contains a materially burdensome
restriction that is not adequately disclosed in the Registration Statement and
the Prospectus;
(k) each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the Securities Act and no stop
order suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the Securities Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are threatened by the Commission, and any request on
the part of the Commission for additional information has been complied with;
(l) the Preliminary Prospectus and the Registration Statement comply
and the Prospectus and any further amendments or supplements thereto will, when
they have become effective or are filed with the Commission, as the case may be,
comply in all material respects with the requirements of the Securities Act and
the regulations promulgated thereunder (the "Securities Act Regulations"); the
Registration Statement did not, and any amendment thereto will not, in each case
as of the applicable effective date, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and the Preliminary Prospectus does not, and the
Prospectus or any amendment or supplement thereto will not, as of the applicable
filing date and at each Closing Date contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes no
warranty or representation
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 8
with respect to any statement contained in the Registration Statement or the
Prospectus in reliance upon and in conformity with the information concerning
FBW and furnished in writing by or on behalf of FBW to the Company expressly for
use in the Registration Statement or the Prospectus (that information being
limited to that described in Section 7(e) hereof);
(m) the Preliminary Prospectus was and the Prospectus delivered to
the Underwriter for use in connection with the Offering will be identical in all
material respects to the versions of the Preliminary Prospectus and the
Prospectus created to be transmitted to the Commission for filing via the
Electronic Data Gathering Analysis and Retrieval System ("EDGAR"), except to the
extent permitted by Regulation S-T;
(n) all legal or governmental proceedings, contracts or documents of
a character required to be filed as exhibits to the Registration Statement or to
be summarized or described in the Prospectus have been so filed, summarized or
described as required and any such summaries or descriptions present fairly the
information required to be shown;
(o) there are no actions, suits, proceedings, inquiries or
investigations pending or, to the Company's knowledge, threatened against the
Company or CCM or any of their respective officers or directors or to which the
properties, assets or rights of either entity are subject, at law or in equity,
before or by any federal, state, local or foreign court, governmental or
regulatory commission, board, body, authority, arbitration panel or agency
which, individually or in the aggregate, could result in a judgment, decree,
award or order having a material adverse effect on the assets, operations,
business, prospects or condition (financial or otherwise) of the Company and CCM
taken as a whole;
(p) the financial statements, including the notes thereto, included
in the Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company and CCM as of the dates indicated and the
consolidated results of operations and changes in stockholders' equity and cash
flows of the Company and CCM for the periods specified; such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
indicated in the notes thereto); the financial statement schedules included in
the Registration Statement and the amounts in the Prospectus under
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 9
the captions "Prospectus Summary -- Summary Financial Data," "Capitalization,"
"Dilution" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" fairly present the information shown therein and have
been compiled on a basis consistent with the financial statements included in
the Registration Statement and the Prospectus;
(q) Arthur Andersen LLP, whose reports on the consolidated financial
statements of the Company and CCM are filed with the Commission as part of the
Registration Statement and Prospectus, are and were during the periods covered
by their reports independent public accountants as required by the Securities
Act and the Securities Act Regulations;
(r) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may be
otherwise stated in the Registration Statement or the Prospectus, there has not
been (i) any material adverse change, in the assets, liabilities, capital,
operations, business or condition (financial or otherwise), present or
prospective, of the Company and CCM taken as a whole, whether or not arising in
the ordinary course of business, (ii) any transaction, which is material to the
Company and CCM taken as a whole, contemplated or entered into by the Company or
CCM, (iii) any obligation, contingent or otherwise, directly or indirectly
incurred by the Company or CCM, which is material to the Company and CCM taken
as a whole or (iv) any dividend or distribution of any kind declared, paid or
made by the Company or CCM on any class of capital stock;
(s) the Company is not, and upon the sale of the Shares as herein
contemplated will not be, an investment company which is required to register
under the Investment Company Act;
(t) the Shares will conform in all material respects to the
description thereof contained in the Registration Statement and the Prospectus;
(u) except as disclosed in the Prospectus, there are no persons with
registration or other similar rights to have any equity securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the Securities Act;
(v) the Shares have been duly authorized and, when the Shares have
been issued and duly delivered against payment therefor as
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 10
contemplated by the Underwriting Agreement and the Prospectus, the Shares will
be validly issued, fully paid and nonassessable, free and clear of any pledge,
lien, encumbrance, security interest, mortgage or other claim whatsoever, and
the issuance and sale of the Shares by the Company is not subject to preemptive
or other similar rights arising by operation of law, under the articles of
incorporation or by-laws of the Company, under any agreement to which the
Company or CCM is a party, or otherwise;
(w) the Company has not taken, and will not take, directly or
indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares;
(x) any certificate signed by any officer of the Company or CCM
delivered to FBW or to counsel for FBW pursuant to or in connection with this
Agreement shall be deemed a representation and warranty by the Company to each
of FBW and its counsel as to the matters covered thereby;
(y) the form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the articles of incorporation and by-laws of
the Company, and with the requirements of the SmallCap Market;
(z) in connection with the Offering, the Company has not offered and
will not offer its Common Stock or any other securities convertible into or
exchangeable or exercisable for Common Stock in a manner in violation of the
Securities Act;
(aa) except as disclosed in the Prospectus, the Company has not
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated; and
(bb) The Company, CCM and their predecessors have filed all necessary
federal, state and foreign income and franchise tax returns that they were
required to file and have paid all taxes shown as due thereon (including, but
not limited to, all penalties, interest and other additions thereto), except for
failures to file or pay which would not, individually or in the aggregate, have
a material adverse effect on the assets, operations, business, prospects or
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 11
condition (financial or otherwise) of the Company and CCM taken as a whole. All
such tax returns were correct and complete in all material respects. All tax
liabilities are adequately provided for on the books of the Company and CCM,
except to such extent as would not, individually or in the aggregate, have a
material adverse affect on the assets, operations, business, prospects or
condition (financial or otherwise) of the Company and CCM taken as a whole. The
Company, CCM and their predecessors have made all necessary payroll and
employment tax payments and are current and up-to-date with respect to such tax
payments as of the date of this Agreement, except where failure to make any such
payment would not, individually or in the aggregate, have a material adverse
affect on the assets, operations, business, prospects or condition (financial or
otherwise) of the Company and CCM taken as a whole. The Company and CCM have no
knowledge of any tax proceedings or other action pending or threatened against
the Company or CCM which, individually or in the aggregate, could have a
material adverse affect on the assets, operations, business, prospects or
condition (financial or otherwise) of the Company and CCM taken as a whole.
5. Certain Covenants of the Company. The Company hereby covenants and
agrees with FBW that:
(a) The Company will furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as the Underwriter may designate and
to maintain such qualifications in effect as long as required for the
distribution of the Shares, provided that the Company shall not be required to
qualify as a foreign corporation or to consent to the service of process under
the laws of any such state (except for service of process with respect to the
offering and sale of the Shares).
(b) The Company will prepare immediately an amended Prospectus in a
form approved by FBW and the Underwriter and file or transmit for filing such
Prospectus with the Commission in accordance with Rule 430A and to furnish
promptly to the Underwriter as many copies of the Prospectus (or of the
Prospectus as amended or supplemented if the Company shall have made any
amendments or supplements thereto after the effective date of the Registration
Statement) as the Underwriter may reasonably request for the purposes
contemplated by the Securities Act Regulations, which Prospectus and any
amendments or supplements thereto furnished to the Underwriter will be
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 12
identical to the version created to be transmitted to the Commission for filing
via EDGAR, except to the extent permitted by Regulation S-T.
(c) The Company will advise FBW promptly, confirming such advice in
writing, of (i) the receipt of any comments from, or any request by, the
Commission for amendments or supplements to the Registration Statement or the
Prospectus or for additional information with respect thereto, or (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, or of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes. The
Company will make every reasonable effort to obtain the lifting or removal of
such order as soon as possible. The Company will advise FBW promptly of any
proposal to amend or supplement the Registration Statement or the Prospectus and
will file no such amendment or supplement to which FBW has reasonably objected
in writing.
(d) The Company will advise FBW promptly of the happening of any
event known to the Company within the time during which a Prospectus relating to
the Shares is required to be delivered under the Securities Act Regulations
which, in the judgment of the Company, would require the making of any change in
the Prospectus then being used so that the Prospectus would not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and, during such
time, the Company will prepare and furnish, at the Company's expense, to FBW
promptly such amendments or supplements to such Prospectus as may be necessary
to reflect any such change and to furnish to FBW a copy of such proposed
amendment or supplement before filing any such amendment or supplement with the
Commission.
(e) The Company will furnish promptly to FBW a signed copy of the
Registration Statement, as initially filed with the Commission, and of all
amendments or supplements thereto (including all exhibits filed therewith or
incorporated by reference therein) and such number of conformed copies of the
foregoing as FBW may reasonably request.
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 13
(f) The Company will furnish to FBW, not less than one business day
before filing with the Commission subsequent to the effective date of the
Registration Statement and during the period referred to in paragraph (d) above,
a copy of any document proposed to be filed with the Commission pursuant to
Section 13, 14, or 15(d) of the Exchange Act.
(g) The Company will apply the net proceeds of the sale of the
Shares in accordance with its statements under the caption "Use of Proceeds"
in the Prospectus.
(h) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the end of
the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement complying
with the provisions of Section 11(a) of the Securities Act (in form, at the
option of the Company, complying with the provisions of Rule 158 of the
Securities Act Regulations) covering a period of 12 months beginning after
the effective date of the Registration Statement.
(i) The Company will use its best efforts to effect and maintain the
quotation of the Shares on the SmallCap Market and to file with the SmallCap
Market all documents and notices required of companies that have securities
included for quotation on the SmallCap Market.
(j) At no time prior to the completion of the Offering will the
Company issue any press releases or other communications directly or indirectly
and will hold no press conferences with respect to the Company or CCM, on the
financial condition, results of operations, business, properties, assets or
liabilities of the Company or CCM, or the Offering of the Shares, without the
prior written consent of FBW.
6. Conditions of FBW's Obligations:
The obligations of FBW hereunder are subject to the accuracy of the
representations and warranties on the part of the Company in all material
respects on the date hereof and on each Closing Date, the performance by the
Company of its obligations hereunder in all material respects and to the
following further conditions:
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 14
(a) The Company shall furnish to FBW on the date hereof and on each
Closing Date an opinion of Venable, Baetjer and Howard, LLP, counsel for the
Company, addressed to FBW and dated as of each such Closing Date, and in a form
reasonably satisfactory to Whiteford, Taylor & Preston L.L.P., counsel for FBW,
stating that:
(i) the Reorganization was duly authorized, approved and
adopted by all requisite corporate action of all constituent
corporations.
(ii) the Spin-off was duly authorized, approved and adopted
by all requisite corporate action of all constituent corporations.
(iii) the Company has an authorized capitalization as set
forth in the Prospectus under the caption "Capitalization;" the
outstanding shares of capital stock of the Company and CCM have been
duly and validly authorized and issued and are fully paid and
non-assessable; except as disclosed in the Prospectus, to such
counsel's knowledge, there are no outstanding (A) securities or
obligations of the Company or CCM convertible into or exchangeable
for any capital stock of the Company or CCM, (B) warrants, rights or
options to subscribe for or purchase from the Company or CCM any
such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company or CCM
to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights
or options;
(iv) the Company and CCM each has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of incorporation with full
corporate power and authority to own its respective properties and
to conduct its respective business as described in the Registration
Statement and the Prospectus and to execute and deliver this
Agreement and the Underwriting Agreement;
(v) the execution, delivery and performance of this
Agreement and the Underwriting Agreement by the Company and
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 15
the consummation by the Company of the transactions contemplated
under this Agreement or the Underwriting Agreement, as the case may
be, do not and will not (A) conflict with, or result in any breach
of, or constitute a default under, or constitute an event which with
giving of notice, lapse of time, or both would constitute a breach
of or default under, (I) any provisions of the articles of
incorporation, charter or by-laws of the Company or CCM, (II) to the
best of such counsel's knowledge, any provision of any material
license, indenture, mortgage, deed of trust, loan or credit
agreement or other agreement or instrument to which the Company or
CCM is a party or by which either of them or their respective
properties may be bound or affected, or (III) to the best of such
counsel's knowledge, any law or regulation, including, without
limitation, the Securities Laws, or any decree, judgment or order
applicable to the Company or CCM, except in the case of clause (II)
for such conflicts, breaches or defaults which, individually or in
the aggregate, would not have a material adverse effect on the
assets, operations, business, prospects or condition (financial or
otherwise) of the Company and CCM taken as a whole; or (B) to such
counsel's knowledge, result in the creation or imposition of any
lien, charge, claim or encumbrance upon any property or assets of
the Company or CCM;
(vi) to such counsel's knowledge, no approval,
authorization, consent or order of or filing with any federal or
state governmental or regulatory commission, board, body, authority
or agency is required in connection with the execution, delivery
and performance of this Agreement and the Underwriting Agreement,
the consummation of the transactions contemplated hereby and
thereby, the sale and delivery of the Shares by the Company as
contemplated hereby other than such as have been obtained or made
under the Securities Act, and except that such counsel need express
no opinion as to any necessary qualification under the rules of the
NASD or the state securities or blue sky laws of the various
jurisdictions in which the Shares are being offered by the
Underwriter;
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 16
(vii) the Company is not, and upon the sale of the Shares
as herein contemplated will not be, an investment company required
to be registered under the Investment Company Act;
(viii) the Shares have been duly authorized and, when the
Shares have been issued and duly delivered against payment therefor
as contemplated by the Underwriting Agreement, the Shares will be
validly issued, fully paid and nonassessable, free and clear of any
pledge, lien, encumbrance, security interest, mortgage or other
claim whatsoever;
(ix) the issuance and sale of the Shares by the Company
is not subject to preemptive or other similar rights arising by
operation of law, under the articles of incorporation or by-laws of
the Company, under any agreement known to such counsel to which the
Company or CCM is a party or, to the best of such counsel's
knowledge, otherwise;
(x) the form of certificate used to evidence the Common
Stock complies in all material respects with all applicable
statutory requirements, with any applicable requirements of the
articles of incorporation and by-laws of the Company and the
requirements of the SmallCap Market;
(xi) the Registration Statement has become effective under
the Securities Act and no stop order suspending the effectiveness of
the Registration Statement has been issued and, to the best of such
counsel's knowledge, no proceedings with respect thereto have been
commenced or threatened;
(xii) as of the Effective Date, the Registration Statement
and the Prospectus (except as to the financial statements and other
financial and statistical data contained in such Registration
Statement or Prospectus, as to which such counsel need express no
opinion) complied as to form in all material respects with the
requirements of the Securities Act and the Securities Act
Regulations;
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 17
(xiii) the statements under the captions "Capitalization,"
"Risk Factors -- Regulatory Risks," "Business -- Government
Regulation," "Certain Transactions," "Description of Capital Stock,"
and "Shares Eligible for Future Sale," in the Registration Statement
and the Prospectus, insofar as such statements constitute a summary
of the legal matters referred to therein, constitute accurate
summaries thereof in all material respects; and
(xiv) except as set forth in the Prospectus, to the best
of such counsel's knowledge, there are no material legal or
governmental proceedings pending or threatened against, or involving
the properties of the Company or CCM required to be disclosed in the
Prospectus; provided that for this purpose such counsel need not
regard any litigation or governmental proceedings to be "threatened"
unless the potential litigant or governmental authority has
manifested to the Company or CCM, or to their management, a present
intention to initiate such proceedings.
(xv) to such counsel's knowledge, there are no contracts or
documents of a character which are required to be filed as exhibits
to the Registration Statement or to be described or summarized in
the Prospectus which have not been so filed, summarized or
described.
In addition, such counsel shall state that they have participated in
the preparation of the Prospectus and the Registration Statement and in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company and
with FBW at which the contents of the Prospectus and the Registration
Statement and related matters were discussed and, although such counsel is
not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Prospectus and
the Registration Statement and have not made any independent investigation or
verification thereof, nothing has come to their attention during the course
of such participation that leads them to believe that at the time the
Registration Statement became effective, the Prospectus and the Registration
Statement (other than the financial statements and schedules and other
financial and statistical data and information included therein or omitted
therefrom, as to
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 18
which they need express no opinion) contained or contains an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The Company shall also furnish to FBW on the date hereof and
on each Closing Date a letter from of Venable, Baetjer and Howard, LLP,
counsel for the Company, addressed to FBW and dated as of each such Closing
Date, and in a form reasonably satisfactory to Whiteford, Taylor & Preston
L.L.P., counsel for FBW, providing that FBW may continue to rely on the
portions of the opinion of Venable, Baetjer and Howard, LLP, dated
February 23, 1998 discussing certain federal income tax consequences of the
Formation Transactions to the Company and CCM.
(c) FBW shall have received, on each of the date hereof and each
Closing Date, a letter dated the date hereof or such Closing Date, as the case
may be, in form and substance satisfactory to FBW, from Arthur Andersen LLP,
independent public accountants, confirming that they are independent public
accountants within the meaning of the Securities Act and the Securities Act
Regulations and stating that in their opinion the financial statements examined
by them and included in the Registration Statement comply in form in all
material respects with the applicable accounting requirements of the Securities
Act and the Securities Act Regulations; and containing the information and
statements of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(d) No amendment or supplement to the Registration Statement or the
Prospectus shall have been filed to which FBW has objected in writing.
(e) Prior to the completion of the Offering (i) no stop order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
shall have been issued by the Commission, (ii) no suspension of the
qualification of the Shares for offering or sale in any jurisdiction shall have
occurred, and no proceeding for such suspension shall have been initiated or
threatened; and (iii) the Registration Statement and the Prospectus shall not
contain an untrue statement of material fact or omit to state a material fact,
individually or in the aggregate, required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 19
(f) Between the time of execution of this Agreement and each Closing
Date (i) no material and unfavorable change in the assets, operations, business,
prospects or condition (financial or otherwise) of the Company and CCM taken as
a whole shall have occurred or become known (whether or not arising in the
ordinary course of business), and (ii) no transaction which is material and
unfavorable to the Company shall have been entered into by the Company or CCM
.
(g) On the Effective Date, the Underwriting Agreement shall have
been entered into and delivered by all required parties.
(h) On each Closing Date, all filings required to have been made
pursuant to Rules 424 or 430A under the Securities Act have been made.
(i) On the Initial Closing Date, the Shares shall have been approved
for listing upon notice of issuance on the SmallCap Market.
(j) The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
(k) FBW shall have received a letter from Nathan A. Chapman, Jr., in
form and substance satisfactory to FBW, confirming his agreement that until
February 25, 1999 he will not sell any shares of Common Stock, or any securities
convertible into or exchangeable for any shares of Common Stock, or any option,
warrant or other right to acquire any shares of Common Stock, or publicly
announce any intention to do any of the foregoing, without the prior written
consent of FBW, which consent may be withheld in their sole discretion.
(l) The Company shall, on the date hereof and at each Closing Date,
deliver to FBW a certificate of its president and its chief financial officer to
the effect that, to each of such officer's knowledge, the representations and
warranties of the Company set forth in this Agreement and the conditions set
forth in paragraphs (d) through (i) inclusive of this Section 6 have been met
and are true and correct as of such date.
(m) The Company shall have furnished to FBW such other documents and
certificates as to the accuracy and completeness of any statement in the
Registration Statement and the Prospectus, the representations,
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 20
warranties and statements of the Company contained herein, and the performance
by the Company of the covenants contained herein, and the fulfillment of any
conditions contained herein or therein, as of each Closing Date as FBW may
reasonably request.
(n) The Company shall have performed such of its obligations under
this Agreement as are to be performed by the terms hereof at or before each
Closing Date.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless FBW and its
directors, officers and each person, if any, who controls FBW within the meaning
of Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of
1934, as amended (the ''Exchange Act"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments and any amount paid in settlement of,
any action, suit or proceeding commenced or any claim asserted), to which FBW
may become subject under the 1933 Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, related to, based
upon or arising out of (i) an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any preliminary prospectus (unless corrected
in the Prospectus), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any breach or alleged breach by the Company of its
representations, warranties and agreements contained in this Agreement or (iii)
FBW's performance of its duties under this Agreement; provided, however, that
the Company will have no obligation under this Section 7(a) to the extent that
any such loss, claim, damage, liability or action pursuant to clause (iii) above
shall have been determined in a final judgment of a court of competent
jurisdiction to have been due to the willful misconduct or gross negligence of
FBW.
FBW agrees to indemnify and hold harmless the Company, its directors and
officers, and each person, if any, who controls the Company within the meaning
of either Section 15 of the 1933 Act or Section 20 of the Exchange Act
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 21
to the same extent as the foregoing indemnity from the Company to FBW, but only
with respect to (i) any breach or alleged breach by FBW of its representations,
warranties and agreements contained in this Agreement or (ii) information
relating to FBW furnished in writing by FBW expressly for use in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any preliminary prospectus; provided, however, that the foregoing indemnity
by FBW shall not apply to any untrue statement or omission contained in any
preliminary prospectus which is not contained in the Prospectus.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought under this Section 7, such person shall
promptly notify each indemnifying party in writing and such indemnifying party
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party, and the payment of all fees and expenses
of such counsel, as incurred. Any indemnified party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of such counsel by such
indemnified party shall have been specifically authorized in writing by the
indemnifying parties, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party, or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by FBW, in the case
of parties indemnified pursuant to the first paragraph of Section 7(a), and by
the Company, in the case of the parties indemnified pursuant to the second
paragraph of Section 7(a). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 22
effected with its written consent or (ii) effected without its written
consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expense of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party
shall have failed to comply with such reimbursement request. No indemnifying
party shall, without the prior written consent of the indemnified party,
effect any settlement or compromise of, or consent to the entry of judgment
with respect to, any pending or threatened action in respect of which the
indemnified party is or could have been a party and indemnity or contribution
may be or could have been sought hereunder by the indemnified party, unless
such settlement, compromise or judgment (i) includes an unconditional release
of the indemnified party from all liability on claims that are or could have
been the subject matter of such action and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act, by or on
behalf of the indemnified party.
(c) To the extent the indemnification provided for in Section 7(a)
is unavailable to, or insufficient to hold harmless any indemnified party
under Section 7(a), in respect of any loss, claim, damage, liability or
judgment referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company, on the one hand,
and FBW, on the other, from the Offering or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, or if the indemnified
party failed to give the notice required under Section 7(b), in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company,
on the one hand, and FBW, on the other, in connection with FBW's activities
under this Agreement or the statements or omissions that resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and FBW, on the other, shall be deemed to be in the
same proportion as the total net proceeds from the Offering (after deducting
expenses) bear to the total fee paid to FBW pursuant to Section 3. The
relative fault of the Company, on the one hand, and of FBW, on the other,
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 23
to state a material fact relates to information supplied by the Company or by
FBW, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and FBW agree that it would not be just and equitable if
contribution pursuant to this Section 7(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 7, FBW shall not be
required to contribute any amount in excess of the amount by which the fee paid
to FBW pursuant to Section 3 exceeds the amount of any damages FBW has otherwise
been required to pay by reason of such activities under this Agreement or such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(d) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(e) The statements with respect to FBW in the fourth paragraph under
the caption "Plan of Distribution" in the Prospectus constitute the only
information furnished to the Company in writing on behalf of FBW expressly for
use in the Registration Statement, the Prospectus or any amendment or supplement
thereto, or any preliminary prospectus.
(f) The indemnity and contribution agreements contained in this
Section 7, and the covenants, representations and warranties of the Company in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by FBW or on its behalf or by or on behalf of any
person who controls FBW or (ii) any termination of this Agreement or the
Offering.
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 24
8. Successors and Assigns. The benefits of this Agreement shall inure
to the respective successors and assigns of the parties hereto and the
obligations and liabilities assumed in this Agreement by the parties hereto
shall be binding upon their respective successors and assigns.
9. Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented unless the Company, the Underwriter and
FBW consent in writing to such amendment, modification or supplement.
10. Notice. Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall be delivered by hand or by
commercial messenger service or mailed by first class mail, postage prepaid,
addressed (a) if to FBW, at 100 Light Street, Baltimore, Maryland 21202,
Attention: Steven L. Shea, (b) if to the Company or the Underwriter, at the
address on the first page of this Agreement, Attention: Nathan A. Chapman, Jr.,
or such other address as to which any party shall notify the other parties
hereto in writing.
11. Governing Law. This Agreement shall be construed (both as to
validity and performance) and enforced in accordance with and governed by the
laws of the State of Maryland applicable to agreements made and to be
performed wholly within such jurisdiction. The Company and FBW irrevocably
consent to the service of any complaint, summons, notice or other process
relating to any such action or proceeding by delivery thereof to it in the
manner provided for in Section 9 hereof.
12. Counterparts. This Agreement may be signed in two or more
counterparts with the same force and effect as if the signatures thereto and
hereto were upon the same instrument.
13. Termination. This Agreement will terminate on the Termination
Date, except that the provisions of Section 7 hereof, shall survive the
termination of this Agreement.
14. Entire Agreement. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof and thereof.
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 25
SIGNATURES ON NEXT PAGE
<PAGE>
Chapman Capital Management Holdings, Inc.
Chapman Capital Management, Inc.
The Chapman Co.
________ 1998
Page 26
If the above terms are in accordance with your understanding of our
agreement, please sign the enclosed copy of this Agreement and return such copy
to us.
Very truly yours,
FERRIS BAKER WATTS, INCORPORATED
By:
--------------------------------
CONFIRMED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN:
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
By:
---------------------------
Name: Nathan A. Chapman, Jr.
Title: President
CHAPMAN CAPITAL MANAGEMENT, INC.
By:
---------------------------
Name: Nathan A. Chapman, Jr.
Title: President
THE CHAPMAN CO.
By:
---------------------------
Name: Nathan A. Chapman, Jr.
Title: President
<PAGE>
Appendix A
to Exhibit 1.2
_______________, 1998
Chapman Capital Management Holdings, Inc.
World Trade Center - Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
The Chapman Co.
World Trade Center - Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
Re: Qualified Independent Underwriter
Ladies and Gentlemen:
You have advised us that Chapman Capital Management Holdings, Inc.
(the "Company"), a Maryland corporation, has filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form SB-2
(Registration No. 333-______), relating to the offering by the Company of up
to 1,250,000 common stock, par value $.001 per share, of the Company (the
"Common Stock" or the "Shares"). It is anticipated that The Chapman Co.
(the "Underwriter") will act as an Underwriter of the Company in the sale
of the Shares to the public on a best efforts, minimum/maximum basis.
We understand that, as a member of the National Association of
Securities Dealers, Inc. (the "NASD"), the Underwriter may participate in the
Offering only if the price of each Share offered to the public is no higher
than the price recommended by a "Qualified Independent Underwriter." Pursuant
to a letter agreement, dated ______, 1998, among the Company, the Underwriter
and us (the "QIU Agreement"), we have been retained as a "Qualified
Independent Underwriter" (as such term is defined in Rule 2720(b)(15) of the
NASD Conduct Rules) to recommend to you the maximum price for the Shares to
be sold to the public.
We have participated in the preparation of the Registration Statement
and the Prospectus (as such terms are defined in the QIU Agreement) with
respect to the Offering, and have exercised the usual standards of due
diligence with respect thereto. Assuming that the Offering is commenced on
_______, 1998, and further assuming compliance by the Corporation and the
<PAGE>
Appendix A
Page 2
Chapman Capital Management Holdings, Inc.
The Chapman Co.
_______________, 1998
Page 2
Underwriter with their representations, warranties and covenants in Sections
4 and 5 of the QIU Agreement, we recommend that the price of the Shares be no
higher than $______.
Very truly yours,
FERRIS BAKER WATTS INCORPORATED
By:
-------------------------------------
Steven L. Shea
Senior Vice President
AGREED TO AND ACCEPTED:
THE CHAPMAN CO.
By:
--------------------------------
Name: Nathan A. Chapman, Jr.
Title: President
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
By:
--------------------------------
Name: Nathan A. Chapman, Jr.
Title: President
<PAGE>
Exhibit 1.3
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement") is made and entered into this ____ day
of __________, 1998, by and between Chapman Capital Management Holdings, Inc., a
corporation organized under the laws of the State of Maryland (the "Company"),
The Chapman Co., a corporation organized under the laws of the State of Maryland
(the "Underwriter"), and UMB BANK, N.A., a national banking association
organized and existing under the laws of the United States of America, as Escrow
Agent (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Company is a corporation organized under the laws of the State of
Maryland and the Underwriter is a corporation organized under the laws of the
State of Maryland and is a wholly-owned direct subsidiary of the Company;
WHEREAS, the Company desires to offer for sale a maximum of 1,250,000 shares
(the "Maximum Offering") of its common stock, $0.001 par value, (the "Shares");
and
WHEREAS, the Company has filed a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended, and has
made filings with certain state securities commissions under applicable state
"blue sky" laws relating to the issuance and sale of the Shares;
WHEREAS, in compliance with the terms of the proposed offering set forth in the
Preliminary and Final Prospectuses which are a part of the Registration
Statement (the "Prospectus"), the Company will establish a segregated escrow
account with the Escrow Agent (the "Escrow Account") into which proceeds (the
"Subscription Proceeds") from subscriptions submitted by subscribers (the
"Applicants") to purchase Shares (the "Subscriptions") will be deposited;
WHEREAS, THE OFFERING PERIOD FOR Subscriptions shall commence upon the
effectiveness of the Registration Statement, which date of effectiveness will be
certified in writing to the Escrow Agent by the Company and the Underwriter (the
"Effective Date");
WHEREAS, the termination date of the offering period for Subscriptions will be
on the earlier to occur of: the date selected by the Company, which date will be
certified in writing to the Escrow Agent by the Company and the Underwriter; the
date of the sale of the Maximum Offering; or the date that is one hundred eighty
(180) days after the Effective Date, unless extended by the Company for one or
more additional periods not to exceed an additional thirty (30) days in the
aggregate (the "Additional Periods"), in which case, on that date which such
Additional Periods expire, provided that such Additional Periods are certified
in writing to the Escrow Agent by the Company and the Underwriter, and provided
further that the receipt of such notice by the Escrow Agent is prior to the
termination of this Escrow Agreement (the "Termination Date" and the
<PAGE>
period from the Effective Date until the Termination Date is hereinafter
referred to as the "Offering Period");
WHEREAS, upon the receipt by the Escrow Agent of not less than the Minimum
Amount of Subscription Proceeds, the Escrow Agent shall notify the Underwriter
and deliver the Subscription Proceeds to the order of the Company. The Escrow
Agent shall continue to receive and deliver any Subscription Proceeds to the
Company until the end of the Offering Period, on which date the Escrow Account
shall terminate (the "Closing Date"); and
WHEREAS, the Escrow Agent has agreed to act as escrow agent in connection with
and under this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
l. Until the Closing Date, the Escrow Agent shall act as escrow
agent hereunder and agrees to receive and hold the Subscriptions in
accordance with this Agreement.
2. All Subscriptions and checks received and not rejected by the
Underwriter on behalf of the Company pursuant to the Prospectus during the
Offering Period shall be transmitted directly to the Escrow Agent by 12:00
Noon Central Time of the next business day after the receipt thereof by
the Underwriter, and shall be deposited by the Escrow Agent in the Escrow
Account. In addition, the Underwriter shall deliver to the Escrow Agent
names, addresses and a completed Form W-9 for each Applicant and such
other information regarding any Applicant as the Escrow Agent may from
time to time request in writing. In the event that the Minimum Amount (as
hereafter defined in Section 8 hereof) is fully subscribed on the date of
initial deposit to the Escrow Agent pursuant to Section 8 hereof, the
information required by the immediately preceding sentence shall not be
required. The Escrow Agent shall provide the Underwriter a statement of
the assets held and transactions of the Escrow Account as the Underwriter
shall from time to time request in writing.
3. Notwithstanding the provisions of Paragraph 2 hereof, if at any
time the Underwriter shall provide written notice to the Escrow Agent that
any Subscription is invalid or unacceptable, in whole or in part, or that
any Subscription Proceeds deposited with the Escrow Agent cannot be
lawfully accepted, in whole or in part, the Escrow Agent shall promptly
(within not less than ten (10) days) deliver to the Applicant submitting
such Subscription , without deduction, the Subscription Proceeds (or
portion thereof) which has been rejected.
4. Upon acceptance of any Subscription and the deposit of the
related Subscription Proceeds into the Escrow Account, the Underwriter
shall provide prompt written notice to the Applicant of such acceptance.
5. Promptly upon the Escrow Agent's receipt of Subscription
Proceeds from the Underwriter, the Escrow Agent shall proceed to collect
upon such payment instrument(s).
2
<PAGE>
All such collection efforts shall be subject to the Escrow Agent's
collection procedures in the ordinary course of its banking business;
provided, however, that if any payment instrument at any time delivered to
Escrow Agent hereunder shall be returned to Escrow Agent as being
uncollectable, Escrow Agent shall attempt a second time to collect such
item before returning such item to the Underwriter as uncollectable.
Subject to the foregoing, Escrow Agent shall promptly give written notice
to the Underwriter of any uncollected item delivered to Escrow Agent under
this Agreement. Escrow Agent shall not be required or have a duty to take
legal action to enforce payment of any uncollected item delivered to it
under this Agreement. The Escrow Agent shall have no duty or obligation to
collect (except for collection in the ordinary course of its banking
business) any amounts at any time due in respect of any Subscriptions, and
shall not be responsible for any defaults thereunder or hereunder by any
other party, or for the application of any funds received by it from the
Applicants after payment of such funds by it to the Company as herein
provided. In the event that Escrow Agent shall have disbursed Subscription
Proceeds to the Company or returned such moneys to the Applicant in
accordance with this Agreement with respect to any payment instrument and
subsequently it shall be determined that such item shall be uncollectable,
the Company shall upon Escrow Agent's demand reimburse it for the amount
so disbursed.
6. Escrow Agent shall invest all Subscription Proceeds deposited
with it hereunder, and earnings thereon, if any, in obligations of the
United States Government or any agency thereof with maturities of no
greater than ninety (90) days or in bank money market deposits or funds as
the Company shall from time to time direct in writing, and the Escrow
Agent shall incur no liability when investing in accordance with such
direction.
7. The Company and the Underwriter agree to certify in writing to
the Escrow Agent the Effective Date and any Additional Periods. The
Offering Period shall commence on the Effective Date and shall expire on
the Termination Date.
8. If Subscription Proceeds for not less than__________Dollars
($_______________) (the "Minimum Amount") are received and accepted by
the Underwriter and not less than the Minimum Amount in Subscription
Proceeds have been delivered to the Escrow Agent (along with other items
required by Section 2 hereof), have cleared the banking system and are on
deposit in available funds with the Escrow Agent, the Escrow Agent will
notify the Underwriter and pay over to the order of the Company all of the
Subscription Proceeds then on deposit in the Escrow Account, together with
all interest or other income, if any, earned on the Subscription Proceeds
held hereunder. Following such payment, the Escrow Agent shall continue to
receive Subscription Proceeds as provided in Paragraph 2 hereof, and upon
receipt of available funds on or before the Closing Date, shall deliver
such Subscription Proceeds, from time to time, to the order of the
Company. On the Closing Date, all duties and responsibilities of the
Escrow Agent shall cease and terminate, including without limitation, the
obligation to receive and collect Subscription Proceeds and deliver same
to Company.
3
<PAGE>
9. If Subscription Proceeds for not less than the Minimum Amount
have not been received by the Escrow Agent in available funds by 4:00 P.M.
Central Time on the final day of the Offering Period, Subscription
Proceeds held hereunder by the Escrow Agent will be returned by the Escrow
Agent to the Applicants and any interest earned upon the Subscription
Proceeds shall be paid over to the order of the Company promptly following
the expiration of the Offering Period.
10. Prior to delivery to it of the Subscription Proceeds, the
Company shall have no title, right, claim, lien or any other interest in
the funds held in escrow hereunder, and such funds shall under no
circumstances be available to the Company or its creditors for payment or
reimbursement for liabilities or indebtedness.
11. It is understood and agreed, further, that the Escrow Agent
shall:
A. have no duty to compel delivery of any Subscription by
the Underwriter or the Company and shall be under no duty to
deliver any Subscription, or to pay and transfer any moneys
hereunder, unless the same shall have been first received by
the Escrow Agent pursuant to the provisions of this Agreement;
B. be under no duty to enforce payment of any
Subscription which is to be paid to and held by it hereunder;
C. be under no duty to accept any information from any
person or entity other than the Underwriter and the Company,
or their designated agents, and then only to the extent and in
the manner expressly provided for in this Agreement;
D. act hereunder as a depository only and be protected in
acting upon any Subscription, and related items supplied
pursuant to Section 2 hereof, and the information contained
therein without responsibility to determine the validity or
sufficiency of the same, and be protected in acting upon any
other notice, opinion, request, certificate, approval, consent
or other paper delivered to it and represented to it to be
genuine and to be signed by the proper party or parties;
E. be deemed conclusively to have given and delivered any
notice required to be given or delivered hereunder if the same
is in writing, signed by any one of its authorized officers
and (1) mailed, by registered or certified mail, postage
prepaid, or (2) by hand delivery, in a sealed wrapper,
addressed to the Underwriter or the Company and manually
receipted for by the addressee;
F. be indemnified and held harmless by the Company and the
Underwriter, jointly and severally, against any claim made
against it by reason of its acting or failing to act in
connection with any of the transactions contemplated hereby
and against any loss, liability, cost, suit or expense,
including attorneys' fees and other expense of defending
itself against any claim of liability it may sustain in
carrying
4
<PAGE>
out the terms of this Agreement except such claims which are
occasioned by its gross negligence or willful misconduct;
G. have no liability or duty to inquire into the terms and
conditions of the Prospectus, Registration Statement,
Subscriptions or any of the exhibits annexed thereto, nor to
ascertain or compel compliance by the Company or the
Underwriter with any of the requirements thereof or of law or
regulation, and that its duties and responsibilities shall be
limited to those expressly set forth under this Agreement and
are purely ministerial in nature;
H. be permitted to consult with counsel of its choice,
including in-house counsel, and shall not be liable for any
action taken, suffered or omitted by it in good faith in
accordance with the advice of such counsel, provided, however,
that nothing contained in this Subparagraph H, nor any action
taken by the Escrow Agent, or of any such counsel, shall
relieve the Escrow Agent from liability for any claims which
are occasioned by its gross negligence or willful misconduct,
all as provided in Subparagraph F above;
I. not be bound by any amendment or revocation of this
Agreement, unless the same shall be in writing and signed by
all of the parties to this Agreement;
J. be entitled, should it be uncertain as to its duties
and rights hereunder (including, without limitation,
uncertainty resulting from receipt of conflicting instructions
or directions from any of the parties hereto), to refrain from
taking any action other than to keep all property held by it
in escrow hereunder until it shall be directed otherwise in
writing by the Underwriter and the Company, or by a final
judgment by a court of competent jurisdiction;
K. have no liability for following the instructions herein
contained or expressly provided for, or written instructions
given, by the Underwriter or the Company;
L. have the right, at any time, to resign hereunder by
giving written notice of its resignation to the Underwriter
and the Company at their address as set forth in Paragraph 12
hereof, at least thirty (30) days before the date specified
for such resignation to take effect, and upon the effective
date of such resignation:
(l) all cash and other funds and all other property
then held by the Escrow Agent hereunder shall be delivered
by it to such successor Escrow Agent as may be designated
in writing by the Company, whereupon the Escrow Agent's
obligations hereunder shall cease and terminate;
(2) if no such successor Escrow Agent has been
designated by such date, all obligations of the Escrow
Agent hereunder shall, nevertheless, cease and terminate,
and the Escrow Agent's sole responsibility thereafter
shall be to
5
<PAGE>
keep all property then held by it and to deliver the same
to a person designated in writing by the Company or in
accordance with the directions of a final order or
judgment of a court of competent jurisdiction; yet, if no
such designation, order or judgment is received by Escrow
Agent within thirty (30) days after its giving such
resignation notice, it is unconditionally and irrevocably
authorized and empowered to petition a court of competent
jurisdiction for directions.
M. be reimbursed by the Company at the termination of the
escrow for all reasonable costs, fees, charges, expenses,
disbursements and advances (including, but not limited to,
acceptance and administration fees and expenses as
provided in Exhibit A hereto, as well as legal, consultant
and advisor fees and charges) incurred or made by it in
accordance with any provision of this Agreement, or as a
result of the acceptance of this Agreement.
12. By acceptance of its duties hereunder, the Escrow Agent makes
no representation as to and is not responsible or liable in any manner for
the sufficiency, correctness, genuineness, or validity of this Agreement,
the Shares, the Registration Statement, the Prospectus, or any related
document or instrument.
13. All deliveries and notices to the Escrow Agent shall be
effective upon receipt by the Escrow Agent and shall be in writing and
sent or delivered to:
UMB BANK, N.A.
ATTN: Corporate Trust Division
928 Grand Avenue
P. O. Box 419226
Kansas City, MO 64141-6226
Any notice given on behalf of the Company or the Underwriter shall
be signed by one or more of the officers of the Company or the
Underwriter, as the case may be, and shall be sufficient for all purposes
hereunder.
All deliveries and notices hereunder to the Company and the
Underwriter shall be in writing and shall be sent or delivered to:
The Company at:
Chapman Capital Management Holdings, Inc.
Attn: Nathan A. Chapman, Jr.
World Trade Center - Baltimore
401 E. Pratt Street, 28th Floor
Baltimore, MD 21202
6
<PAGE>
The Underwriter at:
The Chapman Co.
Attn: Nathan A. Chapman, Jr.
World Trade Center - Baltimore
401 E. Pratt Street, 28th Floor
Baltimore, MD 21202
A copy of each delivery, notice and/or report, whether given by
the Underwriter, the Company or the Escrow Agent, shall be simultaneously
sent or delivered to each of the other parties to this Agreement.
14. Any invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement.
15. Nothing in this Agreement is intended to or shall confer upon
anyone other than the parties hereto any legal or equitable right, remedy
or claim. This Agreement shall be construed in accordance with the laws of
the State of Missouri and may be amended or resolved only by a writing
executed by the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by or on
behalf of each of the parties hereto as of the day and year first above
written.
Chapman Capital Management
Holdings, Inc.,
Company
By:
-----------------------------
Title
--------------------------
The Chapman Co.,
Underwriter
By:
-----------------------------
Title:
--------------------------
7
<PAGE>
UMB BANK, N.A., as Escrow Agent,
Escrow Agent
By:
----------------------------
Title
--------------------------
8
<PAGE>
EXHIBIT A
<TABLE>
<S> <C>
Acceptance and Annual Fee - review
escrow agreement and establish and
maintain account $1,500.00
Transaction Fees
(a) per subscriber deposit 2.00
(b) per subscriber interest payment 3.00
(c) per subscriber return of
subscription amount if
minimum amount not sold 5.00
(d) per subscriber subscription rejection 10.00
(e) per returned check 10.00
(f) per Form 1099 (Int., B or Misc.) 1.00
</TABLE>
In addition to the specified fees, all expenses related to the administration of
the Agreement and the Escrow Account (other than normal overhead expenses of the
regular staff) such as, but not limited to, travel, postage, shipping, courier,
telephone, facsimile, supplies, legal fees, accounting fees, etc., will be
reimbursable. The acceptance and annual fee will be payable by Chapman Capital
Management Holdings, Inc. at the termination of the escrow. Other fees and
expenses will be billed as incurred or at the termination of the escrow.
9
<PAGE>
Exhibit 4.0
COMMON STOCK COMMON STOCK
NUMBER SHARES
[LOGO]
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF MARYLAND
CUSIP 159508 10 0
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF:
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES, $0.001 PAR VALUE PER SHARE,
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 duly authorized attorney, upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SIGNATURE] [SEAL] [SIGNATURE]
SECRETARY PRESIDENT
AUTHORIZED SIGNATURE
COUNTERSIGNED AND REGISTERED:
UMB BANK, N.A.
TRANSFER AGENT AND REGISTRAR
<PAGE>
The following abbreviations, when used in this Description on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-_______ Custodian _______ UNIF TRANS MIN ACT- _______ Custodian _______
TEN ENT - as tenants by the entireties (Cust) (Minor) (Cust) (Minor)
JT TEN - as joins tenants with right
of surrendership and also as under Uniform Gifts to Minors under Uniform Transfers to Minors
registrants in common Act ___________________________ Act ___________________________
TOD - transfer on death direction in State State
event of owner's death, to person
named on face
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Value Received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________
NOTICE
THE SIGNATURE(S) TO X ___________________________________________
THE ASSIGNMENT MUST (SIGNATURE)
CORRESPOND WITH THE
NAME(S) AS WRITTEN
UPON THE FACE OF THE X ___________________________________________
CERTIFICATE IN EVERY (SIGNATURE)
PARTICULAR WITHOUT
ALTERATION OR
ENLARGEMENT OR ANY ---------------------------------------------
CHANGE WHATEVER THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION AS DEFINED IN
RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
---------------------------------------------
SIGNATURE(S) GUARANTEED BY:
---------------------------------------------
<PAGE>
Exhibit 5
June 19, 1998
Chapman Capital Management Holdings, Inc.
World Trade Center-Baltimore
401 E. Pratt Street
28th Floor
Baltimore, Maryland 21202
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel for Chapman Capital Management Holdings, Inc.,
a Maryland corporation (the "Company"), in connection with the organization of
the Company and the issuance of up to 1,250,000 shares of its common stock, par
value $0.001 per share (the "Common Stock").
As counsel for the Company, we are familiar with its Charter and
Bylaws. We have examined the prospectus included in its Registration Statement
on Form SB-2 (File No. 333-51883) (the "Registration Statement"), substantially
in the form in which it is to become effective (collectively, the "Prospectus").
We have further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation to the effect that the Company is duly
incorporated and existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of Maryland.
We have also examined and relied upon such corporate records of the
Company and other documents and certificates with respect to factual matters as
we have deemed necessary to render the opinion expressed herein. With respect to
the documents we have received, we have assumed, without independent
verification, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity with originals of all
documents submitted to us as copies.
Based on such examination, we are of the opinion and so advise you that
the 1,250,000 shares of Common Stock to be offered for sale pursuant to the
Prospectus are duly authorized and when sold, issued and paid for as
contemplated by the Prospectus, will be validly and legally issued and will be
fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and
<PAGE>
Chapman Capital Management Holdings, Inc.
June 19, 1998
Page 2
issuance of stock. It does not extend to the securities or "blue sky" laws of
Maryland, to federal securities laws or to other laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Registration Statement
under the heading "Legal Matters."
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
------------------------------------
Venable, Baetjer and Howard, LLP
<PAGE>
STATE OF ALABAMA) Exhibit 10.5
JEFFERSON COUNTY)
THIS AGREEMENT made and entered into this day, June 1, 1995, by and
between the CITY OF BIRMINGHAM presently operating under the Mayor Council
Act of 1955 (hereinafter referred to as the "City") and CHAPMAN CAPITAL
MANAGEMENT, INCORPORATED a registered investment advisor (hereinafter
referred to as "Advisor").
The parties hereto agree as follows:
ARTICLE I
THE BIRMINGHAM FUND
The City has available cash together with other assets which are hereby
designated by the City and accepted by Advisor and any assets collected,
purchased, received or acquired by the City following the advice of Advisor,
shall be referred to herein as the "Birmingham Fund." The Finance Director of
the City shall have authority to designate the cash and assets which shall be
subject to this Agreement.
ARTICLE II
BIRMINGHAM FUND SUPERVISION
The Advisor agrees to manage the assets of the fund in accordance with
City Ordinance Number 94-90.
Advisor will discuss with the City any questions that may be raised by the
City from time to time with regard to the Birmingham Fund. Advisor shall have
authority to make investments in accord with the City's Internal Investment
Policy. All investments made by Advisor will be
<PAGE>
reported to the Finance Director of the City by statements and confirmations
and at a quarterly meeting with the May and Finance Director.
Any uninvested funds will be swept into a US Government money market fund
to earn maximum income on such temporarily uninvested funds. The Advisor will
not charge an additional fee for this service provided that the City
recognizes that a fee may be charged by the custodian or Advisor managing the
US Government money market fund.
Advisor will comply with all reasonable reporting and information requests
of the Finance Director. Advisor shall comply with the City's Internal
Investment Policy, as it may be amended, established by the City.
ARTICLE III
PURCHASE AND SALE OF SECURITIES AND OTHER PROPERTY
Advisor shall have discretion to place for the City's account orders for
the purchase and sale of securities.
ARTICLE IV
REGISTRATION OF SECURITIES
All securities in the Birmingham Fund which are registrable shall be
registered by the custodian in the name of the City unless authorized in
writing otherwise by the Finance Director.
ARTICLE V
CUSTODY OF SECURITIES
The City desires that the monies and securities comprising the Birmingham
Fund be held in a bonded banking institution whose main office is located
within the corporate limits of the City of Birmingham, Alabama. The City
shall pay the fee for such custody. All assets of the
<PAGE>
City in the custody of Advisor or which may come into the custody of Advisor
shall immediately be transferred into the custody of the custodian.
ARTICLE VI
LITERATURE AND MAIL RECEIVED BY BANK
Advisor will endeavor to forward to the City's Finance Director any
proxies, financial statements, or other literature received by it in
connection with or relating to securities held by it, but Advisor shall be
under no obligation other than good faith efforts, to forward such proxies,
financial statements, or other literature. Since Advisor may receive
correspondence directed to the City in care of Advisor, Advisor is authorized
to accept and open all mail so addressed.
The Advisor is relieved from the responsibility of voting any securities
or other property held in the Birmingham Fund. Advisor may recommend voting
to the City.
ARTICLE VII
WITHDRAWAL OF ASSETS FROM THE BIRMINGHAM FUND
Any and all assets in the Birmingham Fund may be withdrawn by the City at
any time upon receipt by Advisor of a certified copy of resolution duly
signed by the City's Mayor or on the written order of the City's Finance
Director.
ARTICLE VIII
AMENDMENT OR TERMINATION OF AGREEMENT
This agreement may be altered at any time by letter or other written
instrument in such manner as may be mutually agreed upon by Advisor and the
City and may be terminated at any time either by Advisor or by the City
whereupon all assets of every kind and nature in the Birmingham Fund as it
then exists, shall be paid over, delivered or surrendered, in whatever form
the same may be, to the City.
<PAGE>
--------------
GENERAL TERMS AND CONDITIONS
1. It is understood that the City is the owner of all assets from time
to time comprising the Birmingham Fund. Advisor shall be responsible for the
safekeeping of any assets in its custody but shall not be required to exercise
greater care in this regard than it reasonably does in the safekeeping of its
own property. The Advisor shall not be liable or responsible for any act or
failure to act of any broker or similar agent employed by Advisor to effect a
transaction on City's behalf, or for the financial solvency of any such broker
or agent, as long as Advisor either exercises the same care in selecting such
broker or agent as Advisor employees in handling similar transactions involving
its own property, unless Advisor utilizes the broker or agents selected by the
City.
2. City agrees that Advisor shall not through this contract be liable
for any loss, damage, or expense resulting from the execution by Advisor of
any order for the City hereunder or for any taxes or other governmental
charger, or any expense related thereto, which may be imposed or assessed in
respect to the Birmingham Fund, or any part thereof. The City does not hereby
assume any expense in addition to charges noted herein or other reasonable
expense except as may be expressly approved in writing by the City or the
Finance Director.
3. Fee. Advisor shall be entitled to a reasonable fee for acting as
---
investment advisor. Such fee shall be paid quarterly and shall be at the
annual rate of thirty five-hundredths of one percent (.35%) of the market
value of the Birmingham Fund at the end of the preceding quarter up to, but
not exceeding, a market value of fifty million dollars ($50,000,000). The fee
for all assets exceeding fifty million dollars ($50,000,000) shall be twenty
five-hundredths of one percent (.25%) of the market value of the Birmingham
Fund at the end of the preceding quarter.
<PAGE>
The fee for all assets exceeding one hundred million dollars ($100,000,000)
shall be twenty one-hundredths of one percent (.20%) of the market value of
the Birmingham Fund at the end of the preceding quarter. This fee shall be
automatically amended to equal any increased fee schedule approved by the
Mayor.
4. Advisor will comply with all applicable federal, state and local
laws and ordinances and will take no action under this contract which would
cause a violation of any such law or ordinance.
5. So long as the provisions of Section 28(c) of the Securities
Exchange Act of 1934 are met, Advisor may cause a broker or dealer to be paid
reasonable commissions in excess of those another broker or dealer would or
might charge. No more than fifty percent of these transactions may be
effected through or with the Chapman Company as broker, dealer or principal,
and the City may impose additional limitation in writing. In connection with
such transactions, The Chapman Company will receive compensation related to
the brokerage function independent of the compensation paid to Advisor
hereunder.
6. Bond. City notifies Advisor that Advisor is not covered under any
-----
bond obtained by the City pursuant to Section 412 of ERISA or otherwise. Upon
termination, Advisor shall be entitled to a prorate fee for the quarter in
which termination occurs.
7. Asset Transfer. The Finance Director of the City shall have
--------------
authority to make all determinations relating to asset transfer as in his
judgment are in the best interests of the City.
8. Notices. any notices hereunder may be given to the City at:
-------
Director of Finance
205 City Hall
Birmingham, Alabama 35203
<PAGE>
and to Advisor at:
Chapman Capital Management
World Trade Center Baltimore
401 East Pratt Street
Baltimore, Maryland 21202
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in their respective names by their respective officers who are
hereunto duly authorized, in duplicate, all on the day and year first above
written.
CITY OF BIRMINGHAM ATTEST:
By: /s/ Richard Arrington, Jr., By: /s/ Mac Underwood
----------------------------- --------------------------
Richard Arrington, Jr., Mayor
CHAPMAN CAPITAL MANAGEMENT ATTEST":
By: /s/ Nathan Chapman By: /s/ Earl U. Bravo, Sr.
----------------------------- --------------------------
Nathan Chapman, President
<PAGE>
EXHIBIT 10.9
Expense Allocation Agreement
THIS AGREEMENT is made as of the 19th day of June 1998 (the
"Agreement"), by and between Chapman Capital Management, Inc., a District of
Columbia corporation ("CCM") and The Chapman Co., a Maryland corporation
("CCO") to allocate certain business expenses among CCO and CCM.
WHEREAS, CCM and CCO are affiliated entities, each controlled as of the
date of this Agreement by Nathan A. Chapman, Jr.;
WHEREAS, CCM and CCO have shared and seek to continue to share,
certain administrative, equipment and personnel expenses incurred in
connection with the operation of their respective businesses;
WHEREAS, CCM and CCO desire to enter into this Agreement governing
the future allocation of certain expenses shared between CCM and CCO in
connection with the operation of their respective businesses;
NOW THEREFORE, in consideration of the mutual agreements and terms
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, CCM and CCO do hereby agree
as follows:
AGREEMENT
1. CCM hereby agrees to provide for monthly payment to CCO for
shared expenses incurred in connection with the operation of the businesses
of CCM and CCO as detailed and expressly set forth in the column entitled
"Basis of Allocation" on Schedule I to this Agreement (the "Basis of
Allocation").
2. To the extent that the calculation contained in the Basis of
Allocation, does not provide for the payment of a fixed sum each month, the
amount owed by CCM shall be automatically re-valued each month in accordance
with the provisions of the Basis of Allocation and the calculations contained
therein. Such automatic monthly valuations, provided that they do not deviate
from the calculations and provisions of the Basis of Allocation, shall not
constitute an amendment to the Agreement.
3. Payment by CCM, contemplated above, shall be received by CCO by
the tenth (10th) day of each month in which an amount is due. Failure to
provide for payment by this date shall give rise to, at the election of and
upon written notification by CCO, an additional fee at an annualized rate of
five percent (5%) of the late balance outstanding.
<PAGE>
4. CCO hereby agrees to make timely payments, on behalf of CCM, to
lessors, vendors, employees, officers or any other party to whom shared
expenses of CCM and CCO are owed, as contemplated by this Agreement.
5. This Agreement may be amended at any time by mutual written
agreement executed by the parties.
6. This Agreement may be terminated by either party upon 30 days
prior written notice.
7. This Agreement shall continue in effect until properly terminated
by either party.
8. This Agreement shall be governed by and shall be construed in
accordance with the laws of the state of Maryland without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
CHAPMAN CAPITAL MANAGEMENT, INC.
BY: /s/ Nathan A. Chapman, Jr.
--------------------------------
Nathan A. Chapman, Jr.
President
THE CHAPMAN CO.
BY: /s/ Nathan A. Chapman, Jr.
--------------------------------
Nathan A. Chapman, Jr.
President
<PAGE>
Schedule I
Expense Allocation
<TABLE>
<CAPTION>
Description Basis of Allocation
<S> <C>
Administrative Costs CCM shall pay a
fixed sum of $6,000 per
month for various
administrative costs such
as supplies, faxes,
postage and office space
utilized by CCM.
Salaries Expense CCM shall pay 50%
of the base salaries of
its officers. CCM shall
pay a percentage of the
compensation expense of
its other employees in an
amount equal to the
percentage of time
such employees spend on
CCM's business.
Equipment Rental CCM shall pay
monthly equipment rental
fees in an amount equal
to the percentage of
total compensation
expense (excluding bonus)
allocated to CCM pursuant
to the Basis of
Allocation governing
"Salaries Expense" above.
Bonuses CCM shall pay bonuses to
its employees and
officers pursuant to
terms determined and
approved by its Board of
Directors.
</TABLE>
<PAGE>
Exhibit 10.10
SERVICE MARK LICENSE AGREEMENT
THIS AGREEMENT made as of the 9th day of June, 1998 by and between
NATHAN A. CHAPMAN, JR., an individual and citizen of the United States (the
"Licensor"), and CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC., a Maryland
corporation, and its wholly owned subsidiary, CHAPMAN CAPITAL MANAGEMENT,
INC., a District of Columbia corporation (the "Licensees") (the "Agreement").
WITNESSETH:
WHEREAS, Licensor owns certain valuable service marks described in
Appendix A hereto (hereinafter the "Marks"), said Marks having been used by
Licensor in connection with investment advisory, administrative services, and
mutual fund services (collectively the "Services"), and said Marks are well
known and recognized by the general public and associated in the public mind
with Licensor;
WHEREAS, Licensees desire to use the Marks in their business operations
as an investment advisory and investment management company; and
WHEREAS, on the terms set forth herein, Licensor is willing to grant
unto Licensees a license to use the Marks.
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, it is hereby agreed:
1. Grant of License.
1.1 Upon the terms and conditions herein set forth, Licensor grants to
Licensees, and Licensees hereby accept, a revocable, non-exclusive,
non-transferable license to utilize the Marks in connection with the Services.
1.2 Licensees shall not be required to make any further payments for the
use of the Marks as contemplated herein.
1.3 Licensees shall use the Marks only in the United States and its
territories.
<PAGE>
2. Services
2.1 For the preservation of Licensor's rights in the Marks, the parties
understand and agree that Licensor must maintain control over the nature and
quality of the Services, and advertising, promotional activities, and other
activities in connection with which Licensees use the Marks. Licensor
authorizes the Licensees to use the Marks for the Services, but Licensor has
the right, prior to use by Licensees of the Marks (or any one of them) in any
manner on or in connection with the Services to examine and approve the
manner in which Licensees use the Marks. Licensees shall ensure that the
Services meet or exceed the highest quality standards of the investment
management and investment advisory industry. Licensor reserves the right, at
any time during the term of this License, to review Licensees' use of the
Marks to insure that Licensees' use is in compliance with this Agreement. In
addition, Licensees, if Licensor so requests, shall submit to Licensor for
its prior approval, all advertising, promotional or display material proposed
to bear the Marks.
2.2 Licensees agree to cooperate fully with Licensor for the purpose of
securing and preserving Licensor's rights or registrations in and to the
Marks. All artwork and designs involving the Marks, or any reproduction
thereof, shall remain the property of Licensor (notwithstanding their
invention or use by Licensees), and Licensor shall be entitled to use the
same and to license the use of the same by others except where inconsistent
with the terms of this Agreement. During the term hereof, Licensees agree to
diligently and continually use and advertise the Marks in connection with the
Services subject to the provisions of this Agreement.
3. Effect of Licensee's Use.
Any use of the Marks by Licensees in accordance with this Agreement
shall enure to the benefit of Licensor and this Agreement shall not operate
to transfer or convey any proprietary interest in the Marks to Licensees.
4. Acknowledgment of Validity and Goodwill of the Marks.
Licensees acknowledge and admit the validity of the Marks and any
registrations thereof, Licensor's exclusive right, title and interest
therein, the goodwill pertaining thereto and the secondary meaning of the
Marks in the mind of the public. Licensees covenant that they will not,
directly or indirectly, attack or assist another in attacking the validity of
the Marks or any registrations therefor. This paragraph shall survive the
termination for any reason whatsoever of this Agreement.
5. Trademark Notice.
Where feasible, practical and appropriate, Licensees shall mark all
advertising and promotional materials utilizing the Marks with proper
trademark notices as prescribed by Licensor.
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6. Infringement by Third Parties.
6.1 Licensor has the first right, but not the obligation, to enforce its
rights in any of the marks against any third parties and, if it so desires,
may commence or prosecute any claim or suit in its own name or in the names
of Licensees or join Licensees as a party. Licensor shall bear the expense
of, and receive any recovery from, any action resulting from any such
infringement; provided, however, that if Licensor and Licensees agree
that Licensees shall bear part of the expense of such litigation, Licensees
shall be entitled to share in any monetary judgement recovered in the same
proportion as the amount that their contribution of expenses bears to the
total expense of the litigation. Licensees shall not institute any suit or
take any action on account of the Marks without first obtaining Licensor's
written consent.
6.2 In the event tat suit for infringement by the Marks is brought
against Licensees, Licensees shall immediately notify Licensor in writing of
such suit. Upon timely notice of such suit, Licensor shall provide a defense
at Licensor's sole cost and expense.
7. Term and Termination.
7.1 Licensor shall have the right to terminate this Agreement for any
reason or for no reason at all upon thirty (30) days' written notice to
Licensees.
7.2 Licensor shall have the right to immediately terminate this
Agreement upon the occurrence of any of the following:
7.2.1 Any attempt by Licensees to assign or otherwise transfer this
Agreement or any rights granted under this Agreement without the prior
written consent of Licensor.
7.2.2 The sale by Licensees of substantially all of its assets,
whether by sale of shareholder interest or sale of assets, or a change in
control of Licensees.
7.2.3 The insolvency of Licensees.
7.2.4 The cessation of the use of the Marks in Licensees' business.
7.2.5 The receivership or bankruptcy of Licensees, or if Licensees
should make an assignment for the benefit of creditors.
8. Indemnification.
Licensees shall indemnify, defend and hold Licensor harmless from and
against all claims, losses, liabilities, judgements and expenses (as provided
below)
3
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resulting from or attributable to claims against Licensor by virtue of
Licensee's use of the Marks. If a claim is asserted against Licensor,
Licensor shall promptly advise Licensees in writing of such claim and
Licensor shall cooperate fully in the defense thereof and furnish to
Licensees all evidence and assistance in Licensor's control. To the extent
that Licensees control the defense, agree to have Licensor control the
defense, or to the extent Licensees enter into or agree to a settlement
agreement, Licensees shall indemnify Licensor from and against any and all
liability, damages, and reasonable costs (including attorneys' fees but not
including attorneys' fees incurred by Licensor in monitoring or participating
in any defense provided by Licensees) incurred by Licensor as a result of any
such claim or any resulting judgement or settlement.
9. Assignment.
Licensees shall not assign or otherwise transfer this Agreement or the
license granted under this Agreement without the prior written consent of
Licensor, which consent may be withheld in Licensor's sole and absolute
discretion, for any reason or for no reason whatsoever.
10. Use of Marks After Termination.
Upon the termination of this Agreement, for any reason whatsoever,
Licensees shall immediately discontinue the use of the Marks and thereafter
shall no longer use or have the right to use the Marks, any variation thereof
or any word(s) and or logo(s) similar thereto. Licensees hereby agree that at
the termination of this Agreement, Licensees shall be deemed to have
assigned, transferred and conveyed to Licensor any rights, equities,
goodwill, titles or other rights in and to the Marks which have been obtained
by Licensees pursuant to this Agreement or otherwise. If requested by
Licensor, Licensees shall, without further consideration therefor, execute
any instrument to accomplish or confirm the foregoing.
11. Licensor's Remedies.
Licensees acknowledge that their failure to comply with the obligations
and covenants as set forth in this Agreement (after notice, if applicable, in
accordance with Section 7), will result in immediate and irremediable damage
to Licensor. Licensees acknowledge and admit that there is no adequate remedy
at law for such default, and Licensees agrees that in the event of such
default, Licensor shall be entitled to equitable relief by way of temporary
and permanent injunctions and such other further relief as any court may deem
just and proper. Resort to any remedies referred to herein shall not be
construed as a waiver of any other rights and remedies to which Licensor is
entitled under this Agreement or otherwise at law or equity. In addition,
Licensees agree to publish, at its sole expense, a statement (approved by
Licensor) in such trade journals and other periodicals that collectively have
a circulation reasonably likely to be seen by Licensees' customers
acknowledging Licensees' breach of this Agreement.
4
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12. Notices.
Any and all notices or communications hereunder shall be in writing and
duly given if mailed or transmitted via any standard form of transmittal
telecommunication to the Licensor and Licensees c/o Nathan A. Chapman, Jr.,
401 E. Pratt Street, 28th Floor, Baltimore, MD 21201-2978.
13. Severability.
The provisions of this Agreement shall not be severable, and if any
provision of this Agreement shall be held or declared to be illegal, invalid,
or unenforceable, this Agreement shall be deemed to be terminated in
accordance with the terms regarding termination. Notwithstanding the
foregoing, Licensor may in its sole discretion determine that the illegality,
invalidity or unenforceability of any provision is not material, in which
event such illegality, invalidity or unenforceability shall not affect any
other provision hereof, and the remainder of this Agreement, disregarding
such invalid portion, shall continue in full force and effect as though such
invalid provision had not been contained herein.
14. Entire Agreement.
This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes and cancels all
previous written or oral understandings, agreements, negotiations,
commitments, or any other writing or communications in respect of such
subject matter. This Agreement may not be released, discharged, abandoned,
changed, or modified in any matter except by an instrument in writing signed
by each of the parties hereto.
15. Governing Law; Venue.
This Agreement shall be deemed to be made and entered into pursuant to
the laws of the State of Maryland and, in the event of any dispute, shall be
governed by and shall be construed and interpreted in accordance with the
laws of the State of Maryland and the United States of America. Each of the
parties hereto (a) consents to submit itself to the personal jurisdiction of
any federal court located in the State of Maryland or any Maryland state
court in the event any dispute arises out of this Agreement, (b) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court
sitting in the State of Maryland or a Maryland state court.
16. Waiver.
The waiver by either of the parties hereto of any breach of any
provision hereof by the other party shall not be construed to be either a
waiver of any succeeding breach of any such provision or a waiver of the
provision itself.
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17. Nature of Relationship.
Nothing herein shall be construed to place the parties in a relationship
of partners or joint venturers, and neither party shall have the power to
obligate or bind the other in any manner whatsoever.
18. Survival.
The provisions of Sections 4, 8, 10, 11 and 15 hereof shall survive
termination or expiration of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date specified above.
WITNESS LICENSOR:
/s/ M. Lynn Ballard /s/ Nathan A. Chapman, Jr.
- ------------------------------ ------------------------------
Nathan A. Chapman, Jr.
ATTEST: LICENSEES:
CHAPMAN CAPITAL MANAGEMENT
HOLDINGS, INC.
By: /s/ M. Lynn Ballard By: /s/ Nathan A. Chapman, Jr.
- ------------------------------ ------------------------------
Nathan A. Chapman, Jr.
President
ATTEST: CHAPMAN CAPITAL
MANAGEMENT, INC.
By: /s/ M. Lynn Ballard By: /s/ Nathan A. Chapman, Jr.
- ------------------------------ ------------------------------
Nathan A. Chapman, Jr.
President
7
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Appendix
1. Domestic Emerging Markets-Registered Trademark-
2. DEM-Registered Trademark-
3. LOGO-TM-
4. DEM Index-TM-
5. DEM Profile-TM-
6. DEM Universe-TM-
7. DEM Company-TM-
8. DEM Multi-Manager-TM-
9. Chapman-TM-
<PAGE>
Exhibit 10.11
Nathan A. Chapman, Jr.
The World Trade Center--Baltimore
28th Floor
401 East Pratt Street
Baltimore, MD 21201
December 29, 1997
Chapman Holdings, Inc.
The Chapman Co.
The World Trade Center--Baltimore
28th Floor
401 East Pratt Street
Baltimore, MD 21201
Re: Chapman Holdings, Inc.
Corporate Separation Lock-up Agreement
Ladies and Gentlemen:
In connection with efforts to raise capital for the business operations
of The Chapman Co., a Maryland corporation ("CCO") and Chapman Capital
Management, Inc., a Washington, DC corporation ("CCM"): (i) CCO and its
parent, Chapman Holdings, Inc., a Maryland corporation ("CHI") entered into
a merger transaction (the "Merger") effective December 29, 1997, pursuant
to a plan of merger (the "Plan") and articles of merger approved by the
Board of Directors and stockholders of CHI whereby the former stockholders of
CCO became stockholders of CHI and CCO became a wholly-owned subsidiary of
CHI; (ii) effective January 8, 1998, CCO transferred the outstanding shares
of its wholly-owned subsidiaries CCM and the Chapman Insurance Agency
Incorporated, a Maryland corporation ("CIA") to two newly-formed,
wholly-owned Maryland corporation subsidiaries of CCO, Chapman Capital
Holdings, Inc. ("CCH") and Chapman Insurance Holdings, Inc. ("CIH");
(iii) CHI currently intends to undertake an initial public offering of its
equity securities (the "IPO"); (iv) immediately prior to the closing of the
IPO, CCO currently intends to distribute all of the outstanding shares of
common stock, par value $0.001 per share, of CCH ("Common Stock of CCH")
and common stock, par value $0.001 per share, of CIH ("Common Stock of
CIH") to CHI; and (v) immediately upon the receipt of the shares of Common
Stock of CCH and CIH by CHI, CHI currently intends to distribute one share of
Common Stock of CIH and one share of Common Stock of CCH to each CHI
stockholder for each share of common stock, par value $0.001 per share, of
CHI ("Common Stock of CHI") held by such CHI stockholder as of the record
date for such distribution as set by the Board of Directors of CHI (the
transactions set forth in subparagraphs (iv) and (v) are hereinafter referred
to as the "Separation"). The Separation is intended to be a tax-free
spin-off transaction pursuant to Section 355 of the Internal Revenue Code.
Each of the transactions set forth above is more fully described in The
Chapman Co. Information Statement dated December 23, 1997 (the "Information
Statement").
<PAGE>
Chapman Holdings, Inc.
The Chapman Co.
December 29, 1997
Page 2
The undersigned understands, as set forth in the Plan and the Information
Statement, that the tax-free nature of the Separation may be threatened by
any transfer of shares of Common Stock of CHI received by the former
stockholders of CCO in the Merger (the "Shares") prior to June 28, 1999.
Accordingly, in order to facilitate the consummation of the Separation and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the undersigned agrees that, without the prior
written consent of CHI, the undersigned will not (i) directly or indirectly,
offer, sell, pledge, contract to sell, grant any option to purchase or
otherwise dispose of any of the Shares beneficially owned or otherwise held
by the undersigned (including, without limitation, Shares which may be deemed
to be beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common
Stock of CHI which may be issued upon exercise of a stock option or warrant)
or any securities convertible into, derivative of or exercisable or
exchangeable for such Common Stock of CHI for a period commencing on December
29, 1997 and ending on June 28, 1999; and (ii) notwithstanding clause (i)
above, until June 28, 1999, directly or indirectly, sell short any equity
securities of CHI.
The undersigned agrees that CHI may, and that the undersigned will, with
respect to any of the Shares for which the undersigned is the record holder,
cause the transfer agent for CHI to note stop transfer instructions with
respect to the Shares on the transfer books and records of CHI.
The undersigned understands that CHI and CCO will proceed with the
Separation in reliance on this agreement. This agreement shall be governed by
and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of Maryland.
The undersigned understands that CHI and CCO will proceed with the
Separation in reliance on this agreement and that nothing in this agreement
obligates CHI or CCO to proceed with the Separation. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of
the undersigned and any obligations of the undersigned shall be binding upon
the estate, heirs, personal representatives, successors and assigns of the
undersigned.
Very truly yours,
/s/ Nathan A. Chapman, Jr.
-------------------------------------
Signature of Stockholder
Nathan A. Chapman, Jr.
-------------------------------------
Printed Name of Stockholder
<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,
June 19, 1998
<PAGE>
Exhibit 24.2
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that the undersigned Director of Chapman
Capital Management Holdings, Inc., a Maryland corporation, hereby constitutes
and appoints 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 his name as Director 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.
Date: June 9, 1998
/s/ Robert L. Wallace
----------------------------
Robert L. Wallace, Director
