<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ECHAPMAN.COM, INC.
(Name of Small Business Issuer in its Charter)
--------------------------
<TABLE>
<S> <C> <C>
MARYLAND 7375 52-2184621
(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
EChapman.com, Inc.
401 East Pratt Street
Suite 2800
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) 244-7608
</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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1)(2) PER SHARE OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.001
per share................... 3,533,333 shares $16.00 $56,533,328 $14,925
</TABLE>
(1) Includes 200,000 shares subject to an option granted to the underwriter to
cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee.
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 EChapman.com, Inc. of shares of common stock
(the "Prospectus") and one for use in connection with the sales by The Chapman
Co. of EChapman.com's shares of 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
65, which will contain alternate language for the "Underwriting" 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: NOVEMBER 15, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[PROSPECTUS]
3,333,333 SHARES
$ PER SHARE INITIAL PUBLIC OFFERING PRICE
ECHAPMAN.COM
COMMON STOCK
[LOGO]
This is our initial public offering, and no public market currently exists
for our common stock. We expect our initial public offering price to be between
$14 and $16 per share. The offering price may not reflect the market price of
our shares after the offering. Investors should see "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
<TABLE>
<CAPTION>
OFFERING INFORMATION
---------------------
PER SHARE TOTAL
--------- ---------
<S> <C> <C>
Initial public offering price...............................
Underwriting discounts/commissions..........................
Estimated offering expenses.................................
Net offering proceeds to EChapman.com, Inc. ................
</TABLE>
EChapman.com and Nathan A. Chapman, Jr. have granted the underwriters a
30-day option to purchase up to an additional 200,000 shares of EChapman.com
common stock on the same terms and conditions as set forth in this prospectus,
solely to cover over-allotments, if any, of which 120,000 shares will be sold by
EChapman.com and 80,000 shares will be sold by Mr. Chapman. In the event that
the underwriters do not exercise the option in full, the shares sold by
EChapman.com pursuant to the option will be reduced. If the underwriter
exercises this option in full, the underwriting discounts/ commissions will
increase to $ , the net offering proceeds to EChapman.com will increase to
$ , and the net offering proceeds to Mr. Chapman will be $ .
We have filed an application for our common stock to be quoted on the Nasdaq
National Market System under the symbol "ECMN".
------------------------
INVESTMENT IN OUR COMMON STOCK INVOLVES RISK.
SEE "RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
THE CHAPMAN CO.
, 2000
<PAGE>
[inside front cover]
THE C-EAGLE LOGO-TM- (THE LOGO APPEARING ON THE FRONT AND BACK COVERS OF
THIS PROSPECTUS) AND CHAPMAN-TM-, CHAPMAN TRADING-TM-, CHAPMAN NETWORK-TM-,
CHAPMAN EDUCATION-TM-, CHAPMAN MARKETPLACE-TM-, CHAPMAN KIDS CLUB-TM-, DEM
INDEX-TM-, DEM PROFILE-TM-, DEM UNIVERSE-TM-, DEM COMPANY-TM-, DEM
COMMUNITY-TM-, DEM MULTI-MANAGER-TM- AND ECHAPMAN.COM-TM- ARE TRADEMARKS OF
NATHAN A. CHAPMAN, JR. DOMESTIC EMERGING MARKETS-REGISTERED TRADEMARK- AND
DEM-REGISTERED TRADEMARK- ARE REGISTERED TRADEMARKS OF NATHAN A. CHAPMAN, JR.
THIS PROSPECTUS ALSO INCLUDES TRADEMARKS OF OTHER ENTITIES.
2
<PAGE>
PROSPECTUS SUMMARY
WE URGE YOU TO READ THIS ENTIRE PROSPECTUS. UNLESS WE INDICATE OTHERWISE,
THE TERMS "WE," "US," "ECHAPMAN.COM" OR "ECHAPMAN" REFER TO ECHAPMAN.COM, INC.
AFTER THE MERGERS OF CHAPMAN HOLDINGS, INC., CHAPMAN CAPITAL MANAGEMENT
HOLDINGS, INC. AND CHAPMAN INSURANCE HOLDINGS, INC. INTO THREE WHOLLY-OWNED
SUBSIDIARIES OF ECHAPMAN.COM. CHAPMAN HOLDINGS, INC. IS THE PARENT OF THE
CHAPMAN CO. CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. IS THE PARENT OF CHAPMAN
CAPITAL MANAGEMENT, INC. CHAPMAN INSURANCE HOLDINGS, INC. IS THE PARENT OF THE
CHAPMAN INSURANCE AGENCY INCORPORATED. UNLESS WE INDICATE OTHERWISE, "COMMON
STOCK" REFERS TO THE COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF
ECHAPMAN.COM, INC. UNLESS WE INDICATE OTHERWISE, ALL INFORMATION IN THIS
PROSPECTUS (I) GIVES EFFECT TO THE CONSUMMATION OF THE MERGERS AND (II) ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THIS SUMMARY SHOULD BE READ TOGETHER WITH THE MORE DETAILED INFORMATION AND
THE FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) THAT APPEAR ELSEWHERE IN
THIS PROSPECTUS. SOME OF THE STATEMENTS IN THIS SUMMARY AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE DISCUSSION 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."
THE ECHAPMAN.COM BUSINESS STRATEGY
OVERVIEW
EChapman.com is a newly formed corporation designed to bring together the
financial services capabilities of The Chapman Co., Chapman Capital Management
and The Chapman Insurance Agency while taking advantage of the unique
opportunities presented by the growth of the Internet. Our Web site, the
EChapman.com network, which is currently under development, will seek to be a
leading interactive online community offering both financial services and a
variety of lifestyle, educational and cultural content selected to appeal
particularly to African-Americans, Asian-Americans, Hispanic-Americans and women
market segments. We refer to these groups collectively as the Domestic Emerging
Markets, or DEM, community. We believe that our creation of and leadership
position in employing the Domestic Emerging Markets concept will allow us to
successfully combine online financial services with an online portal.
We are also in the exploratory stages of establishing an Internet bank to
service the DEM community, an undertaking which we believe would round out our
financial product lines and make EChapman.com a complete, one-stop financial
services company. The establishment of a bank involves a lengthy application
process and requires regulatory approvals. These plans are in the preliminary
stages, and we cannot assure you that they will come to fruition or represent a
significant source of revenue.
We are currently working internally and with third party service providers
to design and develop a prototype of our Web site. We intend to launch the
online trading portion of the EChapman.com Web site during the first quarter of
2000. Although we expect to add content and functionality on a continuous basis,
we anticipate that the layout, content and functionality of the lifestyle,
educational and cultural portions of our Web site should be substantially
complete within six months following the closing of this offering.
3
<PAGE>
BACKGROUND
NATHAN A. CHAPMAN, JR.
A key part of our strategy will be our financial services component, and we
intend to draw upon Nathan A. Chapman, Jr.'s prominence and experience in the
financial services industry. Mr. Chapman, our founder, President and Chairman,
is the President and Chairman of the first and currently the only
African-American controlled publicly traded investment bank, The Chapman Co.,
and the President and Chairman of the first and currently the only
African-American controlled publicly traded investment management company,
Chapman Capital Management. The Chapman Co. is a full-service securities
brokerage and investment banking company that engages in corporate and
government finance, retail and institutional brokerage, research and
market-making activities and trading. Chapman Capital Management is a registered
investment adviser that as of October 31, 1999 had over $690 million in assets
under management. Chapman Capital Management acts as financial adviser to
separate accounts, a group trust and a family of mutual funds. The Chapman
Insurance Agency is a privately held insurance agency with limited operations to
date.
DOMESTIC EMERGING MARKETS STRATEGY
In the mid-1990s, Mr. Chapman pioneered an investment management strategy
that manages portfolios invested in securities of companies controlled by
African-Americans, Asian-Americans, Hispanic-Americans and women. We call this
strategy the Domestic Emerging Markets, or DEM, strategy, and we call companies
which meet this profile DEM companies.
Chapman Capital Management was the first investment management firm to offer
the DEM strategy as an investment option when it launched DEM, Inc., a closed
end investment management company, in 1996. A mutual fund managed by Chapman
Capital Management using the DEM strategy is included as an investment option in
certain retirement plans administered by Aetna Retirement Services and
Nationwide Retirement Solutions. Chapman Capital Management further extends the
DEM strategy by actively recruiting investment managers which meet the DEM
profile to manage investment portfolios that may or may not be invested in DEM
companies. We call this strategy the DEM Multi-Manager strategy. Since launching
the DEM strategy, the company has increased assets managed under the DEM and DEM
Multi-Manager strategies to over $450 million as of October 31, 1999.
The Chapman Co. uses the DEM strategy in its brokerage and investment
banking business by participating in syndicates for underwritings of DEM
companies, publishing research on DEM companies, making markets in the stocks of
five DEM companies and acting as distributor for the mutual funds that Chapman
Capital Management manages according to the DEM strategy. In addition, The
Chapman Co. seeks to act as lead underwriter for DEM companies.
ECHAPMAN.COM
We believe an online network designed to appeal to African-Americans,
Asian-Americans, Hispanic-Americans and women, as well as the DEM community as a
whole, will allow us to leverage the DEM concept and promote brand
differentiation for our financial and other services. In addition, we believe
that the Internet will provide us with cost-efficient access to new markets for
our financial services. EChapman.com will seek to attract members of the DEM
community by providing a wide range of content of particular interest to the DEM
community and its various segments, as well as content of general interest. We
currently intend to organize this material around four channels on our Web site.
4
<PAGE>
The CHAPMAN NETWORK will cover a variety of topics and feature presentations
by personalities and celebrities appealing to the various segments of the DEM
community, including:
- Lifestyle
- Music/Video
- Kids and Teens
- International, domestic and business news
- Sports, weather and local news
CHAPMAN TRADING will offer:
- Online brokerage services
- Mutual funds, including our proprietary funds: the DEM Equity Fund, the
DEM Index Fund and the Chapman US Treasury Fund, as well as any future
mutual fund offerings
- Insurance products, such as variable annuities, variable life and term
life products
- Research reports
- Toll-free call center for personalized assistance
CHAPMAN EDUCATION will focus on financial education by providing:
- Interactive seminars
- Interviews with business people, particularly those who are prominent in
the DEM community
- DEM Index performance information
- Financial tools
CHAPMAN MARKETPLACE will offer for sale:
- Chapman-branded apparel and accessories
- Other products, including videos, music and books featuring DEM
personalities and apparel
- Links with other Internet merchants which desire access to the DEM
community or segments of it
SOURCES OF ONLINE REVENUE
EChapman.com will seek to derive revenue from its online business in the
following ways:
- Online brokerage commissions
- Investment management fees from increasing assets under management in our
proprietary mutual funds
- Advertising revenues from sales of banner ads and links to Web sites
seeking to reach the DEM community or segments of it
- Sharing with ecommerce partners in sales generated by visitors from our
Web site
- Possible online sales of annuity and other insurance products
- Potential interest and fee income generated upon establishment of the
contemplated Internet bank
- Sales of products through the CHAPMAN MARKETPLACE channel
5
<PAGE>
BRAND AWARENESS
In an increasingly competitive Internet market, we believe that the
development of the EChapman.com brand is key to the success of our business.
EChapman.com will seek to establish brand awareness through:
- Conventional off-line advertising and promotion, such as print media,
radio and television, event sponsorship, conferences and seminars
specifically targeted at the DEM community and its various segments
- Distribution of DEM products through third parties such as Aetna
Retirement Services and Nationwide Retirement Solutions
- Online advertising and marketing strategies, including:
- One-to-one banner exchanges
- Basic text links
- Content sponsorship
- E-mail promotions
- Registration with search engines and directories
- Registration of alternative domain names, such as chapmanonline.com,
africanamericanstocks.com, asianamericanstocks.com,
hispanicamericanstocks.com and womenstocks.com, which will lead Web
users to the EChapman.com Web site
OFFLINE STRATEGY
We intend to continue to grow the financial services products and services
we have offered through our traditional channels of distribution, and we believe
this will complement our online strategy. In particular, we intend to continue
to pursue and expand:
- Corporate finance transactions targeting DEM companies, particularly in
equity underwritings and syndicate participations
- Government finance transactions
- Retail brokerage services targeting the DEM community
- Proprietary trading for our own account
- Market-making activities focused on securities of DEM companies, as well
as other companies
- Distribution of our proprietary mutual funds through alliances with
strategic partners, such as Aetna Retirement Services
- Investment management services
- Management of assets according to the DEM and DEM Multi-Manager strategies
- Sales of annuity and other insurance products on an agency basis for
insurance underwriters, such as The Manufacturers Life Insurance Company
of North America
THE MERGERS
On November 15, 1999, EChapman.com entered into separate merger agreements
with Chapman Holdings, Chapman Capital Management Holdings and Chapman Insurance
Holdings pursuant to
6
<PAGE>
which each will merge into a wholly-owned subsidiary of EChapman.com. Upon
consummation of mergers, EChapman.com will indirectly control:
- The Chapman Co., a full service securities brokerage and investment
banking firm
- Chapman Capital Management, Inc., an investment advisory firm
- The Chapman Insurance Agency Incorporated, which sells annuity products on
an agency basis
The closing of this offering is contingent upon the closing of these
mergers. Upon the closing of this offering and consummation of the mergers,
Nathan A. Chapman, Jr., our President, will be the majority stockholder of
EChapman.com, with beneficial ownership of 52.2% of our outstanding common stock
excluding the exercise of the underwriters' over-allotment option.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered: 3,333,333 shares
Common Stock Outstanding
Prior to the offering: 1 share
After the offering and the mergers: 16,528,178 shares
Proposed Nasdaq National Market System
Symbol: "ECMN"
Use of Proceeds: - Complete the design and development of the
EChapman.com Web site
- Promote the EChapman.com brand and the DEM and DEM
Multi-Manager strategies
- Provide capital to The Chapman Co. in connection with
trading for its own account and for use in
underwriting activities
- Further explore the establishment of an Internet-based
DEM-oriented bank
- Pay cash to dissenters, if any, in the mergers of
Chapman Holdings and Chapman Capital Management Holdings
- Fund working capital and for general corporate
purposes, which may include financing future
acquisitions and capital expenditures
Risk Factors: You should carefully consider the information discussed
under the heading "Risk Factors."
</TABLE>
The number of shares of common stock outstanding excludes 138,464 shares of
common stock issuable upon exercise of options outstanding as of October 31,
1999 and excludes shares issuable upon exercise of the underwriters'
over-allotment option.
Other than the mergers of Chapman Holdings, Chapman Capital Management
Holdings and Chapman Insurance Holdings into wholly-owned subsidiaries of
EChapman.com, we do not have any current plans regarding mergers and
acquisitions.
USE OF CERTAIN TERMS
Throughout this prospectus we use certain phrases to refer to and to
describe our DEM and DEM Multi-Manager strategies and related concepts. The DEM
COMMUNITY refers to African-Americans, Asian-Americans, Hispanic-Americans and
women. A U.S. company which is controlled by members of the DEM community is a
DEM COMPANY. In order for a specific company to be controlled by a member of the
DEM community, at least 10% of the company's outstanding voting securities must
be beneficially owned by members of one or more of the segments of the DEM
community and at least one of the company's top three executive officers
(Chairman, Chief Executive Officer or President) must be a member of one or more
of the segments of the DEM community. Individuals or companies which possess the
criteria of the DEM community or a DEM company are said to meet the DEM PROFILE.
In addition, in discussing the mergers and the business of our subsidiaries
we may occasionally use acronyms to refer to Chapman Holdings, Inc. (CHI), The
Chapman Co. (CCO), Chapman Capital Management Holdings, Inc. (CCMHI), Chapman
Capital Management, Inc. (CCM), Chapman Insurance Holdings, Inc. (CIH) and The
Chapman Insurance Agency Incorporated (CIA).
8
<PAGE>
CONSOLIDATED SUMMARY FINANCIAL DATA
The summary of financial information set forth below for the years ended
December 31, 1997 and 1998 is derived from the financial statements for each of
Chapman Holdings, Inc. and Chapman Capital Management Holdings, Inc. for the
years ended December 31, 1997 and 1998, which have been audited by Arthur
Andersen LLP, independent public accountants. The summary of financial
information for the nine months ended September 30, 1998 and 1999 has been
derived from the respective unaudited financial statements of Chapman Holdings
and Chapman Capital Management Holdings. The summary unaudited pro forma
Statement of Operations data gives effect to the mergers as if they had occurred
as of January 1, 1998. The unaudited pro forma Balance Sheet data gives effect
to the mergers as if they had occurred as of September 30, 1999. The pro forma
as adjusted Statement of Operations data gives effect to the mergers and this
offering as if they had occurred as of January 1, 1998. The unaudited pro forma
as adjusted Balance Sheet data gives effect to the mergers and this offering as
if they had occurred as of September 30, 1999. The summary unaudited pro forma
consolidated financial information does not purport to represent what our
results of operations or financial condition would actually have been had the
transactions described occurred on the dates indicated or to project our results
of operations or financial condition for any future period or date. Historical
financial information for Chapman Insurance Holdings is not included due to its
minimal activity during the periods presented. This information should be read
in conjunction with such financial statements, including notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Selected Historical Pro Forma Financial Data."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------------- ------------------------ ---------------------------
(UNAUDITED)
CHAPMAN CHAPMAN
CAPITAL CAPITAL ECHAPMAN.COM
CHAPMAN MANAGEMENT CHAPMAN MANAGEMENT ECHAPMAN.COM PRO FORMA
HOLDINGS HOLDINGS HOLDINGS HOLDINGS PRO FORMA AS ADJUSTED
---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenue........ $2,992,000 $2,287,000 $ 2,935,000 $3,218,000 $ 6,024,000 $ 6,024,000
Income (loss) from
continuing
operations before
income tax
provision.......... 491,000 88,000 (1,616,000) (151,000) (2,120,000) (2,120,000)
Net income (loss)
from continuing
operations......... $ 286,000 $ 48,000 $(1,131,000) $(106,000) $(1,590,000) $(1,590,000)
========== ========== =========== ========== =========== ===========
Basic and dilutive
earnings (loss) per
share.............. $ 0.14 $ 0.02 $ (0.40) $ (0.04) $ (0.12) $ (0.10)
========== ========== =========== ========== =========== ===========
Weighted average
shares
outstanding........ 2,002,000 2,487,000 2,793,000 2,811,000 13,195,000 16,528,000
========== ========== =========== ========== =========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------------------- -------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------------- ------------------------------------------- -------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CHAPMAN CHAPMAN
CAPITAL CAPITAL ECHAPMAN.COM
CHAPMAN MANAGEMENT CHAPMAN MANAGEMENT ECHAPMAN.COM PRO FORMA
HOLDINGS HOLDINGS HOLDINGS HOLDINGS ECHAPMAN.COM PRO FORMA AS ADJUSTED
---------- ------------ ---------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue.......... $2,358,000 $2,383,000 $4,206,000 $3,198,000 $ -- $ 7,405,000 $ 7,405,000
Income (loss) from
continuing operations
before income tax
provision............ (407,000) 92,000 (1,141,000) (662,000) (220,000) (2,182,000) (2,182,000)
Net income (loss) from
continuing
operations........... $ (305,000) $ 59,000 $ (810,000) $ (498,000) $(220,000) $(1,621,000) $(1,621,000)
========== ========== ========== ========== ========= =========== ===========
Basic and dilutive
earnings (loss) per
share................ $ (0.11) $ 0.02 $ (0.27) $ (0.15) $ (0.12) $ (0.10)
========== ========== ========== ========== =========== ===========
Weighted average shares
outstanding.......... 2,744,000 2,636,000 2,954,000 3,351,000 13,195,000 16,528,000
========== ========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------- --------------------------------
AS OF SEPTEMBER 30, 1999 AS OF SEPTEMBER 30, 1999
-------------------------------------- --------------------------------
(UNAUDITED) (UNAUDITED)
CHAPMAN
CAPITAL ECHAPMAN.COM
CHAPMAN MANAGEMENT ECHAPMAN.COM PRO FORMA
ECHAPMAN.COM HOLDINGS HOLDINGS PRO FORMA AS ADJUSTED
------------ ---------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents &
marketable securities....... $ -- $2,014,000 $3,370,000 $ 5,259,000 50,759,000
Total assets.................. 18,000 9,263,000 5,204,000 18,532,000 64,032,000
Total debt.................... -- 2,200,000 150,000 2,200,000 2,200,000
Total stockholders' (deficit)
equity...................... (220,000) 6,254,000 4,543,000 14,734,000(1) 60,234,000(1)
</TABLE>
- ------------------------
(1) Total stockholders' equity excludes 138,464 shares issuable upon exercise of
options that were outstanding as of September 30, 1999 and the underwriters'
over-allotment option.
10
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
THE RISKS DESCRIBED BELOW ARE THE MOST SIGNIFICANT FACTORS THAT MAKE AN
INVESTMENT IN ECHAPMAN.COM SPECULATIVE AND RISKY. THESE RISKS COULD MATERIALLY
AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. IN ADDITION, ANY OF THESE ADVERSE EFFECTS COULD CAUSE THE TRADING
PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MAY CORRESPONDINGLY LOSE ALL OR
SOME PORTION OF YOUR INVESTMENT IN US.
WARNING AS TO OUR USE OF FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements concerning
EChapman.com. These forward-looking statements are based on the beliefs of our
management, as well as on assumptions made by and information currently
available to us at the time such statements are made. When we use words such as
"anticipate," "believe," "estimate," "intend" and similar expressions in this
prospectus, we intend to identify forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below, the matters set forth or
incorporated in this prospectus generally and economic and business factors,
some of which are beyond our control. We caution the reader, however, that this
list of factors may not be exhaustive particularly with respect to future
filings with the Securities and Exchange Commission ("SEC"). In analyzing an
investment in shares of our common stock, you should carefully consider, along
with other matters referred to in this prospectus, the risk factors described
below.
RISKS ASSOCIATED WITH THE COMPANY
WE HAVE NOT LAUNCHED OUR WEB SITE.
EChapman.com was formed in 1999. We have not launched the EChapman.com Web
site. In addition, we are still in the process of designing and developing our
Web site, and we have not made final decisions with respect to a Web design
firm, Web development firm, a hosting services provider or other necessary
Internet vendors. We are currently working internally and with third party
service providers to design and develop the prototype of our Web site. We intend
to launch the online trading portion of the EChapman.com Web site during the
first quarter of 2000. Although we expect to add content and functionality on a
continuous basis, we anticipate that the layout, content and functionality of
the lifestyle, educational and cultural portions of our Web site should be
substantially complete within six months following the closing of this offering.
However, because we are dependent upon outside vendors for these services, these
time frames will depend upon their availability. We intend to use a portion of
the proceeds of this offering to fund the design and development of our Web
site.
WE HAVE NO INTERNET-RELATED OPERATING HISTORY AND WE HAVE NOT ENTERED INTO
AGREEMENTS WITH ADVERTISERS, STRATEGIC PARTNERS OR CONTENT PROVIDERS.
Although we have a history with respect to the securities brokerage,
investment banking and investment advisory businesses, we have no Internet-based
operating history from which you can evaluate our combined business plan and
prospects. In addition, although we intend to pursue advertising relationships
and strategic alliances with third parties and enter into agreements with
content providers, we have not entered into negotiations with any companies, and
we cannot assure you that we will be able to establish or maintain these
relationships.
As a new entrant to the Internet business, we face risks and uncertainties
relating to our ability to implement successfully the Internet component of our
business strategy, including:
- Successful design and development of the EChapman.com Web site
- Creation of public awareness of the EChapman.com brand and Web site
- Successful expansion of our financial services businesses on the Internet
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If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition will be materially
adversely affected.
WE HAVE A HISTORY OF OPERATING LOSSES, AND WE EXPECT TO CONTINUE TO INCUR
SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE.
On a pro forma basis, after giving effect to the mergers of Chapman
Holdings, Chapman Capital Management Holdings and Chapman Insurance Holdings
into our wholly-owned subsidiaries, we had net losses of $1,621,000 and
$1,590,000 for the nine months ended September 30, 1999 and the year ended
December 31, 1998, respectively. Following the offering and the consummation of
the mergers, we expect to continue to increase our operating expenses
significantly, expand our marketing and staff and continue to develop and expand
our Web site and our online information and services. Such expenses will be
significant and generally will precede revenues, and if they are not followed by
increased revenues, our business, results of operations and financial condition
would be materially and adversely affected.
OUR PROMOTION OF THE ECHAPMAN.COM BRAND MUST BE SUCCESSFUL IN ORDER FOR US TO
ATTRACT USERS AS WELL AS ADVERTISERS AND OTHER STRATEGIC PARTNERS.
We believe that establishing and maintaining our brand is critical to our
success and that the importance of brand recognition will increase due to the
growing number of Web sites, particularly those targeted to discrete segments of
the DEM community. Successful promotion and marketing of our brand will depend
on providing interesting and compelling content, community, commerce and
personalized services, and we will need to increase our marketing and branding
expenditures in our effort to increase our brand awareness. If our brand
building strategy is unsuccessful, we may never recover these expenses, we may
be unable to increase our future revenues, and our business would be materially
and adversely affected. We intend to use a significant portion of the proceeds
of this offering for promotion of our Web site. See "Use of Proceeds."
OUR FUTURE GROWTH SIGNIFICANTLY DEPENDS UPON THE EFFORTS OF SENIOR MANAGEMENT.
For the foreseeable future, we will place substantial reliance upon the
personal efforts and abilities of Nathan A. Chapman, Jr., President of
EChapman.com. The loss of the services of Mr. Chapman would have a material
adverse effect on our business, operations, revenue and/or business prospects.
We do not have an employment agreement with Mr. Chapman. The Chapman Co.
currently maintains "key man" life insurance coverage in the amount of
$7,000,000 on Mr. Chapman.
OUR COMPETITIVE POSITION WILL ALSO DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN
OTHER KEY PERSONNEL.
Our success will depend substantially on the services and performance of key
personnel other than Mr. Chapman. EChapman.com's future success will also depend
on its ability to identify, attract, retain and motivate highly skilled
technical, managerial, sales, marketing and customer service personnel.
Competition for such persons is intense. We cannot assure you that we will be
able to attract or retain these personnel.
USE OF THE DEM STRATEGY ON THE INTERNET IS NEW AND UNTESTED.
We plan to use the DEM strategy in our Internet business to focus on
attracting African-Americans, Asian-Americans, Hispanic-Americans and women to
our Web site. The success of our business will depend on our ability to attract
members of the DEM community to our Web site; however, we cannot assure you that
these individuals will use our Web site or that the expansion of the DEM
strategy on the Internet will be profitable.
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INVESTORS PURCHASING OUR SHARES IN THIS OFFERING SHALL ENCOUNTER IMMEDIATE AND
SUBSTANTIAL DILUTION.
The sale of the offering amount involves immediate and substantial dilution
of $11.66 per share, or 77.7%, as of September 30, 1999 to investors because the
pro forma as adjusted net tangible book value per share of common stock after
completion of this offering and the mergers will be substantially less than the
per-share offering price, assuming a $15 per share offering price (the midpoint
of the offering range). See "Dilution."
WE ARE AFFILIATED WITH THE UNDERWRITER OF THIS OFFERING AND ARE REQUIRED TO
ENGAGE A QUALIFIED INDEPENDENT UNDERWRITER.
The Chapman Co. is the underwriter of this offering. Nathan A. Chapman, Jr.,
our President and Chairman of the Board, is President, Chairman of the Board and
majority stockholder of Chapman Holdings, Inc., 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 of our common
stock are being offered at a price no higher than that recommended by Ferris,
Baker Watts, Incorporated, which is acting as qualified independent underwriter.
Although Ferris, Baker Watts has participated in the preparation of the
registration statement (including this prospectus) and is required to exercise
the usual standards of "due diligence" with respect thereto, we cannot assure
you 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. See "Underwriting" for a description of the details of the offering.
THE INITIAL OFFERING PRICE OF OUR COMMON STOCK MAY NOT CORRESPOND WITH THE PRICE
IN THE PUBLIC MARKET.
Prior to this offering, there has been no public market for our common
stock. EChapman.com and Ferris, Baker Watts determined the initial price to the
public for the shares through negotiation. This negotiated price may not be
indicative of the market price of our common stock after the offering. For a
discussion of the factors considered in determining the offering price, see
"Plan of Distribution." 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 vary substantially. We cannot assure you
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."
WE MAY NOT BE ABLE TO SECURE FINANCING IF WE NEED IT IN THE FUTURE.
We may require additional financing beyond the proceeds of this offering to:
- Support expansion
- Develop new and enhanced products and services
- Respond to competitive pressures
- Acquire complementary businesses or technologies
- Respond to unanticipated requirements
We can give you no assurance that we will be able to secure additional
financing when needed on favorable terms, if at all.
THE FUTURE SALE OF SHARES OF OUR COMMON STOCK BY CERTAIN STOCKHOLDERS MAY
ADVERSELY AFFECT THE PRICE PER SHARE IN THE PUBLIC MARKET.
As of the closing of this offering and the consummation of the mergers, we
will have 16,528,178 shares of common stock outstanding and 138,464 shares of
common stock subject to issuance upon exercise of options, of which 8,648,988
shares (8,568,988 shares if the underwriters exercise the over-allotment option
in full) will be beneficially owned by Nathan A. Chapman, Jr. With the exception
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of Mr. Chapman's shares and shares held by our affiliates as defined in Rule 144
under the Securities Act, all of the shares outstanding after the offering will
be freely transferable without further registration under the Securities Act.
Except in connection with the over-allotment option, Mr. Chapman has agreed not
to sell publicly any of the shares of common stock that he owns as of the date
of this prospectus until 180 days after the closing of this offering. 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."
FOLLOWING THE MERGERS, WE WILL BE CONTROLLED BY NATHAN A. CHAPMAN, JR.
Following this offering and consummation of the mergers, Nathan A. Chapman,
Jr. will beneficially own 52.2% (51.4% if the underwriters exercise the
over-allotment option in full) of the common stock of EChapman.com. See
"Principal and Selling Stockholders." Accordingly, Mr. Chapman will have
effective control over all fundamental matters affecting EChapman.com, such as
the election of directors, mergers, sales of all or substantially all of our
assets, charter amendments and other matters requiring stockholder approval.
OUR MANAGEMENT HAS BROAD DISCRETION IN ALLOCATING THE USE OF PROCEEDS.
We intend to use a portion of the net proceeds from this offering to
complete the development of the EChapman.com Web site and to promote the
EChapman.com brand and our DEM and DEM Multi-Manager strategies. We currently
estimate that during the next 12 months the cost of Web site design and
development will be at least $5 million and that our advertising expenditures
will total approximately $14 million; however, as we are a new entrant to the
Internet market, these expenses may be significantly higher than we anticipate.
We also intend to use a portion of the net proceeds to provide The Chapman Co.
with capital for its underwriting activities and trading for its own account. We
have not allocated our proceeds for specific purposes, and our management will
have significant flexibility in applying the balance of the net proceeds of the
offering. We may use a portion of the net proceeds for general corporate
purposes, including funding future acquisitions, if any, and capital
expenditures. See "Use of Proceeds."
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND THE MARKET PRICE IS
LIKELY TO FLUCTUATE SIGNIFICANTLY.
Prior to this offering, our common stock has not been publicly traded, and
we cannot assure you that an active public market for our common stock will
develop or, if developed, that it will continue after the offering. In the
absence of an active public trading market, you may be unable to liquidate your
investment in our common stock.
The trading prices of our common stock could be subject to wide fluctuations
in response to quarterly variations in operating results, announcements of
material business events by us or our competitors and other events or factors.
Recently, the trading prices for the stock of Internet-based companies have
exhibited considerably more volatility than the stock market generally. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted.
Litigation could result in substantial costs and a diversion of management's
attention and resources.
WE INTEND TO PURSUE ACQUISITIONS AND STRATEGIC RELATIONSHIPS AND THIS STRATEGY
INVOLVES CERTAIN RISKS.
We intend to pursue strategic acquisitions of businesses and technologies.
Acquisitions may entail numerous risks, including:
- Difficulties in identifying appropriate acquisition candidates
- Competition from others for identified acquisition candidates
- Difficulties in assessing values for acquired businesses and technologies
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- Difficulties in the integration of acquired operations and products
- Diversion of management's attention from core business concerns
- Assumption of unknown material liabilities of acquired companies
- Amortization of acquired intangible assets, which could reduce future
reported earnings
- Potential loss of customers or key employees of acquired companies
We also intend to establish strategic relationships with online service
providers and information service providers. These relationships will be
important to our business and growth prospects. If we are unable to develop or
maintain these relationships it would have a materially adverse effect on our
results of operations and financial condition.
IF WE, OR THIRD PARTIES ON WHICH WE RELY, FAIL TO ACHIEVE YEAR 2000 READINESS,
OUR BUSINESS COULD BE MATERIALLY HARMED.
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 ready. Any significant disruption of
these systems after the Year 2000 could significantly interfere with our
business operations. Our potential areas of exposure include products purchased
from third parties, including computers, software, telephone equipment and other
technology used internally, and the Year 2000 readiness of our vendors,
strategic partners and others. If our present efforts to address Year 2000
readiness issues are not successful, or if vendors or other third parties with
whom we conduct business do not successfully address such issues, our business,
our operating results and financial condition could be materially and adversely
affected. For a discussion of our Year 2000 readiness plan and its costs, see
"Management Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 System Costs."
THIS OFFERING IS NOT CONDITIONED UPON ACHIEVING NASDAQ NATIONAL MARKET SYSTEM
LISTING.
There is currently no public market for our common stock. We have applied
for quotation on the Nasdaq National Market System; however, we can give no
assurance that the Nasdaq Stock Market will approve our application.
This offering is not conditioned on achieving listing, and we cannot assure
you that a market will develop for our common stock or that we will continue to
meet the other requirements of quotation.
We believe that there will be sufficient market-makers to qualify for and
maintain a Nasdaq National Market System listing; however, no firms are
obligated to make a market in our common stock, and any firm that commences
market-making activities may cease such activities at any time.
If our common stock does not qualify for inclusion on the Nasdaq National
Market, we intend to seek listing of our shares on the Nasdaq SmallCap Market.
WE DO NOT EXPECT TO PAY ANY DIVIDENDS.
To date, we have not paid any cash dividends on our common stock, and we do
not expect to declare or pay any cash dividends in the foreseeable future. We
intend to retain all earnings, if any, for the foreseeable future for our
continued growth.
ANTI-TAKEOVER PROVISIONS COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.
Maryland corporate law restricts transactions between a corporation and its
affiliates and potential acquirers. The applicability of these provisions may
discourage bids for our common stock at a premium over the market price and may
adversely affect the market price and the voting rights of our common stock.
These statutory provisions may discourage changes in control.
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RISKS RELATED TO ECOMMERCE AND THE INTERNET
THERE IS INTENSE EXISTING AND INCREASING COMPETITION FOR INTERNET-BASED
BUSINESS.
The number of Web sites competing for the attention and spending of users
and advertisers has greatly increased, and we expect it to continue to increase.
The market for Internet content sites is rapidly evolving and financial,
technical and legal barriers to entry are low, enabling newcomers to launch
competitive sites at relatively low costs.
We will compete for users, investors and advertisers with the following
types of companies:
- Online services or Web sites targeted at the various segments of the DEM
community, such as msbet.com, netnoir.com, quepasa.com, ivillage.com,
women.com and womencentral.com
- Web search and retrieval and other online service companies, commonly
referred to as portals, such as Excite, Inc., Infoseek Corporation,
Lycos, Inc. and Yahoo! Inc.
- Publishers and distributors of traditional media, such as television,
radio and print
- Online brokerages and investment banks, such as Ameritrade, DLJdirect,
eSchwab, E*trade and Wit Capital
- Traditional brokerages and investment banks
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could adversely affect our business.
WE ARE DEPENDENT ON CONTINUED GROWTH IN USE OF THE INTERNET.
The Internet market is rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow, particularly usage by
members of the DEM community. A number of factors unique to this medium may
inhibit Internet usage, including:
- Inadequate network infrastructure
- Security/privacy concerns
- Inconsistent quality of service
- Lack of cost-effective, high speed service
- Failure of the Internet as a viable commercial marketplace
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, and its performance and
reliability may decline. In addition, in the past, Web sites have experienced
interruptions in service as a result of outages and other delays occurring
throughout the Internet infrastructure. If these outages or delays frequently
occur in the future, Internet usage, as well as the usage of our Web site, could
grow more slowly or decline.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US.
We are and expect to continue to be dependent on various third parties for
software, systems and related services. For example, we rely on third party
service providers for the design and development of our prototype Web site. We
will depend on third parties for the design and development of our Web site, Web
hosting and technical support, and on a licensed software package to track
demographic information of users of our Web site. We have not yet selected these
vendors. Some of these third parties that provide software and services to us
may have a limited operating history, may have relatively immature technology
and may themselves be dependent on reliable delivery of services from others. As
a result, our ability to deliver various services to our users may be adversely
affected by the
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failure of these third parties to provide reliable software, systems and related
services to us. If these outages or delays frequently occur in the future,
Internet usage, as well as the usage of our Web site, could grow more slowly or
decline.
INTERNET SECURITY CONCERNS COULD HINDER ECOMMERCE.
The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and other Internet
communications. Any well-publicized compromise of security could deter people
from using the Internet or using it to conduct transactions that involve
transmitting confidential information. We may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by such
breaches.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN THE INDUSTRY.
The Internet market is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry standards.
The recent growth of the Internet and intense industry competition amplify these
market characteristics. To achieve our goals, we need to integrate effectively
the various software programs and tools required to enhance and improve our
product offerings and manage our business. Our future success will depend on our
ability to adapt to rapidly changing technologies by continually improving the
performance, features and reliability of our services. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. In addition, any
enhancements must meet the requirements of our current and prospective users and
must achieve significant market acceptance. We could also incur substantial
costs if we need to modify our service or infrastructure to adapt to these
changes.
THE MARKET FOR INTERNET ADVERTISING IS UNCERTAIN AND SUBJECT TO CHANGE.
We expect to derive a portion of our revenues from sponsorships and
advertising; however, demand and market acceptance for Internet advertising is
uncertain.
There are currently no uniform standards for the measurement of the
effectiveness of Internet advertising, and the industry may need to develop
standard measurements to support and promote Internet advertising as a
significant advertising medium. If such standards do not develop, existing
advertisers may not continue their levels of Internet advertising. Furthermore,
advertisers that have traditionally relied upon other advertising media may be
reluctant to advertise on the Internet. Our business would be adversely affected
if the market for Internet advertising fails to develop or develops more slowly
than expected.
Different pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard. This
makes it difficult to predict our future advertising rates and revenues. Our
advertising revenues could be adversely affected if we are unable to adapt to
new forms of Internet advertising. Moreover, software programs that limit or
prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software could adversely affect the
commercial viability of Internet advertising.
TO REMAIN COMPETITIVE, WE MUST CONSTANTLY EXPAND AND DEVELOP NEW CONTENT AREAS
AND SERVICES.
We may not be able to respond to changing consumer needs and industry
standards. EChapman.com may not be able to introduce new products and services
before competitors or improve existing products to match competitors' products
and services. If we do not timely and continually improve our product and
service offerings and introduce new ones, our business could be adversely
affected.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET.
There are currently a comparatively small number of federal or state laws or
regulations that specifically regulate communications or commerce on the
Internet. However, federal and state governments are increasingly asserting more
active regulation of the Internet. These efforts include attempts to apply
existing laws of general applicability to the Internet, including actions
involving:
- User privacy, including sending of unsolicited email or "spamming"
- Consumer protection to ensure quality products and services and fair
dealing
- Media regulation, such as libel and obscenity
In addition, federal and state legislatures and administrative agencies are
beginning to consider or adopt a variety of Internet-specific statutes and
regulations. In 1998, Congress passed the Children's On-Line Privacy Protection
Act of 1998, which strictly limits the collection by Web sites of "personal
information" from children under the age of 13 by requiring, among other things,
prior parental consent.
The National Conference of Commissioners of Uniform State Laws has recently
recommended two new laws for adoption by the states. The first, the Uniform
Electronic Transaction Act, seeks to recognize the scope and enforceability of
electronic contracts and agreements generally. Separately, the Uniform Computer
Information Transaction Act seeks to impose a general contract law framework for
electronic transactions. We expect that states may adopt either or both of these
uniform acts in the near future, and a consequence may be additional
requirements and liability for Internet-based businesses. Additional legislation
could be introduced if self-regulatory efforts by online businesses are deemed
ineffective.
Several states have adopted or are considering adoption of statutes that
address "spamming" practices on the Internet.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as copyright, trademark, trade secrets and other
intellectual property law; libel and defamation; and privacy are applicable to
the Internet. These existing and new laws and regulations could adversely affect
our business.
IF WE ESTABLISH AN INTERNET BANK, WE WILL BE SUBJECT TO ADDITIONAL GOVERNMENT
REGULATION AND RISKS.
If we establish an Internet bank, we will become subject to regulation by
federal and state banking regulators. These laws and regulations include but are
not limited to those relating to consumer lending, community development and
advertising. In addition, in conducting various aspects of a banking business,
our Internet bank would be subject to various laws and regulations relating to
commercial transactions generally, such as the Uniform Commercial Code. An
Internet bank's earnings would be affected by market interest rates and other
economic factors beyond our control, and EChapman.com and such Internet bank
would be subject to a variety of liability risks associated with the operation
of a bank.
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOW DOWN.
If we cannot expand our systems to cope with increased demand or fail to
perform, we could experience:
- Unanticipated disruption in service
- Decreased customer service and customer satisfaction
- Delays in the introduction of new products and services
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- Financial losses
- Litigation or other customer claims
- Regulatory sanctions in connection with the online brokerage services
Our ability to facilitate transactions successfully and provide high-quality
customer service also depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. Fire, floods, earthquakes,
power loss, telecommunications failures, break-ins and similar events could
damage our systems. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our Web site. Our business could
be adversely affected if our systems were affected by any of these occurrences.
Our insurance policies may not compensate us for any losses that may occur due
to any failures or interruptions in our systems. We do not presently have any
secondary "off-site" systems or a formal disaster recovery plan. Any system
failure that causes an interruption in service or decreases the responsiveness
of our service could impair our reputation, damage our brand name and harm our
revenues.
OUR USERS DEPEND ON OTHERS FOR ACCESS TO OUR WEB SITE.
Our users will depend on Internet service providers, online service
providers and other Web site operators for access to our Web site. Many of these
service providers have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS' PERSONAL
INFORMATION.
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information or credit card information, we
could be subject to liability. These could include claims for unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. They could also include claims for other misuses of personal
information, such as for unauthorized marketing purposes or the collection of
personal information from children. These claims could result in litigation. In
addition, the FTC and state agencies have been investigating various Internet
companies regarding their use of personal information. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if our privacy practices are investigated.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM THE WEB.
We may be subjected to claims for defamation, negligence, patent, copyright
or trademark infringement, trade secret misappropriation, personal injury or
other legal theories relating to the information we publish on our Web site.
These types of claims have been brought, sometimes successfully, against
companies offering online services, as well as other print publications, in the
past. We could also be subjected to claims based upon the content that is
accessible from our Web sites through links with other Web sites or through
content and materials that may be posted by members in chat rooms or on bulletin
boards.
WE COULD BE SUBJECT TO POSSIBLE INFRINGEMENT ACTIONS BASED UPON CONTENT LICENSED
FROM OTHERS.
It is possible that we could become subject to infringement actions and
liability based upon content we may license from third parties. Any of these
claims, with or without merit, could subject us to costly litigation and the
diversion of our financial resources and technical and management personnel.
Further, if such claims are successful, we may be required to alter the content
of our Web site, pay financial damages or obtain licenses from others.
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RISKS RELATED TO OUR SECURITIES BROKERAGE, INVESTMENT BANKING AND
INVESTMENT ADVISORY BUSINESSES
OUR SECURITIES BROKERAGE, INVESTMENT BANKING AND INVESTMENT ADVISORY BUSINESSES
COULD BE HARMED BY MARKET FLUCTUATIONS AND OTHER SECURITIES INDUSTRY RISKS.
Our securities brokerage, investment banking and investment advisory
businesses are concentrated in the securities industry, which is subject to
numerous and substantial risks, particularly in volatile or illiquid markets and
in markets influenced by sustained periods of low or negative economic growth.
Such risks include the risk of losses resulting from:
- Underwriting and ownership of securities
- Trading and principal activities
- Counterparty failure to meet commitments
- Customer fraud
- Employee errors
- Misconduct and fraud (including unauthorized transactions by traders)
- Failures in connection with the processing of securities transactions
In addition, our investment banking revenues may decline in periods of
reduced demand for public offerings or reduced activity in the secondary markets
and when there are reduced spreads on the trading of securities.
THE INVESTMENT BANKING, BROKERAGE AND INVESTMENT ADVISORY INDUSTRIES ARE HIGHLY
COMPETITIVE.
The investment banking, brokerage and investment advisory industries are all
extremely competitive. We encounter intense competition in all aspects of the
securities and investment advisory businesses and compete directly with other
securities and investment advisory firms, many of which have significantly more
financial, technical, personnel and other resources than we possess. Competition
also exists for experienced personnel including technical personnel and account
executives. In addition to competition from firms currently in the securities
and investment advisory businesses, recently we have encountered increasing
competition from other sources, such as commercial banks and insurance companies
offering financial services. We also expect competition to increase as a result
of the recently-enacted Financial Services Modernization Act of 1999, which
removes barriers to affiliation between banks, insurance companies and
securities firms. See "Business-Competition" for more information about the
nature and extent of the competition we face.
WE MAY EXPERIENCE POTENTIAL ADVERSE EFFECTS OF CHANGES IN THE 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 our control. 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
the performance of our investment products and separate accounts, which may
adversely affect assets under management and/or fees. Our revenues from
investment management are directly related to fluctuations in the dollar amount
of assets under management.
TRADING FOR OUR OWN ACCOUNT INVOLVES CERTAIN RISKS.
Our security brokerage subsidiary's trading activities involve the purchase,
sale or short sale of securities as a principal, and, accordingly, involve risks
of a change in market price of such securities and of a decrease in the
liquidity of markets, which can limit our ability to sell securities purchased
or to purchase securities sold in such transactions. In 1998, The Chapman Co.
experienced a loss on trading of $638,000. Most of this loss on trading is
attributable to an unrealized loss of value on The Chapman Co.'s market-making
inventory of approximately $405,000 and a realized loss on this inventory of
$74,000.
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OUR INVESTMENT ADVISORY SUBSIDIARY IS DEPENDENT ON KEY INVESTMENT MANAGEMENT
CLIENTS.
All of Chapman Capital Management's agreements with its advisory clients are
terminable by the client upon short notice (typically 30-60 days prior written
notice). As of October 31, 1999, five clients, including two invested in DEM-MET
Trust and The Chapman U.S. Treasury Money Fund, represented approximately 69.0%
of our total assets under management. As of October 31, 1999, DEM-MET Trust,
with $290.3 million in assets under management, represented approximately 41.6%
of our total assets under management. If the DEM-MET Trust or any of our key
investment management clients terminate their advisory arrangements with us, our
advisory fee revenue would be materially and adversely affected.
OUR BROKERAGE BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH MARKET-MAKING
ACTIVITIES.
The Chapman Co. makes a market in securities of selected DEM companies.
Market-making activities typically require The Chapman Co. to maintain an
inventory of the securities in which it makes a market. The Chapman Co.'s
inventory is subject to the same risks as those faced by investors in such
securities. To the extent The Chapman Co. makes a market in small capitalization
companies, it is subject to greater risks than those associated with investments
in securities of larger, more established companies. The market for securities
of small capitalization companies is less liquid and subjects The Chapman Co. to
the risk that its sales of securities could drive down the market price and
cause The Chapman Co. to suffer losses. As of September 30, 1999, The Chapman
Co.'s inventory of market-making securities was $1,813,273, of which $681,373 is
attributable to Chapman Holding's stock and $1,131,900 is attributable to
Chapman Capital Management Holdings' stock.
WE ARE SUBJECT TO EXTENSIVE REGULATION.
Our investment banking, brokerage and investment advisory businesses, and
the securities industry generally, are subject to extensive regulation at both
the federal and state levels. In addition, self-regulatory organizations, such
as the National Association of Securities Dealers, Inc. ("NASD"), require strict
compliance with their rules and regulations. Among other things, these
regulatory authorities impose restrictions on sales methods, trading practices,
use and safekeeping of customer funds and securities, record keeping and the
conduct of principals and employees.
The purpose of the extensive regulation of broker-dealers and investment
advisers is to protect customers and the integrity of the securities markets.
However, this regulation imposes significant compliance requirements on us.
Failure to comply with any of these laws, rules or regulations of any state or
federal regulatory authority or self regulatory organization could result in a
fine, injunction, suspension or expulsion from the industry, which could have a
material adverse effect on our business. Although we have implemented procedures
designed to achieve compliance with such laws, rules and regulations, we cannot
assume that such compliance procedures will prevent violations. Furthermore,
amendments to existing statutes and regulations or the adoption of new statutes
and regulations could require us to alter our methods of operation at costs
which could be substantial.
Securities trading and investment advisory services are activities that have
drawn particularly intensive scrutiny from regulatory agencies when conducted
over the Internet. The recent substantial increase in securities trading over
the Internet has created a renewed attention to and concern over the integrity
of brokerage firms. As a result, there may be a substantial growth in the volume
of regulations and enforcement actions with respect to online brokerage and
financial services companies. That growth is expected to be somewhat chaotic and
inconsistent since it is expected that a number of government agencies,
including foreign government agencies, will attempt to assert jurisdiction over
online trading and financial services concerns.
21
<PAGE>
THE FAILURE OF OUR BROKERAGE CUSTOMERS TO MEET THEIR MARGIN REQUIREMENTS MAY
CAUSE US TO INCUR SIGNIFICANT LIABILITIES.
We clear all transactions for our brokerage customers on a fully-disclosed
basis with our clearing agent, which carries and clears all customer securities
accounts. In the future, the clearing agent may lend funds to our brokerage
customers through the use of margin credit. These loans will be made to
customers on a secured basis, with the clearing agent maintaining collateral in
the form of salable securities, cash or cash equivalents. Pursuant to the terms
of our agreement with the clearing agent, in the event that customers fail to
pay for their purchases, to supply the securities that they have sold, or to
repay funds they have borrowed, we would be obligated to indemnify the clearing
agent for any resulting losses.
OUR SECURITIES BROKERAGE SUBSIDIARY MUST COMPLY WITH NET CAPITAL REQUIREMENTS.
The SEC and the NASD impose stringent net capital requirements on securities
firms. A significant operating loss or any charge against the net capital of our
securities brokerage subsidiary could adversely affect our ability to operate,
expand or, depending upon the magnitude of the loss or charge, maintain its
present level of brokerage business. These rules could also restrict our ability
to withdraw capital from our securities brokerage subsidiary even in
circumstances where our securities brokerage subsidiary has more than the
minimum amount of required capital, which could limit our ability to implement
our strategies. See "Business--Government Regulation."
22
<PAGE>
USE OF PROCEEDS
Assuming the sale of 3,333,333 shares of common stock at an initial public
offering price of $15 per share and after deducting underwriting discounts,
commissions and estimated offering expenses of this offering, we will receive
net proceeds of approximately $45.5 million.
We intend to use the net proceeds from this offering to:
- Complete the design and development of the EChapman.com Web site
- Promote the EChapman.com brand and continue to promote the DEM and DEM
Multi-Manager strategies
- Provide capital to The Chapman Co. in connection with trading for its own
account and for use in underwriting activities
- Further explore the establishment of an Internet-based DEM-oriented bank
- Pay cash to dissenters, if any, in the mergers of Chapman Holdings and
Chapman Capital Management Holdings
- Fund working capital and for general corporate purposes, including
financing possible future acquisitions, capital expenditures and working
capital
In connection with our ability to provide capital to our investment banking
subsidiary, it may be difficult, if not impossible, for the subsidiary to repay
this capital because of the restrictions imposed by the net capital requirements
discussed above under "Risk Factors" and under "Business--Government
Regulation."
Other than the pending mergers of Chapman Holdings, Chapman Capital
Management Holdings and Chapman Insurance Holdings, we do not have any current
plans regarding mergers and acquisitions.
Our use of net proceeds of this offering is based upon current plans and
certain assumptions regarding industry and general economic conditions and our
future revenue and expenditures. If any of these factors change, we may find it
necessary or advisable to use portions thereof for other purposes. As a result
of such change, we may be required to seek additional financing. We can give no
assurance that additional financing will be available to us on acceptable terms,
or at all. Any failure to obtain additional financing, if required, could have
an adverse effect on us, including possibly requiring us to curtail our
operations.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
23
<PAGE>
DILUTION
The difference between the initial offering price per share of common stock
and the pro forma net tangible book value per share of common stock after this
offering constitutes the dilution to purchasers of our common stock in this
offering. Pro forma net tangible book value per share is determined by dividing
our pro forma net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of our common stock.
As of September 30, 1999, the pro forma net tangible book value per share,
after giving effect to the mergers of Chapman Holdings, Chapman Capital
Management Holdings and Chapman Insurance Holdings was $9,737,000 or $0.74 per
share of common stock. Our pro forma as adjusted net tangible book value after
the adjustments listed and this offering of 3,333,333 shares of common stock at
an assumed offering price of $15 per share would have been $55,237,000 or $3.34
per share of common stock. At an assumed offering price of $15.00 per share,
this represents an immediate dilution of $11.66 per share to the purchasers of
our common stock in this offering. As of September 30, 1999, there were also
outstanding options to purchase an additional 138,464 shares of common stock. To
the extent these options are exercised, there will be further dilution to new
investors in the pro forma net tangible book value of their shares.
The following table illustrates the per share dilution effect as of
September 30, 1999:
<TABLE>
<CAPTION>
PER SHARE
---------
<S> <C> <C>
Assumed initial public offering price....................... $15.00
------
Pro forma net tangible book value before this offering and
after the mergers....................................... $0.74
Increase in pro forma net tangible book value per share
attributable to this offering........................... 2.60
-----
Pro forma as adjusted net tangible book value after this
offering and the mergers................................ 3.34
------
Pro forma as adjusted dilution of net tangible book value to
new investors in this offering............................ $11.66
======
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1999, the number and percentage of shares of common stock, the amount and
percentage of consideration paid and the average price per share paid by
existing stockholders and by the purchasers of our common stock in this
offering, at an assumed offering price of $15 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER(2) PERCENT AMOUNT PERCENT SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1).................... 13,194,845 79.8% $13,148,000 20.8% $1.00
New Investors............................... 3,333,333 20.2 50,000,000 79.2 15.00
---------- ----- ----------- -----
Total....................................... 16,528,178 100.0% $63,148,000 100.0% $3.82
========== ===== =========== =====
</TABLE>
- ------------------------
(1) The existing stockholders consist of the stockholders of Chapman Holdings
and Chapman Capital Management Holdings who will receive shares of common
stock in the mergers.
(2) These shares excludes the underwriters' over-allotment option and 138,464
shares issuable upon the exercise of options outstanding as of
September 30, 1999.
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of EChapman.com as of
September 30, 1999:
- On a pro forma basis to reflect the consummation of the mergers with
Chapman Holdings, Chapman Capital Management Holdings and Chapman
Insurance Holdings
- On a pro forma, as adjusted basis, to reflect the consummation of the
mergers and the receipt by EChapman.com of the estimated net proceeds from
the sale of 3,333,333 shares of common stock at an assumed offering price
of $15 per share.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents............................... $ -- $ 4,753,000 $50,253,000
========= =========== ===========
Debt.................................................... $ -- $ 2,200,000 $ 2,200,000
--------- ----------- -----------
Common stock--$0.001 par value; 50,000,000 shares
authorized, 1, 13,194,845 and 16,528,178 shares issued
and outstanding, respectively(1)...................... -- 13,000 16,000
Additional paid-in capital.............................. -- 15,420,000 60,917,000
Accumulated deficit..................................... (220,000) (699,000) (699,000)
--------- ----------- -----------
Total stockholders' (deficit) equity.................... (220,000) 14,734,000 60,234,000
--------- ----------- -----------
Total capitalization.................................... $(220,000) $16,934,000 $62,434,000
========= =========== ===========
</TABLE>
- ------------------------
(1) Shares outstanding exclude shares issuable upon exercise of options that
were outstanding as of September 30, 1999 and the underwriters'
over-allotment option.
DIVIDEND POLICY
We have never declared or paid cash or other dividends on our common stock
and do not anticipate doing so in the foreseeable future. The payment of
dividends, if any, in the future is within the discretion of our Board of
Directors. Any such payments depend upon our earnings, if any, our financial
condition, and other relevant factors. We intend to retain any earnings in the
foreseeable future to fund our growth strategies. Our ability to pay dividends
in the future also may be restricted by regulatory limitations. The ability of
our brokerage subsidiary, The Chapman Co., to pay dividends may be limited due
to its obligation imposed by the SEC and the NASD to satisfy net capital
requirements.
25
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The unaudited pro forma balance sheet and statements of operations are based
on available information and certain assumptions and adjustments described in
the accompanying notes, which we believe are reasonable. The unaudited pro forma
statements of operations are provided for informational purposes only and do not
purport to present the results of operations of EChapman.com had the
transactions assumed therein occurred on or as of the dates indicated, nor are
they necessarily indicative of the results of operations which may be achieved
in the future. The unaudited pro forma balance sheet and statements of
operations should be read in conjunction with the historical financial
statements of Chapman Holdings and Chapman Capital Management Holdings including
the notes thereto. Financial statements for Chapman Holdings and Chapman Capital
Management Holdings are included elsewhere in this prospectus.
The unaudited pro forma financial data gives effect to the Chapman Holdings,
Chapman Capital Management Holdings and Chapman Insurance Holdings mergers as if
they occurred at January 1, 1998 for operating results and as of September 30,
1999 for balance sheet data. The unaudited pro forma as adjusted financial data
gives effect to the mergers and the sale of 3,333,333 shares of common stock at
an assumed offering price of $15 per share less underwriting discounts, and
commissions and offering costs.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
-------------------------------------------------------------------------------------------
ECHAPMAN CHI CCMHI CIH PRO FORMA
HISTORICAL (A) HISTORICAL (B) HISTORICAL (B) HISTORICAL ADJUSTMENTS PRO FORMA
-------------- -------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA BALANCE SHEET:
Assets
Cash, cash equivalents and
marketable securities...... $ -- $2,014,000 $3,370,000 $ -- $ (125,000)(c) $ 5,259,000
Cash deposits with clearing
organization............... -- 2,477,000 -- -- -- 2,477,000
Securities owned............. -- 1,813,000 -- -- -- 1,813,000
Management fees receivable... -- -- 510,000 -- -- 510,000
Receivables from brokers and
dealers.................... -- 576,000 -- -- -- 576,000
Other receivables............ -- 537,000 227,000 -- (418,000)(d) 346,000
Advances to
officer/employee........... -- 723,000 367,000 -- -- 1,090,000
Prepaids and other assets.... 18,000 1,010,000 436,000 -- -- 1,464,000
Intangibles.................. -- 113,000 294,000 -- 4,590,000 (e) 4,997,000
---------- ---------- ---------- --------- ----------- -----------
Total assets................. $ 18,000 $9,263,000 $5,204,000 $ -- $4,047,000 $18,532,000
========== ========== ========== ========= =========== ===========
Liabilities
Accounts payable and accrued
expenses................... $ 238,000 $ 914,000 $ 511,000 $ 308,000 $ (418,000)(d) $ 1,553,000
Margin loan payable.......... -- 2,050,000 -- -- -- 2,050,000
Other liabilities............ -- 45,000 150,000 -- -- 195,000
---------- ---------- ---------- --------- ----------- -----------
Total liabilities............ 238,000 3,009,000 661,000 308,000 (418,000) 3,798,000
Stockholders' Equity
Common stock................. -- 3,000 3,000 2,000 5,000 (f) 13,000
Additional paid-in capital... -- 7,903,000 5,239,000 -- 2,278,000 (f) 15,420,000
Accumulated deficit.......... (220,000) (1,652,000) (699,000) (310,000) 2,182,000 (g) (699,000)
---------- ---------- ---------- --------- ----------- -----------
Total stockholders' (deficit)
equity..................... (220,000) 6,254,000 4,543,000 (308,000) 4,465,000 14,734,000
---------- ---------- ---------- --------- ----------- -----------
Total liabilities and
stockholders' equity....... $ 18,000 $9,263,000 $5,204,000 $ -- $4,047,000 $18,532,000
========== ========== ========== ========= =========== ===========
<CAPTION>
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
-------------------------
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
PRO FORMA BALANCE SHEET:
Assets
Cash, cash equivalents and
marketable securities...... $45,500,000(h) $50,759,000
Cash deposits with clearing
organization............... -- 2,477,000
Securities owned............. -- 1,813,000
Management fees receivable... -- 510,000
Receivables from brokers and
dealers.................... -- 576,000
Other receivables............ -- 346,000
Advances to
officer/employee........... -- 1,090,000
Prepaids and other assets.... -- 1,464,000
Intangibles.................. -- 4,997,000
----------- -----------
Total assets................. $45,500,000 $64,032,000
=========== ===========
Liabilities
Accounts payable and accrued
expenses................... $ -- $ 1,553,000
Margin loan payable.......... -- 2,050,000
Other liabilities............ -- 195,000
----------- -----------
Total liabilities............ -- 3,798,000
Stockholders' Equity
Common stock................. 3,000(h) 16,000
Additional paid-in capital... 45,497,000(h) 60,917,000
Accumulated deficit.......... -- (699,000)
----------- -----------
Total stockholders' (deficit)
equity..................... 45,500,000 60,234,000
----------- -----------
Total liabilities and
stockholders' equity....... $45,500,000 $64,032,000
=========== ===========
</TABLE>
- ----------------------------------
(a) See the unaudited Financial Statements included elsewhere in this
prospectus.
(b) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(c) To reflect the $125,000 that will be paid to the shareholders of CIH.
(d) To eliminate intercompany receivable and payable.
(e) To reflect the step up of the assets from the acquisitions of CHI, CIH and
EChapman.com. As CCMHI has the same majority owner as CHI, the market value
in excess of CHI's net book value for the percentage of CHI shares held by
owners of CHI other than the majority owner
26
<PAGE>
was stepped up. The portion of CHI's net book value representing the shares
of the same majority owner is recorded at historical net book value.
<TABLE>
<S> <C> <C>
CHI market value as of September 30, 1999................... $16,614,000
Less CHI's book value as of September 30, 1999.............. 6,254,000
-----------
Excess market value......................................... 10,360,000
Percentage of stock held by non-controlling owners.......... 38%
-----------
Step up adjustment for CHI.................................. 3,937,000
Goodwill from EChapman.com merger........................... 220,000
Goodwill from CIH acquisition:
Negative book value....................................... $308,000
Purchase price............................................ 125,000
--------
433,000
-----------
Total goodwill.............................................. $4,590,000
===========
</TABLE>
(f) To reflect the exchange of CHI and CCMHI common shares for EChapman.com
common shares, the step up adjustment related to the purchase of CHI, CIH
and EChapman.com, the elimination of the accumulated deficit of EChapman,
CHI and CIH, and the elimination of CIH shares.
(g) To eliminate the accumulated deficit of EChapman, CHI and CIH.
(h) To reflect net proceeds from issuance of 3,333,333 shares of common stock at
an assumed offering price of $15 per share less underwriting discounts and
commissions and offering costs.
27
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
-------------------------------------------------------------------------------------------
ECHAPMAN CHI CCMHI CIH PRO FORMA PRO FORMA AS
HISTORICAL (A) HISTORICAL (B) HISTORICAL (B) HISTORICAL ADJUSTMENTS ADJUSTED
-------------- -------------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
OPERATIONS:
REVENUE
Commissions................ $ -- $3,243,000 $ -- $ 35,000 $ -- $ 3,278,000
Underwriting and management
fees..................... -- 554,000 -- -- -- 554,000
Investment management
fees..................... -- -- 3,046,000 -- -- 3,046,000
Interest, dividends and
other income............. -- 163,000 152,000 -- (34,000)(c) 281,000
Gains on trading........... -- 246,000 -- -- -- 246,000
---------- ---------- ---------- --------- --------- ------------
Total revenue.......... -- 4,206,000 3,198,000 35,000 (34,000) 7,405,000
---------- ---------- ---------- --------- --------- ------------
EXPENSE
Compensation and
benefits................. 89,000 2,324,000 836,000 12,000 -- 3,261,000
Floor brokerage and
clearing fees............ -- 528,000 -- -- -- 528,000
Management fees............ -- -- 1,109,000 -- -- 1,109,000
Other expenses............. 131,000 2,495,000 1,915,000 305,000 (157,000)(d) 4,689,000
---------- ---------- ---------- --------- --------- ------------
Total expense.......... 220,000 5,347,000 3,860,000 317,000 (157,000) 9,587,000
---------- ---------- ---------- --------- --------- ------------
(Loss) Income from
continuing operations
before income tax
benefit.................. (220,000) (1,141,000) (662,000) (282,000) 123,000 (2,182,000)
INCOME TAX BENEFIT......... -- 331,000 164,000 -- 66,000 (e) 561,000
---------- ---------- ---------- --------- --------- ------------
Net loss................... $ (220,000) $ (810,000) $ (498,000) $(282,000) $ 189,000 $ (1,621,000)
========== ========== ========== ========= ========= ============
</TABLE>
- ------------------------------
(a) See the unaudited Financial Statements included elsewhere in this
prospectus.
(b) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(c) To eliminate interest on intercompany loan.
(d) To reflect amortization of the goodwill, resulting from the mergers because
of the step up in basis (see page 27 and accompanying footnotes), of
$172,000 for the period ($4,590,000 over 20 years), to eliminate costs
incurred by CIH of $295,000, related to a potential financing that did not
occur as these costs would not have been incurred by the Company and to
eliminate the intercompany interest expense of $34,000.
(e) To reflect the increase in the income tax benefit to adjust to the effective
tax rate.
28
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------
ECHAPMAN CHI CCMHI CIH PRO FORMA PRO FORMA AS
HISTORICAL (A) HISTORICAL (B) HISTORICAL (B) HISTORICAL ADJUSTMENTS ADJUSTED
-------------- -------------- -------------- ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
OPERATIONS:
REVENUE
Commissions................ $ -- $ 2,538,000 $ -- $ 21,000 $(124,000)(c) $ 2,435,000
Underwriting and management
fees..................... -- 700,000 -- -- -- 700,000
Investment management
fees..................... -- -- 3,136,000 -- -- 3,136,000
Interest, dividends and
other income............. -- 335,000 82,000 -- (26,000)(d) 391,000
Loss on trading............ -- (638,000) -- -- -- (638,000)
---------- ----------- ---------- --------- --------- -----------
Total revenue............ -- 2,935,000 3,218,000 21,000 (150,000) 6,024,000
---------- ----------- ---------- --------- --------- -----------
EXPENSE
Compensation and
benefits................. -- 2,185,000 857,000 8,000 -- 3,050,000
Floor brokerage and
clearing fees............ -- 431,000 -- -- -- 431,000
Management fees............ -- -- 1,178,000 -- -- 1,178,000
Interest expense........... -- -- 26,000 -- (26,000)(d) --
Other expenses............. -- 1,935,000 1,308,000 12,000 230,000 (e) 3,485,000
---------- ----------- ---------- --------- --------- -----------
Total expense.......... -- 4,551,000 3,369,000 20,000 204,000 8,144,000
---------- ----------- ---------- --------- --------- -----------
(Loss) Income from
continuing operations
before income tax
benefit.................. -- (1,616,000) (151,000) 1,000 (354,000) (2,120,000)
INCOME TAX BENEFIT......... -- 485,000 45,000 -- -- 530,000
---------- ----------- ---------- --------- --------- -----------
Net (loss) income........ $ -- $(1,131,000) $ (106,000) $ 1,000 $(354,000) $(1,590,000)
========== =========== ========== ========= ========= ===========
</TABLE>
- ------------------------------
(a) This entity has not been created as of December 31, 1998.
(b) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(c) To eliminate commission revenue earned by CHI from CCMHI's IPO.
(d) To eliminate interest on intercompany loan.
(e) To reflect the amortization of the goodwill resulting from the mergers
because of the step up in basis (see page 27 and accompanying footnotes)
($4,590,000 over 20 years).
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE COMBINED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF EChapman.com should be read in conjunction with the consolidated
financial statements and related notes as well as other financial information
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. EChapman.com's actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those factors set
forth under "Risk Factors" and appearing elsewhere in this prospectus.
COMBINED RESULTS OF OPERATIONS
The following table and discussion of the combined results of operations
gives effect to the combination of Chapman Holdings and Chapman Capital
Management Holdings for the periods presented. This information does not include
the results of operations of Chapman Insurance Holdings because it has not had
significant operations to date. This information also does not include the
results of operations for EChapman.com because (i) EChapman.com was not
incorporated until May 14, 1999 and had no operations during 1998; and (ii) its
operations since May 1999 have consisted of approximately $220,000 in expenses,
which were for salaries and other costs related to starting the company and
developing its operating plan and Web site. The combined results of operations
and the discussion thereof were derived from Chapman Holdings' and Chapman
Capital Management Holdings' historical financial statements, which are included
elsewhere in this prospectus. We are presenting the combined historical results
of operations of Chapman Holdings and Chapman Capital Management Holdings
because we believe it is a better presentation than discussing each company
separately. We are providing this combined presentation for informational
purposes only. The combined presentation does not purport to present the results
of operations of EChapman.com had the mergers occurred on or as of the dates
indicated.
The combined presentation excludes the pro forma adjustments relating to the
creation of approximately $4.6 million in goodwill, which will be amortized over
its estimated life of 20 years, and the elimination of intercompany
transactions. This goodwill amortization will result in a charge against
earnings of $230,000 per year on a pre-tax basis.
30
<PAGE>
The following table reflects items in the combined Statements of Operations
for Chapman Holdings and Chapman Capital Management Holdings as dollar amounts
and as a percentage of total revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1998
----------------------- ------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNTS REVENUE AMOUNTS REVENUE
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Commissions.............. $2,612,000 49.5% $ 2,414,000 40.0%
Underwriting and
management fees........ 325,000 6.1 700,000 11.6
Investment management
fees................... 2,284,000 43.3 3,136,000 52.0
Interest and dividends... 58,000 1.1 417,000 7.0
Gain (loss) on trading... -- -- (638,000) (10.6)
---------- ----- ----------- -----
Total revenue.......... 5,279,000 100.0% 6,029,000 100.0%
---------- ===== ----------- =====
EXPENSE:
Compensation and
benefits............... 1,716,000 32.5% 3,042,000 50.5%
Floor brokerage and
clearing fees.......... 286,000 5.4 431,000 7.1
Management fees.......... 869,000 16.5 1,178,000 19.6
Other expense............ 1,815,000 34.4 3,243,000 53.8
---------- ----- ----------- -----
Total expense.......... 4,686,000 88.8 7,894,000 131.0
---------- ----- ----------- -----
Income (loss) from
continuing operations
before income tax
(benefit).............. 593,000 11.2 (1,865,000) (31.0)
INCOME TAX PROVISION
(BENEFIT)................ 249,000 4.7 (559,000) (9.3)
---------- ----- ----------- -----
Income (loss) from
continuing
operations............. 344,000 6.5 (1,306,000) (21.7)
INCOME FROM DISCONTINUED
OPERATIONS............... 51,000 1.0 -- --
---------- ----- ----------- -----
Net income (loss)........ $ 395,000 7.5% $(1,306,000) (21.7)%
========== ===== =========== =====
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1998 1999
------------------------ ------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNTS REVENUE AMOUNTS REVENUE
----------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Commissions.............. $ 1,909,000 40.3% $ 3,243,000 43.8%
Underwriting and
management fees........ 376,000 7.9 554,000 7.5
Investment management
fees................... 2,344,000 49.5 3,046,000 41.1
Interest and dividends... 286,000 6.0 315,000 4.3
Gain (loss) on trading... (174,000) (3.7) 246,000 3.3
----------- ------ ----------- ------
Total revenue.......... 4,741,000 100.0% 7,404,000 100.0%
----------- ====== ----------- ======
EXPENSE:
Compensation and
benefits............... 1,816,000 38.3% 3,160,000 42.7%
Floor brokerage and
clearing fees.......... 302,000 6.4 528,000 7.1
Management fees.......... 912,000 19.2 1,109,000 15.0
Other expense............ 2,000,000 42.2 4,404,000 59.5
----------- ------ ----------- ------
Total expense.......... 5,030,000 106.1 9,201,000 124.3
----------- ------ ----------- ------
Income (loss) from
continuing operations
before income tax
(benefit).............. (289,000) (6.1) (1,797,000) (24.3)
INCOME TAX PROVISION
(BENEFIT)................ (61,000) (1.3) (493,000) (6.7)
----------- ------ ----------- ------
Income (loss) from
continuing
operations............. (228,000) (4.8) (1,304,000) (17.6)
INCOME FROM DISCONTINUED
OPERATIONS............... -- -- -- --
----------- ------ ----------- ------
Net income (loss)........ $ (228,000) (4.8)% $(1,304,000) (17.6)%
=========== ====== =========== ======
</TABLE>
- ------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Total revenue increased by $2,663,000, or 56.2%, to $7,404,000 for the nine
months ended September 30, 1999 from $4,741,000 for the comparable prior period.
This increase reflects an increase in commission revenue and municipal
designations combined with gains on trading. Additionally, there were increased
assets under management and investment income on the investment of funds.
Commissions revenue increased by $1,334,000, or 69.9%, to $3,243,000 for the
nine months ended September 30, 1999 from $1,909,000 in the comparable prior
period. This increase is primarily due to growth in revenues from municipal
designations which increased $613,000, or 190%, to $936,000 for the nine months
ended September 30, 1999 from $323,000 for the prior comparable period. We
participated in 36 municipal designations during the nine months ended
September 30, 1999 compared to 28 in the prior comparable period. Commission
revenue from the sale of equities increased $318,000,
31
<PAGE>
or 21.4%, to $1,807,000 for the nine months ended September 30, 1999 from
$1,489,000 for the prior comparable period.
Commission revenue on fixed income securities increased $375,000, or 390.6%,
to $471,000 for the nine months ended September 30, 1999 from $96,000 for the
prior comparable period. This increase is attributable to favorable interest
rates during the first nine months of 1999.
Underwriting and management fees revenue increased by $178,000, or 47.3%, to
$554,000 for the nine months ended September 30, 1999 from $376,000 for the
prior comparable period. This increase was due both to an increase in
underwriting syndications of $58,000, or 33.3%, to $232,000 from $174,000 and an
increase in management and advisory fees of $126,000, or 62.7%, to $327,000 from
$201,000 for the nine months ended September 30, 1999.
Investment management fees revenue increased by $702,000, or 29.9%, to
$3,046,000 for the nine months ended September 30, 1999 from $2,344,000 for the
prior comparable period. This increase is primarily due to increases in assets
under management. Advisory fees are net of amounts waived pursuant to The
Chapman US Treasury Money fund fee waiver. Pursuant to such waiver, we agreed to
limit our advisory and administrative fee to ensure that the annual expense
ratio of The Chapman US Treasury Money fund is below 0.65% of average daily net
assets, provided however, that we are not required to reimburse amounts in
excess of our advisory and administrative fee.
Interest and dividend revenue increased by $29,000, or 10.1%, to $315,000
for the nine months ended September 30, 1999 from $286,000 for the prior
comparable period. This increase in interest and dividend revenue is due to
investing higher cash balances associated with net proceeds from the public
offering of common stock.
An unrealized gain on trading of $246,000 was reported for the nine months
ended September 30, 1999. The unrealized gain on trading is attributable to an
increase in the market value of our market-making securities inventory.
Total expenses increased by $4,171,000, or 82.9%, to $9,201,000 for the nine
months ended September 30, 1999 from $5,030,000 for the prior comparable period.
The largest components of the increase in total expenses are associated with the
opening of new regional offices in selected markets, business development costs
associated with our marketing strategy and increased staffing pursuant to our
business expansion strategy.
Compensation and benefits increased $1,344,000, 74.0%, to $3,160,000 for the
nine months ended September 30, 1999 from $1,816,000 from the prior comparable
period. As a percentage of revenues, these expenses increased to 42.7% for the
nine months ended September 30, 1999 from 38.3% for the prior comparable period.
The increase is due to 34 additional employees hired and annual compensation
increases to certain existing employees. Additionally, compensation expense
includes sales commissions paid to brokers and varies in relation to changes in
commission revenue. Therefore, the increase is also attributable to the increase
in commissions paid to brokers due to increased retail and municipal sales
volume.
Floor brokerage and clearing fees increased by $226,000, or 74.8%, to
$528,000 for the nine months ended September 30, 1999 from $302,000 for the
prior comparable period. The increase is primarily due to an increase in the
number of brokers and related transaction volume offset by a slight decline in
the average dollar amount per transaction as a result of changing clearing firms
in June 1999.
Management fees, which consist primarily of our investment advisory
subsidiary's payments to sub-advisors in connection with its multi-manager
investment product, the DEM-MET Trust, increased by $197,000, or 21.6%, to
$1,109,000 for the nine months ended September 30, 1999 from $912,000 for the
prior comparable period. This increase in management fees expense largely
reflects an increase in
32
<PAGE>
assets under management of the DEM-MET Trust, offset by a reduction in fees due
to two fewer sub-advisors working for the DEM-MET Trust.
Other operating expenses increased by $2,404,000, or 120.2%, to $4,404,000
for the nine months ended September 30, 1999 from $2,000,000 for the prior
comparable period. The increase was primarily due to increased communication,
travel, equipment and occupancy costs related to the opening of new offices, the
implementation of our business expansion strategy and the increased cost of
being a public company. This expansion strategy and being a public company have
required us to increase our use of professional services, such as legal
services, independent audit and review services, and marketing and consulting
services.
The income tax benefit increased $432,000 to a tax benefit of $493,000 for
the nine month period ended September 30, 1999 from $61,000 for the prior
comparable period. The income tax benefit is due to an increase in loss before
benefit for income taxes for the nine month period ended September 30, 1999 as a
result of the items discussed above.
The net loss increased by $1,076,000 to $1,304,000 for the nine months ended
September 30, 1999 from a net loss of $228,000 for the prior comparable period.
This increase is a result of items discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenue increased by $750,000, or 14.2%, to $6,029,000 for 1998 from
$5,279,000 for 1997. The increase in revenue reflects an increase in
underwriting fees, investment management fees and interest income. This increase
was offset by a loss of $638,000 related to our inventory of trading stock and a
decrease in commissions revenue.
Commissions revenue decreased $198,000, or 7.6% to $2,414,000 for 1998 from
$2,612,000 for 1997. The decrease was primarily due to an 88% decrease in
commissions for government securities primarily related to the volume of such
transactions. Increases in equities, institutional and fixed income commissions
of 73.2%, 19.5% and 53%, respectively, partially offset this decrease.
Underwriting and management fees, increased by $375,000, or 115.4%, to
$700,000 for 1998 from $325,000 for 1997. The increase was primarily due to an
increase in management fees from municipal transactions and underwriting fees of
$334,000, or 120.1%, to $612,000 for 1998 from $278,000 for 1997.
Investment management fees revenue increased by $852,000, or 37.3%, to
$3,136,000 in 1998 from $2,284,000 in 1997, reflecting increased fees as a
result of an increase in total assets under management. This was due largely to
investment performance, the addition of the DEM Equity Fund, new separate
accounts under the DEM strategy, and additional assets from a DEM-MET Trust
client.
Interest and dividend revenue increased by $359,000 to $417,000 for 1998
from $58,000 for 1997. The increase is mainly due to higher cash balances
associated with the net proceeds from Chapman Holdings' public offering of
common stock.
The loss on trading accounts was $638,000 for 1998. Our loss on trading
accounts is attributable to an unrealized loss of value on The Chapman Co.'s
market-making securities inventory of approximately $405,000 and a realized loss
of $74,000. A realized loss of $159,000 was recognized on sales related to
trading stock of DEM, Inc., a closed end investment company for which Chapman
Capital Management acted as investment advisor and The Chapman Co. acted as
distributor until DEM, Inc.'s dissolution in 1998.
Total expense for 1998 increased by $3,208,000, or 68.5%, to $7,894,000 for
1998 from $4,686,000 for 1997. Total expense increased to 131.0% of total
revenue for 1998 as compared to 88.8% of total
33
<PAGE>
revenue for 1997. Expenses increased in all areas due to increased staffing, the
opening of new offices and our efforts to expand our operations.
Compensation and benefits increased by $1,326,000 or 77.3%, to $3,042,000
for 1998 from $1,716,000 for 1997. As a percentage of total revenue, these
expenses increased to 50.5% in 1998 from 32.5% in 1997. This increase is largely
due to the addition of new employees in connection with our ongoing business
expansion efforts, along with annual pay raises and bonuses to certain existing
employees. Compensation expense includes sales commissions paid to brokers and
varies in relation to changes in commission revenue. Notwithstanding that
commission revenue decreased in 1998, commissions paid to brokers increased
primarily due to an increased municipal sales volume.
Floor brokerage and clearing fees increased by $145,000, or 50.7%, to
$431,000 for 1998 from $286,000 for 1997. This increase is attributable to an
increase in the number of transactions and a decrease in the average dollar
amount of such transactions.
Management fee expense, which consists primarily of Chapman Capital
Management's payments to sub-advisors in connection with its multi-manager
investment product, the DEM-MET Trust, increased by $309,000, or 35.6%, to
$1,178,000 in 1998 from $869,000 in 1997. The increase in such fees reflects an
increase in assets under management in the DEM-MET Trust, including
approximately $40 million of new assets added by an existing trust client.
Other operating expenses increased by $1,428,000, or 78.7%, to $3,243,000
for 1998, from $1,815,000 for 1997. The increase was primarily attributable to
increased communication, travel, equipment and occupancy costs associated with
opening new offices and our ongoing business expansion efforts. Our growth and
expansion has led to increased use of legal services, professional recruiters
and marketing consultants, as well as increased advertising, supplies, postage
and filing fees.
Income taxes from continuing operations decreased by $808,000 to a tax
benefit of $559,000 in 1998 from a tax provision of $249,000 for 1997. This
decrease was due to the loss from continuing operations.
We had no income from discontinued operations in 1998 versus $51,000 for
1997.
We had a net loss of $1,306,000 for 1998 versus net income of $395,000 for
1997. This change was a result of items discussed above.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Our assets are reasonably liquid with a substantial majority consisting of
cash and cash equivalents, investment securities, and receivables from clients,
all of which fluctuate depending upon the levels of customer business and
trading activity. Receivables from clients turnover rapidly. Both our total
assets as well as the individual components as a percentage of total assets may
vary significantly from period to period because of changes relating to customer
demand, economic and market conditions, and proprietary trading strategies. Our
combined total assets as of September 30, 1999 were $14,467,000.
The Chapman Co. is subject to the net capital rules of the NASD. As such,
The Chapman Co. is subject to certain restrictions on the use of capital and its
related liquidity. The net capital position of The Chapman Co. as of
September 30, 1999 was $355,000, which was $105,000 in excess of its minimum
NASD net capital requirement.
Our combined cash and cash equivalents were $4,878,000 as of September 30,
1999.
Cash flows used in operating activities decreased by $244,000 or 11.5% to
$1,885,000 for the nine months ended September 30, 1999 from $2,129,000 for the
nine months ended September 30, 1998. This decrease was due to a change in
operating assets and liabilities.
34
<PAGE>
Cash flows used in investing activities increased by $4,000 or .7%, to
$569,000 for the nine months ended September 30, 1999 from $565,000 for the nine
months ended September 30, 1998.
Cash flows from financing activities were $0 for the nine months ended
September 30, 1999 compared to $12,029,000 for the nine months ended
September 30, 1998. This amount relates to the net proceeds from the Chapman
Holdings' and Chapman Capital Management Holdings' initial public offerings in
February and August 1998, respectively.
On August 14, 1998, Chapman Capital Management Holdings consummated an
initial public offering of its common stock pursuant to which Chapman Capital
Management Holdings received net proceeds of approximately $5,240,000. Offering
proceeds were invested in The Chapman U.S. Treasury Money Fund, which invests in
short-term U.S. government securities and repurchase agreements collateralized
by such securities. On July 29, 1999, Chapman Capital Management Holdings lent
$3.2 million to Chapman Holdings, which was repaid on September 14, 1999.
On July 29, 1999, The Chapman Co. advanced Nathan A. Chapman, Jr. $242,000
pursuant to an unsecured demand note bearing interest at the rate of 5.45% per
annum. As of September 30, 1999, the Company had outstanding unsecured loans to
Mr. Chapman in the amount of $1,006,089, including accrued interest.
Our overall capital and funding needs are continually reviewed to ensure
that our capital base can support the estimated needs of our business. These
reviews take into account business needs as well as our regulatory capital
requirements.
YEAR 2000 SYSTEM COSTS
As the Year 2000 approaches, existing software programs and operating
systems must be reviewed to determine if they can accommodate information that
employs dates after December 31, 1999. As of September 30, 1999, we have
incurred direct Year 2000 readiness costs of approximately $152,000 to cover
assessment of systems, internal testing, point-to-point testing, training, and
replacement and modification of existing systems. Our Year 2000 readiness costs
consist of direct expenses incurred with respect to software, consulting, and
employee time and readiness expenses for upgraded computers, software and
communication systems.
We estimate our Year 2000 costs during 1999 at approximately $227,000. We
estimate that our total Year 2000 readiness costs will be approximately
$339,000.
Our management has prepared a written plan detailing our software and
operating systems readiness issues for the Year 2000. The plan identifies
mission-critical and non-mission critical operating systems. Working with our
hardware and software vendors and other third parties to prepare for the Year
2000, we substantially completed necessary hardware and software renovations
during the second quarter of 1999. We tested our systems during the third
quarter of 1999 to determine the effect of our readiness efforts, and we are
currently working with our hardware and software vendors and other third parties
to complete our Year 2000 contingency plan.
Our Year 2000 readiness plan involves four phases:
PHASE I--ASSESSMENT. This phase involved the identification of all systems
that are date dependent. This phase was substantially completed during the first
quarter of 1998.
PHASE II--RENOVATION. This phase involved the identification and
replacement of mission critical systems which we were unable to update or
certify as compliant. This phase commenced in the first quarter of 1998 and was
substantially completed in the second quarter of 1999. Remaining activities
relate to monitoring and following up with third parties as part of our
contingency planning activities in Phase IV.
35
<PAGE>
PHASE III--TESTING. This phase involves testing all systems that are date
dependent and upgrading all non-compliant systems. We completed this phase
during the third quarter of 1999.
PHASE IV--CONTINGENCY PLANNING. This phase involves an assessment of all
mission critical systems for potential problems that would result from Year 2000
related failures of software and hardware and also the development of plans and
strategies to continue operations should such failure occur. We have prepared
the initial plan and will continue to refine and expand it as required through
the first quarter of 2000.
Within our Year 2000 readiness plan, we have identified systems as
"mission-critical" and "non-critical". We have identified systems as "mission
critical" if the loss of the system, software or facility would cause an
immediate stoppage of activity or a significant impairment of a core business
area. We determined systems to be non-Y2K ready based on information from
manufacturers. We identified systems as "non-mission critical" if loss of the
system, although inconvenient, would not cause an immediate stoppage of activity
or significant impairment of the status of a core business area. The following
table summarizes our estimate of the status of mission-critical elements of our
Year 2000 readiness plan:
<TABLE>
<CAPTION>
NUMBER OF
MISSION-
NUMBER OF MISSION- NUMBER OF MISSION- CRITICAL SYSTEMS FOR
NUMBER OF MISSION- CRITICAL SYSTEMS CRITICAL WHICH PHASE
CRITICAL SYSTEMS COMPLETED SYSTEMS IN PROCESS NOT APPLICABLE
------------------ ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
ASSESSMENT................ 32 32 -- --
RENOVATION................ 32 23 -- 9
TESTING................... 32 23 -- 9
CONTINGENCY PLANNING...... 32 -- 32 --
</TABLE>
We have relationships with third parties that may have computer systems that
are not Year 2000 ready. We have identified the third parties upon which we rely
for mission critical systems and have contacted or are contacting such third
parties to confirm that their systems are Year 2000 ready. Responses from the
majority of these vendors during the first and second quarters indicated that
they expected to reach compliance by the third quarter of 1999. We continue to
monitor the progress of our vendors and suppliers. Our contingency plan calls
for the replacement, whenever feasible, of any vendors of mission critical
systems that have not verified readiness by September 30, 1999. As of
November 11, 1999, only four such vendors had not verified readiness. We have
identified alternative vendors in the event these vendors are not Year 2000
ready.
While we believe that we are taking prudent and necessary action to become
Year 2000 ready, we can give no assurance that the Year 2000 issue will not
result in information or communications systems interruptions. Any such
interruptions could be expected to have a material adverse effect on our
business, financial condition, results of operations and business prospects and
may subject us to liability to our clients. We are currently building upon our
existing contingency plan in the event that either we or third parties do not
successfully complete our readiness efforts, or if vendors or third parties
controlling mission control systems to us are unable to confirm that their
systems will be Year 2000 ready. These efforts may result in additional costs in
excess of current allocation and estimates.
36
<PAGE>
THE MERGERS
On November 15, 1999, EChapman.com entered into merger agreements with each
of Chapman Holdings, Inc., Chapman Capital Management Holdings, Inc. and Chapman
Insurance Holdings, Inc. pursuant to which Chapman Holdings, Chapman Capital
Management Holdings and Chapman Insurance Holdings will merge with and into
three separate wholly-owned subsidiaries of EChapman.com, which were formed
solely for the purpose of effecting these mergers. The merger subsidiaries will
be the surviving entities in these mergers, and upon consummation of the
mergers, each of Chapman Holdings, Chapman Capital Management Holdings, and
Chapman Insurance Holdings will be wholly-owned subsidiaries of EChapman.com. In
addition, we will have three indirect subsidiaries:
- The Chapman Co., a full service securities brokerage and investment
banking firm
- Chapman Capital Management, Inc., an investment advisory firm
- The Chapman Insurance Agency Incorporated, which sells annuity products on
an agency basis
In the mergers:
- Stockholders of Chapman Holdings will receive 1.93295 shares of
EChapman.com stock for each share of Chapman Holdings;
- Stockholders of Chapman Capital Management Holdings will receive 2.23363
shares of EChapman.com stock for each share of Chapman Capital Management
Holdings;
- Stockholders of Chapman Insurance Holdings will receive $0.06284 in cash
for each share of Chapman Insurance Holdings
As a result, EChapman.com will issue an aggregate of 13,194,844 shares of
common stock in the mergers of Chapman Holdings and Chapman Capital Management
Holdings. EChapman.com will use approximately $125,000 of the net proceeds of
this offering in the Chapman Insurance Holdings merger.
Since 1998, both of Chapman Holdings' common stock and Chapman Capital
Management Holdings' common have been traded in the over-the-counter market, and
prices for their common stock are quoted on the Nasdaq SmallCap Market under the
symbols CMAN and CMGT, respectively. Chapman Insurance Holdings' common stock is
not publicly-traded. The following table sets forth the high and low selling
prices of each of Chapman Holdings' and Chapman Capital Management Holdings'
common stock as reported by the Nasdaq SmallCap Market. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
37
<PAGE>
PRICE RANGE OF
COMMON STOCK
<TABLE>
<CAPTION>
CHAPMAN CAPITAL
CHAPMAN MANAGEMENT
HOLDINGS HOLDINGS
(CMAN) (CMGT)
----------------------------------------- -----------------------
HIGH LOW HIGH LOW
------------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C>
1998
1(st) Quarter(1).......................................... 10 5/8 9 N/A N/A
2(nd) Quarter............................................. 11 10 N/A N/A
3(rd) Quarter(2).......................................... 10 1/4 9 1/2 8 7
4(th) Quarter............................................. 9 3/4 4 1/2 8 3/8 7 1/16
1999
1(st) Quarter............................................. 7 5 8 1/4 7 1/4
2(nd) Quarter............................................. 6 3/4 5 11/16 8 3/8 7 1/4
3(rd) Quarter............................................. 6 9/16 5 5/8 7 3/4 7
4(th) Quarter(3).......................................... 5 13/16 5 3/8 6 7/8 5
</TABLE>
- ------------------------
(1) With respect to Chapman Holdings, from February 27, 1998.
(2) With respect to Chapman Capital Management Holdings, from August 14, 1998.
(3) Through November 12, 1999.
On November 12, 1999, there were approximately 28 record holders of Chapman
Holdings' common stock and 23 record holders of Chapman Capital Management
Holdings' common stock. As of November 12, 1999, Chapman Holdings had 2,953,622
outstanding shares of common stock, and Chapman Capital Management Holdings had
3,351,334 outstanding shares of common stock. On the day before the announcement
of the offering, the combined market capitalization of Chapman Holdings and
Chapman Capital Management Holdings was $33,931,726. Accordingly, the
stockholders of Chapman Holdings and Chapman Capital Management Holdings are
receiving a substantial premium for their shares in the Mergers.
The mergers are subject to, among other customary conditions, approval by
the stockholders of each of the target companies in the mergers. Each merger
requires the affirmative vote of a majority of the outstanding shares of common
stock of the target company. Nathan A. Chapman, Jr. is the majority stockholder
of each of the target companies and has agreed to support and to vote in favor
of the mergers pursuant to an irrevocable Support Agreement between Mr. Chapman
and EChapman.com.
The closing of this offering is contingent upon the closing of the mergers.
Upon consummation of the mergers, Nathan A. Chapman, Jr. will be the
majority stockholder of EChapman.com with 52.2% (51.4% if the underwriter
exercises the over-allotment option in full) beneficial ownership of the
outstanding common stock of EChapman.com. See "Principal and Selling
Stockholders."
38
<PAGE>
BUSINESS
SINCE WE ARE A NEW COMPANY, THE DISCUSSION OF OUR PROPOSED BUSINESS
STRATEGY, EXPANSION PLANS AND PLAN OF OPERATION ARE NOT BASED ON HISTORICAL
FACTS BUT ARE FORWARD-LOOKING STATEMENTS BASED UPON NUMEROUS ASSUMPTIONS ABOUT
FUTURE CONDITIONS, WHICH MAY ULTIMATELY PROVE TO BE INACCURATE. OUR ACTUAL
RESULTS MAY MATERIALLY DIFFER FROM OUR ANTICIPATED RESULTS DESCRIBED IN SUCH
STATEMENTS. OUR ABILITY TO ACHIEVE SUCH RESULTS IS SUBJECT TO NUMEROUS RISKS AND
UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO THE RISKS DETAILED IN THE SECTION
ENTITLED "RISK FACTORS" AND ELSEWHERE THROUGHOUT THIS PROSPECTUS. THESE
FORWARD-LOOKING STATEMENTS REPRESENT OUR JUDGMENT AS OF THE DATE OF THIS
PROSPECTUS. ECHAPMAN.COM DISCLAIMS, HOWEVER, ANY INTENT OR OBLIGATION TO UPDATE
THESE FORWARD-LOOKING STATEMENTS. AS A RESULT, YOU ARE CAUTIONED NOT TO RELY ON
THE FORWARD-LOOKING STATEMENTS.
THE ECHAPMAN.COM STRATEGY
OVERVIEW
EChapman.com is a newly formed corporation designed to bring together the
financial services capabilities of The Chapman Co., Chapman Capital Management
and The Chapman Insurance Agency while taking advantage of the unique
opportunities presented by the growth of the Internet. Our Web site, the
EChapman.com network, which is currently under development, will seek to be an
interactive online community offering both financial services and a variety of
lifestyle, educational and cultural content selected to appeal particularly to
African-Americans, Asian-Americans, Hispanic-Americans and women market
segments. We refer to these groups collectively as the Domestic Emerging
Markets, or DEM, community. We believe that our creation of and leadership
position in employing the Domestic Emerging Markets concept will allow us to
successfully combine online financial services with an online portal.
We are also in the exploratory stages of establishing an Internet bank
servicing the DEM community, an undertaking which we believe would round out our
financial product lines and make EChapman.com a complete, one-stop financial
services company. The establishment of a bank involves a lengthy application
process and requires regulatory approval. These plans are in the preliminary
stages, and we cannot assure you that these plans will come to fruition or
represent a significant source of revenue.
We are currently working internally and with third party service providers
to design and develop a prototype of our Web site. We have reserved the domain
name "EChapman.com" and intend to use this address once the site is up and
running. We intend to launch the online trading portion of the EChapman.com Web
site during the first quarter of 2000. Although we expect to add content and
functionality on a continuous basis, we anticipate that the layout, content and
functionality of the lifestyle, educational and cultural portions of our Web
site should be substantially complete within six months following the closing of
this offering.
BACKGROUND
NATHAN A. CHAPMAN, JR.
A key part of our strategy will be our financial services component. We
intend to draw upon Nathan A. Chapman, Jr.'s prominence and experience in the
financial services industry and the operating histories of The Chapman Co. and
Chapman Capital Management. Mr. Chapman, our founder, President and Chairman, is
President and Chairman of the first and currently the only African-American
controlled publicly traded investment bank, The Chapman Co., and the President
and Chairman of the first and currently the only African-American controlled
publicly traded investment management company, Chapman Capital Management. The
Chapman Co. is a full service securities brokerage and investment banking
company that engages in corporate and government finance, retail and
institutional brokerage, research and marketing-making activities and trading.
39
<PAGE>
Chapman Capital Management is a registered investment adviser that at
October 31, 1999, had over $690 million in assets under management. Chapman
Capital Management acts as financial adviser to separate accounts, a group trust
and a family of mutual funds. The Chapman Insurance Agency is a privately held
insurance agency with limited operations to date.
DOMESTIC EMERGING MARKETS STRATEGY
In the mid-1990s, Mr. Chapman pioneered an investment management strategy
that consists of managing portfolios invested in securities of companies
controlled by African-Americans, Asian-Americans, Hispanic-Americans and women.
We call this strategy the Domestic Emerging Markets, or DEM, strategy, and we
call companies which meet this profile DEM companies.
Chapman Capital Management was the first investment management firm to
establish the DEM strategy as an investment option when it launched DEM, Inc., a
closed end investment management company, in 1995. A mutual fund managed by
Chapman Capital Management using the DEM strategy is included as an investment
option in certain retirement plans administered by Aetna Retirement Services and
Nationwide Retirement Solutions. Chapman Capital Management further extends the
DEM strategy by actively recruiting investment managers which meet the DEM
profile to manage investment portfolios that may or may not be invested in DEM
companies. We call this strategy the DEM Multi-Manager strategy. Since launching
the DEM strategy, the Company has increased assets managed under the DEM and DEM
Multi-Manager strategies to over $450 million as of October 31, 1999.
The Chapman Co. uses the DEM strategy in its brokerage and investment
banking business by participating in syndicates for underwritings of DEM
companies, publishing research on DEM companies, making markets in the stocks of
DEM companies and acting as distributor for the mutual funds that Chapman
Capital Management manages according to the DEM strategy. In addition, The
Chapman Co. seeks to act as lead underwriter for DEM companies.
ECHAPMAN.COM
We believe an online network designed to appeal to African-Americans,
Asian-Americans, Hispanic-Americans and women, as well as the DEM community as a
whole, will allow us to leverage the DEM concept and promote brand
differentiation for our financial and other services. In addition, we believe
that the Internet will provide us with cost-efficient access to new markets for
our financial services.
EChapman.com will seek to attract the members of the DEM community to our
Web site by providing lifestyle, educational and cultural, as well as financial
services, information with the goal of becoming a dynamic online community,
known as EChapman.com. We currently intend that this material will initially be
organized around four channels on our Web site.
The CHAPMAN NETWORK will cover a variety of topics and features, including:
- Lifestyle pages providing content about travel, finance, fashion, food,
sports, entertainment, health & wellness, and family and parenting issues
and featuring presentations by personalities and celebrities appealing to
the various segments of the DEM community
- Music/Video pages allowing visitors to participate in online chats with
artists and personalities, listen to music, preview videos and make
purchases online at the CHAPMAN MARKETPLACE
- Kids and Teens pages offering chat rooms and programming about school
safety, money, contests, quizzes, puzzles, sports
- Chapman Kids Club enabling kids and teens to open virtual stock accounts
and view real time stock information about companies that appeal to youth
- International, domestic and business news
- Sports, weather and local news
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CHAPMAN TRADING will offer:
- Online brokerage services
- A variety of mutual fund choices, including our proprietary funds: the DEM
Equity Fund, the DEM Index Fund and the Chapman US Treasury Fund, as well
as any future mutual fund offerings
- Insurance products, such as variable annuities, variable life and term
life products
- Research reports
- Online access to corporate and public finance products
- Toll-free call center for personalized assistance
CHAPMAN EDUCATION will focus on financial education by providing:
- Interactive seminars addressing a wide range of topics, ranging from how
to make a budget to investment strategies
- Interviews with business people, particularly those who are prominent in
the DEM community
- DEM Index performance information
- Financial tools, such as mortgage and loan calculators and tips on how to
conduct investment research
CHAPMAN MARKETPLACE will offer for sale:
- Chapman-branded apparel and accessories
- Other products, including many of special interest to the DEM community
such as videos, music and books featuring DEM personalities and apparel
- Links with other Internet merchants which desire access to the DEM
community or segments of it
SOURCES OF ONLINE REVENUE
EChapman.com will seek to derive revenue from its online business in the
following ways:
- Online brokerage commissions, including commissions from our proprietary
and other mutual fund sales
- Investment management fees from increasing assets under management through
online sales of our proprietary mutual funds
- Advertising revenues from sales of banner ads and links to Web sites
seeking to reach the DEM community or segments of it
- Sharing with ecommerce partners in sales generated by visitors coming from
our Web site
- Possible online sales of annuity and insurance products created through
alliances with companies such as The Manufacturers Life Insurance Company
of North America
- Potential interest and fee income generated upon establishment of the
contemplated Internet bank
- Sales of products through the CHAPMAN MARKETPLACE channel
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BRAND AWARENESS
In an increasingly competitive Internet market, we believe that the
development of the EChapman.com brand is a key to the success of our business.
EChapman.com will seek to establish brand awareness through:
- Conventional off-line advertising and promotion, such as print media,
radio and television, event sponsorship, conferences and seminars
specifically targeted at the DEM community and its various segments
- Distribution of DEM products through third parties, such as Aetna
Retirement Services and Nationwide Retirement Solutions
- Online advertising and marketing strategies, including:
- One-to-one banner exchanges
- Basic text links
- Content sponsorship
- E-mail promotions
- Registration with search engines and directories
- Registration of alternative domain names, such as chapmanonline.com,
africanamericanstocks.com, asianamericanstocks.com,
hispanicamericanstocks.com and womenstocks.com, which will lead users
to the EChapman.com Web site
OFFLINE STRATEGY
We intend to grow the financial services products and services we have
offered through our traditional channels of distribution and believe these
businesses will complement our online strategy. In particular, we will continue
to pursue and expand:
- Corporate finance transactions involving DEM companies, including
underwriting syndicate participations and manager roles in these
transactions
- Government finance transactions, including seeking larger positions and
manager roles in these transactions by establishing a presence in the
states with major issuers of negotiated tax-exempt bonds
- Retail brokerage services targeting the DEM community
- Market-making activities focused on securities of DEM companies, as well
as other companies
- Proprietary trading for our own account
- Investment management services such as advisory services for institutional
separate accounts and our proprietary mutual funds
- Distribution of our proprietary mutual funds and mutual funds managed by
others through alliances with strategic partners, such as Aetna Retirement
Services
- Management of assets according to the DEM and DEM Multi-Manager strategies
- Sales of annuity and other insurance products on an agency basis for
insurance underwriters, such as The Manufacturers Life Insurance Company
of North America
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THE INTERNET
GROWTH OF THE INTERNET
The Internet has become a significant global medium for obtaining news and
information, communicating and conducting commerce. Both the number of Internet
users and the amount of time they spend online are growing. According to Jupiter
Communications, an independent market research firm specializing in online
research and analysis, approximately one-third of all homes in the United States
now have access to the Internet, and this percentage is expected to increase to
more than two-thirds by 2003. We believe that this growth is the result of a
number of factors, including:
- A growing number of computers in the home and workplace
- Improvements in network infrastructure
- More convenient, faster and less expensive Internet access
- Advances in computer and modem technology
- An increased public awareness of the benefits of using the Internet
- Development of "user friendly" interfaces
The interactive nature of the Internet as well as the growing online
community have also resulted in dramatic growth in the amount of ecommerce that
is being transacted on the Internet. One market survey shows that online
purchases, which were $50 billion in 1998, will grow to $1.3 trillion by 2003.
We believe that growth in ecommerce can be attributed to a number of factors,
including:
- Consumer confidence in Internet technology and security
- Improved ease of use
- Validation of ecommerce resulting from the participation of nationally
recognized companies
The Internet provides an efficient medium for the delivery of periodically
updated content. In contrast to print media, the Internet's technology and
interactive nature allow content providers to update information without
interrupting the user's experience. As a result, providers of high-quality and
well-organized content can promote increased Internet usage and create an
attractive marketing environment for advertisers and merchants. In addition,
leading content providers can develop a loyal following of repeat users who
register with their sites by providing personal information and preferences.
Registration benefits both the user and the site. Registered users are often
eligible for additional services from a site, such as customization options or
access to premium content. As a content provider learns more about its users as
they register and spend more time online, it can tailor content to meet the
needs and preferences of its users. This user information also provides
advertisers and merchants with more focused demographic information, which is
used to maximize direct marketing opportunities.
The online brokerage industry is also experiencing rapid growth. Jupiter
Communications forecasts that the total number of online trading households will
grow from 4.3 million in 1998 to more than 20.3 million in 2003. Jupiter
Communications also estimates that assets under management in online trading
accounts will increase sevenfold from $415 billion at the end of 1998 to more
than $3 trillion by 2003. We believe that this growth is largely due to:
- Growing consumer acceptance of the Internet as a convenient, secure and
reliable method of conducting retail financial transactions
- An increasing desire on the part of investors to take greater personal
control of their financial future
- Lowering of commission prices for online brokerage transactions
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- An increasing amount of high-quality investment research and information
available on the Internet to assist investors in making their trading
decisions
- Extensive media attention focused on the online brokerage industry
- Increasing interest by retail investors in purchasing individual stocks
- A favorable investing environment
A growing number of advertisers and businesses are capitalizing on the
Internet's interactive nature to market their products to highly targeted
audiences. The Internet offers these advertisers a flexible way to target their
message and measure their results. Internet advertisers can tailor their
messages to specific groups of consumers and can change advertisement content
frequently in response to market factors, current events and consumer feedback.
Moreover, advertisers can more accurately track the effectiveness of their
advertising messages based on the rate that consumers directly respond to
advertisements through keystrokes or "click throughs" that their advertisements
receive.
THE DEM COMMUNITY ON THE INTERNET
According to the Population Estimates Program, Population Division, of the
United States Census Bureau, Data Sheets published by the Population Reference
Bureau, racial and ethnic minorities account for approximately 25% of the adult
U.S. population as of October 31, 1999. This figure is expected to increase to
approximately 33% by the year 2015. However, based on population estimates and
trends derived from the Population Estimates Program released on September 1,
1999, it appears that racial and ethnic minorities account for a relatively
smaller percentage of the total U.S. online population than of the U.S.
population as a whole. For example, African-Americans, who account for 12.79% of
the U.S. population, represent 7.82% of the total estimated U.S. online
population of 92 million. Asian-Americans, who represent 4.00% of the U.S.
population, represent 2.85% of the total U.S. online population, and
Hispanic-Americans, who make up 11.44% of the U.S. population, account for 1.64%
of the U.S. online population. These Data Sheets estimate that women, who
comprise 51.13% of the U.S. population, account for approximately 46% of the
U.S. online population. We believe that the potential growth in Internet usage
by members of the DEM community represents an opportunity for EChapman.com.
ECHAPMAN.COM PLAN OF OPERATION
Our ability to implement our business strategy depends upon the successful
and timely completion and launch of our Web site. We are currently developing
the site, and we expect that we will be able to offer the online brokerage and
certain other features of the CHAPMAN TRADING channel of the Web site by the end
of the first quarter of 2000.
Simultaneously with the development of the financial services component of
our Web site, we will also be designing and developing the other features of the
EChapman.com Web site. In this regard, we intend to establish relationships with
content providers and third parties who wish to advertise on our site. We also
intend to develop strategic relationships with other companies which desire to
market their products and services to the DEM community. Although our Web site
design and development, as well as promotion of the EChapman.com brand, will be
an ongoing process, we estimate that the portal component of the EChapman.com
Web site will be substantially completed and ready for visitors within six
months after the closing of this offering.
We expect to incur significant expenses in two main areas:
- Promotion of the EChapman.com Web site and the EChapman.com brand
- Web site design and development
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During our first 12 months of operations, the expenses we expect to incur in
connection with our Web site include:
- Development of our portal content, including news, weather and sports
feeds from third-party providers and the production costs associated with
streaming video presentations for the CHAPMAN EDUCATION and CHAPMAN
NETWORK channels
- Marketing and promoting the EChapman.com Web site and brand
- Testing the site once the initial framework is completed
- Further design, development and testing of our online financial services
offerings
- General software and hardware expenses associated with the operation of
the site
- Web hosting and related expenses
Marketing and promotional activities will include targeted advertising of
EChapman.com online, including placement of banner ads and links to the
EChapman.com Web site on other Web sites, and through traditional print, radio
and television advertising. We will also incur expenses in establishing
strategic relationships with other companies.
As our online trading capabilities develop, and as we move toward the
completion of the EChapman.com portal, we expect to increase significantly the
size of our workforce in response to the anticipated growth of our online
business and the continued expansion of our traditional lines of business. We
expect to hire approximately 115 employees for our Web site, including an
information technology professional, a sales manager, sales personnel and
administrative staff in connection with the online community component of the
Web site and call center personnel and licensed brokers for our financial
services component of the Web site. We also anticipate increasing the number of
employees in our traditional brokerage, investment banking and investment
advisory businesses by adding a total of approximately 10 employees to these
areas. These increases represent almost a 200% increase in our current staffing
levels, and we expect commensurate increases in our compensation and benefits
expenses for the first 12 months of operations, as well as increases in our
occupancy and equipment expenses in order to accommodate these additional
employees.
Currently, we believe that the net proceeds of this offering will be
sufficient for the funding of our business for at least the first 12 months of
our operations. However, to the extent that our management deems it necessary to
the implementation of our business strategy, we may require additional financing
beyond the proceeds of this offering. See "Risk Factors--We may not be able to
secure financing if we need it in the future."
OUR INVESTMENT PRODUCTS AND SERVICES
We intend to continue to offer the products and services that The Chapman
Co., Chapman Capital Management and The Chapman Insurance Agency currently offer
through their traditional channels of distribution, while at the same time
expanding our distribution focus to the Internet in order to gain access to a
much larger audience.
SECURITIES BROKERAGE AND INVESTMENT BANKING SERVICES
BROKERAGE SERVICES
Our securities brokerage and investment banking subsidiary, The Chapman Co.,
provides brokerage services to institutional and retail clients. The Chapman Co.
charges commissions to these clients for executing buy and sell orders for
securities on national and regional exchanges and in the over-the-counter
market. The Chapman Co.'s primary source of revenue for its brokerage business
has historically been commissions generated from institutional brokerage. The
Chapman Co.'s institutional clients include investment managers, corporate
retirement plans and municipal retirement plan sponsors. The Chapman Co.
maintains floor broker relationships on the New York, American and
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Chicago Stock Exchanges and executes buy and sell orders in the over-the-counter
markets. Approximately 46%, 39% and 44% of The Chapman Co.'s revenue during the
years ended December 31, 1998 and 1997 and for the nine months ended
September 30, 1999, respectively, were derived from its brokerage business.
The Chapman Co. also participates in fixed income secondary market trading
in government securities primarily for fixed income investment managers,
municipal treasurers and other investment professionals. This business is done
on a competitive basis where The Chapman Co. acts as a broker. Approximately 3%,
28% and 11% of The Chapman Co.'s revenue during the years ended December 31,
1998 and 1997 and for the nine months ended September 30, 1999, respectively,
were derived from secondary market trading.
The Chapman Co. is a market-maker for the securities of five companies. We
are currently in the process of obtaining approval to make a market in the
securities of up to 100 companies.
CORPORATE FINANCE
To date, The Chapman Co.'s corporate finance activities have been limited
primarily to participation in syndicates. The Chapman Co. has been a member of
more than 190 underwriting syndicates for corporate issues, substantially all of
which were equity offerings. During the years ended December 31, 1998 and 1997
and for the nine months ended September 30, 1999, approximately 17%, 16% and 6%,
respectively, of The Chapman Co.'s revenue was derived from corporate finance
transactions. In 1998, approximately 50% of The Chapman Co.'s corporate finance
revenue was derived from the sale of the stock of Chapman Capital Management
Holdings, for whom The Chapman Co. acted as sole underwriter. In 1997,
approximately 38% of The Chapman Co.'s corporate finance revenue was derived
from the sale of the stock of DEM, Inc., a publicly-traded closed-end investment
company for which The Chapman Co. was the sole underwriter. Prior to
DEM, Inc.'s liquidation in 1998, DEM, Inc. was managed by Chapman Capital
Management.
GOVERNMENT FINANCE
The Chapman Co. participates in the tax-exempt public finance market and has
managed, primarily as co-manager, more than 300 transactions in 22 states and
the District of Columbia, including approximately 76 transactions in the past
two years. More than half of the total dollar amount of these transactions has
been with jurisdictions located in Alabama, California, Pennsylvania and
Tennessee.
During the years ended December 31, 1998 and 1997 and for the nine months
ended September 30, 1999, approximately 21%, 7% and 14%, respectively, of The
Chapman Co.'s revenue was derived from management fees, financial advisory fees
and selling concessions in public finance transactions. The Chapman Co.
currently employs six investment bankers whose primary responsibility is the
development of its public finance business.
RESEARCH
The Chapman Co. currently employs four research analysts and provides
research primarily on selected DEM companies. We intend to increase
substantially the number of DEM companies covered by The Chapman Co.'s research.
The Chapman Co. has also created the DEM Index, which tracks the performance
of the stocks of certain companies meeting the DEM profile. We believe that
inclusion of a DEM company in the DEM Index offers certain advantages such as
facilitating identification by fund managers and other institutions seeking to
invest in minority or women controlled businesses. The Chapman Co. will seek to
earn fees from subscriptions to the DEM Index and the sale of limited
information regarding the companies included in the DEM Index.
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INVESTMENT ADVISORY SERVICES
Our investment advisory subsidiary, Chapman Capital Management, currently
manages three mutual funds: the DEM Equity Fund, the DEM Index Fund and The
Chapman U.S. Treasury Money Fund, each a portfolio of The Chapman Funds, Inc., a
diversified, open-end management investment company registered under the
Investment Company Act of 1940. Chapman Capital Management has formed and
manages one private investment trust, the DEM-MET Trust. Chapman Capital
Management also advises corporate, institutional and individual investors on a
separate account basis. In addition, Chapman Capital Management is in the
process of establishing two new mutual funds which will use the DEM
Multi-Manager strategy.
As of October 31, 1999, Chapman Capital Management's total assets under
management attributable to mutual funds were approximately 19.1% of its total
assets under management.
DEM EQUITY FUND is a non-diversified portfolio of The Chapman Funds, Inc.
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 October 31, 1999, the DEM Equity Fund had approximately
$17.4 million in assets. The DEM Equity Fund commenced operations in
April 1998.
DEM INDEX FUND is also a non-diversified portfolio of The Chapman
Funds, Inc. The DEM Index Fund seeks to match, as closely as possible, the DEM
Index, an index composed of 100 stocks from the universe of publicly-traded
companies which meet the DEM profile. As of October 31, 1999, the DEM Index Fund
had approximately $146,000 in assets. The DEM Index Fund commenced operations in
March 1999.
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 October 31, 1999, The
Chapman U.S. Treasury Money Fund had an average for the ten month period of
approximately $91.5 million in assets. The Chapman U.S. Treasury Money Fund
began operations in June 1989.
THE DEM MULTI-MANAGER FUNDS. Chapman Capital Management has registered but
has not yet begun to sell the DEM Multi-Manager Bond Fund and the DEM
Multi-Manager Equity Fund. The DEM Multi-Manager Bond Fund seeks to earn high
current income with the potential for capital appreciation through investment in
fixed income securities of companies identified by multiple sub-advisers. The
DEM Multi-Manager Equity Fund seeks aggressive long-term growth through capital
appreciation by investment in equity securities of companies identified by
multiple sub-advisers. Chapman Capital Management oversees the sub-advisers of
these multi-manager funds, and it determines the percentage of a fund's assets
each sub-adviser will manage. In the process of selecting sub-advisers for these
multi-manager trustees, Chapman Capital Management employs the DEM Multi-
Manager strategy by actively recruiting sub-advisers which meet the DEM profile.
DEM-MET TRUST 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 was the first product
introduced by Chapman Capital Management that employs the DEM Multi-Manager
strategy. In managing the DEM-MET Trust, Chapman Capital Management actively
recruits money managers which meet the DEM profile to manage a portion of the
assets of the trust. 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, or temporary money market funds chosen by
Chapman Capital Management. Chapman Capital Management acts as investment
advisor to the DEM-MET Trust and in such capacity is responsible for selecting
and monitoring the sub-advisors. As of September 30, 1999, Chapman Capital
Management had sub-advisory relationships with 12 investment advisors, all of
which meet the DEM profile.
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Chapman Capital Management evaluates such sub-advisors monthly and reallocates
assets among existing sub-advisors and new sub-advisors as necessary. The
DEM-MET Trust was created in December 1996 pursuant to an agreement between
Chapman Capital Management and Bankers Trust Company, as custodial trustee. As
of October 31, 1999, the DEM-MET Trust had approximately $290.3 million in
assets, representing 41.6% of Chapman Capital Management's total assets under
management.
SEPARATE ACCOUNTS. Chapman Capital Management also provides investment
advisory services to separate accounts under individual investment advisory
agreements. Chapman Capital Management manages equity and debt portfolios with
varied investment objectives including long term capital appreciation and
current income. As of October 31, 1999, approximately 57.5% of the separate
accounts under management incorporate the DEM strategy as an investment
objective. Chapman Capital Management will continue to attempt to differentiate
itself from other investment managers by providing the DEM strategy as an
investment objective. As of October 31, 1999, Chapman Capital Management managed
approximately $274.1 million in assets for separate accounts, of which
approximately $157.5 million was invested pursuant to the DEM Strategy.
MARKETING AND CUSTOMER SERVICE
Chapman Capital Management's marketing strategy is to provide a single
source for investing in DEM companies while achieving a competitive rate of
return. Chapman Capital Management aggressively markets to large corporations,
government entities and other institutions seeking investment in DEM companies.
Chapman Capital Management targets its marketing efforts to the various
types of customers that use its investment advisory and asset management
services. Chapman Capital Management's separate accounts are typically large
institutional investors. Chapman Capital Management markets to these accounts
through customer support activities and personal sales efforts by officers of
Chapman Capital Management. 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.
Chapman Capital Management's proprietary investment products are distributed
by The Chapman Co. To date, Chapman Capital Management's investment product
marketing activities have been providing "wholesale" marketing assistance to
support The Chapman Co.'s direct retail selling efforts. Chapman Capital
Management intends to offer its proprietary investment funds to banks, insurance
companies, providers of 401(k) deferred compensation plans and other
institutions for resale to their customers. Chapman Capital Management will
provide support to The Chapman Co. in marketing to institutional resellers and
to the institutional resellers' own retail sales forces. Chapman Capital
Management may also undertake some limited advertising of its proprietary
investment products.
In addition to separate accounts and proprietary investment products,
Chapman Capital Management will seek to enter into agreements with other
investment advisors whereby Chapman Capital Management will seek to act as a
sub-advisor with respect to their investment products. Chapman Capital
Management will seek to provide wholesale marketing assistance to the
distributors of such third-party investment products to ensure that such
products are effectively marketed by the third-party distributors to the DEM
community.
RESEARCH
As of September 30, 1999, Chapman Capital Management employed three
portfolio managers. Chapman Capital Management intends to hire additional
portfolio managers to support its existing investment advisory and management
services and to facilitate the introduction and maintenance of new investment
products.
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Chapman Capital Management currently employs a buy-side analyst to assist
the portfolio managers in investment research, monitoring of investment
opportunities and the development and maintenance of Chapman Capital
Management's proprietary DEM valuation and screening model. Chapman Capital
Management also utilizes the research services of The Chapman Co. for coverage
on certain companies meeting the DEM profile. Chapman Capital Management intends
to expand its research staff by hiring additional buy-side analysts.
ANNUITY PRODUCTS
Our insurance subsidiary, The Chapman Insurance Agency, sells annuity
products on an agency basis for insurance underwriters such as The Manufacturers
Life Insurance Company of North America; however, Chapman Insurance Agency has
not had significant operations to date. Chapman Insurance Agency currently
offers only variable annuities. Variable annuities are long-term savings
vehicles which contain two accounts, a separate and a fixed account. The fixed
account usually offers various fixed allocations which are credited with fixed
rates of interest for the guaranteed periods selected by the policyholder.
Policyholders will be able to choose among several available separate account
fund options offered by Chapman Capital Management or other investment managers
with whom we may ally our operations and transfer monies between the various
annuity options on a tax-deferred basis.
The Chapman Insurance Agency sells products on an agency basis only, meaning
that it sells insurance products underwritten by other insurance companies. The
Chapman Insurance Agency does not underwrite annuities on its own. Annuity
products currently enjoy an advantage over certain other retirement savings
products because the payment of federal income taxes on interest credited to
annuity policies is deferred during the accumulation period. We believe that the
individual annuity business is a growing segment of the savings and retirement
market.
GOVERNMENT REGULATION
ECOMMERCE AND THE INTERNET
There are currently a limited number of federal or state laws or regulations
that specifically regulate communications or commerce on the Internet. However,
federal and state governments are increasingly asserting an intent to more
actively regulate the Internet. These efforts include attempts to apply existing
laws of general applicability to the Internet, including actions involving:
- User privacy, including sending of unsolicited email or "spamming"
- Consumer protection to ensure quality products and services and fair
dealing
- Media regulation, such as libel and obscenity
In addition, federal and state legislatures and administrative agencies are
beginning to consider or adopt a variety of Internet-specific statutes and
regulations. In 1998, Congress passed the Children's On-Line Privacy Protection
Act of 1998, which strictly limits the collection of "personal information" by
Web sites of information of children under the age of 13 by requiring, among
other things, prior parental consent.
The National Conference of Commissioners of the Uniform State Laws has
recently recommended two new laws for adoption by the states. The first, the
Uniform Electronic Transaction Act, seeks to recognize the scope and
enforceability of electronic contracts and agreements generally. Separately, the
Uniform Computer Information Transaction Act seeks to impose a general contract
law framework for electronic transactions. We expect that states may adopt
either or both of these uniform acts in the near future and, a consequence may
be additional requirements and liability for Internet-based
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businesses. Additional legislation could be introduced if self-regulatory
efforts by online businesses are deemed ineffective.
Several states have adopted or are considering adoption of statutes that
address "spamming" practices on the Internet.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as copyright, trademark, trade secrets and other
intellectual property law; libel and defamation; and privacy are applicable to
the Internet. These current, new and subsequent laws and regulations could
adversely affect our business.
Securities trading and investment advisory services are activities that have
drawn particularly intensive scrutiny from regulatory agencies when conducted
over the Internet. The recent substantial increase in securities trading over
the Internet has created a renewed attention to and concern over the integrity
of brokerage firms. As a result, there may be a substantial growth in the volume
of regulations and enforcement actions with respect to online brokerage and
financial services companies. That growth is expected to be somewhat chaotic and
inconsistent since it is expected that a number of government agencies,
including foreign government agencies, will attempt to assert jurisdiction over
online trading and financial services concerns.
SECURITIES BROKERAGE AND INVESTMENT BANKING SERVICES
The securities business is subject to extensive and frequently changing
federal and state laws and substantial regulation under such laws by the SEC and
various state agencies and self-regulatory organizations, such as the NASD. The
Chapman Co. is registered as a broker-dealer with the SEC and is a member firm
of the NASD. Much of the regulation of broker-dealers has been delegated to
self-regulatory organizations, principally the NASD, which has been designated
by the SEC as The Chapman Co.'s primary regulator. The NASD adopts rules (which
are subject to approval by the SEC) that govern its members and conducts
periodic examinations of member firms' operations. Securities firms are also
subject to regulation by state securities administrators in those states in
which they conduct business. The Chapman Co. is registered as a broker-dealer in
49 states and the District of Columbia and Puerto Rico.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods and supervision, trading practices
among broker-dealers, use and safekeeping of customers' funds and securities,
capital structure of securities firms, record keeping and the conduct of
directors, officers and employees. The principal purpose of regulation and
discipline of broker-dealers is the protection of customers and the integrity of
the securities markets. Additional legislation, changes in rules promulgated by
the SEC and self-regulatory organizations, or changes in the interpretation or
enforcement of existing laws and rules, may directly affect the mode of
operation and profitability of broker-dealers.
The SEC, self-regulatory organizations and state securities commissions may
conduct administrative proceedings which can result in censure, fines, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker-dealer, its officers or employees.
The Chapman Co.'s mutual fund distribution business is subject to extensive
regulation as to its duties, affiliations, conduct and limitations on fees under
the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the
regulations of the NASD. As discussed above, The Chapman Co. is an NASD member.
The NASD has prescribed rules with respect to maximum commissions, charges and
fees related to investment in any mutual fund registered under the 1940 Act.
As a registered broker-dealer and a member firm of the NASD, The Chapman Co.
is subject to the net capital rule of the SEC. The net capital rule, which
specifies minimum net capital requirements for registered brokers and dealers,
is designed to measure the general financial integrity and liquidity of
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a broker-dealer and requires that at least a minimum part of its assets be kept
in relatively liquid form. Net capital is essentially defined as net worth
(assets minus liabilities), plus qualifying subordinated borrowings and less
certain mandatory deductions that result from excluding assets not readily
convertible into cash and from valuing certain other assets, such as a firm's
positions in securities, conservatively. Among these deductions are adjustments
in the market value of securities to reflect the possibility of a market decline
prior to disposition. The Chapman Co. has elected to compute its net capital
under the standard aggregate indebtedness method permitted by the net capital
rule, which requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed a 15-to-1 ratio. At September 30, 1999, The
Chapman Co. had net capital and a net capital requirement of $355,088 and
$250,000, respectively. The Chapman Co.'s ratio of aggregate indebtedness to net
capital was 2.15 to 1.
Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the SEC and other regulatory bodies and
ultimately may require its liquidation. In 1995 and 1998, The Chapman Co. and
Mr. Chapman entered into consent agreements with the NASD regarding alleged
violations of the net capital rules in late 1993 and early 1994 and early 1996,
respectively. The 1998 consent agreement also addressed alleged violations of
Rule 144 under the Securities Act with respect to the alleged 1996 net capital
violation. The Chapman Co. and Mr. Chapman were censured and jointly fined
$30,000, and Mr. Chapman was suspended from association with The Chapman Co. for
10 days pursuant to the 1995 consent agreement. Pursuant to the 1998 consent
agreement, The Chapman Co. was censured and fined $7,500, and Mr. Chapman was
censured, fined $7,500 and required to requalify by examination as a Financial
and Operations Principal. Mr. Chapman has not requalified as a Financial and
Operations Principal; instead, other officers of The Chapman Co. are serving as
the firm's Financial and Operations Principals. The Chapman Co. has exceeded all
net capital requirements since such alleged violations.
The net capital rule also prohibits payments of dividends, redemption of
stock and the prepayment or payment in respect of principal of subordinated
indebtedness if net capital, after giving effect to the payment, redemption or
repayment, would be less than a specified percentage (currently 120%) of the
minimum net capital requirement. Compliance with the net capital rule could
limit those operations of The Chapman Co. that require the intensive use of
capital, such as underwriting and trading activities, and also could restrict
EChapman.com's ability to withdraw capital from The Chapman Co., which in turn,
could limit our ability to invest in our operations, pay dividends, repay debt
and redeem or purchase shares of its outstanding capital stock.
INVESTMENT ADVISORY SERVICES
Chapman Capital Management'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.
Chapman Capital Management is registered with the SEC under the Investment
Advisers Act of 1940 and is subject to examination by the SEC. 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,
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operational requirements, and disclosure obligations. The SEC is authorized to
institute proceedings and impose sanctions for violations of the Advisers Act,
ranging from censure to termination of an investment adviser's registration. The
failure of the Company to comply with the requirements of the SEC could have a
material adverse effect on EChapman.com.
An investment advisor to a registered investment company, its principals,
and its employees may also be subject to proceedings initiated by the SEC to
impose remedial sanctions for violation of any provision of the federal
securities laws and the regulations adopted thereunder, and the SEC may prohibit
such investment advisor to an investment company from continuing to act in such
capacity. Stockholders of registered investment companies or the SEC 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 mutual funds managed by Chapman Capital Management are registered with
the SEC under the 1940 Act and the sale of shares in these fund has been
registered under the Securities Act of 1933. Investment companies such as The
Chapman Funds, Inc. and any future registered investment companies established
and/or advised by Chapman Capital Management, 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, the DEM Index Fund
and The Chapman U.S. Treasury Money Fund, can only be offered at a uniform
public offering price based on the current net asset value per share plus the
sales load. No more than 50% of the directors of registered investment companies
such as The Chapman Funds, Inc. can be interested persons, defined to include,
among others, persons affiliated with the management company or underwriter, and
a majority of the directors must not be affiliated with the underwriter. The
advisory agreement must have initially been 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 SEC, after notice and opportunity for
hearing, as fair and equitable.
Chapman Capital Management derives a large portion of its revenues from its
investment company 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 mutual funds managed by Chapman
Capital Management 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 Chapman Capital
Management.
COMPETITION
The number of Web sites competing for the attention and spending of members,
users and advertisers has increased, and we expect it to continue to increase.
On the Internet, we will compete for users, investors and advertisers with the
following types of companies:
- Online services or Web sites targeted at discrete segments of the DEM
community, such as msbet.com, netnoir.com, quepasa.com, ivillage.com,
Women.com and womencentral.com
- Web search and retrieval and other online service companies, commonly
referred to as portals, such as Excite, Inc., Infoseek Corporation,
Lycos, Inc. and Yahoo! Inc.
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- Publishers and distributors of traditional media, such as television,
radio and print
- Online brokerages and investment banks, such as Ameritrade, DLJdirect,
eSchwab, E*Trade and Wit Capital
- Traditional brokerages and investment banks
Many of these competitors are larger national firms with access to greater
financial, technical, marketing, personnel and other resources. Increased
competition from these firms, as well as emerging Internet companies, could
result in price reductions, reduced margins or loss of market share, any of
which could adversely affect our business. We believe that our experience with
implementing and using the DEM and DEM Multi-Manager strategies will provide us
with a strong advantage that will enable us to compete effectively in the market
for Internet-based products and services.
We also expect to encounter intense competition in the traditional facets of
our business. The traditional securities and investment advisory businesses are
extremely competitive, and both The Chapman Co. and Chapman Capital Management
compete directly with other larger national securities firms and investment
advisors, a significant number of which have greater capital and other
resources, including, among other advantages, more personnel and greater
marketing, financial, technical and research capabilities. In addition, these
firms offer a broader range of financial services than The Chapman Co. and
Chapman Capital Management and compete not only with The Chapman Co. and Chapman
Capital Management and among themselves but also with commercial banks,
insurance companies and others for retail and institutional clients. We expect
this competition to intensify with the passage of the Financial Services
Modernization Act of 1999, which removes barriers to affiliation between banks,
insurance companies and securities firms, and which the President signed the
bill into law on November 12, 1999.
The mutual investment funds managed by Chapman Capital Management 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 Chapman Capital Management's affiliated investment funds.
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 Chapman Capital Management. Chapman Capital Management's ability
to increase and retain assets under management could be materially adversely
affected if client accounts or the Chapman Capital Management's affiliated
mutual funds under-perform specified market benchmarks. Chapman Capital
Management's ability to compete with other investment management firms also
depends, in part, on the relative attractiveness of their investment
philosophies and methods under prevailing market conditions.
GENERAL
EChapman.com, Inc. is a newly-formed Maryland corporation. We were
incorporated on May 14, 1999, and we have had no operations to date. Upon
consummation of the pending mergers of Chapman Holdings, Chapman Capital
Management Holdings and Chapman Insurance Holdings, we will have three indirect
operating subsidiaries:
- The Chapman Co., which was incorporated in Maryland in 1986
- Chapman Capital Management, Inc., which was incorporated in the District
of Columbia in 1987
- The Chapman Insurance Agency Incorporated, which was incorporated in
Maryland in 1987
Chapman Holdings was incorporated in Maryland on December 12, 1997 and has
been publicly traded company since February 1998.
Chapman Capital Management Holdings was incorporated in Maryland on
January 8, 1998 and has been publicly traded since August 1998.
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Chapman Insurance Holdings was incorporated in Maryland on January 8, 1998.
The operating subsidiary of Chapman Insurance Holdings sells annuity products.
Neither Chapman Insurance Holdings nor The Chapman Insurance Agency has had
significant operations to date.
PROPERTIES
Our principal executive offices are located at the World Trade
Center-Baltimore, 401 East Pratt Street, 28(th) Floor, Baltimore, Maryland 21202
where we lease approximately 10,000 square feet of office space. The lease for
these premises expires in October 2000, and we have an option to renew this
lease for another five years. In order to accommodate the additional employees
we plan to hire during our first 12 months of operations, we expect to lease
additional space.
TRADEMARKS
We have the right to use the following registered trademarks and common law
trademarks pursuant to our non-exclusive royalty-free Service Mark Licensing
Agreement with Nathan A. Chapman, Jr.:
- Domestic Emerging Markets-Registered Trademark-
- DEM-Registered Trademark-
- C-Eagle Logo-TM- appearing on the front of this prospectus
- DEM Index-TM-
- DEM Profile-TM-
- DEM Universe-TM-
- DEM Community-TM-
- DEM Company-TM-
- DEM Multi-Manager-TM-
- Chapman-TM-
- Chapman Education-TM-
- Chapman Network-TM-
- Chapman Trading-TM-
- Chapman Marketplace-TM-
- Chapman Kids Club-TM-
- EChapman.com-TM-
We regard our trademarks and other intellectual property as critical to our
success. We rely on trademark law to protect our intellectual property rights.
Despite our precautions, it may be possible for third parties to obtain and use
our intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries do not protect intellectual property to the same extent as do
the laws of the United States.
EMPLOYEES
At September 30, 1999, we had 65 full-time employees. As of September 30,
1999, EChapman.com had one full-time employee. As of September 30, 1999, The
Chapman Co. had 52 full-time employees,
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including 31 registered representatives. As of September 30, 1999, Chapman
Capital Management had 12 full-time employees and three employees which it
shares with The Chapman Co. As of September 30, 1999, The Chapman Insurance
Agency had no employees. We consider our relationship with our employees and
those of The Chapman Co. and Chapman Capital Management to be good.
LEGAL PROCEEDINGS
We are involved from time to time in various legal proceedings and claims
incident to the normal conduct of our business. We believe that such legal
proceedings and claims, individually and in the aggregate, are not likely to
have a material adverse effect on our financial condition or results of
operations.
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MANAGEMENT
Our Directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITIONS
- ---- -------------------- ------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. ................... 42 President, Chairman of the Board and
Director
Earl U. Bravo, Sr. ....................... 52 Director, Senior Vice President, Secretary
and Assistant Treasurer
Demetris Brown............................ 43 Treasurer, Assistant Secretary and Chief
Financial Officer
Sabrina Warren Bush....................... 41 Senior Vice President, Equity Sales
Tracey Rancifer........................... 29 Senior Vice President, Corporate
Development
Michael Easterling........................ 51 Vice President, Media
Charles Owens............................. 56 Vice President, Special Events
Raymond Haysbert.......................... 79 Director nominee
Kweisi Mfume.............................. 51 Director nominee
Mark Jefferson............................ 31 Director nominee
Adolph Washington......................... 59 Director nominee
</TABLE>
NATHAN A. CHAPMAN, JR. has been President of EChapman.com since our
inception. Mr. Chapman founded Chapman Holdings, Inc. in 1997 and its
subsidiary, The Chapman Co., in 1986. Mr. Chapman also founded Chapman Capital
Management Holdings, Inc. in 1998, and its subsidiary Chapman Capital
Management, Inc. in 1988. Mr. Chapman founded Chapman Insurance Holdings, Inc.
in 1997 and its subsidiary, Chapman Insurance Agency, Incorporated, in 1987.
Mr. Chapman has served as President, Chairman of the Board and a Director of all
of these entities since their inception. Mr. Chapman is also the President,
Chairman of the Board and a Director of The Chapman Funds, Inc. Prior to
founding The Chapman Co., Mr. Chapman was a broker for Alex. Brown and Sons from
1982 to 1987. Mr. Chapman is a Certified Public Accountant, a General Securities
Principal, Registered Options Principal, and Registered Municipal Principal. In
July 1999, the University of Maryland Office of the Board of Regents elected
Mr. Chapman chairman of the Board of Regents.
EARL U. BRAVO, SR. has been a Director, Sr. Vice President, Secretary and
Assistant Treasurer of EChapman.com since our inception. Mr. Bravo has been
Chief Operating Officer of The Chapman Co. since 1992 and Secretary and
Assistant Treasurer since 1997. Mr. Bravo has been Senior Vice President,
Secretary, Assistant Treasurer and a Director of Chapman Holdings, Inc. since
1997 and of Chapman Capital Management Holdings, Inc. since 1998. Mr. Bravo is a
General Securities Principal, Financial and Operations Principal and Registered
Representative. Mr. Bravo holds an MBA from the University of Maryland, College
Park.
DEMETRIS BROWN has been Treasurer, Assistant Secretary and Chief Financial
Officer since our inception. Mr. Brown has been Chief Financial Officer of The
Chapman Co. since 1998. From 1993 to 1998 Mr. Brown was the Vice President of
Finance for the Injured Workers' Insurance Fund, a casualty insurance
underwriter. Mr. Brown served as the Director of Finance for Computer Sciences
Corporation from 1989 to 1993. Mr. Brown is a Certified Public Accountant,
Certified Management Accountant, Financial and Operations Principal, and
Registered Representative.
MICHAEL EASTERLING is our Vice President of Media and has served in the same
capacity for The Chapman Co. since July 1999. From 1988 to 1998, Mr. Easterling
worked for WJZ-TV, a local Baltimore affiliate for 17 years, holding various
positions, including Manager of Programming and Public Affairs from 1994 to
1998. In 1997, Mr. Easterling founded Straight Talk Communications.
Mr. Easterling earned his B.A. in Marketing from Howard University.
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<PAGE>
SABRINA WARREN BUSH is our Senior Vice President of Equity Sales and has
served in the same capacity for The Chapman Co. since 1992. From 1982 to 1992,
Ms. Bush was employed with Maryland National Bank in various capacities
including Vice President of Employee Relations for all the subsidiaries of MNC
Financial Inc., and Vice President of Strategic Planning for the Retail Banking
Division. Ms. Bush attended the University of Florida and received her M.S. in
business with a concentration in finance from The Johns Hopkins University in
1998.
TRACEY RANCIFER is our Senior Vice President of Corporate Development and
has served in the same capacity for Chapman Capital Management since 1998. Prior
to joining Chapman Capital Management, Ms. Rancifer was Executive Assistant to
the Mayor of Memphis, Tennessee and the Director of Government Affairs from 1997
to 1999. From 1996 to 1997, Ms. Rancifer was the Administrative Operations
Director for the City of Little Rock, Arkansas. Ms Rancifer was a Graduate
Research Assistant at the Arkansas Institute of Government from 1995 to 1996,
and from 1993 to 1995, Ms. Rancifer was the Special Assistant to the United
States Secretary of Commerce. In 1993, Ms. Rancifer served as the Eastern
Manager of Corporate and Government Relations for E.W. Moon, Inc. Ms. Rancifer
received her B.A. in Political Science from Rhodes College and her Masters of
Public Affairs and Administration from the University of Little Rock.
CHARLES OWENS is our Vice President of Special Events and has served as the
Vice President of Special Events for The Chapman Company since 1998. Prior to
his association with The Chapman Company, Mr. Owens was the Executive Director
of the Maryland District of Columbia Minority Supplier Development Council from
1990 to 1998. Mr. Owens is a graduate of Dartmouth College's Amos Tuck School of
Business.
RAYMOND HAYSBERT has been nominated to serve as a member of the Board of
Directors of EChapman.com upon the closing of this offering. Mr. Haysbert is the
retired President and Chairman of the Parks Sausage Company, the first
African-American controlled publicly traded company, a position he held from
1969 to 1990. Mr. Haysbert is currently a Director Emeritus of Bell Atlantic
Nynex. Mr. Haysbert taught in the School of Business at Morgan State University
for 17 years and presently serves as the Chairman of the Entrepreneurial
Institute at the EDGE Center of Sojourner Douglass College.
KWEISI MFUME has been nominated to serve as a member of the Board of
Directors of EChapman.com upon the closing of this offering. Mr. Mfume has
served as the President and Chief Executive Officer of the NAACP since
February 15, 1996. From 1986 to 1996, Mr. Mfume represented Maryland's 7(th)
Congressional District in the United States Congress, where he also served on
several committees during his terms of office, including the Banking and
Financial Services Committee, the General Oversight and Investigations
Subcommittee, the Committee on Education and the Small Business Committee and
the full Ethics Committee and Joint Economic Committee of the House of
Representatives and Senate. Mr. Mfume also served two years as the Chairman of
the Congressional Black Caucus and later served as the Chair of the Caucus' Task
Force to Preserve Affirmative Action. During his last term in Congress,
Mr. Mfume was appointed by the House Democratic Caucus to Vice Chairman for
Communications.
MARK JEFFERSON has been nominated to serve as a member of the Board of
Directors of EChapman.com upon the closing of this offering. In 1999,
Mr. Jefferson founded Funburst Media, LLC, for which he also serves as Chairman.
In 1998, Mr. Jefferson founded and became Principal of Envue Technologies, a
position he still holds. Mr. Jefferson served as Vice President of CertCo., Inc.
from 1997 to 1998. From 1995 to 1997, Mr. Jefferson was a Manager at Cisco
Systems.
ADOLPH WASHINGTON has been nominated to serve as a member of the Board of
Directors of EChapman.com upon the closing of this offering. Since 1999,
Mr. Washington has served as the Vice President of Field Promotions with Capitol
Records in Hollywood, California. From 1996 to 1999, Mr. Washington served as
Senior Vice President of Marketing and Promotions at Warner Bros.
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Records. Mr. Washington was the Senior Vice President of Marketing and
Promotions at MCA Records from 1991 to 1996. He received his B.A. in Social
Sciences from the University of Arkansas at Pine Bluff.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has appointed an Audit Committee of the Board of
Directors that will review the scope of accounting audits, review with our
independent auditors the corporate accounting practices and policies and
recommend to whom reports should be submitted within EChapman.com, review with
the independent auditors their final report, review with internal and
independent auditors overall accounting and financial controls, and be available
to our independent auditors during the year for consultation purposes. Upon the
closing of this offering, a majority of the directors on the Audit Committee
will be independent directors.
The Board of Directors has also appointed a Compensation Committee of the
Board of Directors which will review the performance of senior management,
recommend appropriate compensation levels and approve the issuance of stock
options pursuant to our stock option plan. All directors and officers of
EChapman.com serve until their successors are duly elected and qualify. Upon the
closing of this offering, the Compensation Committee will consist of two
Directors.
EXECUTIVE COMPENSATION
To date, we have not paid compensation to the Chief Executive Officer or any
other executive officer of EChapman.com. In addition, we have not entered into
any agreements or other arrangements with respect to such payments.
Our Board of Directors has established the 1999 EChapman.com, Inc. Omnibus
Stock Option Plan to enable us to grant equity compensation to the our
directors, officers, employees and consultants. Our stock plan will be
administered by the Compensation Committee of the Board of Directors. No
securities have been issued pursuant to the stock option plan as of the date of
this prospectus; however, in connection with the mergers, the outstanding stock
options of Chapman Holdings and Chapman Capital Management Holdings will be
converted on the same basis as the shares of common stock of these companies
into outstanding stock options under the EChapman.com Omnibus Stock Option Plan.
At that time, there will be 138,464 shares subject to outstanding stock options
upon consummation of this offering.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of our common stock as of September 30, 1999 as adjusted to
reflect the sale of common stock in this offering and the mergers by (i) each
person known by us who will beneficially own 5% or more of the outstanding
shares of common stock following the offering and the mergers, (ii) each of our
directors and director nominees, (iii) our Chief Executive Officer, and
(iv) all of our directors, director nominees and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, based on information furnished by such owners, will
have sole voting and investment power with respect to such shares, subject to
community property laws where applicable.
The number of shares of common stock outstanding used in calculating the
percentage for each listed person includes options exercisable within 60 days of
September 30, 1999 but excludes shares of common stock underlying options or
warrants held by any other person. Percentage of beneficial ownership is based
on 13,194,845 shares of common stock outstanding as of September 30, 1999, and
16,528,178 shares outstanding upon consummation of this offering assuming
completion of the pending mergers of Chapman Holdings, Chapman Capital
Management Holdings and Chapman Insurance Holdings.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(2) SHARES AFTER THE OFFERING(3)
NAME AND ADDRESS OF ---------------------------------- BEING ----------------------------------
BENEFICIAL HOLDER(1) NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------------------------- --------- ---------------------- -------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
Nathan A. Chapman, Jr.(4).................. 8,648,988 65.4% 80,000 8,648,988 52.2%
Earl U. Bravo, Sr.(5)...................... 29,810 * 29,810 *
Raymond Haysbert........................... 1,933 * 1,933 *
Sabrina Warren Bush(6)..................... 1,933 * 1,933 *
Tracey Rancifer(7)......................... 2,234 * 2,234 *
All Directors and Executive Officers as a
Group (5 persons)........................ 8,684,898 65.6 8,684,898 52.4
</TABLE>
- ------------------------
* Represents less than one percent of the outstanding shares of common stock.
(1) Each stockholder's address is 401 East Pratt Street, 28(th) Floor,
Baltimore, Maryland unless otherwise noted.
(2) Includes a total of 36,168 shares of common stock subject to options
exercisable within 60 days which are held by the persons named in the table.
(3) Assumes the underwriters' over-allotment option is not exercised. Exercise
in full of the underwriter's over-allotment option would reduce
Mr. Chapman's ownership percentage following the offering to 51.4% and would
reduce the ownership percentage of all directors and executive officers to
51.6%.
(4) Includes shares issuable upon exercise of options to purchase 11,168 shares
of CCMHI common stock.
(5) Includes shares issuable upon exercise of options to purchase 9,665 shares
of CHI common stock and 11,168 shares of CCMHI common stock.
(6) Includes shares issuable upon the exercise of options to purchase 1,933
shares of CHI common stock.
(7) Includes shares issuable upon the exercise of options to purchase 2,234
shares of CCMHI common stock.
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<PAGE>
CERTAIN TRANSACTIONS
Nathan A. Chapman, Jr., the President and a director of our company, is the
President, a Director of each of Chapman Holdings, Chapman Capital Management
Holdings, Chapman Insurance Holdings and The Chapman Funds, Inc. He is also a
controlling stockholder of Chapman Holdings, Chapman Capital Management Holdings
and Chapman Insurance Holdings. Earl U. Bravo, Sr., a Director, Sr. Vice
President, Secretary and Assistant Treasurer of EChapman.com, is Secretary,
Assistant Treasurer and a Director of Chapman Capital Management Holdings and
Chapman Holdings and Secretary and Assistant Treasurer of The Chapman Funds.
Demetris Brown, Treasurer, Chief Financial Officer and Assistant Secretary of
EChapman.com, is the Chief Financial Officer of The Chapman Co.
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.
We lease furniture and equipment from this partnership. The lease requires
monthly payments of $9,846 and contains one year renewable terms, at our option,
through September 2000, at which time we can purchase the furniture and
equipment at fair market value. Rent expense pursuant to this lease agreement
was $118,512 in 1997, $118,152 in 1998 and $88,614 for the nine months ended
September 30, 1999. We believe that the terms of these transactions were
substantially favorable to us as those available from non-affiliates.
On December 14, 1998, The Chapman Co. and Chapman Capital Management each
advanced to Chapman Limited Partnership I $19,536 for payment of certain taxes
and related payments, interest, and penalties. On October 22, 1999, Chapman
Holdings and Chapman Capital Management Holdings each advanced the partnership
$49,037 for payment of certain taxes and related payments. As of September 30,
1999, all of these advances remained outstanding. Future lease payments will be
applied to such advances until repaid in full.
As of September 30, 1999, Mr. Chapman owed EChapman.com's subsidiaries
$1,006,089 in connection with the following notes, including accrued interest:
- Three-year promissory note to The Chapman Co. dated February 11, 1998 in
the amount of $176,250, which accrues interest at 5.54% per annum and
requires no payments of principal or interest until maturity.
- Three-year promissory note to Chapman Holdings dated March 11, 1998 in the
amount of $285,587, which accrues interest at 5.5% per annum.
- Demand promissory note to The Chapman Co. dated May 1, 1998 in the amount
of $100,000, which accrues interest at 5.5% per annum.
- Demand promissory note to Chapman Capital Management dated July 2, 1998 in
the amount of $65,000, which accrues interest at 5.48% per annum.
- Three year promissory note to Chapman Capital Management Holdings dated
August 21, 1998 in the amount of $45,000, which accrues interest at 5.48%
per annum.
- Three-year promissory note to Chapman Holdings dated December 31, 1998 in
the amount of $51,690, which accrues interest at 4.33% per annum.
- Demand promissory note to Chapman Capital Management Holdings dated
July 29, 1999 in the amount of $242,000, which accrues interest at 5.45%
per annum.
Following the closing of the offering, we will acquire Chapman Holdings,
Chapman Capital Management and Chapman Insurance Holdings pursuant to merger
agreements between and among EChapman.com, each target company and, in each
case, a wholly-owned subsidiary of EChapman.com. Following the mergers, Chapman
Holdings, Chapman Capital Management Holdings and Chapman Insurance Holdings
will become wholly-owned subsidiaries of EChapman.com. Because Mr. Chapman, the
President and a director of EChapman.com, is the President, a director and
controlling stockholder
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of each of the two publicly traded target companies, the mergers of Chapman
Holdings and Chapman Capital Management Holdings have been approved by the
disinterested members of the boards of directors of each of Chapman Holdings and
Chapman Capital Management Holdings in accordance with Maryland law.
We have entered into a non-exclusive, royalty-free licensing agreement with
Mr. Chapman pertaining to our use of the C-Eagle Logo-TM-, Chapman, Chapman
Trading-TM-, Chapman Network-TM-, Chapman Education-TM-, Chapman
Marketplace-TM-, Chapman Kids Club-TM-, DEM Index-TM-, DEM Profile-TM-, DEM
Universe-TM-, DEM Company-TM-, DEM Community-TM-, DEM Multi-Manager-TM-,
EChapman.com-TM-, Domestic Emerging Markets-Registered Trademark-,
DEM-Registered Trademark-, trademarks that are owned by Mr. Chapman.
EChapman.com intends that all transactions with its affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested Directors.
The Chapman Co. is acting as the manager of the underwriting syndicate in
this offering and will receive underwriting compensation. See "Underwriting."
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of EChapman.com, Inc. consists of 50 million
shares of common stock, par value $0.001 per share.
COMMON STOCK
As of the date of this prospectus, there is one share of our common stock
issued and outstanding held of record by one stockholder. Following the
consummation of the mergers, 13,194,845 shares of our common stock will be
issued and outstanding, held of record by approximately 51 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 our common stock are entitled to receive ratably such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of a
dissolution, liquidation or winding-up of EChapman.com, 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.
INDEMNIFICATION
Our Charter provides that EChapman.com will indemnify our currently acting
and our former Directors and officers against any and all liabilities and
expenses incurred in connection with their services in such capacities to the
maximum extent permitted by the Maryland General Corporation Law, as from time
to time amended. If approved by the Board of Directors, EChapman.com may
indemnify our employees, agents and persons who serve or have served, at our
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. EChapman.com will
advance expenses to our directors and officers entitled to mandatory
indemnification to the maximum extent permitted by the Maryland General
Corporation Law and may in the discretion of the Board of Directors advance
expenses to employees, agents and others who may be granted indemnification.
Pursuant to the underwriting agreement, EChapman.com has agreed to indemnify
the underwriter and the underwriter has agreed to indemnify us and our
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 our agreement with the
qualified independent underwriter, EChapman.com has also agreed to indemnify
Ferris, Baker Watts, Incorporated for liabilities in connection with this
offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been informed that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Furthermore, our Charter provides that, to the fullest extent permitted by
the Maryland General Corporation Law (the "MGCL") as it may be amended from time
to time, no director or officer of EChapman.com shall be liable to EChapman.com
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 EChapman.com 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,
62
<PAGE>
or services for the amount of the benefit or profit in money, property or
services actually received, or (ii) to the extent that a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. In situations to which the Charter provision
applies, the remedies available to EChapman.com or its stockholders are limited
to equitable remedies such as injunction or rescission.
STATE ANTI-TAKEOVER PROVISIONS
BUSINESS COMBINATION LAW
The MGCL also imposes conditions and restrictions on certain "business
combinations" (including, among other various transactions, a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance of equity securities) between a Maryland corporation and any person
who beneficially owns at least 10% of the corporation's stock (an "Interested
Stockholder"). Unless approved in advance by the Board of Directors, or
otherwise exempted by the statute, such a business combination is prohibited for
a period of five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. After such five-year period, a
business combination with an Interested Stockholder must be: (a) recommended by
the corporation's Board of Directors; and (b) approved by the affirmative vote
of at least (i) 80% of the corporation's outstanding shares entitled to vote and
(ii) two-thirds of the outstanding shares entitled to vote which are not held by
the Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's common stockholders receive a
"fair price" (as defined in the statute) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for his shares. EChapman.com is subject to the provisions of this
statute; however, EChapman.com's Charter exempts Nathan A. Chapman, Jr., our
President and controlling stockholder, persons to whom Mr. Chapman directly
transfers his voting stock, and the respective affiliates and associates of
Mr. Chapman and such transferees.
CONTROL SHARE ACQUISITION LAW
Under the MGCL's control share acquisition law, voting rights of shares of
stock of a Maryland corporation acquired by an acquiring person at ownership
levels of 20%, 33 1/3% and 50% of the outstanding shares are denied unless
conferred by a special stockholder vote of two-thirds of the outstanding shares
held by persons other than the acquiring person, and officers of the corporation
and directors who are employees of the corporation or, among other exceptions,
such acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's charter or bylaws permit the acquisition of
such shares prior to the acquiring person's acquisition thereof. Unless a
corporation's charter or bylaws provide otherwise, the statute permits such
corporation to redeem the acquired shares at "fair value" if the voting rights
are not approved or if the acquiring person does not deliver a "control share
acquisition statement" to the corporation on or before the tenth day after the
control share acquisition. The acquiring person may demand a stockholders'
meeting to consider authorizing voting rights for control shares subject to
certain disclosure obligations and payment of certain costs. If voting rights
are approved for more than fifty percent of the outstanding stock, objecting
stockholders may have their shares appraised and repurchased by the corporation
for cash. EChapman.com is generally subject to the provisions of this statute;
however, EChapman.com's Charter exempts Nathan A. Chapman, Jr., our President
and controlling stockholder, persons to whom Mr. Chapman directly transfers any
shares of stock of EChapman.com, including transfers of voting rights or other
interests in any such stock, and the respective affiliates and associates of
Mr. Chapman and such transferees.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no trading market for the common
stock. Although we have applied for quotation of the common stock on the Nasdaq
National Market System, there can be no assurance that an active trading market
for the common stock will develop and, if developed, will continue after the
offering. Quotation of our common stock on the Nasdaq National Market System is
conditioned upon our 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 our common stock will trade in the public
market subsequent to this offering.
As of the date of the closing of this offering and after the consummation of
the mergers, EChapman.com will have 16,528,178. All shares acquired in this
offering, other than shares that may be acquired by our "affiliates" as defined
by Rule 144 under the Securities Act. In addition, the shares of EChapman.com
stock to be issued in the mergers will be registered under the Securities Act
and will be freely transferable under the Securities Act except for shares
issued to any person who is deemed to be an "affiliate" of EChapman.com, Chapman
Holdings or Chapman Capital Management Holdings. Shares of EChapman.com common
stock received by stockholders of Chapman Holdings or Chapman Capital Management
Holdings who are deemed to be affiliates of Chapman Holdings or Chapman Capital
Management Holdings at the time of the stockholder meetings to approve the
mergers may resell their shares only as permitted by Rule 145 under the
Securities Act or as otherwise permitted thereunder. Any person deemed to be an
affiliate of EChapman.com may resell their shares without registration only as
permitted by Rule 144 under the Securities Act, or pursuant to another exemption
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 our ability to raise capital through the sale of our equity securities.
On a pro forma as adjusted basis giving effect to the mergers and this
offering, as of September 30, 1999, Mr. Chapman beneficially owned 8,648,988
shares (8,568,988 shares if the underwriters exercise the over-allotment option
in full) of common stock or approximately 52.2% (51.4% if the underwriters
exercise the over-allotment option in full) of our outstanding common stock.
Except for the shares he may sell to the underwriter as part of the
over-allotment option, Mr. Chapman has agreed not to sell any shares of common
stock that he owns as of the date of this prospectus during the 180 days
following the closing of this offering except pursuant to the over-allotment
option. After the lock-up period, Mr. Chapman may resell his shares without
registration by complying with Rule 144 discussed below.
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including any of our affiliates, 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, our affiliate, 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.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), EChapman.com has agreed to sell to each of the
underwriters named below, for which The Chapman Co. is acting as Representative,
and each of the underwriters has severally agreed to purchase from EChapman.com,
the respective number of shares of common stock set forth opposite its name
below at the initial public offering price, less the underwriting discount set
forth on the cover page of this prospectus. The Underwriting Agreement provides
that, subject to the terms and conditions set forth therein, the underwriters
are obligated to purchase all of the shares of common stock being sold pursuant
to the Underwriting Agreement if any of the shares of common stock are
purchased. Under certain circumstances, under the Underwriting Agreement, the
commitments of non-defaulting underwriters may be increased.
<TABLE>
<CAPTION>
NUMBER OF FIRM
UNDERWRITERS SHARES TO BE PURCHASED
------------ ----------------------
<S> <C>
The Chapman Co...........................................
---------
Total................................................ 3,333,333
=========
</TABLE>
The Representative has advised EChapman.com that the underwriters propose
initially to offer the common stock to the public at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers which are
NASD dealers at such price less a concession not in excess of $
per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share of common stock on sales to certain
other dealers. The public offering price, discount and concession will not be
changed until after the offering has been completed.
Nathan A. Chapman, Jr., as selling stockholder, has granted the underwriters
an option to purchase up to an additional 80,000, and EChapman.com has granted
the underwriters an option to purchase up to an additional 120,000 shares of
common stock at the initial public offering price set forth on the cover page of
this prospectus, less the underwriting discount. Such option, which will expire
30 days after the date of this prospectus, may be exercised solely to cover
over-allotments, if any, made in connection with the sale of common stock
offered hereby. To the extent this option is not exercised in full, the shares
sold by EChapman.com pursuant to the option will be reduced. To the extent that
this option is exercised, each of the underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage
thereof which the number of shares of common stock to be purchased initially by
that underwriter bears to the total number of shares of common stock to be
purchased initially by all underwriters. If purchased, the underwriters will
offer such additional shares on the same terms as those on which the 3,333,333
shares of common stock are being offered hereby.
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. In accordance with this
requirement, Ferris, Baker Watts, Incorporated, has agreed to serve as qualified
independent underwriter and to recommend an initial public offering price for
the shares of our common stock. Ferris, Baker Watts, Incorporated has
participated in the preparation of the registration statement of which this
prospectus forms a part and has performed "due diligence" with respect thereto.
For acting as a qualified independent underwriter, Ferris, Baker Watts will
receive fees equal to 20% of the underwriting discount.
65
<PAGE>
In connection with the merger of Chapman Holdings into a subsidiary of
EChapman.com, Ferris, Baker Watts, Incorporated will deliver to Chapman Holdings
its written opinion that, as of the date of the merger, and based upon and
subject to the assumptions, limitations and qualifications set forth therein,
the consideration to be received by the holders of Chapman Holdings common stock
pursuant to the merger is fair, from a financial point of view. In connection
with rendering this opinion Ferris, Baker Watts, Incorporated in entitled to
receive a fee of $75,000.
Prior to this offering there has been no public market for our common stock.
The initial price to the public for the shares of our common stock has been
determined by negotiation between us and Ferris, Baker Watts, Incorporated. The
factors considered in determining the offering price were:
- prevailing market and economic conditions
- our revenue and earnings
- estimates of our business operations
- an assessment of our management
- the consideration of these factors in relation to the market valuation of
comparable companies in related businesses
- the current condition of the markets in which we operate
There can be no assurance, however, that the prices at which our common
stock will trade in the public market after this offering will not be lower than
the price at which it is sold by the underwriters.
All of the underwriters and Ferris, Baker Watts will be reimbursed for their
counsel fees and for their out-of-pocket expenses and will receive fees as
described above. In the underwriting agreement, we have agreed to indemnify the
underwriters (and their respective controlling persons) with respect to certain
liabilities, including liabilities under the Securities Act. In addition, we
have agreed to indemnify Ferris, Baker Watts, Incorporated against claims and
liabilities arising from its engagement as qualified independent underwriter,
including certain liabilities under the Securities Act.
The Representative has informed us that the underwriters do not intend to
confirm sales to any accounts over which any of them exercises discretionary
authority.
Mr. Chapman has agreed not to offer, pledge, sell, contract to sell, grant
any option for the sale of, otherwise dispose of the 8,648,988 shares of
EChapman.com (8,568,988 shares if the underwriters exercise the over-allotment
in full) that he owns for a period of 180 days following the closing of the
offering.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of our common
stock, including purchases of our common stock to stabilize the market price,
purchases of our common stock to cover some or all of a short position in the
common stock maintained by the underwriters and the imposition of penalty bids.
Such transactions may also include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which persons may bid for
or purchase common stock for the purpose of stabilizing its market price. Any of
the transactions described in this paragraph may result in the maintenance of
the price of our common stock at a level above that which might otherwise
prevail in the open market. Neither the Representative nor any of the
underwriters can make any prediction or representation as to the effect that any
such transactions may have on the price of our common stock. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time. Additionally, in connection
with this offering, the underwriters may engage in passive market making
transactions in our common stock on the Nasdaq National Market System in
accordance with Securities Act Rule 103 of Regulation M.
66
<PAGE>
The foregoing includes a summary of the principal terms of the underwriting
agreement and the agreement with the qualified independent underwriter and does
not purport to be complete. Reference is made to the foregoing documents which
are on file as exhibits to the registration statement of which this prospectus
is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is UMB Bank, N.A.
LEGAL MATTERS
The legality of the securities being offered in this prospectus has been
passed upon for EChapman.com by Venable, Baetjer and Howard, LLP. Whiteford,
Taylor & Preston L.L.P. has acted as counsel for the underwriter and the
qualified independent underwriter in connection with this offering.
EXPERTS
The audited financial statements 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
EChapman.com, Inc. has filed with the SEC in Washington, DC, a registration
statement under the Securities Act with respect to the shares of common stock
offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement, as some information is
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to EChapman.com, reference is made to the registration
statement, including the exhibits filed therewith, copies of which may be
obtained at prescribed rates from the SEC at the public reference facilities
maintained by the SEC at Judiciary Plaza Building, 450 Fifth Street, NW,
Washington, DC 20549. Descriptions contained in this prospectus as to the
contents of any contract or other documents filed as an exhibit to the
registration statement are not necessarily complete and each such description is
qualified by reference to such contract or document. The SEC maintains a website
on the Internet that will contain all future reports, proxy and information
statements and other information that EChapman.com is required to file
electronically with the SEC. The address of the SEC's website is
http://www.sec.gov.
EChapman.com will furnish to its stockholders annual reports containing
financial statements for each fiscal year audited by an independent accounting
firm.
67
<PAGE>
ECHAPMAN.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Index....................................................... F-1
CHAPMAN HOLDINGS, INC.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets of December 31,1998 and
September 30, 1999 (unaudited).......................... F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1998 and 1997, and for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)........... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998 and 1997 and for
the Nine Months Ended September 30, 1999 (unaudited).... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997, and for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)........... F-6
Notes to Financial Statements............................. F-7
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
Report of Independent Public Accountants.................. F-14
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited).......................... F-15
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997, and for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)........... F-16
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1998 and 1997 and for
the Nine Month Ended September 30, 1999 (unaudited)..... F-17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 and for the Nine Months ended
September 30, 1999 and 1998 (unaudited)................. F-18
Notes to Financial Statements............................. F-19
ECHAPMAN.COM, INC.
Balance Sheet as of May 14, 1999 and September 30, 1999
(unaudited)............................................. F-26
Statement of Operations from May 14, 1999 (inception) to
September 30, 1999 (unaudited).......................... F-27
Statement of Changes in Stockholders' Deficit for the
Period May 14, 1999 (inception) to September 30, 1999
(unaudited)............................................. F-28
Notes to Unaudited Financial Statements................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Chapman Holdings, Inc:
We have audited the accompanying consolidated balance sheet of Chapman
Holdings, Inc. and Subsidiaries (a Maryland corporation) as of December 31,
1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the two years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chapman
Holdings, Inc. and Subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the two years ended December 31, 1998
in conformity with generally accepted accounting principles.
Baltimore, Maryland,
February 22, 1999
F-2
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................. $ 3,090,000 $1,775,000
Cash deposits with clearing organization.................. 2,389,000 2,477,000
Investments............................................... 204,000 239,000
Securities owned.......................................... 2,080,000 1,813,000
Receivables from brokers and dealers...................... 331,000 576,000
Receivables from affiliates............................... 380,000 237,000
Income taxes receivable................................... 294,000 300,000
Advances to officer/employee.............................. 657,000 723,000
Fixed assets, net......................................... 38,000 95,000
Prepaids and other assets................................. 583,000 570,000
Intangible assets......................................... 145,000 113,000
Deferred tax asset........................................ 14,000 345,000
----------- ----------
Total assets............................................ $10,205,000 $9,263,000
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses..................... $ 261,000 $ 676,000
Margin loan payable....................................... 2,559,000 2,050,000
Accrued compensation...................................... 243,000 238,000
Deferred rent............................................. 78,000 45,000
----------- ----------
Total liabilities....................................... 3,141,000 3,009,000
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares
authorized,
2,953,622 shares issued and outstanding................. 3,000 3,000
Additional paid-in capital................................ 7,903,000 7,903,000
Accumulated deficit....................................... (842,000) (1,652,000)
----------- ----------
Total stockholders' equity.............................. 7,064,000 6,254,000
----------- ----------
Total liabilities and stockholders' equity.............. $10,205,000 $9,263,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------------
1998 1997 1999 1998
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Commissions..................................... $ 2,538,000 $2,612,000 $3,243,000 $1,909,000
Underwriting and management fees................ 700,000 325,000 554,000 376,000
Interest and dividends.......................... 335,000 55,000 163,000 247,000
(Loss) gain on trading.......................... (638,000) -- 246,000 (174,000)
----------- ---------- ---------- ----------
Total revenue............................... 2,935,000 2,992,000 4,206,000 2,358,000
----------- ---------- ---------- ----------
EXPENSE:
Compensation and benefits....................... 2,185,000 1,121,000 2,324,000 1,317,000
Floor brokerage and clearing fees............... 431,000 286,000 528,000 302,000
Communications.................................. 193,000 154,000 216,000 130,000
Occupancy, equipment rental, and depreciation... 460,000 356,000 489,000 331,000
Travel and business development................. 255,000 211,000 260,000 167,000
Professional fees............................... 416,000 103,000 656,000 192,000
Other operating expense......................... 611,000 270,000 874,000 326,000
----------- ---------- ---------- ----------
Total expense............................... 4,551,000 2,501,000 5,347,000 2,765,000
----------- ---------- ---------- ----------
(Loss) income from continuing operations
before income tax (benefit) provision..... (1,616,000) 491,000 (1,141,000) (407,000)
INCOME TAX BENEFIT (PROVISION).................... 485,000 (205,000) 331,000 102,000
----------- ---------- ---------- ----------
(Loss) income from continuing operations.... (1,131,000) 286,000 (810,000) (305,000)
INCOME FROM DISCONTINUED OPERATIONS, net of income
taxes of $40,000................................ -- 51,000 -- --
----------- ---------- ---------- ----------
Net (loss) income........................... $(1,131,000) $ 337,000 $ (810,000) $ (305,000)
=========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE DATA:........
Income from continuing operations............. $ (.40) $ 0.14 $ (.27) $ (0.11)
Income from discontinued operations........... -- 0.03 -- --
----------- ---------- ---------- ----------
Net (loss) income........................... $ (.40) $ 0.17 $ (.27) $ (0.11)
=========== ========== ========== ==========
Weighted average shares outstanding........... 2,793,000 2,002,000 2,954,000 2,744,000
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT) EQUITY
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996..................... $2,000 $1,309,000 $ (182,000) $ 1,129,000
Net income................................... -- -- 337,000 337,000
Purchase of 152,250 shares of stock.......... -- (217,000) -- (217,000)
Issuance of 196,594 shares of stock in
exchange for a stock warrant............... -- -- -- --
------ ---------- ----------- -----------
BALANCE, December 31, 1997..................... 2,000 1,092,000 155,000 1,249,000
Net loss..................................... -- -- (1,131,000) (1,131,000)
Accumulated deficit from discounted
operations................................. -- -- 134,000 134,000
Net proceeds from issuance of common stock... 1,000 6,811,000 -- 6,812,000
------ ---------- ----------- -----------
BALANCE, December 31, 1998..................... 3,000 7,903,000 (842,000) 7,064,000
Net loss..................................... -- -- (810,000) (810,000)
------ ---------- ----------- -----------
BALANCE, September 30, 1999
(Unaudited).................................. $3,000 $7,903,000 $(1,652,000) $ 6,254,000
====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) Income............................... $(1,131,000) $ 337,000 $ (810,000) $ (305,000)
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation and amortization expense......... 8,000 -- 38,000 --
Unrealized/realized loss on securities
owned....................................... 638,000 -- (246,000) 36,000
Deferred taxes................................ (122,000) -- (331,000) --
Effect from changes in assets and
liabilities--
Deposits with clearing organization......... (2,349,000) (5,000) (88,000) (1,599,000)
Receivables from brokers and dealers........ 54,000 (229,000) (245,000) (48,000)
Receivables from discontinued operations.... 801,000 (118,000) -- --
Receivables from affiliates................. (380,000) -- 143,000 801,000
Income tax receivable....................... (294,000) -- (6,000) --
Prepaids and other assets................... (495,000) (24,000) 13,000 (309,000)
Net assets from discontinued operations..... 6,000 113,000 -- 6,000
Accounts payable and accrued expenses....... 193,000 (24,000) 415,000 120,000
Accrued compensation........................ 174,000 (8,000) (5,000) 47,000
Deferred rent............................... (11,000) -- (33,000) (8,000)
Payable to affiliated partnership........... (10,000) (49,000) -- (5,000)
Income taxes payable........................ (98,000) 55,000 -- (131,000)
Net liability from discontinued
operations................................ -- (29,000) -- --
----------- ---------- ----------- -----------
Net cash (used in) provided by operating
activities............................ (3,016,000) 19,000 (1,155,000) (1,395,000)
----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment.................... (23,000) (10,000) (63,000) (4,000)
Purchase of Charles A. Bell..................... (220,000) -- -- --
Purchase of investments......................... (1,207,000) (12,000) (35,000) (69,000)
Proceeds from sale of investments............... 1,014,000 -- 4,000 --
Advances to officer/employee.................... (481,000) (66,000) (66,000) (448,000)
----------- ---------- ----------- -----------
Net cash used in investing activities... (917,000) (88,000) (160,000) (521,000)
----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock...... 7,715,000 -- -- 7,715,000
Issuance costs.................................. (903,000) -- -- (903,000)
Purchase of stock............................... -- (218,000) -- --
----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities............................ 6,812,000 (218,000) -- 6,812,000
----------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 2,879,000 (287,000) (1,315,000) 4,896,000
CASH AND CASH EQUIVALENTS, beginning of period.... 211,000 498,000 3,090,000 211,000
----------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period.......... $3,090,000 $ 211,000 $ 1,775,000 $ 5,107,000
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Chapman Holdings, Inc. (the "Company") provides securities brokerage and
investment banking services. The Company, during December 1997, became the
parent of a wholly-owned subsidiary, The Chapman Co. ("Chapman") and its two
subsidiaries, Chapman Capital Management, Inc. ("CCM") and Chapman Insurance
Agency, Incorporated ("CIA") pursuant to the merger of a newly formed
wholly-owned subsidiary of the Company into Chapman. CCM and CIA were spun off
from Chapman as part of the initial public offering ("IPO") on February 26,
1998.
The Company allocates compensation, benefits and other costs to CCM and CIA
on a proportional allocation cost method which management believes is
reasonable. Compensation and benefits are allocated based on management's
estimate of the percentage of time employees spend performing services for CCM
and CIA. Other costs, consisting of communications, occupancy and administrative
support, are allocated based on estimated usage by CCM and CIA.
BASIS OF PRESENTATION
The accompanying consolidated financial statements are presented on the
accrual basis of accounting in accordance with generally accepted accounting
principles. All significant intercompany balances have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The consolidated financial statements for the nine months ended
September 30, 1999 and 1998, are unaudited, but in the opinion of management,
such financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations, for the periods. The results of
operations presented in the accompanying consolidated financial statements are
not necessarily representative of operations for an entire year and because of
the nature of the Company's operations can be materially different between
periods.
Subsequent to September 30, 1999, the Company signed a merger agreement,
which is subject to stockholders approval and the completion of an initial
public stock offering of common stock by EChapman.com, among other things, to
merge into a wholly owned subsidiary of EChapman.com. This merger would result
in the Company, Chapman Capital Management Holdings Inc. and Chapman Insurance
Holdings Inc. becoming wholly-owned subsidiaries of EChapman.com. EChapman.com
is a newly formed corporation designed to bring these companies together and to
take advantage of the unique opportunities presented by the growth of the
Internet. EChapman.com is owned by the major stockholder of the Company.
This planned merger and the operations of EChapman.com after the merger, are
subject to certain risks. The negative impact from these risks could have
material adverse effects on the future results from operations and financial
position of the Company. These risk items include the fact that EChapman.com has
not launched a website and has no Internet-related operating history; the web
site must be designed, developed, hosted by a service provider and marketed;
EChapman.com must raise at
F-7
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
least $20 million from its planned public offering to complete this merger; the
EChapman.com brand must be successful in order for it to attract users,
advertisers and strategic partners; and the success of the "Domestic Emerging
Markets" strategy through the use of the Internet.
In July 1999, the Company borrowed $3,220,000 from Chapman Capital
Management Holdings, Inc., an affiliate, in connection with the Company's
participation in a municipal underwriting syndicate. The note was payable on
demand and accrued interest at the broker call rate. The note was paid in full
in September 1999.
ACQUISITION
The Company acquired all of the outstanding stock of Charles A. Bell (Bell),
a securities brokerage firm located in San Francisco, California, on
December 29, 1998, for approximately $391,200. The acquisition resulted in
recording approximately $145,000 of intangible assets from the purchase price
being in excess of the book value of Bell. The assets acquired consist of cash,
current assets, property and intangibles.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily consists of cash invested in the U.S.
Treasury Money Fund, a fund managed by Chapman Capital Management, Inc., an
affiliate.
INVESTMENTS
Investments as of December 31, 1998 and September 30, 1999, consist
primarily of certificates of deposit in which cost approximates market.
SECURITIES OWNED AND NOT YET PURCHASED
Securities owned consist of trading proprietary stock, which is carried at
market. The proprietary stock is primarily stock of Chapman Capital Management
Holdings, Inc. (CCMH), a company whose majority stockholder is also the majority
stockholder of the Company. Chapman is the market maker for the Company and CCMH
and, thus, holds their stock in inventory. As of December 31, 1998 and
September 30, 1999, Chapman held 116,000 and 121,000 shares of common stock of
the Company, respectively, with a market value of $580,000 and $681,000. The
proprietary stock was purchased on margin.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, receivables, investments, securities owned, advances,
accounts payable, accrued expenses and margin loan payable approximate fair
value.
EARNINGS PER SHARE
As of December 31, 1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share" (SFAS No. 128). Under SFAS
No. 128, a company must disclose basic earnings per share (the principal
difference being that common stock equivalents would not be considered in the
compilation of basic earnings per share) and diluted earnings per share. The
Company adopted this pronouncement which required restatement of all prior
periods presented.
F-8
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Earnings per share are based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period the calculation
is made. Common equivalent shares consist of shares issuable upon the exercise
of stock warrants, using the treasury stock method. The weighted average shares
outstanding for the years ended December 31, 1998 and 1997 and the nine months
ended September 30, 1999 and 1998, are 2,793,000, 2,002,000, 2,954,000 and
2,744,000, respectively. The options granted during 1998 are antidilutive and,
thus, are not required in the earnings per share calculation.
INTANGIBLE ASSETS
Intangible assets consist of a non-compete agreement of $75,000 being
amortized over 2 years and goodwill of $70,000 being amortized over 15 years.
These intangibles are related to the Bell acquisition.
SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, securities brokerage and investment
banking services. The Company came to this conclusion because the Company
operates in one regulatory environment and has only one management group that
manages the entire Company. Information on the Company's results are provided as
one segment to the key decision-maker to make decisions.
COMPREHENSIVE INCOME
The Company has adopted SFAS, No. 130, "Reporting Comprehensive Income" and
has determined that the Company does not have any comprehensive income
adjustments for the periods presented, and therefore, comprehensive income
equals net income.
REVENUE RECOGNITION
The Company records commission revenue, underwriting and management fees,
and related expenses on a trade date basis.
VOLATILITY OF BUSINESS
The Company's revenues and operating results may fluctuate from month to
month, quarter to quarter and year to year due to a combination of factors,
including the number of underwriting transactions in which the Company
participates, access to public markets for companies in which the Company has
invested as a principal, the level of institutional and retail brokerage
transactions, and expenses of establishing new business units. The Company's
revenues from an underwriting transaction are recorded only when the
underwritten security commences trading; accordingly, the timing of the
Company's recognition of revenue from a significant transaction can materially
affect the Company's operating results. As a result, the Company could
experience losses if demand for the above transactions declines faster than the
Company's ability to change its cost structure.
F-9
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OFFICE EQUIPMENT
Office equipment is depreciated using the straight-line method over the
estimated useful life of 3 to 5 years. As of December 31, 1998 and
September 30, 1999, accumulated depreciation was $8,000 and $14,000,
respectively.
TRANSACTIONS WITH CLEARING ORGANIZATION
The Company is required to have cash on deposit with its clearing agent for
general trading purposes. In addition, receivables from and payables to the
clearing organization arise from cash settlements on ordinary trading activity
and clearing expenses.
INCOME TAXES
The Company accounts for income taxes under the separate company liability
method, whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.
2. INITIAL PUBLIC OFFERING AND SPIN-OFF OF OPERATIONS:
On February 26, 1998, the Company consummated an initial public offering
(the Offering) of its Common Stock pursuant to which the Company received net
proceeds, after the offering costs, of approximately $6,812,000. Effective
February 26, 1998, concurrent with the Company's completed initial public
offering, the Company spun off two of its wholly-owned subsidiaries, CCM and
CIA.
3. CAPITAL STOCK:
The common stock activity included in the accompanying consolidated
financial statements has been restated to reflect the one-for-five share
exchange of stock related to the merger of Chapman into the Company during 1998.
As such, all share data related to Chapman prior to the merger has been restated
at the Company's stock conversion amounts.
4. COMMITMENTS AND CONTINGENCIES:
The Company has entered into an operating lease agreement for office
facilities which expires on October 15, 2000. Rent expense under this agreement
was $209,000 in 1998. The aggregate minimum future annual rental for the
following fiscal years ending December 31 is as follows:
<TABLE>
<S> <C>
1999, remaining............................................. $ 63,000
2000........................................................ 200,000
</TABLE>
In addition, a proportionate share of real estate taxes and building
expenses in excess of base year amounts are charged to the Company. This lease
agreement includes scheduled rent increases which are recognized on a
straight-line basis. As of December 31, 1998 and September 30, 1999, the Company
recorded $78,000 and $45,000, respectively, in deferred rent relating to this
straight-line basis of rent expense recognition.
The Company leases furniture and equipment from the Chapman Limited
Partnership I (the Partnership), an entity in which certain officers and
stockholders of the Company are partners. The lease requires monthly payments of
$9,846 and contains one year renewable terms, at the option of the
F-10
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
4. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Company, through September 2000, at which time the Company can purchase the
furniture and equipment at fair value. Rent expense under this lease agreement
was $118,000 in 1998 and 1997 and $102,000 for the nine months in 1999 and 1998.
The Company clears all transactions for its brokerage customers through its
clearing agent, which carries and clears all customer securities accounts. The
clearing agent also lends funds to the Company's brokerage customers through the
use of margin credit. These loans are made to customers on a secured basis, with
the clearing agent maintaining collateral in the form of saleable securities,
cash or cash equivalents. Pursuant to the terms of the agreement between the
Company and the clearing agent, in the event that customers fail to pay for
their purchases, to supply the securities that they have sold, or to repay funds
they have borrowed, and the clearing agent satisfies any customer obligations,
the Company would be obligated to indemnify the clearing agent for any resulting
losses. For the years ended December 31, 1998 and 1997 and the nine months ended
September 30, 1999 and 1998, the Company did not incur such losses.
Securities brokerage firms become parties to arbitrations brought by
dissatisfied customers in the general course of business. The Company has been
and is currently a party to such proceedings, none of which has resulted or
which management believes will result in any material liability.
5. INCOME TAXES:
A reconciliation of the statutory income taxes to the recorded income tax
(benefit) provision for the years ended December 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Statutory tax (at 35% rate)............................ $(566,000) $167,000
Effect of state income taxes........................... (79,000) 24,000
Effect of graduated tax rate........................... 120,000 --
Effect of permanent book to tax differences............ 40,000 14,000
--------- --------
Income tax (benefit) provision......................... $(485,000) $205,000
========= ========
</TABLE>
The components of the income tax (benefit) provision for the years ended
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Current................................................ $(363,000) $ 57,000
Deferred............................................... (122,000) 108,000
Discontinued operations................................ -- 40,000
--------- --------
Income tax (benefit) provision......................... $(485,000) $205,000
========= ========
</TABLE>
The Company's deferred income tax asset and liability as of December 31,
consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Deferred tax asset:
NOL carryforward..................................... $ 65,000 $ --
Deferred tax liability:
Other................................................ (51,000) (108,000)
-------- ---------
Net deferred tax asset (liability) recorded on the
consolidated balance sheets...................... $ 14,000 (108,000)
======== =========
</TABLE>
F-11
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
6. REGULATORY REQUIREMENTS:
Pursuant to the requirements of the Securities and Exchange Commission's
(SEC) Uniform Net Capital Rule (Rule 15c3-1), the Company is required to
maintain net capital, as defined, of not less than $100,000 and a ratio of
aggregate indebtedness to net capital, as defined, not to exceed 15 to 1. As of
December 31, 1998, the Company had excess net capital of $697,000 and a ratio of
aggregate indebtedness to net capital of .7 to 1.
The Company is subject to compliance with various SEC and National
Association of Securities Dealers, Inc. (NASD) regulations. Also, the NASD
periodically reviews the Company's records and procedures for compliance with
its requirements. Any acts of noncompliance may subject the Company to fines and
other punitive remedies and may significantly effect the Company's ability to
operate.
7. STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosure for the years ended December 31, 1998 and
1997 and the nine months ended September 30, 1998 and 1999, were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid--
Interest........................... $10,000 $ 9,000 $ 3,000 $ 66,000
Income taxes....................... 29,000 182,000 22,000 5,000
</TABLE>
8. EMPLOYEE SAVINGS PLAN:
The Company's Retirement Savings Plan, a 401(k) plan, provides participants
a mechanism for making contributions for retirement savings. Each participant
may make pre-tax and after-tax contributions based upon eligible compensation.
The Company may make discretionary contributions based on the participants'
compensation for the plan year. The Company elected not to contribute to the
plan for the years ended December 31, 1998 and 1997 and the nine months ended
September 30, 1999 and 1998.
9. OMNIBUS STOCK PLAN:
In March 1998, Chapman started an Omnibus Stock Plan (the Plan) to enable
selected management, employees, consultants and directors to acquire interest in
Chapman through ownership of common stock. The Plan has 150,000 shares of common
stock registered. On September 28, 1998, Chapman granted options for 43,900
shares of common stock at fair market value at the date of grant, which was
$9.50. The options vested on the grant date and have a three-year term. None of
those options had been exercised, expired or canceled as of September 30, 1999.
The Company accounts for its stock-based compensation plans as permitted by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," which allows
the Company to follow Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees" and recognize no
compensation cost for options granted at fair market prices. The Company has
computed, for pro forma disclosure purposes, the value of all compensatory
options granted during 1998, using the
F-12
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
9. OMNIBUS STOCK PLAN: (CONTINUED)
Black-Scholes option pricing model. The following assumptions were used for
grants for the year ended December 31, 1998:
<TABLE>
<S> <C>
Risk free interest rate..................................... 4.51%
Expected dividend yield..................................... 0.0%
Expected lives.............................................. 2 years
Expected volatility......................................... 59%
</TABLE>
Options were assumed to be exercised upon vesting for the purposes of this
valuation. Had compensation costs for compensatory options been determined
consistent with SFAS No. 123, the Company's pro forma net loss and earnings per
share information reflected on the accompanying consolidated statements of
operations would have been increased to the following "as adjusted" amount for
the year ended December 31, 1998:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $1,131,000
As adjusted............................................... 1,235,000
Basic earnings:
Per share--
As reported............................................. (.40)
As adjusted............................................. (.44)
</TABLE>
Weighted average fair value of options granted for the year ended
December 31, 1998, was $3.37. The value was calculated using the Black-Scholes
option pricing model.
10. RELATED PARTY TRANSACTIONS:
The Company served as the underwriter for DEM, Inc. (DEM), a registered
non-diversified closed-ended management investment company. CCM provided
investment advisory and administrative services to DEM under an investment
advisory and administrative services agreement which sets forth the services to
be provided and the fees to be charged. The Company purchased 69,000 shares of
DEM stock during 1998. During the fourth quarter of 1998, DEM was dissolved. The
Company recognized a $159,000 loss on trading due to this dissolution.
Listed below are fees and commissions earned from DEM for the year ended
December 31, 1997.
<TABLE>
<S> <C>
Included in continuing operations (underwriting fees)....... $432,000
Included in discontinued operations......................... 139,000
--------
$571,000
========
</TABLE>
As of December 31, 1998 and September 30, 1999, the Company had outstanding
advances to its majority stockholder of $640,000 and $601,000, respectively. The
advances to the majority stockholder are reflected in demand notes, which accrue
interest at 5.5% per annum.
F-13
<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, 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chapman
Capital Management Holdings, Inc. and Subsidiary as of December 31, 1998, and
the results of their operations and their cash flows for the two years ended
December 31, 1998, in conformity with generally accepted accounting principles.
Baltimore, Maryland
March 5, 1999
F-14
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $4,242,000 $3,103,000
Investments................................................. 150,000 267,000
Management fees receivable:
From proprietary funds.................................... 107,000 132,000
From individually managed accounts........................ 257,000 378,000
Receivables from affiliates................................. 120,000 227,000
Advances to officer......................................... 118,000 367,000
Fixed assets, net........................................... 21,000 56,000
Prepaids and other assets................................... 123,000 171,000
Intangible assets, net...................................... 465,000 294,000
Deferred tax asset.......................................... 45,000 209,000
---------- ----------
Total assets............................................ $5,648,000 $5,204,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $ 172,000 $ 309,000
Due to affiliated company................................... 285,000 202,000
Noncompete agreement obligation............................. 150,000 150,000
---------- ----------
Total liabilities....................................... 607,000 661,000
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares
authorized, 3,351,334 issued and outstanding............ 3,000 3,000
Additional paid-in capital................................ 5,239,000 5,239,000
Accumulated deficit....................................... (201,000) (699,000)
---------- ----------
Total stockholders' equity.............................. 5,041,000 4,543,000
---------- ----------
Total liabilities and stockholders' equity.............. $5,648,000 $5,204,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-15
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE NINE MONTH ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Investment management fees.................. $3,136,000 $2,284,000 $3,046,000 $2,344,000
Other income................................ 82,000 3,000 152,000 39,000
---------- ---------- ---------- ----------
Total revenue............................. 3,218,000 2,287,000 3,198,000 2,383,000
---------- ---------- ---------- ----------
OPERATING EXPENSE:
Management fees............................. 1,178,000 869,000 1,109,000 912,000
Compensation and benefits................... 857,000 595,000 836,000 499,000
General and administrative.................. 1,076,000 489,000 1,713,000 680,000
Interest expense............................ 26,000 14,000 6,000 26,000
Amortization and depreciation expense....... 232,000 232,000 196,000 174,000
---------- ---------- ---------- ----------
Total operating expense................... 3,369,000 2,199,000 3,860,000 2,291,000
---------- ---------- ---------- ----------
(Loss) income before income tax benefit
(provision)............................. (151,000) 88,000 (662,000) 92,000
INCOME TAX BENEFIT (PROVISION)................ 45,000 (40,000) 164,000 (33,000)
---------- ---------- ---------- ----------
Net (loss) income......................... $ (106,000) $ 48,000 $ (498,000) $ 59,000
========== ========== ========== ==========
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net (loss) income........................... $ (.04) $ .02 $ (.15) $ .02
========== ========== ========== ==========
Weighted Average Shares Outstanding........... 2,811,000 2,487,000 3,351,000 2,636,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-16
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID-IN ACCUMULATED (DEFICIT)
STOCK CAPITAL DEFICIT EQUITY
-------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996...................... $2,000 $ -- $(143,000) $ (141,000)
Net Income.................................... -- -- 48,000 48,000
------ ---------- --------- ----------
BALANCE, December 31, 1997...................... 2,000 -- (95,000) (93,000)
Proceeds from initial public offering......... 1,000 5,239,000 -- 5,240,000
Net loss...................................... -- -- (106,000) (106,000)
------ ---------- --------- ----------
BALANCE, December 31, 1998...................... 3,000 5,239,000 (201,000) 5,041,000
Net loss...................................... -- -- (498,000) (498,000)
------ ---------- --------- ----------
BALANCE, September 30, 1999
(Unaudited)................................... $3,000 $5,239,000 $(699,000) $4,543,000
====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-17
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................... $ (106,000) $ 48,000 $ (498,000) $ 59,000
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization............. 231,000 232,000 196,000 174,000
Unrealized gain on investments............ -- -- (17,000) --
Deferred tax asset........................ (45,000) -- (164,000) (66,000)
Effect of changes in assets and
liabilities-
Management fees receivable.............. (111,000) (71,000) (146,000) (43,000)
Receivable from affiliates.............. (84,000) (31,000) (107,000) (160,000)
Prepaids and other assets............... (114,000) (4,000) (48,000) (16,000)
Accounts payable and accrued expenses... 21,000 134,000 137,000 132,000
Due to affiliated company............... (516,000) 151,000 (83,000) (801,000)
Income taxes payable.................... (48,000) (134,000) -- (15,000)
Investment in affiliate................. -- -- -- 2,000
---------- ---------- ---------- ----------
Net cash (used in) provided by
operating activities................ (772,000) 325,000 (730,000) (734,000)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment................ (19,000) (5,000) (60,000) --
Sale of investments......................... 9,000 -- -- --
Purchase of investments..................... (150,000) -- (100,000) --
Advances to officer......................... (46,000) (84,000) (249,000) (44,000)
---------- ---------- ---------- ----------
Net cash used in investing
activities.......................... (206,000) (89,000) (409,000) (44,000)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering....... 6,053,000 -- -- 5,245,000
Issuance costs.............................. (814,000) -- -- --
Repayments of loan to officer............... (28,000) (85,000) -- (28,000)
Payment of noncompete agreement............. -- (150,000) -- --
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities................ 5,211,000 (235,000) -- 5,217,000
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 4,233,000 1,000 (1,139,000) 4,439,000
CASH AND CASH EQUIVALENTS, beginning of
year........................................ 9,000 8,000 4,242,000 9,000
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year........ $4,242,000 $ 9,000 $3,103,000 $4,448,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-18
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
1. ORGANIZATION:
Chapman Capital Management Holdings, Inc. is an investment advisory and
investment management company.
During February 1998, Chapman Capital Management, Inc. became the
wholly-owned subsidiary of Chapman Capital Holdings Management, Inc. ("CCMH,"
the "Company"), a newly formed corporation. CCMH was the wholly-owned subsidiary
of The Chapman Co. until it spun off from The Chapman Co. as part of the initial
public offering (IPO) of Chapman Holdings, Inc. on February 26, 1998.
The Chapman Co., an affiliated company 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. As of
December 31, 1998, and September 30, 1999, the Company owed The Chapman Co.
$285,000 and $202,000, respectively, for the costs of these services. The
Chapman Co. also pays for 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 and based on cost
sharing arrangements approved by the Board of Directors. These financial
statements may not necessarily be indicative of the financial results that would
have existed had the Company been operated as an 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. 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.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The consolidated financial statements for the nine months ended
September 30, 1999 and 1998, are unaudited, but in the opinion of management,
such financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations, for the periods.
The Company's operating results are significantly affected by the size of
the portfolio it manages. The results of operations presented in the
accompanying consolidated financial statements are not necessarily
representative of operations for an entire year and because of the nature of the
Company's operations can be materially different between periods.
Subsequent to September 30, 1999, the Company signed a merger agreement
which is subject to stockholders approval and the completion of an initial
public stock offering of common stock by EChapman.com, among other things, to
merge into a wholly owned subsidiary of EChapman.com. This merger would result
in the Company, Chapman Holdings Inc. and Chapman Insurance Holdings Inc.
F-19
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
becoming wholly-owned subsidiaries of EChapman.com. EChapman.com is a newly
formed corporation designed to bring these companies together and to take
advantage of the unique opportunities presented by the growth of the Internet.
EChapman.com is owed by the major stockholder of the Company.
This planned merger and the operations of EChapman.com after the merger are
subject to certain risks. The negative impact from these risks could have
material adverse effects on the future results from operations and financial
position of the Company. These risk items include the fact that EChapman.com has
not launched a website and has no Internet-related operating history; the web
site must be designed, developed, hosted by a service provider and marketed;
EChapman.com must raise at least $20 million from its planned public offering to
complete this merger; the EChapman.com brand must be successful in order for it
to attract users, advertisers and strategic partners; and the success of the
"Domestic Emerging Markets" strategy through the use of the Internet.
In June 1999, one of the four participants in the Company's DEM-MET Trust
decided to withdraw the entire amount of their funds totaling approximately
$11.4 million, or approximately 3.7%, of the total assets managed by the DEM-MET
Trust.
During June 1999, the Company was notified that two of its clients,
accounting for 6.3% and 2.5% of the Company's total revenues respectively, were
withdrawing portions of each of their separate accounts managed by the Company.
The amounts withdrawn, effective June 30, 1999, collectively totaled $66.5
million, or 10.3% of the Company's assets under management as of June 30, 1999.
On July 29, 1999, the Company made a loan of $3,220,000 to Chapman
Holdings, Inc., an affiliate of the Company ("Chapman Holdings"). The loan was
issued pursuant to a demand note that required Chapman Holdings to repay the
amount of the loan upon the Company's demand and with interest due equal to the
broker call rate. Chapman Holdings repaid this loan in full in September 1999.
On July 29, 1999, the Company also advanced the President of the Company
$242,000 pursuant to an unsecured demand note bearing interest at 5.45% per
annum.
The Company agreed to waive certain investment management fees with funds
its has sponsored. It has waived these fees by having its investment management
fee limited to a certain percentage of the average daily net asset balance in
the fund.
ACQUISITION
In December 1996, the Company acquired DEM-MET, a tax-exempt pooled interest
trust for qualified employee benefit plans. As part of the acquisition of this
trust, the Company entered into a noncompete agreement for $300,000 and paid
$640,000 in costs related to acquiring the trust. These amounts are included in
intangible assets (see Note 4).
During the years ended December 31, 1998 and 1997, and the nine months ended
September 30, 1999 and 1998, the Company paid Bankers Trust management fees for
managing the trust. Those fees are included in management fees in the
accompanying statements of operations for the years ended December 31, 1998 and
1997, and the nine months ended September 30, 1999 and 1998.
F-20
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents as of December 31, 1998, and
September 30, 1999, is $4,046,000 and $3,030,000, respectively, of cash invested
in the Chapman U.S. Treasury Money Fund, a fund managed by Chapman Capital
Management, Inc.
INVESTMENTS
Investments consist of common stock ownership in an investment company which
cost approximates market value.
OFFICE EQUIPMENT
Office equipment is depreciated using the straight-line method over the
estimated useful life of 3 to 5 years. As of December 31, 1998 and
September 30, 1999, accumulated depreciation was $10,000 and $35,000,
respectively.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet for cash,
investments, receivables, accounts payable and accrued expenses approximate fair
value.
EARNINGS PER SHARE
As of December 31, 1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share" (SFAS No. 128). Under SFAS
No. 128, a company must disclose basic earnings per share (the principal
difference being that common stock equivalence would not be considered in the
compilation of basic earnings per share) and diluted earnings per share. The
Company adopted this pronouncement which required restatement of all prior
periods presented.
Earnings per share are based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period the calculation
is made. Common equivalent shares consist of shares issuable upon the exercise
of stock warrants, using the treasury stock method. The weighted average shares
outstanding for the years ended December 31, 1998 and 1997, and the nine months
ended September 30, 1999 and 1998, are 2,811,000, 2,487,000, 3,351,000 and
2,636,000, respectively.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, investment advisory and investment
management services. The Company came to this conclusion because the Company
operates in one regulatory environment and has only one management group that
manages the entire Company. Information on the Company's operating results are
provided as one segment to the key decision-maker to make decisions.
F-21
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income" and
has determined that the Company does not have any comprehensive income
adjustments for the periods presented, and therefore, comprehensive income
equals net income.
INCOME TAXES
The Company accounts for income taxes under the separate company liability
method, whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.
Prior to the Company being spun off from its Parent, the Company was
included in the consolidated Federal income tax return of its Parent on a cash
basis. The Parent allocated Federal tax expense to the Company based on its
portion of consolidated taxable income and its taxes on that income if the
Company were taxed on a stand-alone basis.
RECLASSIFICATIONS
Certain reclassifications have been made to 1997 financial statements to
conform to 1998 financial statement presentation.
3. INITIAL PUBLIC OFFERING:
On August 14, 1998, the Company consummated an initial public offering (the
Offering) of its common stock, pursuant to which the Company sold 864,791 shares
and received net proceeds, after offering costs, of approximately $5,240,000.
4. INTANGIBLE ASSETS:
Intangible assets consists of a noncompete agreement and acquisition costs
(see Note 2). The $300,000 noncompete agreement is being amortized over
3 years, the term of the agreement. The $640,000 in acquisition costs is being
amortized over 5 years. The noncompete agreement will be paid in two equal
installments, payable on demand. Accumulated amortization as of December 31,
1998 and September 30, 1999, is $475,000 and $646,000, respectively.
5. COMMON STOCK:
During 1998, 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.
6. 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
F-22
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (CONTINUED)
6. TRANSACTIONS WITH AFFILIATES: (CONTINUED)
expenses and to the extent that any Funds' expenses exceed specified
limitations. Included in the accompanying statements of operations for the years
ended December 31, 1998 and 1997 and the nine months ended September 30, 1999
and 1998, are advisory management fees related to The Chapman Funds totaling
$260,000, $145,000, $353,000 and $100,000, respectively.
The Company provided 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. During
the fourth quarter of 1998, DEM was dissolved. Included in the accompanying
statements of operations for the years ended December 31, 1998 and 1997 and the
nine months ended September 30, 1999 and 1998, is an advisory management fee
related to DEM totaling $150,000, $139,000, $-0- and $149,000, respectively.
Included in management fees receivable as of December 31, 1998, and
September 30, 1999, is $107,000 and $132,000, respectively, due from proprietary
funds for services provided under the above described agreement.
Included in receivables from affiliates as of December 31, 1998, and
September 30, 1999, is $32,000 and $26,000, respectively, due from Chapman
Insurance Agency ("CIA") for expenses paid on their behalf. Also included in
receivables from affiliates as of December 31, 1998, is $88,000 due from newly
created funds using the DEM strategy. The receivable from these new funds
represents reimbursement of start-up costs paid on their behalf. As of
September 30, 1999, the $88,000 receivable was written off as the Company
believed this receivable was no longer realizable.
As of December 31, 1998 and September 30, 1999, the Company had outstanding
advances to the majority stockholder of the Company of $118,000 and $367,000,
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 Chapman Co. 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 $59,000, $39,000, $45,000
and $30,000 in lease expense for the years ended December 31, 1998 and 1997, and
the nine months ended September 30, 1999 and 1998, respectively. These amounts
are included in other operating expenses in the statements of operations for the
years ended December 31, 1998 and 1997, and the nine months ended September 30,
1999 and 1998, respectively.
F-23
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (CONTINUED)
7. INCOME TAXES:
A reconciliation of the statutory income taxes to the recorded income tax
(benefit) provision for the years ended December 31, 1998 and 1997, is as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Statutory tax (at 35% rate)................................. $(53,000) $31,000
Effect of state income taxes................................ (8,000) 4,000
Effect of graduated tax rate................................ 6,000 --
Effect of permanent book to tax differences................. 10,000 5,000
-------- -------
Income tax (benefit) provision.............................. $(45,000) $40,000
======== =======
</TABLE>
The components of the income tax (benefit) provision for the years ended
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current..................................................... $ -- $40,000
Deferred.................................................... (45,000) --
-------- -------
Income tax (benefit) provision.............................. $(45,000) $40,000
======== =======
</TABLE>
The Company's deferred income tax assets as of December 31, 1998, consists
of the following:
<TABLE>
<S> <C>
Deferred tax asset:
NOL carryforward.......................................... $25,000
Other..................................................... 20,000
-------
Net deferred tax asset recorded on the consolidated
balance sheet........................................ $45,000
=======
</TABLE>
8. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosures for the years ended December 31, 1998 and
1997 and the nine months ended September 30, 1998 and 1999, were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------------
(UNAUDITED)
1998 1997 1998 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Cash paid for:
Interest...................................... $ 25,000 $ 5,000 $25,000 $6,000
Income taxes.................................. 114,000 174,000 -- --
</TABLE>
9. CONCENTRATION OF CREDIT RISKS:
One client accounted for 59% of the Company's advisory and administrative
fees during the year ended December 31, 1998. Two clients accounted for 72% of
the Company's advisory and administrative fees for the year ended December 31,
1997. As of December 31, 1998, receivables due from this client were $68,000.
F-24
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (CONTINUED)
10. STOCK OPTIONS PLANS:
In 1998, the Company established the Chapman Capital Management
Holdings, Inc. Omnibus Stock Plan (the Plan) to enable the Company to grant
stock options 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. On May 14, 1999, there were 24,000 stock
options issued at a stock price range of $8.38 to $9.22 per share. These options
expire over a three-year period and vest immediately. The common stock
equivalents of these options was not included in the diluted earnings per share
as the stock options are antidilutive.
F-25
<PAGE>
EChapman.com
BALANCE SHEETS
AS OF MAY 14, 1999 AND SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER
MAY 14, 30,
1999 1999
---------- ---------
<S> <C> <C>
ASSETS:
Prepaids and other assets................................. $ -- $ 18,000
-------- --------
Total assets............................................ $ -- $ 18,000
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT:
Accounts payable and accrued expenses..................... $ -- $238,000
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, $.001 par value, 50,000,000 shares
authorized, 1 share issued and outstanding.............. -- --
Accumulated deficit....................................... -- (220,000)
-------- --------
Total stockholder's deficit............................. -- (220,000)
-------- --------
Total liabilities and stockholder's deficit............. $ -- $ 18,000
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-26
<PAGE>
ECHAPMAN.COM
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 14, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1999
---------
<S> <C>
REVENUE..................................................... $ --
---------
EXPENSE:
Compensation and benefits................................. 89,000
Other operating expense................................... 131,000
---------
Total expense........................................... 220,000
---------
Loss before income tax.................................. (220,000)
INCOME TAX.................................................. --
---------
Net loss................................................ $(220,000)
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
ECHAPMAN.COM
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE PERIOD MAY 14, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL STOCKHOLDER'S
COMMON STOCK ACCUMULATED DEFICIT DEFICIT
------------ ------------------- -------------------
<S> <C> <C> <C>
May 14, 1999.................................. $ -- $ -- $ --
Net loss for the period....................... -- (220,000)
--------- --------- ---------
September 30, 1999............................ $ -- $(220,000) $(220,000)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-28
<PAGE>
ECHAPMAN.COM
NOTE TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
EChapman.com (the Company) was formed on May 14, 1999. The Company was
formed to acquire the existing businesses of Chapman Holdings, Inc., Chapman
Capital Management Holdings, Inc., and Chapman Insurance Holdings, Inc., (the
majority stockholder of these 3 companies is the sole stockholder of the
Company) and to take advantage of the opportunities presented by the growth in
the Internet. The Company's web site, EChapman.com, is currently under
development. The web site will offer both financial services and a variety of
lifestyle, educational and cultural content selected to appeal particularly to
African-Americans, Asian-Americans, Hispanic-Americans and women. These groups
are collectively referred to as Domestic Emerging Markets (DEM). The Company is
planning an initial public offering to sell 3,333,333 shares of common stock.
The proceeds will be used to complete the design and development of the web
site, to promote eChapman.com and the DEM strategy, and for working capital to
support planned growth of the Company and other general corporate expenses.
The Company did not have any operations, except for organizational matters,
up until June 30, 1999. The operations of the Company since July 1, 1999, mainly
include costs incurred for salary and benefit expenses and professional fees
related to organizing the Company and designing and developing its web site. As
of September 30, 1999, the Company has not recorded a tax benefit related to its
loss.
The financial statements for the period from May 14, 1999 (inception) to
September 30, 1999 are unaudited. As permitted under the applicable rules and
regulations of the Securities and Exchange Commission, these financial
statements do not include all disclosures normally included with audited
financial statements. The results of operations presented in the accompanying
financial statements are not necessarily representative of operations for an
entire year and because of the nature of the Company's operations can be
materially different between periods.
Subsequent to September 30, 1999, the Company signed a merger agreement to
acquire Chapman Holdings, Inc., Chapman Capital Management Holdings, Inc., and
Chapman Insurance Holdings, Inc.
The operations of the company are subject to certain risks. The negative
impact from these risks could have material adverse effects on the future
results from operations and financial position of the Company. These risk items
include the fact that EChapman.com has no Internet-related operating history;
the web site must be designed, developed, hosted by a service provider and
marketed; EChapman.com must raise at least $20 million from its planned public
offering to complete the mergers; the EChapman.com brand must be successful in
order for it to attract users, advertisers and strategic partners; and the
success of the "Domestic Emerging Markets" strategy through the use of the
Internet.
F-29
<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........................... 11
Use of Proceeds........................ 23
Dilution............................... 24
Capitalization......................... 25
Dividend Policy........................ 25
Selected Historical and Pro Forma
Financial Data....................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 30
The Mergers............................ 37
Business............................... 39
Management............................. 56
Principal and Selling Stockholders..... 59
Certain Transactions................... 60
Description of Capital Stock........... 62
Shares Eligible for Future Sale........ 64
Underwriting........................... 65
Transfer Agent and Registrar........... 67
Legal Matters.......................... 67
Experts................................ 67
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 2000 (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.
3,333,333 SHARES
[LOGO]
ECHAPMAN.COM, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
THE CHAPMAN CO.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 EChapman.com, see "Management," "Certain
Transactions" and "Principal Stockholders."
EChapman.com 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.
The Chapman Co., has informed EChapman.com 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.
<PAGE>
[ALTERNATE LANGUAGE FOR MARKET MAKING PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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........................... 11
Use of Proceeds........................ 23
Dilution............................... 24
Capitalization......................... 25
Dividend Policy........................ 25
Selected Historical and Pro Forma
Financial Data....................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 30
The Mergers............................ 37
Business............................... 39
Management............................. 56
Principal and Selling Stockholders..... 59
Certain Transactions................... 60
Description of Capital Stock........... 62
Shares Eligible for Future Sale........ 64
Plan of Distribution................... 65
Transfer Agent and Registrar........... 67
Legal Matters.......................... 67
Experts................................ 67
Index to Financial Statements.......... F-1
</TABLE>
[LOGO]
ECHAPMAN.COM, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
THE CHAPMAN CO.
[ ], 2000
<PAGE>
- -------------------------------------------
- -------------------------------------------
<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
II-1
<PAGE>
may in the discretion of the Board of Directors advance expenses to employees,
agents and others who may be granted indemnification.
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 Agreement filed as Exhibit 1.1 to the
registration statement and the Qualified Independent Underwriter Agreement filed
as Exhibit 1.2 to the registration statement, the Company has agreed to
indemnify the Underwriter and the QIU, respectively, and their 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in the registration statement (other than the underwriting
discount and commissions and reasonable expense allowance) will be as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,000
NASD filing fee............................................. 6,154
Nasdaq National Market System listing fee................... 95,000
Printing and engraving expenses............................. 150,000
Accounting fees and expenses................................ 200,000
Legal fees and expenses (including Blue Sky)................ 400,000
Miscellaneous............................................... 133,846
----------
Total..................................................... $1,000,000
</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 November 12, 1999, in connection with the organization of the Company,
the Company issued one share of Common Stock, to Nathan A. Chapman, Jr. for $1.
This transaction was exempt from registration under the Securities Act under
Section 4(2) because it did not involve a public offering. Such transaction was
completed without an underwriter.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of the registration statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement between the Company and The
Chapman Co. (To be filed by amendment)
1.2 Form of Qualified Independent Underwriter Agreement between
the Company and Ferris, Baker Watts, Incorporated (To be
filed by amendment)
1.3 Form of Master Agreement Among Underwriters among The
Chapman Co. and the several Underwriters (To be filed by
amendment)
3.1 Articles of Amendment and Restatement of the Company (Filed
herewith)
3.2 Bylaws of the Company (Filed herewith)
4 Form of common stock Certificate (Filed herewith)
5 Opinion of Venable, Baetjer and Howard, LLP (To be filed by
amendment)
10.1 EChapman.com, Inc. 1999 Omnibus Stock Option Plan (Filed
herewith)
10.2 Service Mark License Agreement between the Company and
Nathan A. Chapman, Jr. dated November 12, 1999 (Filed
herewith)
10.3 Agreement and Plan of Merger by and among the Company, CHI
Merger Subsidiary, Inc. and Chapman Holdings, Inc. dated
November 15, 1999 (Filed herewith)
10.4 Agreement and Plan of Merger by and among the Company, CCMHI
Merger Subsidiary, Inc. and Chapman Capital Management, Inc.
dated November 15, 1999 (Filed herewith)
10.5 Agreement and Plan of Merger by and among the Company, CIH
Merger Subsidiary, Inc. and Chapman Insurance Holdings, Inc.
dated November 15, 1999 (Filed herewith)
10.6 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Holdings, Inc.) (Filed
herewith)
10.7 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Capital Management
Holdings, Inc.) (Filed herewith)
10.8 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Insurance Holdings)
(Filed herewith)
10.9 Fully Disclosed Clearing Agreement between the Pershing
Division, Donaldson, Lufkin & Jenrette Securities
Corporation and The Chapman Co. dated March 16, 1999 (Filed
herewith)
10.10 $106,922 Promissory Note to The Chapman Co. from Nathan A.
Chapman, Jr. dated December 31, 1996 (Filed as Exhibit 10.1
to Chapman Holdings, Inc.'s Registration Statement on Form
SB-2 (File No. 333-43487) as filed with the Securities and
Exchange Commission on December 30, 1997 and hereby
incorporated by reference)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.11 Distribution Agreement between The Chapman Co. and The
Chapman Funds, Inc. on behalf of The Chapman U.S. Treasury
Money Fund and The Chapman Institutional Cash Management
Fund dated April 30, 1997 (Filed as Exhibit 5(A) to
Post-Effective Amendment No. 13 to The Chapman Funds, Inc.'s
Registration Statement on Form N-1A (File Nos.
33-25716;811-5697) as filed with the Securities and Exchange
Commission on August 7, 1997 and hereby incorporated by
reference)
10.12 Distribution Agreement between The Chapman Co. and The
Chapman Funds, Inc. on behalf of the DEM Equity Fund dated
October 28, 1997 (Filed as Exhibit 5(B) to Post-Effective
Amendment No. 15 to The Chapman Funds, Inc.'s Registration
Statement on Form N-1A (File No. 33-25716;811-5697) as filed
with the Securities and Exchange Commission on March 2, 1998
and hereby incorporated by reference)
10.13 Distribution Agreement between The Chapman Co. and The
Chapman Funds, Inc. on behalf of the DEM Index Fund dated
October 28, 1997 (Filed as Exhibit 5(C) to Post-Effective
Amendment No. 16 to The Chapman Funds, Inc.'s Registration
Statement on Form N-1A (File Nos. 33-25716;811-5697) as
filed with the Securities and Exchange Commission on May 29,
1998 and hereby incorporated by reference.)
10.14 Distribution Agreement between The Chapman Co. and The
Chapman Funds, Inc. on behalf of the DEM Fixed Income Fund
dated February 11, 1998 (Filed as Exhibit 5(D) to
Post-Effective Amendment No. 17 to The Chapman Funds, Inc.'s
Registration Statement on Form N-1A (File Nos.
33-25716;811-5697) as filed with the Securities and Exchange
Commission on June 12, 1998 and hereby incorporated by
reference.)
10.15 Distribution Agreement between The Chapman Co. and The
Chapman Funds, Inc. on behalf of the DEM Multi-Manager
Equity Fund dated February 11, 1998 (Filed as Exhibit 5(E)
to Post-Effective Amendment No. 18 to The Chapman Fund,
Inc.'s Registration Statement on Form N-1A (File Nos.
33-25716;811-5697) as filed with the Securities and Exchange
Commission on September 30, 1998 and hereby incorporated by
reference.)
10.16 Distribution Agreement between The Chapman Co. and The
Chapman Funds, Inc. on behalf of the DEM Multi-Manager Bond
Fund dated February 11, 1998 (Filed as Exhibit 5(F) to
Post-Effective Amendment No. 21 to The Chapman Funds, Inc.'s
Registration Statement on Form N-1A (File Nos.
33-25716;811-5697) as filed with the Securities and Exchange
Commission on July 15, 1999 and hereby incorporated by
reference.)
10.17 Equipment Lease Agreement between The Chapman Co. and
Chapman Limited Partnership dated October 1, 1993 (Filed as
Exhibit 10.7 to Chapman Holdings, Inc.'s Registration
Statement on Form SB-2 (File No. 333-43487) as filed with
the Securities and Exchange Commission on December 30, 1997
and hereby incorporated by reference)
10.18 Trademark Assignment from The Chapman Co. to Nathan A.
Chapman, Jr. dated December 24, 1997 (Filed as Exhibit 10.8
to Chapman Holdings, Inc.'s Registration Statement on Form
SB-2 (File No. 333-43487) as filed with the Securities and
Exchange Commission on December 30, 1997 and hereby
incorporated by reference)
10.19 Trademark Assignment from The Chapman Co. to Nathan A.
Chapman, Jr. dated December 24, 1997 (Filed as Exhibit 10.9
to Chapman Holdings, Inc.'s Registration Statement on Form
SB-2 (File No. 33343487) as filed with the Securities and
Exchange Commission on December 30, 1997 and hereby
incorporated by reference)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.20 License Agreement between The Chapman Co. and Nathan A.
Chapman, Jr. dated December 26, 1997 (Filed as Exhibit 10.10
to Chapman Holdings, Inc.'s Registration Statement on Form
SB-2 (File 333-43487) as filed with the Securities and
Exchange Commission on December 30, 1997 and hereby
incorporated by reference)
10.21 $763,367 Promissory Note to The Chapman Co. from Chapman
Capital Management dated October 31, 1997 (Filed as Exhibit
10.11 to Pre-Effective Amendment No. 1 to Chapman Holdings,
Inc.'s Registration Statement on Form SB-2 (File No.
333-43487) as filed with the Securities and Exchange
Commission on February 17, 1998 and hereby incorporated by
reference)
10.22 $176,250 Promissory Note to The Chapman Co. from Nathan A.
Chapman, Jr. dated February 11, 1998 (Filed as Exhibit 10.13
to Pre-Effective Amendment No. 1 to Chapman Holdings, Inc.'s
Registration Statement on Form SB-2 (File No. 333-43487) as
filed with the Securities and Exchange Commission on
February 17, 1998 and hereby incorporated by reference)
10.23 $100,000 Promissory Note to Chapman Holdings, Inc. from
Nathan A. Chapman, Jr. dated May 1, 1998 (Filed as Exhibit
10.1 to Chapman Holding's Quarterly Report on Form 10Q-SB
(File No. 0-23587) as filed with the Securities and Exchange
Commission on November 16, 1998 and hereby incorporated by
reference)
10.24 $285,587.34 Promissory Note to Chapman Holdings, Inc. from
Nathan A. Chapman, Jr. dated March 11, 1998 (Filed as
Exhibit 10.2 to Chapman Holding, Inc.'s Quarterly Report on
Form 10Q-SB as filed with the Securities and Exchange
Commission on November 16, 1998 and hereby incorporated by
reference)
10.25 $51,690 Promissory Note to Chapman Holdings, Inc. from
Nathan A. Chapman, Jr. dated December 31, 1998 (Filed as
Exhibit 10.17 to Post-Effective Amendment No. 2 to Chapman
Holdings, Inc.'s Registration Statement on Form SB-2 (File
No. 333-48419) as filed with the Securities and Exchange
Commission on March 18, 1999 and hereby incorporated by
reference)
10.26 Agreement between Chapman Holdings, Inc. and Chapman Capital
Management Holdings, Inc. as to Allocation of Shared
Expenses dated as of January 1, 1999 (Filed as Exhibit 10.1
to Chapman Holdings, Inc.'s Quarterly Report on Form 10Q-SB
(File No. 0-23587) as filed with the Securities and Exchange
Commission on May 17, 1999 and hereby incorporated by
reference)
10.27 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and The Chapman Funds, Inc.
on behalf of The Chapman U.S. Treasury Money Fund and The
Chapman Institutional Management Fund dated April 20, 1997
(Filed as Exhibit 4(A) to Post-Effective Amendment No. 13 to
The Chapman Funds, Inc.'s Registration Statement on Form
N-1A (file Nos. 33-25716;811-5697) as filed with the
Securities and Exchange Commission on August 7, 1997 and
hereby incorporated by reference)
10.28 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and The Chapman Funds, Inc.
on behalf of the DEM Equity Fund dated October 28, 1997
(Filed as Exhibit 4(B) to Post-Effective Amendment No. 15 to
The Chapman Funds, Inc.'s Registration Statement on Form
N-1A (File No. 33-25716;811-5697) as filed with the
Securities and Exchange Commission on March 2, 1998 and
hereby incorporated by reference)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.29 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and The Chapman Funds, Inc.
on behalf of the DEM Index Fund dated October 28, 1997
(Filed as Exhibit 4(C) to Post-Effective Amendment No. 16 to
The Chapman Funds, Inc.'s Registration Statement on Form
N-1A (File Nos. 33-25716;811-5697) as filed with the
Securities and Exchange Commission on May 29, 1998 and
hereby incorporated by reference.)
10.30 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and The Chapman Funds, Inc.
on behalf of the DEM Fixed Income Fund dated February 11,
1998 (Filed as Exhibit 4(D) to Post-Effective Amendment No.
17 to The Chapman Funds, Inc.'s Registration Statement on
Form N-1A (File Nos. 33-25716;811-5697) as filed with the
Securities and Exchange Commission on June 12, 1998 and
hereby incorporated by reference.)
10.31 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and The Chapman Funds, Inc.
on behalf of the DEM Multi-Manager Equity Fund dated October
23, 1999 (Filed as Exhibit 4(E) to Post-Effective Amendment
No. 18 to The Chapman Funds, Inc.'s Registration Statement
on Form N-1A (File Nos. 33-25716;811-5697) as filed with the
Securities and Exchange Commission on September 30, 1998 and
hereby incorporated by reference.)
10.32 Advisory and Administrative Services Agreement between
Chapman Capital Management, Inc. and the Chapman Funds, Inc.
on behalf of the DEM Multi-Manager Bond Fund dated October
23, 1998 (Filed as Exhibit 4(F) to Post-Effective Amendment
No. 21 to The Chapman Funds, Inc.'s Registration Statement
on Form N-1A (File Nos. 33-25716;811-5697) as filed with the
Securities and Exchange Commission on July 15, 1999 and
hereby incorporated by reference.)
10.33 Advisory Agreement for Separate Account dated June 1, 1995
(Filed as Exhibit 10.5 to Amendment No. 2 to Chapman Capital
Management Holdings, Inc.'s Registration Statement on From
SB-2 (File No. 333-51883) as filed with the Securities and
Exchange Commission on June 22, 1998 and hereby incorporated
by reference)
10.34 Agreement & Declaration of Trust between Chapman Capital
Management, Inc. and Bankers Trust Company dated November 1,
1996 (Filed as Exhibit 10.6 to Chapman Capital Management
Holding's Registration Statement on Form SB-2 (File No.
333-51883) as filed with the Securities and Exchange
Commission on May 5, 1998 and hereby incorporated by
reference)
10.35 Agreement between Bankers Trust Company and Chapman Capital
Management, Inc. dated November 1, 1996 (Filed as Exhibit
10.7 to Chapman Capital Management Holding's Registration
Statement on Form SB-2 (File No. 333-51883) as filed with
the Securities and Exchange Commission on May 5, 1998 and
hereby incorporated by reference)
10.36 Agreement between Bankers Trust Company and Chapman Capital
Management and Tremont Partners, Inc. and Stamberg Prestia,
Ltd. dated November 1, 1996 (Filed as Exhibit 10.8 to
Chapman Capital Management Holding's Registration Statement
on Form SB-2 (File No. 333-51883) as filed with the
Securities and Exchange Commission on May 5, 1998 and hereby
incorporated by reference)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.37 Service Mark License Agreement between Chapman Capital
Management Holdings, Inc., Chapman Capital Management, Inc.
and Nathan A. Chapman, Jr. dated as of June 9, 1998 Filed as
Exhibit 10.10 to Amendment No. 2 to Chapman Capital
Management Holdings, Inc.'s Registration Statement on Form
SB-2 (File No. 333-51883) as filed with the Securities and
Exchange Commission on June 22, 1998 and hereby incorporated
by reference)
10.38 $65,000 Promissory Note to Chapman Capital Management
Holdings, Inc. from Nathan A. Chapman, Jr. dated August 21,
1998 (Filed as Exhibit 10.1 to Chapman Capital Management
Holdings, Inc.'s Quarterly Report on Form 10Q-SB (File No.
0-24213) as filed with the Securities and Exchange
Commission on November 16, 1998 and hereby incorporated by
reference)
10.39 $45,000 Demand Note to Chapman Capital Management, Inc. from
Nathan A. Chapman, Jr. dated July 2, 1998 (Filed as Exhibit
10.2 to Chapman Capital Management Holdings, Inc.'s
Quarterly Report on Form 10Q-SB (File No. 0-24213) as filed
with the Securities and Exchange Commission on November 16,
1998 and hereby incorporated by reference)
10.40 $242,000 Promissory Note to Chapman Capital Management
Holdings, Inc. from Nathan A. Chapman, Jr. dated as of July
29, 1999 (Filed as Exhibit 10.2 to Chapman Capital
Management Holdings, Inc.'s Quarterly Report on Form 10Q-SB
as filed with the Securities and Exchange Commission on
August 20, 1999 and hereby incorporated by reference)
21 Subsidiaries of the Company (Filed herewith)
23.1 Consent of Arthur Andersen LLP (Filed herewith)
23.2 Consent of Venable, Baetjer and Howard, LLP (included in
Exhibit 5) (To be filed by amendment)
24.1 Power of Attorney (Filed herewith)
24.2 Consent to serve as director (Raymond Haysbert) (Filed
herewith)
24.3 Consent to serve as director (Kweisi Mfume) (Filed herewith)
24.4 Consent to serve as director (Mark Jefferson) (Filed
herewith)
24.5 Consent to serve as director (Adolph Washington) (Filed
herewith)
27 Financial Data Schedule (Filed herewith)
</TABLE>
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 the registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(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
II-7
<PAGE>
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,
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 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 Securities 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, the
information omitted from the form of prospectus filed as part of the
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 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,
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Baltimore, state of Maryland, on
November 15, 1999.
<TABLE>
<S> <C> <C>
ECHAPMAN.COM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
PRESIDENT
</TABLE>
Pursuant to the requirements of the Act, the registration statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ NATHAN A. CHAPMAN, JR. President and Director (Principal November 15, 1999
- ------------------------------------ Executive Officer)
Nathan A. Chapman, Jr.
/s/ DEMETRIS BROWN Treasurer and Chief Financial November 15, 1999
- ------------------------------------ Officer (Principal Financial
Demetris Brown Officer and Principal Accounting
Officer)
The Entire Board of Directors
Nathan A. Chapman, Jr.
Earl U. Bravo, Sr.
By: /s/ NATHAN A. CHAPMAN, JR. November 15, 1999
----------------------------------
Nathan A. Chapman, Jr.
ATTORNEY-IN-FACT
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Articles of Amendment and Restatement
3.2 Bylaws
4 Form of common stock Certificate
10.1 EChapman.com, Inc. 1999 Omnibus Stock Plan
10.2 Service Mark License Agreement between the Company and
Nathan A. Chapman, Jr. dated November 12, 1999 (1)
10.3 Agreement and Plan of Merger by and among the Company, CHI
Merger Subsidiary, Inc. and Chapman Holdings, Inc. dated
November 15, 1999
10.4 Agreement and Plan of Merger by and among the Company, CCMHI
Merger Subsidiary, Inc. and Chapman Capital Management, Inc.
dated November 15, 1999
10.5 Agreement and Plan of Merger by and among the Company, CIH
Merger Subsidiary, Inc. and Chapman Insurance Holdings, Inc.
dated November 15, 1999
10.6 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Holdings, Inc.)
10.7 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Capital Management
Holdings, Inc.)
10.8 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Insurance Holdings,
Inc.)
10.9 Fully Disclosed Clearing Agreement between the Pershing
Dvision, Donaldson, Lufkin & Jenrette Securities Corporation
and The Chapman Co. dated March 16, 1999
21 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney
24.2 Consent to serve as director (Raymond Haysbert)
24.3 Consent to serve as director (Kweisi Mfume)
24.4 Consent to serve as director (Mark Jefferson)
24.5 Consent to serve as director (Adolph Washington)
27 Financial Data Schedule
</TABLE>
II-10
<PAGE>
Exhibit 3.1
ECHAPMAN.COM, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
EChapman.com, Inc., having its principal office at 401 East
Pratt Street, Suite 2800, Baltimore, Maryland 21202 (herein after called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended and as
so amended is restated by striking out in its entirety the existing Charter and
inserting in lieu thereof the following:
ARTICLE I
NAME
The name of the corporation (which is hereinafter called the
"Corporation") is: EChapman.com, Inc.
ARTICLE II
PURPOSES FOR WHICH CORPORATION FORMED
The purposes for which the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
Maryland General Corporation Law (the "MGCL").
ARTICLE III
RESIDENT AGENT AND PRINCIPAL OFFICE
The post office address of the principal office of the
Corporation in this State is 401 East Pratt Street, Suite 2800, Baltimore,
Maryland 21202. The resident agent of the Corporation in this State is Earl U.
Bravo, Sr., whose post office address is 401 East Pratt Street, Suite 2800,
Baltimore, Maryland 21202. Said resident agent is a citizen of the State of
Maryland, and actually resides therein.
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of stock of all classes which the
Corporation has authority to issue is fifty million (50,000,000) shares, all of
which shares are of one class and are designated Common Stock. The aggregate par
value of all shares of stock of the Corporation is $50,000.
<PAGE>
ARTICLE V
BOARD OF DIRECTORS
Section 1. Number of Directors.
The Corporation shall initially have one (1) director, which
number may be increased or decreased pursuant to the Bylaws, but the number of
directors shall not be less than the lesser of three (3) or the number of
stockholders.
Section 2. Initial Directors.
Nathan A. Chapman, Jr. shall act as the initial director of
the Corporation until the first annual meeting and until his successor is duly
chosen and qualified.
Section 3. Board Authorization of Stock Issuance.
The Board of Directors of the Corporation is hereby empowered
to authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, and securities convertible into shares of
its stock, of any class or classes, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable.
Section 4. Classification of Stock.
The Board of Directors shall have the power to classify or
reclassify any unissued stock, whether now or hereafter authorized, by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such stock.
Section 5. Conflict of Interest.
No contract or other transaction between this Corporation and
any other corporation, partnership, individual or other entity and no act of
this Corporation shall in any way be affected or invalidated by the fact that
any of the directors of this Corporation are directors, principals, partners or
officers of such other entity, or are pecuniarily or otherwise interested in
such contract, transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed or known to the Board of
Directors or to a committee of the Board of Directors if the matter involves a
committee decision, and the contract, transaction or act shall be authorized,
approved or ratified by a majority of disinterested directors on the Board or on
such committee, as the case may be, even if the number of disinterested
directors constitutes less than a quorum or (ii) the contract, transaction or
act shall be authorized, ratified or approved in any other manner permitted by
the MGCL.
-2-
<PAGE>
Section 6. Business Combination and Control Shares.
The Corporation shall be governed by Title 3, Subtitle 6 of
the MGCL with respect to any "business combination" as defined in such
Subtitle, and any acquisition of any shares of stock of the Corporation,
including any acquisition of voting rights or other interests in any such
stock, shall be subject to the provisions of Title 3, Subtitle 7 of the MGCL;
PROVIDED, HOWEVER, that Title 3, Subtitle 6 (Business Combination) and
Subtitle 7 (Control Share) of the MGCL shall not apply to business
combinations (as defined in Section 3-601 of the MGCL) with and control share
acquisitions (as defined in Section 3-701 of the MGCL) by (a) Nathan A.
Chapman, Jr.; (b) persons to whom Nathan A. Chapman, Jr. directly transfers
his voting stock (as defined in Section 3-601 or MGCL) or any shares of stock
of the Corporation, including the transfers of voting rights or other
interests in any such stock; or (c) any of the respective affiliates (as
defined in Section 3-601 or the MGCL) or associates (as defined in
Sections 3-601 and 3-701 of the MGCL) of the persons named in (a) and (b).
ARTICLE VI
PROVISIONS CONCERNING CERTAIN RIGHTS
OF THE CORPORATION AND THE SHAREHOLDERS
Section 1. Right to Amend Charter.
The Corporation reserves the right to make, from time to time,
any amendments of its Charter which may now or hereafter be authorized by law,
including any amendments which alter the contract rights of any class of
outstanding stock as expressly set forth in the Charter.
Section 2. Elimination of Preemptive Rights.
Unless otherwise provided by the Board of Directors, no holder
of stock of any class shall be entitled to preemptive rights to subscribe for or
purchase or receive any part of any new or additional issue of stock of any
class of the Corporation or securities convertible into stock of any class of
the Corporation.
Section 3. Required Stockholder Vote.
Notwithstanding any provision of law requiring any action to
be taken or authorized by the affirmative vote of the holders of a greater
proportion of the votes of all classes or of any class of stock of the
Corporation, such action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon, except as otherwise provided in this Charter.
ARTICLE VII
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 1. Mandatory Indemnification.
The Corporation shall indemnify its currently acting and its
former directors and officers against any and all liabilities and expenses
incurred in connection
-3-
<PAGE>
with their services in such capacities to the maximum extent permitted by the
MGCL, as from time to time amended.
Section 2. Discretionary Indemnification.
If approved by the Board of Directors, the Corporation may
indemnify its employees, agents and persons who serve and have served, at its
request as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture or other enterprise or employee benefit
plan to the extent determined to be appropriate by the Board of Directors.
Section 3. Advancing Expenses Prior to a Decision.
The Corporation 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.
Section 4. Other Provisions for Indemnification.
The Board of Directors may, by bylaw, resolution or agreement,
make further provision for indemnification of directors, officers, employees and
agents.
Section 5. Limitation of Liability of Directors and Officers.
To the maximum extent that limitations on the liability of
directors and officers are permitted by the MGCL, as from time to time amended,
no director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for money damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
Section 6. Effect of Amendment or Repeal.
No amendment or repeal of any section of this Article, or the
adoption of any provision of the Corporation's Charter inconsistent with this
Article, shall apply to or affect in any respect the rights to indemnification
or limitation of liability of any director or officer of the Corporation with
respect to any alleged act or omission which occurred prior to such amendment,
repeal or adoption.
SECOND: The Corporation desires to amend and restate its
Charter as currently in effect. The provisions set forth in the above Articles
of Amendment and Restatement are all of the provisions of the Corporation's
Charter currently in effect as hereby amended.
-4-
<PAGE>
THIRD: The amendment and restatement of the Charter of the
Corporation herein made was approved by the board of directors of the
Corporation by unanimous written consent dated November 10, 1999. No stock
entitled to be voted on the matter was outstanding or subscribed for at the
time of approval by the board of directors.
FOURTH: The current address of the principal office of the
Corporation is 401 East Pratt Street, Suite 2800, Baltimore, Maryland 21202 and
the Corporation's current resident agent is Earl U. Bravo, Sr., whose address is
401 East Pratt Street, Suite 2800, Baltimore, Maryland 21202.
FIFTH: The Corporation currently has one director; the
director currently in office is Nathan A. Chapman, Jr.
SIXTH: These Articles of Amendment increase the authorized
stock of the Corporation and decrease the aggregate par value of such authorized
stock. Immediately before the amendment, the total number of shares of all
classes of stock of the Corporation heretofore authorized, and the number and
par value of the shares of each class were one million (1,000,000) shares, of
the par value of $.10 each, all of which shares were of one class and designated
Common Stock. The aggregate par value of all shares having par value was One
Hundred Thousand Dollars ($100,000). As amended, the total number of shares of
all classes of stock of the Corporation as increased, and the par value of such
shares, are fifty million (50,000,000) shares, of the par value of $0.001 each,
all of which shares are of one class and designated Common Stock. The aggregate
par value of all shares having par value is Fifty Thousand Dollars ($50,000).
-5-
<PAGE>
IN WITNESS WHEREOF, EChapman.com, Inc. has caused these
Articles to be signed in its name and on its behalf by its President, Nathan A.
Chapman, Jr., and attested by its Secretary, Earl U. Bravo, Sr., on the 10th day
of November, 1999.
THE UNDERSIGNED, President of EChapman.com, Inc., acknowledges
these Articles of Amendment and Restatement to be the corporate act of the
Corporation and states that, to the best of his knowledge, information and
belief, the matters and facts set forth herein with respect to the authorization
and approval hereof are true in all material respects and that this statement is
made under the penalties of perjury.
ATTEST: ECHAPMAN.COM, INC.
/s/ EARL U. BRAVO, SR. By: NATHAN A. CHAPMAN, JR. (SEAL)
- ----------------------------- ---------------------------------
Earl U. Bravo, Sr., Secretary Nathan A. Chapman, Jr., President
BA3DOCS1/126535.02
<PAGE>
Exhibit 3.2
BYLAWS
OF
E CHAPMAN.COM, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.
The annual meeting of the stockholders of the Corporation
shall be held on such date within the month of May as may be fixed from time to
time by the Board of Directors. Not less than ten nor more than 90 days' written
or printed notice stating the place, day and hour of each annual meeting shall
be given in the manner provided in Section 1 of Article IX hereof. The business
to be transacted at the annual meetings shall include the election of directors,
consideration and action upon the reports of officers and directors, and any
other business within the power of the Corporation. All annual meetings shall be
general meetings at which any business may be considered without being specified
as a purpose in the notice unless otherwise required by law.
SECTION 2. SPECIAL MEETINGS CALLED BY CHAIRMAN OF THE BOARD, PRESIDENT OR BOARD
OF DIRECTORS.
At any time in the interval between annual meetings, special
meetings of stockholders may be called by the Chairman of the Board, or by the
President, or by the Board of Directors. Not less than ten days' nor more than
90 days' written notice stating the place, day and hour of such meeting and the
matters proposed to be acted on thereat shall be given in the manner provided in
Section 1 of Article IX. No business shall be transacted at any special meeting
except that specified in the notice.
SECTION 3. SPECIAL MEETING CALLED BY STOCKHOLDERS.
Upon the request in writing delivered to the Secretary by the
stockholders entitled to cast at least 25% of all the votes entitled to be cast
at the meeting, it shall be the duty of the Secretary to call forthwith a
special meeting of the stockholders. Such request shall state the purpose of
such meeting and the matters proposed to be acted on thereat, and no other
business shall be transacted at any such special meeting. No such meeting shall
be required to be called for the election of directors except under the
circumstances set forth in Section 10 of Article I or Sections 7(b) or 7(c) of
Article II of these Bylaws. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing the notice of the meeting,
and upon payment to the Corporation of such costs, the Secretary shall give not
less than ten nor more than 90 days' notice of the time, place and purpose of
the meeting in the manner provided in
<PAGE>
Section 1 of Article IX. Unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the stockholders held during the
preceding 12 months.
SECTION 4. PLACE OF MEETINGS.
All meetings of stockholders shall be held at the principal
office of the Corporation in the State of Maryland or at such other place within
the United States as may be fixed from time to time by the Board of Directors
and designated in the notice.
SECTION 5. QUORUM.
At any meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum. In the absence of a quorum, the Chairman of the meeting or
stockholders present in person or by proxy acting by majority vote and without
notice other than by announcement at the meeting, may adjourn the meeting from
time to time, but not for a period exceeding 120 days after the original record
date, until a quorum shall attend.
SECTION 6. ADJOURNED MEETINGS.
A meeting of stockholders convened on the date for which it
was called (including one adjourned to achieve a quorum as above provided in
Section 5 of this Article) may be adjourned (in the manner provided in said
Section 5) from time to time without further notice other than by announcement
at the meeting to a date not more than 120 days after the original record date,
and any business may be transacted at any adjourned meeting which could have
been transacted at the meeting as originally called.
SECTION 7. VOTING.
A plurality of all the votes cast at a meeting of stockholders
duly called and at which a quorum is present shall be sufficient to elect a
director. Each share of stock may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted.
A majority of the votes cast at a meeting of stockholders,
duly called and at which a quorum is present, shall be sufficient to take or
authorize action upon any other matter which may properly come before the
meeting, unless more than a majority of votes cast is required by statute or by
the Charter. The Board of Directors may fix the record date for the
determination of stockholders entitled to vote in the manner provided in Article
VIII, Section 3 of these Bylaws. Unless otherwise provided in the Charter, each
outstanding share of stock, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders.
2
<PAGE>
SECTION 8. PROXIES.
A stockholder may vote the shares owned of record either in
person or by proxy. The proxy shall be in writing and shall be signed by the
stockholder or by the stockholder's duly authorized attorney-in-fact or be in
such other form as may be permitted by the Maryland General Corporation Law,
including documents conveyed by electronic transmission. A copy, facsimile
transmission or other reproduction of the writing or transmission may be
substituted for the original writing or transmission for any purpose for which
the original transmission could be used. Every proxy shall be dated, but need
not be sealed, witnessed or acknowledged. No proxy shall be valid after 11
months from its date, unless otherwise provided in the proxy. In the case of
stock held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy without the joinder of the co-owner(s) or co-fiduciary(ies),
unless the Secretary of the Corporation is notified in writing by any co-owner
or co-fiduciary that the joinder of more than one is to be required. At all
meetings of stockholders, the proxies shall be filed with and verified by the
Secretary of the Corporation, or, if the meeting shall so decide, by the
Secretary of the meeting.
SECTION 9. ORDER OF BUSINESS.
At all meetings of stockholders, any stockholder present and
entitled to vote in person or by proxy shall be entitled to require, by written
request to the Chairman of the meeting, that the order of business shall be as
follows:
(1) Organization.
(2) Proof of notice of meeting or of waivers thereof. (The
certificate of the Secretary of the Corporation, or the affidavit of any other
person who mailed or published the notice or caused the same to be mailed or
published, shall be proof of service of notice.)
(3) Submission by Secretary of the Corporation to the Chairman
of the meeting of a list of the stockholders entitled to vote, present in person
or by proxy.
(4) A reading of unapproved minutes of preceding meetings and
action thereon.
(5) Reports.
(6) If an annual meeting, or a special meeting called for that
purpose, the election of directors.
(7) Unfinished business.
(8) New business.
3
<PAGE>
(9) Adjournment.
SECTION 10. REMOVAL OF DIRECTORS.
At any properly called annual or special stockholders'
meeting, the stockholders, by the affirmative vote of a majority of all the
votes entitled to be cast for the election of directors, may remove any director
or directors from office, with or without cause, and may elect a successor or
successors to fill any resulting vacancies for the remainder of the term of the
removed directors.
SECTION 11. INFORMAL ACTION BY STOCKHOLDERS.
Any action required or permitted to be taken at any meeting of
stockholders may be taken without a meeting if a consent in writing setting
forth such action is signed by all the stockholders entitled to vote thereon, a
written waiver of any right to dissent is signed by each stockholder entitled to
notice of, but not the right to vote on, such action and such consent is filed
with the records of stockholders' meetings.
SECTION 12. ADVANCE NOTICE OF MATTERS TO BE PRESENTED AT AN ANNUAL MEETING OF
STOCKHOLDERS.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting as set
forth below. To be properly brought before an annual meeting, such business must
(1) be specified in the notice of the meeting (or any supplement thereto) given
by the Corporation pursuant to Section 1 of Article IX of these bylaws, or (2)
be brought before the meeting by or under the direction of the Board of
Directors (or the Chairman of the Board or the President), or (3) be properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary. To be timely, such stockholder's notice must be delivered to or
mailed and received by the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 120th day and not
later than the close of business on the 90th day prior to the date of the annual
meeting; provided, however, that in the event that during the prior year the
Corporation did not hold an annual meeting, or if the date of the annual meeting
has changed more than 30 days from the first anniversary of the prior year's
annual meeting (other than as a result of adjournment), than such stockholder's
notice must be delivered to or mailed and received by the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
annual meeting is first made. For purposes of this section, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934,
4
<PAGE>
as amended. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address of the stockholder proposing such business, (iii) the class and
number of shares of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 12.
The Chairman of the meeting shall have the authority, if the
facts warrant, to determine that business was not properly brought before the
meeting in accordance with the provisions of this Section 12, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
SECTION 13. ADVANCE NOTICE OF NOMINEES FOR DIRECTORS.
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors at any meeting
of stockholders. Nominations of persons for election to the Board of Directors
of the Corporation may be made at an annual meeting of stockholders or at a
special meeting of stockholders as to which the notice of meeting provides for
election of directors, by or under the direction of the Board of Directors, or
by any nominating committee or person appointed by the Board of Directors, or by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 13. Such nominations, other than those made by or under the
direction of the Board of Directors or by any nominating committee or person
appointed by the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary. In the event that such stockholder's notice pertains
to an annual meeting of stockholders, to be timely, such stockholder's notice
must be delivered to or mailed and received by the Secretary at the principal
executive offices of the Corporation not earlier than the close of business on
the 120th day and not later than the close of business on the 90th day prior to
the date of the annual meeting; provided, however, that in the event that during
the prior year the Corporation did not hold an annual meeting, or if the date of
the annual meeting has changed more than 30 days from the first anniversary of
the prior year's annual meeting (other than as a result of adjournment), than
such stockholder's notice must be delivered to or mailed and received by the
Secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such annual meeting is first made. In the event that such
stockholder's notice pertains to a special meeting of stockholders, to be
timely, such stockholder's notice must be delivered to or mailed and received by
the Secretary at the principal
5
<PAGE>
executive offices of the Corporation not later than the close of business on the
later of the 90th day prior to such special meeting or the 10th day following
the day on which public announcement of the date of such special meeting is
first made. For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the rules and
regulations under the Securities Exchange Act of 1934; and (b) as to the
stockholder giving the notice, (i) the name and address of the stockholder and
(ii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall have the authority, if the
facts warrant, to determine that a nomination was not made in accordance with
the foregoing procedure, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
ARTICLE II
DIRECTORS
SECTION 1. POWERS.
The business and affairs of the Corporation shall be managed
under the direction of its Board of Directors. All powers of the Corporation may
be exercised by or under the authority of the Board of Directors except as
conferred on or reserved to the stockholders by law, by the Charter or by these
Bylaws. A director need not be a stockholder. The Board of Directors shall keep
minutes of its meetings and full and fair accounts of its transactions.
SECTION 2. NUMBER; TERM OF OFFICE.
The number of directors of the Corporation shall be not less
than three or the same number as the number of stockholders (or one if there is
no stockholder), whichever is less; provided, however, that such number may be
increased and thereafter decreased from time to time by vote of a majority of
the entire Board of Directors. The
6
<PAGE>
number of directors shall not exceed ten (10). The first directors of the
Corporation shall hold their office until the first annual meeting of the
Corporation, or until their successors are elected and qualify, and thereafter
the directors shall hold office for the term of one year, or until their
successors are elected and qualify.
SECTION 3. ANNUAL MEETING; REGULAR MEETINGS.
As soon as practicable after each annual meeting of
stockholders, the Board of Directors shall meet for the purpose of organization
and the transaction of other business. No notice of the annual meeting of the
Board of Directors need be given if it is held immediately following the annual
meeting of stockholders and at the same place. Other regular meetings of the
Board of Directors may be held at such times and at such places, within or
without the State of Maryland, as shall be designated in the notice for such
meeting by the party making the call. All annual and regular meetings shall be
general meetings, and any business may be transacted thereat.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by
the Chairman of the Board or the President, or by a majority of the directors.
SECTION 5. QUORUM; VOTING.
A majority of the Board of Directors shall constitute a quorum
for the transaction of business at every meeting of the Board of Directors; but,
if at any meeting there be less than a quorum present, a majority of those
present may adjourn the meeting from time to time, but not for a period
exceeding ten days at any one time or 60 days in all, without notice other than
by announcement at the meeting, until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally called.
Except as hereinafter provided or as otherwise provided by the Charter or by
law, directors shall act by a vote of a majority of those members in attendance
at a meeting at which a quorum is present.
SECTION 6. NOTICE OF MEETINGS.
Notice of the time and place of every regular and special
meeting of the Board of Directors shall be given to each director in the manner
provided in Section 2 of Article IX hereof. Subsequent to each Board meeting,
and as soon as practicable thereafter, each director shall be furnished with a
copy of the minutes of said meeting. At least 24 hours' notice shall be given of
all meetings. The purpose of any meeting of the Board of Directors need not be
stated in the notice.
7
<PAGE>
SECTION 7. VACANCIES.
(a) If the office of a director becomes vacant for any reason,
including increase in the size of the Board, such vacancy may be filled by the
Board by a vote of a majority of directors then in office, although such
majority is less than a quorum.
(b) If the vacancy occurs as a result of the removal of a
director, the stockholders may elect a successor at the meeting at which the
removal occurs.
(c) If the entire Board of Directors shall become vacant, any
stockholder may call a special meeting in the same manner that the Chairman of
the Board or the President may call such meeting, and directors for the
unexpired terms may be elected at such special meeting in the manner provided
for their election at annual meetings.
(d) A director elected by the Board of Directors to fill a
vacancy shall serve until the next annual meeting of stockholders and until a
successor is elected and qualifies. A director elected by the stockholders to
fill a vacancy shall serve for the unexpired term and until a successor is
elected and qualifies.
SECTION 8. RULES AND REGULATIONS.
The Board of Directors may adopt such rules and regulations
for the conduct of its meetings and the management of the affairs of the
Corporation as it may deem proper and not inconsistent with the laws of the
State of Maryland, these Bylaws and the Charter.
SECTION 9. EXECUTIVE COMMITTEE.
The Board of Directors may constitute an Executive Committee,
composed of at least two directors, from among its members. The Executive
Committee shall hold office at the pleasure of the Board of Directors. Between
sessions of the Board of Directors, such Committee shall have all of the powers
of the Board of Directors in the management of the business and affairs of the
Corporation, except those powers specifically denied by law. If any position on
the Executive Committee becomes vacant, or if the number of members is
increased, such vacancy may be filled by the Board of Directors. The taking of
any action by the Executive Committee shall be conclusive evidence that the
Board of Directors was not in session at the time of such action. The Executive
Committee shall hold formal meetings and keep minutes of all of its proceedings.
A copy of such minutes shall, after approval by the members of the Committee, be
sent to all directors as a matter of information. Any action taken by the
Executive Committee within the limits permitted by law shall have the force and
effect of Board action unless and until revised or altered by the Board. The
presence of not less than a majority of the Committee shall be necessary to
constitute a quorum. Action may be taken without a meeting if a unanimous
written consent is signed by all of the members of the Committee, and if such
consent is filed with the records of the
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Committee. The Executive Committee shall have the power to elect one of its
members to serve as its Chairman unless the Board of Directors shall have
designated such Chairman.
SECTION 10. COMPENSATION.
The directors may receive a stated salary or an attendance fee
for each meeting of the Board of Directors or any committee thereof attended,
plus reimbursement of reasonable expenses of attendance. The amount of the
salary or attendance fee and any entitlement to reimbursement of expenses shall
be determined by resolution of the Board; provided, however, that nothing herein
contained shall be construed as precluding a director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 11. PLACE OF MEETINGS.
Regular or special meetings of the Board may be held within or
without the State of Maryland, as the Board may from time to time determine. The
time and place of meeting may be fixed by the party calling the meeting.
SECTION 12. INFORMAL ACTION BY THE DIRECTORS.
Any action required or permitted to be taken at any meeting of
the Board may be taken without a meeting, if a written consent to such action is
signed by all members of the Board and such consent is filed with the minutes of
the Board.
SECTION 13. TELEPHONE CONFERENCE.
Members of the Board of Directors or any committee thereof may
participate in a meeting of the Board or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Participation
by such means shall constitute presence in person at the meeting.
ARTICLE III
OFFICERS
SECTION 1. IN GENERAL.
The Board of Directors may choose a Chairman of the Board from
among the directors. The Board of Directors shall elect a President, a
Treasurer, a Secretary, and may elect one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers as the Board may from time to time deem
appropriate. All officers shall hold office only during the pleasure of the
Board or until their successors are chosen and qualify. Any two of the above
offices, except those of President and Vice President, may be held by
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the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity when such instrument is required to be
executed, acknowledged or verified by any two or more officers. The Board of
Directors may from time to time appoint such other agents and employees with
such powers and duties as the Board may deem proper. In its discretion, the
Board of Directors may leave unfilled any offices except those of President,
Treasurer and Secretary.
SECTION 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if one is elected, shall have the
responsibility for the implementation of the policies determined by the Board of
Directors and for the administration of the business affairs of the Corporation.
The Chairman shall preside over the meetings of the Board and of the
stockholders if present at the meeting. The Chairman shall be the Chief
Executive Officer of the Corporation if so designated by resolution of the
Board.
SECTION 3. PRESIDENT.
The President shall have the responsibility for the active
management of the business and general supervision and direction of all of the
affairs of the Corporation. In the absence of a Chairman of the Board, the
President shall preside over the meetings of the Board and of the stockholders
if present at the meeting, and shall perform such other duties as may be
assigned by the Board of Directors or the Executive Committee. The President
shall have the authority on the Corporation's behalf to endorse securities owned
by the Corporation and to execute any documents requiring the signature of an
executive officer. The President shall perform such other duties as the Board of
Directors may direct and shall be the Chief Executive Officer of the Corporation
unless the Chairman of the Board is so designated by resolution of the Board.
SECTION 4. VICE PRESIDENTS.
The Vice Presidents, in the order of priority designated by
the Board of Directors, shall be vested with all the power and may perform all
the duties of the President in the latter's absence. They may perform such other
duties as may be prescribed by the Board of Directors, the Executive Committee
or the President.
SECTION 5. TREASURER.
The Treasurer shall have general supervision over the
Corporation's finances, and shall perform such other duties as may be assigned
by the Board of Directors or the President. Unless the Board designates another
officer, the Treasurer shall be the Chief Financial Officer of the Corporation.
If required by resolution of the Board, the Treasurer shall furnish a bond
(which may be a blanket bond) with such surety and in such penalty for the
faithful performance of duty as the Board of Directors may from time to time
require, the cost of such bond to be paid by the Corporation.
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SECTION 6. SECRETARY.
The Secretary shall keep the minutes of the meetings of the
stockholders and of the Board of Directors and shall attend to the giving and
serving of all notices of the Corporation required by law or these Bylaws. The
Secretary shall maintain at all times in the principal office of the Corporation
at least one copy of the Bylaws with all amendments to date, and shall make the
same, together with the minutes of the meeting of the stockholders, the annual
statement of affairs of the Corporation and any voting trust or other
stockholders agreement on file at the office of the Corporation, available for
inspection by any officer, director or stockholder during reasonable business
hours. The Secretary shall perform such other duties as may be assigned by the
Board of Directors.
SECTION 7. ASSISTANT TREASURER AND SECRETARY.
The Board of Directors may designate from time to time
Assistant Treasurers and Secretaries, who shall perform such duties as may from
time to time be assigned to them by the Board of Directors or the President.
SECTION 8. COMPENSATION; REMOVAL; VACANCIES.
The Board of Directors shall have power to fix the
compensation of all officers of the Corporation. It may authorize any committee
or officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers. The Board of
Directors shall have the power at any regular or special meeting to remove any
officer if, in the judgment of the Board, the best interests of the Corporation
will be served by such removal. The Board of Directors may authorize any officer
to remove subordinate officers. The Board of Directors may authorize the
Corporation's employment of an officer for a period in excess of the term of the
Board. The Board of Directors at any regular or special meeting shall have power
to fill a vacancy occurring in any office for the unexpired portion of the term.
SECTION 9. SUBSTITUTES.
The Board of Directors may, from time to time in the absence
of any one of its officers or at any other time, designate any other person or
persons on behalf of the Corporation to sign any contracts, deeds, notes or
other instruments in the place or stead of any of such officers, and may
designate any person to fill any one of said offices, temporarily or for any
particular purpose; and any instruments so signed in accordance with a
resolution of the Board shall be the valid act of the Corporation as fully as if
executed by any regular officer.
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ARTICLE IV
RESIGNATION
Any director or officer may resign from office at any time.
Such resignation shall be made in writing and shall take effect from the time of
its receipt by the Corporation, unless some time be fixed in the resignation,
and then from that date. The acceptance of a resignation shall not be required
to make it effective.
ARTICLE V
COMMERCIAL PAPER, ETC.
All bills, notes, checks, drafts and commercial paper of all
kinds to be executed by the Corporation as maker, acceptor, endorser or
otherwise, and all assignments and transfers of stock, contracts, or written
obligations of the Corporation, and all negotiable instruments, shall be made in
the name of the Corporation and shall be signed by any one or more of the
following officers as the Board of Directors may from time to time designate:
the Chairman of the Board, the President, any Vice President, or the Treasurer,
or such other person or persons as the Board of Directors or Executive Committee
may from time to time designate.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall cover such period of
12 months as the Board of Directors may determine. In the absence of any such
determination, the accounts of the Corporation shall be kept on a calendar year
basis.
ARTICLE VII.
SEAL
The seal of the Corporation shall be in the form of two
concentric circles inscribed with the name of the Corporation and the year and
State in which it is incorporated. The Secretary or Treasurer, or any Assistant
Secretary or Assistant Treasurer, shall have the right and power to attest to
the corporate seal. In lieu of affixing the corporate seal to any document, it
shall be sufficient to meet the requirements of any law, rule or regulation
relating to a corporate seal to affix the word "(SEAL)" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
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ARTICLE VIII.
STOCK
SECTION 1. ISSUE.
Each stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number and class of shares of
stock owned in the Corporation. Each certificate shall be signed by the Chairman
of the Board, the President or any Vice President and be countersigned by the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer. The signatures of the Corporation's officers and its corporate seal
appearing on stock certificates may be facsimiles if each such certificate is
authenticated by the manual signature of an officer of a duly authorized
transfer agent. Stock certificates shall be in such form, not inconsistent with
law and the Charter, as shall be approved by the Board of Directors. In case any
officer of the Corporation who has signed any certificate ceases to be an
officer of the Corporation, whether by reason of death, resignation or
otherwise, before such certificate is issued, then the certificate may
nevertheless be issued by the Corporation with the same effect as if the officer
had not ceased to be such officer as of the date of such issuance.
SECTION 2. TRANSFERS.
The Board of Directors shall have power and authority to make
all such rules and regulations as the Board may deem expedient concerning the
issue, transfer and registration of stock certificates. The Board of Directors
may appoint one or more transfer agents and/or registrars for its outstanding
stock, and their duties may be combined. No transfer of stock shall be
recognized or binding upon the Corporation until recorded on the books of the
Corporation, or, as the case may be, of its transfer agent and/or of its
registrar, upon surrender and cancellation of a certificate or certificates for
a like number of shares.
SECTION 3. RECORD DATES FOR DIVIDENDS AND STOCKHOLDERS' MEETING.
The Board of Directors may fix a date not exceeding 90 days
preceding the date of any meeting of stockholders, any dividend payment date or
any date for the allotment of rights, as a record date for the determination of
the stockholders entitled to notice of and to vote at such meeting, or entitled
to receive such dividends or rights, as the case may be, and only stockholders
of record on such date shall be entitled to notice of and to vote at such
meeting or to receive such dividends or rights, as the case may be. In the case
of a meeting of stockholders, the record date shall be fixed not less than ten
days prior to the date of the meeting.
SECTION 4. NEW CERTIFICATES.
In case any certificate of stock is lost, stolen, mutilated or
destroyed, the Board of Directors may authorize the issuance of a new
certificate in place thereof upon
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such indemnity to the Corporation against loss and such other terms and
conditions as it may deem advisable. The Board of Directors may delegate such
power to any officer or officers of the Corporation or to any transfer agent or
registrar of the Corporation; but the Board of Directors, such officer or
officers or such transfer agent or registrar may, in their discretion, refuse to
issue such new certificate save upon the order of some court having
jurisdiction.
ARTICLE IX
NOTICE
SECTION 1. NOTICE TO STOCKHOLDERS.
Whenever by law or these Bylaws notice is required to be given
to any stockholder, such notice shall be in writing and may be given to each
stockholder by personal delivery or at the stockholder's residence or usual
place of business, or by mailing it, postage prepaid, and addressed to the
stockholder at the address appearing on the books of the Corporation or its
transfer agent. Such leaving or mailing of notice shall be deemed the time of
giving such notice.
SECTION 2. NOTICE TO DIRECTORS AND OFFICERS.
Whenever by law or these Bylaws notice is required to be given
to any director or officer, such notice may be given in any one of the following
ways: by personal delivery to such director or officer, by telephone
communication with such director or officer personally or by telephone facsimile
transmission, by telegram, cablegram, radiogram, first class mail or by delivery
service providing confirmation of delivery, addressed to such director or
officer at the address appearing on the books of the Corporation. The time when
such notice shall be consigned to a communication company for delivery shall be
deemed to be the time of the giving of such notice; if mailed, such notice shall
be deemed given 48 hours after the time it is deposited in the mail, postage
prepaid.
SECTION 3. WAIVER OF NOTICE.
Notice to any stockholder or director of the time, place
and/or purpose of any meeting of stockholders or directors required by these
Bylaws may be dispensed with if such stockholder shall either attend in person
or by proxy, or if such director shall attend in person, or if such absent
stockholder or director shall, in writing filed with the records of the meeting
either before or after the holding thereof, waive such notice.
ARTICLE X
VOTING OF STOCK IN OTHER CORPORATIONS
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Any stock in other corporations, which may from time to time
be held by the Corporation, may be represented and voted at any meeting of
stockholders of such other corporations by the President or a Vice-President or
by proxy or proxies appointed by the President or a Vice-President, or otherwise
pursuant to authorization thereunto given by a resolution of the Board of
Directors adopted by a vote of a majority of the directors.
ARTICLE XI.
INDEMNIFICATION
To the maximum extent permitted by the Maryland General
Corporation Law as from time to time amended, the Corporation may indemnify its
currently acting and its former directors, officers, agents and employees and
those persons who, at the request of the Corporation serve or have served
another corporation, partnership, joint venture, trust or other enterprise in
one or more of such capacities against any and all liabilities incurred in
connection with their services in such capacities to the extent determined
appropriate by the Board of Directors. To the extent required by the Charter or
applicable law, the Corporation shall indemnify such individuals.
ARTICLE XII.
AMENDMENTS
These Bylaws may be added to, altered, amended, repealed or
suspended by a vote of a majority of the Board of Directors at any regular or
special meeting of the Board.
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Exhibit 4
STATE OF MARYLAND
NUMBER SHARES
SPECIMEN ------
ECHAPMAN.COM, INC.
COMMON STOCK
PAR VALUE -- $0.001
Fully Paid Non-Assessable
THIS CERTIFIES THAT SPECIMEN is the registered holder of __________
(_____) Shares of the Common Stock of Chapman Capital Management Holdings,
Inc. transferable only on the books of the Corporation by the holder hereof
in person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ____ day of ____ A.D. 1999.
- ------------------------------------- --------------------------------------
Earl U. Bravo, Sr., Secretary Nathan A. Chapman, Jr., President
Par Value
$0.001
<PAGE>
Exhibit 10.1
ECHAPMAN.COM, INC.
1999 OMNIBUS STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
Chapman Holdings, Inc. hereby establishes the ECHAPMAN.COM, INC. 1999
OMNIBUS STOCK OPTION PLAN (the "Plan"). The purpose of the Plan is to promote
the long-term growth and profitability of EChapman.com, Inc. (the "Corporation")
by (i) providing key people with incentives to improve stockholder value and to
contribute to the growth and financial success of the Corporation, and (ii)
enabling the Corporation to attract, retain and reward the best available
persons for positions of substantial responsibility.
The Plan permits the granting of stock options (including nonqualified
stock options and incentive stock options qualifying under Section 422 of the
Code), stock appreciation rights (including free-standing, tandem and limited
stock appreciation rights), restricted or unrestricted share awards, phantom
stock, performance awards, or any combination of the foregoing (collectively,
"Awards").
The Plan is a compensatory benefit plan within the meaning of Rule 701
under the Securities Act of 1933 (the "Securities Act"). Except to the extent
any other exemption from the Securities Act is expressly relied upon in
connection with any agreement entered into pursuant to the Plan or the
securities issuable hereunder are registered under the Securities Act, the
issuance of Common Stock pursuant to the Plan is intended to qualify for the
exemption from registration under the Securities Act provided by Rule 701. To
the extent that an exemption from registration under the Securities Act provided
by Rule 701 is unavailable, all unregistered offers and sales of Awards and
shares of Common Stock issuable upon exercise of an Award are intended to be
exempt from registration under the Securities Act in reliance upon the private
offering exemption contained in Section 4(2) of the Securities Act, or other
available exemption, and the Plan shall be so administered.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "AWARD" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, or performance award.
(b) "BOARD" shall mean the Board of Directors of the Corporation.
(c) "CHANGE IN CONTROL" shall mean (i) any sale, exchange or other
disposition of substantially all of the Corporation's assets; or (ii) any
merger, share exchange, consolidation or other reorganization or business
combination in which the Corporation is not the surviving or continuing
corporation, or in which the Corporation's stockholders become entitled to
receive cash, securities of the Corporation other than voting common stock, or
securities of another issuer.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended,
and any regulations issued thereunder.
<PAGE>
(e) "COMMITTEE" shall mean the Board or committe of Board members
appointed pursuant to Section 3 of the Plan to administer the Plan.
(f) "COMMON STOCK" shall mean shares of the Corporation's common stock,
par value of one cent ($0.001) per share.
(g) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "FAIR MARKET VALUE" of a share of the Corporation's Common Stock
for any purpose on a particular date shall be determined in a manner such as the
Committee shall in good faith determine to be appropriate; provided, however,
that if the Common Stock is publicly traded, then Fair Market Value shall mean
the last reported sale price per share of Common Stock, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, or if the Common Stock is not so listed or admitted to
trading or included for quotation, the last quoted price, or if the Common Stock
is not so quoted, the average of the high bid and low asked prices, regular way,
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices, regular way, as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Committee or by such other source or sources as shall be
selected in good faith by the Committee; and provided further, that in the case
of incentive stock options, the determination of Fair Market Value shall be made
by the Committee in good faith in conformance with the Treasury Regulations
under Section 422 of the Code. If, as the case may be, the relevant date is not
a trading day, the determination shall be made as of the next preceding trading
day. As used herein, the term "trading day" shall mean a day on which public
trading of securities occurs and is reported in the principal consolidated
reporting system referred to above, or if the Common Stock is not listed or
admitted to trading on a national securities exchange or included for quotation
on the Nasdaq-National Market, any day other than a Saturday, a Sunday or a day
in which banking institutions in the State of New York are closed.
(i) "GRANT AGREEMENT" shall mean a written agreement between the
Corporation and a grantee memorializing the terms and conditions of an Award
granted pursuant to the Plan.
(j) "GRANT DATE" shall mean the date on which the Committee formally
acts to grant an Award to a grantee or such other date as the Committee shall so
designate at the time of taking such formal action.
(k) "PARENT" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent corporation" provided
in Section 424(e) of the Code, or any successor thereto of similar import.
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(l) "RULE 16b-3" shall mean Rule 16b-3 as in effect under the Exchange
Act on the effective date of the Plan, or any successor provision prescribing
conditions necessary to exempt the issuance of securities under the Plan (and
further transactions in such securities) from Section 16(b) of the Exchange Act.
(m) "SUBSIDIARY" AND "SUBSIDIARIES" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto of similar import.
3. ADMINISTRATION
(a) PROCEDURE. The Plan shall be administered by the Board. In the
alternative, the Board may appoint a Committee consisting of not less than two
(2) members of the Board to administer the Plan on behalf of the Board, subject
to such terms and conditions as the Board may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board. From
time to time, the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and, thereafter, directly administer the Plan.
Members of the Board or Committee who are either eligible for
Awards or have been granted Awards may vote on any matters affecting the
administration of the Plan or the grant of Awards pursuant to the Plan, except
that no such member shall act upon the granting of an Award to himself or
herself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of an Award to him or her.
The Committee shall meet at such times and places and upon
such notice as it may determine. A majority of the Committee shall constitute a
quorum. Any acts by the Committee may be taken at any meeting at which a quorum
is present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION OF COMMON STOCK. Notwithstanding the
provisions of subsection (a) above, in the event that the Common Stock or any
other capital stock of the Corporation becomes registered under Section 12 of
the Exchange Act, the Plan shall be administered by a Committee appointed by the
Board, and all members of the Committee shall be persons who qualify as "outside
directors" as defined in Section 162 of the Code. The Board may require that all
members of the Committee also be "non-employee directors" as defined in Rule
16b-3 of the Securities and Exchange Commission. Unless otherwise provided by
the Board, the Compensation Committee of the Board (or such members of the
Compensation Committee as shall constitute "outside directors" if all such
members do not constitute "outside directors") shall constitute the Committee
hereunder.
(c) POWERS OF THE COMMITTEE. The Committee shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Grant
Agreements evidencing such
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Awards and establish programs for granting Awards. The Committee shall have full
power and authority to take all other actions necessary to carry out the purpose
and intent of the Plan, including, but not limited to, the authority to:
(i) determine the eligible persons to whom, and the time or
times at which Awards shall be granted,
(ii) determine the types of Awards to be granted,
(iii) determine the number of shares to be covered by or used
for reference purposes for each Award,
(iv) impose such terms, limitations, restrictions and
conditions upon any such Award as the Committee shall deem appropriate,
(v) modify, extend or renew outstanding Awards, accept the
surrender of outstanding Awards and substitute new Awards, provided
that no such action shall be taken with respect to any outstanding
Award which would adversely affect the grantee without the grantee's
consent,
(vi) accelerate or otherwise change the time in which an Award
may be exercised or becomes payable and to waive or accelerate the
lapse, in whole or in part, of any restriction or condition with
respect to such Award, including, but not limited to, any restriction
or condition with respect to the vesting or exercisability of an Award
following termination of any grantee's employment, and
(vii) to establish objectives and performance-based
conditions, if any, for earning Awards and determining whether Awards
will be paid after the end of a performance period.
The Committee shall have full power and authority to administer and interpret
the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Committee deems necessary or advisable and to interpret same,
all within the Committee's sole and absolute discretion.
(d) LIMITED LIABILITY. To the maximum extent permitted by law, no
member of the Board or Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any Award thereunder.
(e) INDEMNIFICATION. To the maximum extent permitted by law, the
members of the Board and Committee shall be indemnified by the Corporation in
respect of all their activities under the Plan.
(f) EFFECT OF COMMITTEE'S DECISION. All actions taken and decisions and
determinations made by the Committee on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Committee's sole
and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its
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stockholders, any participants in the Plan and any other employee of the
Corporation, and their respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS
The maximum aggregate number of shares of stock that may be issued with
respect to Awards granted under the Plan shall not exceed 850,000 shares of
Common Stock. The Corporation shall reserve said number of shares for Awards
under the Plan. If any Award, or portion of an Award, under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares without the delivery of
shares of Common Stock or other consideration, the shares subject to such Award
shall thereafter be available for further Awards under the Plan.
The maximum aggregate number of shares of Common Stock that may be
delivered or purchased or used for reference purposes (with respect to stock
appreciation rights, phantom stock units, or performance awards payable in cash)
that may be granted during any one calendar year to any one individual shall be
limited to 50,000; provided, however, that shares of Common Stock underlying a
tandem grant of options and corresponding stock appreciation rights shall be
counted only once in calculating this limit. If an Award of Common Stock subject
to this per individual limit is terminated, surrendered or canceled, the shares
of Common Stock under this Award shall continue to be counted against the per
individual limit.
The maximum aggregate number of shares of Common Stock that may be
issued under this Plan as a whole and to each individual shall be subject to
adjustment as provided in Section 12.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers,
directors and consultants of the Corporation, or of any Parent or Subsidiary of
the Corporation, as may be selected by the Committee from time to time.
Notwithstanding the foregoing, participation in the Plan with respect to Awards
of incentive stock options shall be limited to employees of the Corporation or
of any Parent or Subsidiary of the Corporation. To the extent necessary to
comply with Rule 16b-3 or to constitute an "outside director" within the meaning
of Section 162(m) of the Code, and only in the event that Rule 16b-3 or Section
162(m) of the Code is applicable to the Plan or an Award made thereunder,
Committee members shall not be eligible to participate in the Plan while members
of the Committee.
Awards may be granted to such eligible persons and for or with respect
to such number of shares of Common Stock as the Committee shall determine,
subject to the limitations in Section 4 of the Plan. A grant of any type of
Award made in any one year to an eligible person shall neither guarantee nor
preclude a further grant of that or any other type of Award to such person in
that year or subsequent years.
6. STOCK OPTIONS
Subject to the other applicable provisions of the Plan, the Committee
may from time to time grant to eligible participants Awards of nonqualified
stock options or incentive stock
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options as that term is defined in Section 422 of the Code. The stock option
Awards granted shall be subject to the following terms and conditions.
(a) GRANT OF OPTION. The grant of a stock option shall be evidenced by
a Grant Agreement, executed by the Corporation and the grantee, stating the
number of shares of Common Stock subject to the stock option evidenced thereby
and the terms and conditions of such stock option, in such form as the Committee
may from time to time determine.
(b) PRICE. The price per share payable upon the exercise of each stock
option ("exercise price") shall be determined by the Committee; provided,
however, that in the case of incentive stock options, the exercise price shall
not be less than 100% of the Fair Market Value of the shares on the date the
stock option is granted.
(c) PAYMENT. Stock options may be exercised in whole or in part by
payment of the exercise price of the shares to be acquired in accordance with
the provisions of the Grant Agreement, and/or such rules and regulations as the
Committee may have prescribed, and/or such determinations, orders, or decisions
as the Committee may have made. Payment may be made in cash (or cash equivalents
acceptable to the Committee) or, unless otherwise determined by the Committee,
in shares of Common Stock or a combination of cash and shares of Common Stock,
or by such other means as the Committee may prescribe. The Fair Market Value of
shares of Common Stock delivered on exercise of stock options shall be
determined as of the date of exercise. Shares of Common Stock delivered in
payment of the exercise price may be previously owned shares or, if approved by
the Committee, shares acquired upon exercise of the stock option. Any fractional
share will be paid in cash. The Corporation may make or guarantee loans to
grantees to assist grantees in exercising stock options and satisfying any
related withholding tax obligations.
If the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, the Committee, subject to such limitations as it may determine,
may authorize payment of the exercise price, in whole or in part, by delivery of
a properly executed exercise notice, together with irrevocable instructions, to:
(i) a brokerage firm designated by the Corporation to deliver promptly to the
Corporation the aggregate amount of sale or loan proceeds to pay the exercise
price and any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Corporation to deliver the certificates for such
purchased shares directly to such brokerage firm.
(d) TERMS OF OPTIONS. The term during which each stock option may be
exercised shall be determined by the Committee; provided, however, that in no
event shall a stock option be exercisable more than ten years from the date it
is granted. Prior to the exercise of the stock option and delivery of the share
certificates represented thereby, the grantee shall have none of the rights of a
stockholder with respect to any shares represented by an outstanding stock
option.
(e) RELOAD OPTIONS. The terms of a stock option may provide for the
automatic grant of a new stock option Award when the exercise price of the stock
option and/or any related tax withholding obligation is paid by tendering shares
of Common Stock, provided that such automatic replenishment feature shall be
limited to any extent required by rules, regulations, or interpretations under
the Exchange Act with respect to any particular grant of an Award in the case of
a grantee who is or becomes subject to Section 16 of the Exchange
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Act. Any stock option Award which would automatically be granted pursuant to
this Section 6(e) without any further Committee action may be exercisable for
not more than the number of shares tendered to exercise the initial stock option
and/or to pay any tax withholding obligation related to such exercise, shall
have an exercise price set at the then Fair Market Value of such shares, and
shall have a term that does not extend beyond the term of the initial stock
option. The Committee may include such a reload feature in a stock option Award
at the time of the initial grant of the Award or may add such a reload feature
to an outstanding stock option Award as the Committee deems desirable; provided,
however, that a reload feature shall not be added to any outstanding incentive
stock option Award without the consent of the grantee.
(f) RESTRICTIONS ON INCENTIVE STOCK OPTIONS. Incentive stock option
Awards granted under the Plan shall comply in all respects with Code Section 422
and, as such, shall meet the following additional requirements:
(i) GRANT DATE. An incentive stock option must be granted
within 10 years of the earlier of the Plan's adoption by the Board of
Directors or approval by the Corporation's shareholders.
(ii) EXERCISE PRICE AND TERM. The exercise price of an
incentive stock option shall not be less than 100% of the Fair Market
Value of the shares on the date the stock option is granted. Also, the
exercise price of any incentive stock option granted to a grantee who
owns (within the meaning of Section 422(b)(6) of the Code, after the
application of the attribution rules in Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of
shares of the Corporation or its Parent or Subsidiary corporations
(within the meaning of Sections 422 and 424 of the Code) shall be not
less than 110% of the Fair Market Value of the Common Stock on the
grant date and the term of such stock option shall not exceed five
years.
(iii) MAXIMUM GRANT. The aggregate Fair Market Value
(determined as of the Grant Date) of shares of Common Stock with
respect to which all incentive stock options first become exercisable
by any grantee in any calendar year under this or any other plan of the
Corporation and its Parent and Subsidiary corporations may not exceed
$100,000 or such other amount as may be permitted from time to time
under Section 422 of the Code. To the extent that such aggregate Fair
Market Value shall exceed $100,000, or other applicable amount, such
stock options shall be treated as nonqualified stock options. In such
case, the Corporation may designate the shares of Common Stock that are
to be treated as stock acquired pursuant to the exercise of an
incentive stock option by issuing a separate certificate for such
shares and identifying the certificate as incentive stock option shares
in the stock transfer records of the Corporation.
(iv) GRANTEE. Incentive stock options shall only be issued to
employees of the Corporation, or of a Parent or Subsidiary of the
Corporation.
(v) DESIGNATION. No stock option shall be an incentive stock
option unless so designated by the Committee at the time of grant or in
the Grant Agreement evidencing such stock option.
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(g) OTHER TERMS AND CONDITIONS. Stock options may contain such other
provisions, not inconsistent with the provisions of the Plan, as the Committee
shall determine appropriate from time to time.
7. STOCK APPRECIATION RIGHTS
(a) AWARD OF STOCK APPRECIATION RIGHTS. Subject to the other applicable
provisions of the Plan, the Committee may at any time and from time to time
grant stock appreciation rights ("SARs") to eligible participants, either on a
free-standing basis (without regard to or in addition to the grant of a stock
option) or on a tandem basis (related to the grant of an underlying stock
option), as it determines. SARs granted in tandem with or in addition to a stock
option may be granted either at the same time as the stock option or at a later
time; provided, however, that a tandem SAR shall not be granted with respect to
any outstanding incentive stock option Award without the consent of the grantee.
SARs shall be evidenced by Grant Agreements, executed by the Corporation and the
grantee, stating the number of shares of Common Stock subject to the SAR
evidenced thereby and the terms and conditions of such SAR, in such form as the
Committee may from time to time determine. The term during which each SAR may be
exercised shall be determined by the Committee. However, in no event shall an
SAR be exercisable more than ten years from the date it is granted. The grantee
shall have none of the rights of a stockholder with respect to any shares of
Common Stock represented by an SAR.
(b) RESTRICTIONS OF TANDEM SARS. No incentive stock option may be
surrendered in connection with the exercise of a tandem SAR unless the Fair
Market Value of the Common Stock subject to the incentive stock option is
greater than the exercise price for such incentive stock option. SARs granted in
tandem with stock options shall be exercisable only to the same extent and
subject to the same conditions as the stock options related thereto are
exercisable. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any such tandem SAR.
(c) AMOUNT OF PAYMENT UPON EXERCISE OF SARS. An SAR shall entitle the
grantee to receive, subject to the provisions of the Plan and the Grant
Agreement, a payment having an aggregate value equal to the product of (i) the
excess of (A) the Fair Market Value on the exercise date of one share of Common
Stock over (B) the base price per share specified in the Grant Agreement times
(ii) the number of shares specified by the SAR, or portion thereof, which is
exercised. In the case of exercise of a tandem SAR, such payment shall be made
in exchange for the surrender of the unexercised related stock option (or any
portion or portions thereof which the grantee from time to time determines to
surrender for this purpose).
(d) FORM OF PAYMENT UPON EXERCISE OF SARS. Payment by the Corporation
of the amount receivable upon any exercise of an SAR may be made by the delivery
of Common Stock or cash, or any combination of Common Stock and cash, as
determined in the sole discretion of the Committee from time to time. If upon
settlement of the exercise of an SAR a grantee is to receive a portion of such
payment in shares of Common Stock, the number of shares shall be determined by
dividing such portion by the Fair Market Value of a share of Common Stock on the
exercise date. No fractional shares shall be used for such payment and the
Committee shall determine whether cash shall be given in lieu of such fractional
shares or whether such fractional shares shall be eliminated.
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8. STOCK AWARDS (INCLUDING RESTRICTED AND UNRESTRICTED SHARES AND PHANTOM
STOCK)
(a) STOCK AWARDS, IN GENERAL. Subject to the other applicable
provisions of the Plan, the Committee may at any time and from time to time
grant stock Awards to eligible participants in such amounts and for such
consideration, including no consideration or such minimum consideration as may
be required by law, as it determines. A stock Award may be denominated in shares
of Common Stock or stock-equivalent units ("phantom stock"), and may be paid in
Common Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole discretion of the Committee from time to time.
(b) RESTRICTED SHARES. Each stock Award shall specify the applicable
restrictions, if any, on such shares of Common Stock, the duration of such
restrictions, and the time or times at which such restrictions shall lapse with
respect to all or a specified number of shares of Common Stock that are part of
the Award. Notwithstanding the foregoing, the Committee may reduce or shorten
the duration of any restriction applicable to any shares of Common Stock awarded
to any grantee under the Plan. Share certificates with respect to restricted
shares of Common Stock granted pursuant to a stock Award may be issued at the
time of grant of the stock Award, subject to forfeiture if the restrictions do
not lapse, or upon lapse of the restrictions. If share certificates are issued
at the time of grant of the stock Award, the certificates shall bear an
appropriate legend with respect to the restrictions applicable to such stock
Award or, alternatively, the grantee may be required to deposit the certificates
with the Corporation during the period of any restriction thereon and to execute
a blank stock power or other instrument of transfer therefor. Except as
otherwise provided by the Committee, during such period of restriction following
issuance of share certificates, the grantee shall have all of the rights of a
holder of Common Stock, including but not limited to the rights to receive
dividends (or amounts equivalent to dividends) and to vote with respect to the
restricted shares. If share certificates are issued upon lapse of restrictions
on a stock Award, the Committee may provide that the grantee will be entitled to
receive any amounts per share pursuant to any dividend or distribution paid by
the Corporation on its Common Stock to stockholders of record after grant of the
stock Award and prior to the issuance of the share certificates.
(c) PHANTOM STOCK. The grant of phantom stock units shall be evidenced
by a Grant Agreement, executed by the Corporation and the grantee, that
incorporates the terms of the Plan and states the number of phantom stock units
evidenced thereby and the terms and conditions of such phantom stock units in
such form as the Committee may from time to time determine. Phantom stock units
granted to a participant shall be credited to a bookkeeping reserve account
solely for accounting purposes and shall not require a segregation of any of the
Corporation's assets. Phantom stock units may be exercised in whole or in part
by delivery of an appropriate exercise notice to the Committee in accordance
with the provisions of the Grant Agreement, and/or such rules and regulations as
the Committee may prescribe, and/or such determinations, orders, or decisions as
the Committee may make. Except as otherwise provided in the applicable Grant
Agreement, the grantee shall have none of the rights of a stockholder with
respect to any shares of Common Stock represented by a phantom stock unit as a
result of the grant of a phantom stock unit to the grantee. Phantom stock units
may contain such other provisions, not inconsistent with the provisions of the
Plan, as the Committee shall determine appropriate from time to time.
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9. PERFORMANCE AWARDS
The Committee may in its discretion grant performance Awards.
Performance goals shall be based upon one or more of the following business
criteria as applied to an individual participant, a business unit or the
Corporation as a whole:
- earnings per share
- share price
- revenue growth
- return on equity
- return on assets or net assets
- timely completion of specific projects
- retention or hiring of key employees
- earnings before interest, taxes, depreciation, and amortization
- income or net income (before or after taxes)
- sales
- operating income or net operating income
- operating margin
- return on operating revenue
- market share
- cash flow
- costs
- total shareholder equity
- return on capital
The Committee may adopt other performance goals in its sole and absolute
discretion, provided, however, that in the event the Committee determines to
adopt performance goals based on criteria other than those stated above, the
Committee shall obtain shareholder approval of such criteria if such performance
goals are intended to comply with Section 162 of the Code.
Performance Awards may be paid by the delivery of Common Stock or cash,
or any combination of Common Stock and cash, as determined in the sole
discretion of the Committee from time to time.
10. WITHHOLDING OF TAXES
The Corporation may require, as a condition to the grant of any Award
under the Plan or exercise pursuant to such Award or to the delivery of
certificates for shares issued or payments of cash to a grantee pursuant to the
Plan or a Grant Agreement (hereinafter collectively referred to as a "taxable
event"), that the grantee pay to the Corporation, in cash or, unless otherwise
determined by the Corporation, in shares of Common Stock, including shares
acquired upon grant of the Award or exercise of the Award, valued at Fair Market
Value on the date as of which the withholding tax liability is determined, any
federal, state or
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local taxes of any kind required by law to be withheld with respect to any
taxable event under the Plan. The Corporation, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee any federal, state or
local taxes of any kind required by law to be withheld with respect to any
taxable event under the Plan, or to retain or sell without notice a sufficient
number of the shares to be issued to such grantee to cover any such taxes.
11. TRANSFERABILITY
Unless otherwise provided by the Committee, no Award granted under the
Plan shall be transferable by a grantee except by will or the laws of descent
and distribution. Unless otherwise determined by the Committee in accord with
the provisions of the immediately preceding sentence, an Award may be exercised
during the lifetime of the grantee, only by the grantee or, during the period
the grantee is under a legal disability, by the grantee's guardian or legal
representative.
12. ADJUSTMENTS; BUSINESS COMBINATIONS
In the event of a reclassification, recapitalization, stock split,
stock dividend, combination of shares, or other similar event, the maximum
number and kind of shares reserved for issuance or with respect to which Awards
may be granted under the Plan as provided in Section 4 shall be adjusted to
reflect such event, and the Committee shall make such adjustments as it deems
appropriate and equitable in the number, kind and price of shares covered by
outstanding Awards made under the Plan, and in any other matters which relate to
Awards and which are affected by the changes in the Common Stock referred to
above.
In the event of any proposed Change in Control, the Committee shall
take such action as it deems appropriate and equitable to effectuate the
purposes of this Plan and to protect the grantees of Awards, which action may
include, but without limitation, any one or more of the following: (i)
acceleration or change of the exercise dates of any Award; (ii) arrangements
with grantees for the payment of appropriate consideration to them for the
cancellation and surrender of any Award; and (iii) in any case where equity
securities other than Common Stock of the Corporation are proposed to be
delivered in exchange for or with respect to Common Stock of the Corporation,
arrangements providing that any Award shall become one or more Awards with
respect to such other equity securities.
The Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in the
preceding two paragraphs of this Section 12) affecting the Corporation, or the
financial statements of the Corporation or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
In the event the Corporation dissolves and liquidates (other than
pursuant to a plan of merger or reorganization), then notwithstanding any
restrictions on exercise set forth in this Plan or any Grant Agreement, or other
agreement evidencing a stock option, stock appreciation right or restricted
stock Award: (i) each grantee shall have the right to exercise
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his stock option or stock appreciation right, or to require delivery of share
certificates representing any such restricted stock Award, at any time up to ten
(10) days prior to the effective date of such liquidation and dissolution; and
(ii) the Committee may make arrangements with the grantees for the payment of
appropriate consideration to them for the cancellation and surrender of any
stock option, stock appreciation right or restricted stock Award that is so
canceled or surrendered at any time up to ten (10) days prior to the effective
date of such liquidation and dissolution. The Committee may establish a
different period (and different conditions) for such exercise, delivery,
cancellation, or surrender to avoid subjecting the grantee to liability under
Section 16(b) of the Exchange Act. Any stock option or stock appreciation right
not so exercised, canceled, or surrendered shall terminate on the last day for
exercise prior to such effective date; and any restricted stock as to which
there has not been such delivery of share certificates or that has not been so
canceled or surrendered, shall be forfeited on the last day prior to such
effective date. The Committee shall give to each grantee written notice of the
commencement of any proceedings for such liquidation and dissolution of the
Corporation and the grantee's rights with respect to his outstanding Award.
13. TERMINATION AND MODIFICATION OF THE PLAN
The Board, without further approval of the stockholders, may modify or
terminate the Plan or any portion thereof at any time, except that no
modification shall become effective without prior approval of the stockholders
of the Corporation if stockholder approval is necessary to comply with any tax
or regulatory requirement or rule of any exchange or Nasdaq System upon which
the Common Stock is listed or quoted; including for this purpose stockholder
approval that is required for continued compliance with Section 162(m) of the
Code or Rule 16b-3, or stockholder approval that is required to enable the
Committee to grant incentive stock options pursuant to the Plan.
The Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may be
dictated by requirements of federal or state laws applicable to the Corporation
or that may be authorized or made desirable by such laws. The Committee may
amend or modify the grant of any outstanding Award in any manner to the extent
that the Committee would have had the authority to make such Award as so
modified or amended.
14. NON-GUARANTEE OF EMPLOYMENT
Nothing in the Plan or in any Grant Agreement thereunder shall confer
any right on an employee to continue in the employ of the Corporation or shall
interfere in any way with the right of the Corporation to terminate an employee
at any time.
15. TERMINATION OF EMPLOYMENT
For purposes of maintaining a grantee's continuous status as an
employee and accrual of rights under any Award, transfer of an employee among
the Corporation and the Corporation's Parent or Subsidiaries shall not be
considered a termination of employment. Nor shall it be considered a termination
of employment for such purposes if an employee is placed on military or sick
leave or such other leave of absence which is considered as continuing intact
the employment relationship; in such a case, the employment relationship
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shall be continued until the date when an employee's right to reemployment shall
no longer be guaranteed either by law or contract.
16. WRITTEN AGREEMENT
Each Grant Agreement entered into between the Corporation and a grantee
with respect to an Award granted under the Plan shall incorporate the terms of
this Plan and shall contain such provisions, consistent with the provisions of
the Plan, as may be established by the Committee.
17. NON-UNIFORM DETERMINATIONS
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive Awards, the form, amount and
timing of such Awards, the terms and provisions of such Awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, Awards under
the Plan, whether or not such persons are similarly situated.
18. LIMITATION ON BENEFITS
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
19. LISTING AND REGISTRATION
If the Corporation determines that the listing, registration or
qualification upon any securities exchange or upon any listing or quotation
system established by the National Association of Securities Dealers, Inc.
("Nasdaq System") or under any law, of shares subject to any Award is necessary
or desirable as a condition of, or in connection with, the granting of same or
the issue or purchase of shares thereunder, no such Award may be exercised in
whole or in part and no restrictions on such Award shall lapse, unless such
listing, registration or qualification is effected free of any conditions not
acceptable to the Corporation.
20. COMPLIANCE WITH SECURITIES LAW
The Corporation may require that a grantee, as a condition to exercise
of an Award, and as a condition to the delivery of any share certificate,
provide to the Corporation, at the time of each such exercise and each such
delivery, a written representation that the shares of Common Stock being
acquired shall be acquired by the grantee solely for investment and will not be
sold or transferred without registration or the availability of an exemption
from registration under the Securities Act and applicable state securities laws.
The Corporation may also require that a grantee submit other written
representations which will permit the Corporation to comply with federal and
applicable state securities laws in connection with the issuance of the Common
Stock, including representations as to the knowledge and experience in financial
and business matters of the grantee and the grantee's ability to bear the
economic risk of the grantee's investment. The Corporation may require that the
grantee
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obtain a "purchaser representative" as that term is defined in applicable
federal and state securities laws. The stock certificates for any shares of
Common Stock issued pursuant to this Plan may bear a legend restricting
transferability of the shares of Common Stock unless such shares are registered
or an exemption from registration is available under the Securities Act and
applicable state securities laws. The Corporation may notify its transfer agent
to stop any transfer of shares of Common Stock not made in compliance with these
restrictions. Common Stock shall not be issued with respect to an Award granted
under the Plan unless the exercise of such Award and the issuance and delivery
of share certificates for such Common Stock pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any national securities exchange or Nasdaq System upon which the
Common Stock may then be listed or quoted, and shall be further subject to the
approval of counsel for the Corporation with respect to such compliance to the
extent such approval is sought by the Committee.
21. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS
Nothing contained in the Plan shall prevent the Corporation or its
Parent or Subsidiary corporations from adopting or continuing in effect other
compensation arrangements (whether such arrangements be generally applicable or
applicable only in specific cases) as the Committee in its discretion determines
desirable, including without limitation the granting of stock options, stock
awards, stock appreciation rights or phantom stock units otherwise than under
the Plan.
22. NO TRUST OR FUND CREATED
Neither the Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Corporation and a grantee or any other person. To the extent that any grantee or
other person acquires a right to receive payments from the Corporation pursuant
to an Award, such right shall be no greater than the right of any unsecured
general creditor of the Corporation.
23. GOVERNING LAW
The validity, construction and effect of the Plan, of Grant Agreements
entered into pursuant to the Plan, and of any rules, regulations, determinations
or decisions made by the Board or Committee relating to the Plan or such Grant
Agreements, and the rights of any and all persons having or claiming to have any
interest therein or thereunder, shall be determined exclusively in accordance
with applicable federal laws and the laws of the State of Maryland, without
regard to its conflict of laws rules and principles.
24. PLAN SUBJECT TO CHARTER AND BY-LAWS
This Plan is subject to the Charter and By-Laws of the Corporation, as
they may be amended from time to time.
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25. EFFECTIVE DATE; TERMINATION DATE
The Plan is effective as of the date on which the Plan was adopted by
the Board, subject to approval of the stockholders within twelve months before
or after such date. No Award shall be granted under the Plan after the close of
business on the day immediately preceding the tenth anniversary of the effective
date of the Plan. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board: November 12, 1999
-----------------
Date Approved by the Shareholders: November 12, 1999
-----------------
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Exhibit 10.2
SERVICE MARK LICENSE AGREEMENT
THIS AGREEMENT made as of the 12th day of November, 1999 by and
between NATHAN A. CHAPMAN, JR., an individual and citizen of the United
States (the "Licensor"), and ECHAPMAN.COM, INC., a Maryland corporation, and
its wholly-owned subsidiaries (the "Licensee") (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 its investment banking and brokerage services,
mutual fund services and insurance 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, Licensee desires to use the Marks in its Internet, investment
banking and brokerage services, mutual fund services and insurance services
businesses; and
WHEREAS, on the terms set forth herein, Licensor is willing to grant
unto Licensee 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
Licensee, and Licensee hereby accepts, a revocable, non-exclusive,
non-transferable license to utilize the Marks in connection with the Services.
1.2 Licensee shall not be required to make any further payments for the
use of the Marks as contemplated herein.
1.3 Licensee shall use the Marks only in the United States and its
territories.
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, any advertising, promotional activities, and other
activities in connection with which Licensee uses the Marks. Licensor authorizes
the Licensee to use the Marks for the Services, but Licensor has the right,
prior to use by Licensee of the Marks (or any one of them) in any manner on or
in connection with the Services to examine and approve the
<PAGE>
manner in which Licensee uses the Marks. Licensee shall ensure that the Services
meet or exceed the highest quality standards of the Internet industry. Licensor
reserves the right, at any time during the term of this License, to review
Licensee's use of the Marks to insure that Licensee's use is in compliance with
this Agreement. In addition, Licensee, 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 Licensee agrees 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
Licensee), 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, Licensee agrees 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 Licensee 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 Licensee.
4. ACKNOWLEDGMENT OF VALIDITY AND GOODWILL OF THE MARKS.
Licensee acknowledges and admits 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. Licensee covenants that it 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, Licensee shall mark all
advertising and promotional materials utilizing the Marks with proper trademark
notices as prescribed by Licensor.
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 name of
Licensee or join Licensee 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 Licensee agree that Licensee shall bear
part of the expense of such litigation, Licensee shall be entitled to share in
any
2
<PAGE>
monetary judgment recovered in the same proportion as the amount that its
contribution of expenses bears to the total expense of the litigation. Licensee
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 that suit for infringement by the Marks is brought
against Licensee, Licensee 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
Licensee.
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 Licensee 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 Licensee of substantially all of its assets,
whether by sale of shareholder interest or sale of assets, or a change in
control of Licensee.
7.2.3 The insolvency of Licensee.
7.2.4 The cessation of the use of the Marks in Licensee's
business.
7.2.5 The receivership or bankruptcy of Licensee, or if
Licensee should make an assignment for the benefit of creditors.
8. INDEMNIFICATION.
Licensee shall indemnify, defend and hold Licensor harmless
from and against all claims, losses, liabilities, judgments and expenses (as
provided below) 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 Licensee in writing of such claim and Licensor
shall cooperate fully in the defense thereof and furnish to Licensee all
evidence and assistance in Licensor's control. To the extent that Licensee
controls the defense, agrees to have Licensor control the defense, or to the
extent Licensee enters into or agrees to a settlement agreement, Licensee 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
Licensee) incurred by Licensor as a result of any such claim or any resulting
judgment or settlement.
3
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9. ASSIGNMENT.
Licensee 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,
Licensee 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. Licensee hereby agrees that at the
termination of this Agreement, Licensee 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 Licensee pursuant
to this Agreement or otherwise. If requested by Licensor, Licensee shall,
without further consideration therefor, execute any instrument to accomplish or
confirm the foregoing.
11. LICENSOR'S REMEDIES.
Licensee acknowledges that its failure to comply with its 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. Licensee acknowledges and admits that there is no adequate remedy at
law for such default, and Licensee 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, Licensee agrees 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 Licensee's customers acknowledging Licensee's breach of this Agreement.
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 Licensee 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.
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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 manner 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.
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/ EARL U. BRAVO, SR. /S/ NATHAN A. CHAPMAN, JR. (SEAL)
- -------------------------- ------------------------------------
NATHAN A. CHAPMAN, JR.
ATTEST: LICENSEE:
ECHAPMAN.COM, INC.
By: /S/ EARL U. BRAVO, SR. /S/ NATHAN A. CHAPMAN, JR. (SEAL)
- -------------------------- ------------------------------------
Nathan A. Chapman, Jr.
President
[Corporate Seal]
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APPENDIX A
TRADEMARKS
1. Domestic Emerging Markets(R)
2. DEM(R)
3.
[GRAPHIC OMITTED](TM)
4. DEM Index(TM)
5. DEM Profile(TM)
6. DEM Universe(TM)
7. DEM Community(TM)
8. DEM Company(TM)
9. DEM Multi-Manager(TM)
10. Chapman(TM)
11. Chapman Education(TM)
12. Chapman Network(TM)
13. Chapman Trading(TM)
14. Chapman Marketplace(TM)
15. Chapman Kids Club(TM)
16. EChapman.com(TM)
<PAGE>
Exhibit 10.3
AGREEMENT AND PLAN
OF MERGER
BY AND AMONG
ECHAPMAN.COM, INC.,
CHI MERGER SUBSIDIARY, INC.
AND
CHAPMAN HOLDINGS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I THE MERGER........................................ 1
SECTION 1.1. The Merger................................... 1
SECTION 1.2. Effective Time of the Merger................. 1
ARTICLE II THE SURVIVING CORPORATION........................ 2
SECTION 2.1. Charter...................................... 2
SECTION 2.2. By-laws...................................... 2
SECTION 2.3. Effect of the Merger......................... 2
SECTION 2.4. Directors.................................... 2
SECTION 2.5. Officers..................................... 2
ARTICLE III CONVERSION OF SHARES............................ 3
SECTION 3.1. Conversion of CHI Shares in the Merger....... 3
SECTION 3.2. Consideration................................ 4
SECTION 3.3. Exchange of Certificates..................... 4
SECTION 3.4. No Fractional Securities..................... 6
SECTION 3.5. Closing...................................... 6
SECTION 3.6. Closing of CHI's Transfer Books.............. 6
ARTICLE IV REPRESENTATION AND WARRANTIES OF EChapman AND
MERGER SUBSIDIARY........................................... 7
SECTION 4.1. Organization................................. 7
SECTION 4.2. Capitalization............................... 7
SECTION 4.2. Authority; Non-Contravention; Approvals...... 8
SECTION 4.4. Absence of Undisclosed Liabilities........... 9
SECTION 4.5. Absence of Litigation........................ 9
SECTION 4.6. Registration Statement and Proxy Statement... 10
SECTION 4.7. Compliance with Agreements................... 10
SECTION 4.8. EChapman Stockholders' Approval.............. 10
SECTION 4.9. Brokers and Finders.......................... 10
SECTION 4.10. Chapman Capital Management Holdings, Inc.... 11
SECTION 4.11. Anti-takeover Statutes...................... 11
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CHI............. 11
SECTION 5.1. Organization and Qualification............... 11
SECTION 5.2. Capitalization............................... 11
SECTION 5.3. Subsidiaries................................. 12
SECTION 5.4. Authority; Non-Contravention; Approvals...... 12
SECTION 5.5. Securities Reports and Financial
Statements.............................................. 14
SECTION 5.6. Absence of Undisclosed Liabilities........... 14
SECTION 5.7. Absence of Certain Changes or Events......... 14
SECTION 5.8. Absence of Litigation........................ 15
SECTION 5.9. Registration Statement and Proxy Statement... 15
SECTION 5.10. No Violation of Law......................... 15
SECTION 5.11. Compliance with Agreements.................. 16
SECTION 5.12. Taxes....................................... 16
SECTION 5.13. Employee Benefits Plans; ERISA.............. 16
SECTION 5.14. Labor Controversies......................... 18
SECTION 5.15. Title to Assets............................. 18
SECTION 5.16. CHI Stockholders' Approval.................. 19
SECTION 5.17. Trademarks and Intellectual Property
Compliance.............................................. 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 5.18. Material Agreements......................... 19
SECTION 5.19. Insurance................................... 19
SECTION 5.20. Brokers and Finders......................... 20
SECTION 5.21. Certain Transactions........................ 20
SECTION 5.22. Opinion of Financial Advisor................ 20
SECTION 5.23. Anti-takeover Statutes...................... 20
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER........... 20
SECTION 6.1. Conduct of Business by CHI Pending the
Merger.................................................. 20
SECTION 6.2. Conduct of Business by EChapman Pending the
Merger.................................................. 22
SECTION 6.3. Control of CHI's Operations.................. 23
SECTION 6.4. Control of EChapman's Operations............. 23
SECTION 6.5. Acquisition Transactions..................... 23
ARTICLE VII ADDITIONAL AGREEMENTS........................... 24
SECTION 7.1. Access to Information........................ 24
SECTION 7.2. Stockholders' Approval....................... 24
SECTION 7.3. Affiliates of CHI............................ 25
SECTION 7.4. Expenses and Fees............................ 25
SECTION 7.5. Agreement to Cooperate....................... 25
SECTION 7.6. Public Statements............................ 26
SECTION 7.7. Notification of Certain Matters.............. 26
SECTION 7.8. Proxy Statement/Prospectus and Registration
Statement............................................... 26
SECTION 7.9. Tax-Free Treatment of Merger................. 26
SECTION 7.10. Directors' and Officers' Indemnification.... 27
SECTION 7.11. Amendment to CCMHI Merger Agreement......... 28
ARTICLE VIII CONDITIONS..................................... 28
SECTION 8.1. Conditions to Each Party's Obligation to
Effect the Merger....................................... 28
SECTION 8.2. Additional Conditions to Obligation of CHI to
Effect the Merger....................................... 29
SECTION 8.3. Additional Conditions to Obligations of
EChapman and Merger Subsidiary to Effect the Merger..... 30
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER................ 30
SECTION 9.1. Termination.................................. 30
SECTION 9.2. Effect of Termination........................ 31
SECTION 9.3. Amendment.................................... 31
SECTION 9.4. Waiver....................................... 31
ARTICLE X GENERAL PROVISIONS................................ 31
SECTION 10.1. Non-Survival of Representations and
Warranties.............................................. 32
SECTION 10.2. Notices..................................... 32
SECTION 10.3. Interpretation.............................. 33
SECTION 10.4. Miscellaneous............................... 33
SECTION 10.5. Counterparts................................ 33
SECTION 10.6. Parties In Interest......................... 33
SECTION 10.7. Exhibits and Schedules...................... 33
SECTION 10.8. Severability................................ 33
SECTION 10.9. Definition of Knowledge..................... 34
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), made this 15(th)day of
November, 1999, by and among EChapman.com, Inc., a Maryland corporation
("EChapman"), CHI Merger Subsidiary, Inc., a Maryland corporation and wholly
owned subsidiary of EChapman ("Merger Subsidiary"), and Chapman Holdings, Inc.,
a Maryland corporation ("CHI").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of EChapman and CHI have each
determined that the merger of CHI with and into Merger Subsidiary (the "Merger")
is consistent with and in furtherance of the long-term business strategy of
EChapman and CHI and subject to receipt of the fairness opinion referred to
hereinafter is fair to, and in the best interests of, CHI and its stockholders;
WHEREAS, the respective Boards of Directors of EChapman, Merger Subsidiary
and CHI have each approved the Merger, upon the terms and subject to the
conditions set forth herein; and
WHEREAS, EChapman, Merger Subsidiary and CHI intend to qualify the Merger as
a tax-free reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Maryland General Corporation Law (the "MGCL"), CHI shall be merged with
and into Merger Subsidiary and the separate corporate existence of CHI shall
thereupon cease. Merger Subsidiary shall be the surviving corporation under the
name Chapman Holdings, Inc. in the Merger and is hereinafter sometimes referred
to as the "Surviving Corporation." The Surviving Corporation will be governed by
laws of the State of Maryland as a direct, wholly owned subsidiary of EChapman.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at such time (the "Effective Time") as shall be stated in Articles of Merger, in
a form mutually acceptable to EChapman and CHI, to be filed with the State
Department of Assessments and Taxation of Maryland (the "SDAT") in accordance
with the MGCL (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the Closing (as defined in
Section 3.5) of the transactions contemplated by this Agreement.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1. CHARTER. The Charter of Merger Subsidiary, as in effect
immediately prior to the Effective Time, except that the name of the Surviving
Corporation will change to Chapman Holdings, Inc., shall be the Charter of the
Surviving Corporation until duly amended in accordance with applicable law.
SECTION 2.2. BY-LAWS. The By-laws of Merger Subsidiary, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until duly amended in accordance with applicable law.
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SECTION 2.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
the MGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, except as otherwise provided herein, all the property,
rights, privileges, powers and franchises of Merger Subsidiary and CHI shall
vest in the Surviving Corporation, all debts, liabilities and duties of Merger
Subsidiary and CHI shall become the debts, liabilities and duties of the
Surviving Corporation in the same manner as if the Surviving Corporation had
itself incurred them, and the separate corporate existence of Merger Subsidiary
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth herein.
SECTION 2.4. DIRECTORS. The directors of Merger Subsidiary immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified in accordance with the Charter and By-laws of the
Surviving Corporation, or their earlier death, resignation or removal.
SECTION 2.5. OFFICERS. The officers of Merger Subsidiary immediately prior
to the Effective Time shall be the initial officers of the Surviving Corporation
and shall serve as the officers of the Surviving Corporation at the pleasure of
the Board of Directors of the Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. CONVERSION OF CHI SHARES IN THE MERGER. Subject to Section 3.4
regarding fractional shares, at the Effective Time, by virtue of the Merger and
without any action on the part of any holder of any shares of CHI's common
stock, par value $0.001 per share ("CHI Common Stock"):
(a) Each share of CHI Common Stock issued and outstanding immediately prior
to the Effective Time, other than CHI Common Stock owned by EChapman or Merger
Subsidiary, or owned by an Objecting Stockholder (as defined in Section 3.1(c))
shall be converted in accordance with Section 3.3 into the right to receive the
Merger Consideration (as defined in Section 3.2).
(b) Each share of CHI Common Stock owned by EChapman or Merger Subsidiary
(each a "Non-Converting Share") immediately prior to the Effective Time, if any,
shall be cancelled and extinguished without conversion thereof into EChapman
Shares (as defined in Section 3.2(a)) or payment therefor.
(c) Any holder (an "Objecting Stockholder") of CHI Common Stock ("Objecting
Shares") who files with CHI a written objection to the proposed Merger at or
before the stockholders' meeting at which the proposed Merger will be
considered, whose shares are not voted in favor of the approval of the Merger at
the meeting of CHI stockholders at which the Merger is approved, and who, within
twenty (20) days after the Effective Time (which time will be set forth in a
notice provided to any such stockholder by EChapman and Merger Subsidiary by
certified mail, return receipt requested pursuant to Section 3-207(b) of the
MGCL), makes a written demand upon Merger Subsidiary for payment for such
Objecting Shares, accompanied by a surrender of the certificates for such
Objecting Shares, all pursuant to the provisions of Title 3, Subtitle 2 of the
MGCL, or any successor statute thereto, shall be entitled to receive from Merger
Subsidiary in cash the fair value of such Objecting Shares determined in
accordance with the aforesaid provisions of the MGCL, or any successor statute
thereto. The amount paid to any Objecting Stockholder shall be debited against
the capital accounts of Merger Subsidiary. If any Objecting Stockholder objects
to the Merger and demands payment in cash for his Objecting Shares as aforesaid,
EChapman shall pay to Merger Subsidiary, as a contribution to its capital, cash
at a price per share equal to the price per share paid by Merger Subsidiary to
such Objecting Stockholder.
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(d) Each unexpired option to purchase CHI Common Stock ("CHI Options") that
is outstanding at the Effective Time shall be converted into an option to
purchase the number of EChapman Shares (as defined in Section 3.2) equal to the
number of shares of CHI Common Stock which could be acquired upon the exercise
of such CHI Options multiplied by the Exchange Ratio (as defined in
Section 3.2), at an exercise price per share equal to the per share exercise
price of such CHI Options divided by the Exchange Ratio rounded to the nearest
whole cent and in any case an amount which, is not less than the par value, if
any, of EChapman Shares (the "Exchanged Options"). EChapman shall maintain
sufficient authorized shares of stock to issue EChapman Shares that will become
issuable upon the exercise of the Exchanged Options.
(e) At the Effective Time, each issued and outstanding share of common
stock, par value $.001 per share, of Merger Subsidiary shall remain outstanding.
(f) No share of CHI Common Stock shall be deemed to be outstanding or to
have any rights other than those set forth in this Section 3.1 after the
Effective Time unless specified by applicable provisions of the MGCL.
SECTION 3.2. CONSIDERATION.
(a) The consideration to be issued to each holder of CHI Common Stock in the
Merger ("Merger Consideration") will be that number of shares of EChapman common
stock, par value $0.001 per share ("EChapman Shares"), which is determined by
multiplying the Exchange Ratio (as defined below) by the number of shares of CHI
Common Stock held by such holder of CHI Common Stock on the Closing Date (as
defined in Section 3.5). The "Exchange Ratio" shall equal 1.93295 EChapman
Shares for each share of CHI Common Stock.
(b) No fractional EChapman Shares shall be issued, and, in lieu thereof, a
Fractional Share Payment shall be made (as defined in Section 3.4).
(c) The Merger Consideration shall be subject to equitable adjustment in the
event of any stock split, stock dividend, reverse stock split or other change
(other than pursuant to exercises of outstanding options) in the number of
EChapman Shares or CHI Common Stock outstanding prior to Closing.
SECTION 3.3. EXCHANGE OF CERTIFICATES.
(a) Except as otherwise provided in Section 3.1(c) or by the MGCL, from and
after the Effective Time, all CHI Common Stock shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing shares of CHI Common Stock shall cease
to have any rights with respect thereto, except the right to receive in exchange
therefor, upon surrender thereof to a bank or trust company designated by
EChapman and acceptable to CHI (the "Exchange Agent"), a certificate
representing EChapman Shares to which such holder is entitled pursuant to
Section 3.1 plus the Fractional Share Payment. Notwithstanding any other
provision of this Agreement, until holders or transferees of certificates
theretofore representing shares of CHI Common Stock have surrendered them for
exchange as provided herein, no dividends or other distributions declared or
made after the Effective Time with respect to EChapman Shares with a record date
after the Effective Time shall be paid with respect to any EChapman Shares
represented by such certificates and no Fractional Share Payment shall be made.
Upon surrender of a certificate which immediately prior to the Effective Time
represented shares of CHI Common Stock, there shall be paid to the holder of
such certificate by EChapman without interest, (i) promptly, the amount of any
Fractional Share Payment with respect to a fractional EChapman Share to which
such holder is entitled, (ii) except as provided in (iii), below, the amount of
dividends or other distributions (without interest) with a record date after the
Effective Time which theretofore became payable with respect to whole EChapman
Shares, and (iii) at the appropriate payment date, the amount of dividends or
other
3
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distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole EChapman Shares.
(b) If any EChapman Shares are to be issued in a name other than that in
which the certificate for shares of CHI Common Stock surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and the person requesting such exchange shall have paid to
EChapman or the Exchange Agent any applicable transfer or other taxes required
by reason of such issuance.
(c) As of the Effective Time, EChapman shall deposit, or cause to be
deposited, with the Exchange Agent, for the account of Merger Subsidiary, the
number of EChapman Shares required to effect the exchanges referred to in
paragraph (a) above, and cash for purposes of the Fractional Share Payment.
EChapman shall thereafter from time to time deposit, or cause to be deposited,
with the Exchange Agent cash for payment of any dividend or distributions in
respect of such EChapman Shares with a record date after the Effective Time.
(d) As soon as reasonably practicable after the Effective Time, EChapman or
the Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record as of the Effective Time of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of CHI
Common Stock (the "CHI Certificates"), whose shares were converted into the
right to receive EChapman Shares (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to CHI
Certificates shall pass, only upon delivery of CHI Certificates to the Exchange
Agent), and (ii) instructions for use in effecting the surrender of CHI
Certificates in exchange for EChapman Shares. Upon surrender of a CHI
Certificate for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal, the holder of such CHI Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole EChapman Shares into which the shares of CHI Common Stock theretofore
represented by CHI Certificates so surrendered shall have been converted
pursuant to the provisions of Section 3.1, and CHI Certificates so surrendered
shall be cancelled. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of CHI Common Stock
for any EChapman Shares or dividends or distributions thereon delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(e) Promptly following the date which is six (6) months after the Effective
Time, EChapman or the Surviving Corporation shall cause the Exchange Agent to
deliver to EChapman all certificates, property and other documents in its
possession relating to the transactions described in this Agreement. Thereafter,
each holder of a CHI Certificate may surrender such CHI Certificate to EChapman
and (subject to applicable abandoned property, escheat and similar laws) receive
in exchange therefor a certificate representing EChapman Shares to which such
person is entitled, any dividends or distributions with respect to the EChapman
Shares and any Fractional Share Payment, in each case without any interest
thereon. Notwithstanding the foregoing, none of the Exchange Agent, EChapman,
Merger Subsidiary, or the Surviving Corporation shall be liable to a holder of
CHI Common Stock for any EChapman Shares delivered to a public official pursuant
to applicable abandoned property, escheat and similar laws.
(f) In the event any CHI Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such CHI Certificate to be lost, stolen or destroyed, and the posting of a bond
by such person in such amount as EChapman may direct as indemnity against any
claim that may be made against it or the Exchange Agent with respect to such CHI
Certificate, the Exchange Agent, EChapman or the Surviving Corporation, as the
case may be, shall issue in exchange for such lost, stolen or destroyed CHI
Certificate, a certificate representing the proper number of EChapman Shares
deliverable in respect thereof determined in accordance with this Section 3.3,
and
4
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cash for the Fractional Share Payment and any other dividends or distributions
in respect of EChapman Shares with a record date after the Effective Time.
SECTION 3.4. NO FRACTIONAL SECURITIES. No fractional EChapman Shares shall
be issued in the Merger and no stock dividend, stock split or interest shall
relate to any fractional security, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a security holder.
In lieu of any such fractional shares, each holder of CHI Common Stock, who
would otherwise have been entitled to receive a certificate representing a
fractional EChapman Share upon surrender of CHI Certificates for exchange
pursuant to this Article III, shall be entitled to receive from the Exchange
Agent a cash payment (the "Fractional Share Payment") equal to the product of
the fractional share interest to which such holder would otherwise be entitled
multiplied by $29.
SECTION 3.5. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Venable,
Baetjer and Howard, LLP, Suite 1800, 2 Hopkins Plaza, Baltimore, MD 21201, on
the day of CHI's Stockholders' Approval as such term is defined in Section 7.2,
below, or at such other time and place as EChapman and CHI shall reasonably
agree (the date on which the Closing occurs is referred to in this Agreement as
the "Closing Date").
SECTION 3.6. CLOSING OF CHI'S TRANSFER BOOKS. At the Effective Time, the
stock transfer books of CHI shall be closed and no transfer of shares of CHI
Common Stock which were outstanding immediately prior to the Effective Time
shall thereafter be made. From and after the Effective Time, the holders of CHI
Certificates representing shares of CHI Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights as stockholders of
CHI, except as otherwise provided herein or by law. If, after the Effective
Time, subject to the terms and conditions of this Agreement, CHI Certificates
formerly representing CHI Common Stock are presented to the Exchange Agent,
EChapman or Surviving Corporation, as the case may be, they shall be cancelled
and exchanged for certificates representing EChapman Shares and cash for the
Fractional Share Payment and any other dividends or distributions in respect of
EChapman Shares with a record date after the Effective Time in accordance with
this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EChapman AND MERGER
SUBSIDIARY
EChapman and Merger Subsidiary each represent and warrant to CHI as of the
date hereof as follows:
SECTION 4.1. ORGANIZATION . The Merger Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Maryland. EChapman is a corporation duly organized and validly existing and in
good standing under the laws of the state of Maryland. Each of EChapman and
Merger Subsidiary has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. Neither EChapman nor Merger Subsidiary is in violation of any
of the provisions of their respective charters or By-laws.
SECTION 4.2. CAPITALIZATION.
(a) The authorized capital stock of EChapman consists of 50,000,000 shares
of EChapman Shares, of which one share is outstanding. The issued and
outstanding EChapman Share is, and all EChapman Shares to be issued at the
Effective Time shall be, when issued, duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights granted by EChapman or by
applicable law.
(b) Except as set forth in this Agreement, the Affiliate Agreements (as
defined in Section 7.3) and the CCMHI Merger Agreement (as defined in
Section 4.10) or in connection with the EChapman
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Public Offering (as defined in Section 8.1(f)), there are (i) no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement and also including any rights plan or other anti-takeover agreement,
obligating EChapman or any subsidiary of EChapman to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
EChapman or obligating EChapman or any subsidiary of EChapman to grant, extend
or enter into any such agreement or commitment, and (ii) no voting trusts,
proxies or other agreements or understandings to which EChapman or any
subsidiary of EChapman is a party or is bound with respect to the voting of any
shares of capital stock of EChapman and, to the knowledge of EChapman, there are
no such trusts, proxies, agreements or understandings by, between or among any
of EChapman "s stockholders with respect to EChapman Shares.
(c) The authorized capital stock of Merger Subsidiary consists of 20,000,000
shares of Merger Subsidiary Common Stock, of which 1,000 shares are issued and
outstanding all of which are owned beneficially and of record by EChapman.
EChapman has no other direct or indirect subsidiaries, except for CCMHI Merger
Subsidiary, Inc. and CIHI Merger Subsidiary, Inc.
SECTION 4.3. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) EChapman and Merger Subsidiary each have full corporate power and
authority to enter into this Agreement and, subject to EChapman Required
Statutory Approvals (as defined in Section 4.3(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Boards
of Directors of EChapman and Merger Subsidiary and by the sole stockholder of
EChapman and Merger Subsidiary, and no other corporate proceedings on the part
of EChapman or Merger Subsidiary are necessary to authorize the execution and
delivery of this Agreement or the consummation by EChapman and Merger Subsidiary
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each of EChapman and Merger Subsidiary, and, assuming the due
authorization, execution and delivery hereof by CHI, constitutes a valid and
legally binding agreement of each of EChapman and Merger Subsidiary, enforceable
against each of them in accordance with its terms, except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally, and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of EChapman and
Merger Subsidiary does not, and the performance of this Agreement and the
transactions contemplated hereby by EChapman and Merger Subsidiary shall not,
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of EChapman or Merger
Subsidiary, under any of the terms, conditions or provisions of (i) the
respective Charters and By-laws of EChapman or Merger Subsidiary, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority, domestic or
foreign, applicable to EChapman or Merger Subsidiary or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which EChapman or Merger
Subsidiary is now a party or by which EChapman or Merger Subsidiary or any of
their respective properties or assets may be bound. Excluded from the foregoing
sentences of this paragraph (b), insofar as they apply to the terms, conditions
or provisions described in clauses (ii) and (iii) of the first sentence of this
paragraph (b), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or encumbrances
that would not, in the aggregate, have a material adverse effect on the
business, operations, properties, assets, condition (financial or other) or
results of operations of EChapman and Merger Subsidiary, taken as a whole (an
"EChapman Material Adverse Effect").
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(c) Except for (i) the filing of the Registration Statement (as defined in
Section 4.6) with the SEC pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration of the effectiveness thereof by the
SEC and filings with various state blue sky authorities and any other required
filings in other jurisdictions to register or exempt EChapman Shares issuable
pursuant hereto, and (ii) the making of the Merger Filing with the SDAT in
connection with the Merger (collectively referred to as the "EChapman Required
Statutory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority, domestic or foreign, is necessary for the execution and
delivery of this Agreement by EChapman or Merger Subsidiary or the consummation
by EChapman or Merger Subsidiary of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, have a EChapman Material Adverse Effect, or affect Merger
Subsidiary's ability to consummate the Merger.
SECTION 4.4. ABSENCE OF UNDISCLOSED LIABILITIES. Neither EChapman nor Merger
Subsidiary has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities that were incurred in
the ordinary course of business and that will not have an EChapman Material
Adverse Effect.
SECTION 4.5. ABSENCE OF LITIGATION. There is no claim of any kind, suit,
action, proceeding, litigation, arbitration, investigation or controversy
affecting EChapman or Merger Subsidiary pending or, to the knowledge of
EChapman, threatened and neither EChapman nor any of its subsidiaries is subject
to any continuing order of, or written agreement or memorandum of understanding
with, or continuing material investigation by, any governmental entity or
authority, or any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator.
SECTION 4.6. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by EChapman for inclusion in (a) the
Registration Statement on Form S-4 to be filed under the Securities Act with the
SEC by EChapman and CHI in connection with the Merger for the purpose of
registering EChapman Shares and Exchanged Options to be issued in connection
with the Merger (the "Registration Statement"), or (b) the proxy statement to be
distributed in connection with CHI's meeting of stockholders to vote upon this
Agreement and the transactions contemplated hereby (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Proxy
Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, at the time of the
meeting of stockholders of CHI to be held in connection with the transactions
contemplated by this Agreement, and at the Effective Time, or, in the case of
the Registration Statement, as amended or supplemented, at the time it is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement and Proxy
Statement/Prospectus shall comply in all material respects as to form and
substance with the requirements of the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder, except that no representation is
made by EChapman with respect to information supplied by CHI for inclusion
therein.
SECTION 4.7. COMPLIANCE WITH AGREEMENTS. EChapman and Merger Subsidiary are
not in breach or violation of or in default in the performance or observance of
any term or provision of, and no event has occurred which, with notice or lapse
of time or action by a third party, could result in a default under (a) their
respective charters or By-Laws; or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which EChapman or Merger Subsidiary is a party or by which
any of them is bound or to which any of their
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property is subject, which breaches, violations and defaults, in the case of
clause (b) of this Section 4.11, would have, in the aggregate, an EChapman
Material Adverse Effect.
SECTION 4.8. EChapman Stockholders' Approval. The affirmative vote of the
holders of a majority of the outstanding shares of EChapman Shares entitled to
vote is not necessary to approve the transactions contemplated by this
Agreement.
SECTION 4.9. BROKERS AND FINDERS. Neither EChapman nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated hereby.
SECTION 4.10. CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. The representations
and warranties of Chapman Capital Management Holdings, Inc. set forth in
Article V of the Agreement and Plan of Merger dated as of the date of this
Agreement (the "CCMHI Merger Agreement") by and between Chapman Capital
Management Holdings, Inc., CCMHI Merger Subsidiary, Inc. and EChapman are true
and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement is true and correct in all respects).
SECTION 4.11. ANTI-TAKEOVER STATUTES. The provisions of Section 3-601 et
seq. (Special Voting Requirements) and Section 3-701 et seq. (Voting Rights of
Certain Control Shares) of the MGCL do not apply with respect to EChapman or
Merger Subsidiary in connection with the transactions contemplated by this
Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CHI
CHI represents and warrants to EChapman as of the date hereof as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION. CHI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. CHI is qualified to do business and is in good standing, where
applicable, in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all other such failures, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of CHI and its
subsidiaries, taken as a whole (a "CHI Material Adverse Effect"). CHI is not in
violation of any of the provisions of its charter or By-Laws.
SECTION 5.2. CAPITALIZATION.
(a) The authorized capital stock of CHI consists of 20 million shares of
CHI Common Stock of which 2,953,622 shares are issued and outstanding. All of
the issued and outstanding shares of CHI's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights granted by CHI or by applicable law.
(b) Except as disclosed in CHI SEC Reports (as defined in Section 5.5) or
the CHI minute book, as of the date hereof, there are (i) no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement and also including any rights plan or other anti-takeover agreement,
obligating CHI or any subsidiary of CHI to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of the capital stock of CHI or
obligating CHI or any subsidiary of CHI to grant, extend or enter into any such
agreement or commitment, and (ii) no voting trusts, proxies or other agreements
or understandings to which CHI or any subsidiary of CHI is a party or is bound
with respect to the voting of any shares of capital stock of CHI and, to the
knowledge of CHI, there are no such trusts, proxies, agreements or
understandings by, between or among any of CHI's stockholders with respect to
CHI Common Stock.
SECTION 5.3. SUBSIDIARIES. Except as disclosed in CHI SEC Reports (as
defined in Section 5.5), CHI has no subsidiaries. Each direct and indirect
subsidiary of CHI is duly organized, validly existing and in good standing,
where applicable, under the laws of its jurisdiction of incorporation or
organization and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, except where any failure would not have a CHI Material Adverse
Effect. Each subsidiary of CHI is qualified to do business, and is in good
standing, where applicable, in each jurisdiction (except California and Illinois
for The Chapman Co.) in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have
a CHI Material Adverse Effect. All of the outstanding shares of capital stock of
each corporate subsidiary of CHI have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights and are
beneficially owned directly or indirectly by CHI, free and clear of any liens,
claims or encumbrances. There are no subscriptions, options, warrants, rights,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions or arrangements relating to the issuance, sale, voting, transfer,
ownership or other rights with respect to any shares of capital stock of any
subsidiary of CHI, including any right of conversion or exchange under any
outstanding security, instrument or agreement.
SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
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(a) CHI has full corporate power and authority to enter into this Agreement
and, subject to CHI Stockholders' Approval (as defined in Section 7.2 and CHI
Required Statutory Approvals (as defined in Section 5.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of CHI, and no other corporate proceedings on the part of CHI are
necessary to authorize the execution and delivery of this Agreement or, except
for CHI Stockholders' Approval, the consummation by CHI of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by CHI,
and, assuming the due authorization, execution and delivery hereof by EChapman
and Merger Subsidiary, constitutes a valid and legally binding agreement of CHI,
enforceable against CHI in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally, and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by CHI does not, and the
performance of this Agreement and the transactions contemplated hereby by CHI
shall not, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of CHI or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or By-laws of CHI or any of its subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to CHI
or any of its subsidiaries or any of their respective properties or assets, or
(iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which CHI or any of its subsidiaries is now a party or by which
CHI or any of its subsidiaries or any of their respective properties or assets
may be bound. The consummation by CHI of the transactions contemplated hereby
will not result in any violation, conflict, breach, termination, acceleration or
creation of liens under any of the terms, conditions or provisions described in
clauses (i) through (iii) of the preceding sentence, subject (x) in the case of
the terms, conditions or provisions described in clause (ii) above, to obtaining
(prior to the Effective Time) CHI Required Statutory Approvals and CHI
Stockholders' Approval, and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the Effective
Time) consents required from lenders, lessors or other third parties. Excluded
from the foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have a CHI Material
Adverse Effect.
(c) Except for (i) the filing of the Registration Statement with the SEC
pursuant to the Securities Act and the Exchange Act and the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, and (ii) the making of the Merger Filing with the SDAT in
connection with the Merger (the filings and approvals referred to in clauses
(i) through (ii) above are collectively referred to as the "CHI Required
Statutory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by CHI or the consummation by CHI of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, have a CHI Material Adverse Effect.
SECTION 5.5. SECURITIES REPORTS AND FINANCIAL STATEMENTS. Since
December 31, 1998, CHI has filed with the SEC all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto) required
to be filed by it under each of the Securities Act, the Exchange Act
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and the respective rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects with all applicable requirements
of the appropriate act and the rules and regulations thereunder (collectively,
the "CHI SEC Reports"). As of their respective dates, CHI SEC Reports did not
contain any 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
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of CHI included in such reports (collectively, the "CHI
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
CHI and its subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in CHI
SEC Reports, neither CHI nor any of its subsidiaries had at December 31, 1998,
nor has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except:
(a) liabilities, obligations or contingencies (i) which are accrued or reserved
against in CHI Financial Statements or reflected in the notes thereto, or
(ii) which were incurred after December 31, 1998 and were incurred in the
ordinary course of business and consistent with past practices;
(b) liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a CHI Material Adverse Effect, or (ii) have been discharged or
paid in full prior to the date hereof; and (c) liabilities and obligations which
are of a nature not required to be reflected in the consolidated financial
statements of CHI and its subsidiaries prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the normal course of business.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
CHI SEC Reports since December 31, 1998, CHI and its subsidiaries have conducted
their businesses only in the ordinary course and in a manner consistent with
past practice and since December 31, 1998, there has not been (a) any change in
the financial condition, results of operations or business of CHI or any of its
subsidiaries having, in the aggregate, a CHI Material Adverse Effect; (b) any
damage, destruction or loss (whether or not covered by insurance) with respect
to any assets of CHI or any of its subsidiaries having, in the aggregate, a CHI
Material Adverse Effect; (c) any change by CHI in its accounting methods,
principles or practices; (d) any revaluation by CHI of any of its material
assets in any material respect; (e) any entry by CHI or any of its subsidiaries
into any commitment or transactions material to CHI and its subsidiaries, taken
as a whole; or (f) any declaration, setting aside or payment of any dividends or
distributions in respect of shares of CHI Common Stock or any redemption,
purchase or other acquisition of any of its securities or any of the securities
of any subsidiary of CHI.
SECTION 5.8. ABSENCE OF LITIGATION. Except as disclosed in CHI SEC Reports,
a claim by Bishop, Rosen & Co., Inc. v. The Chapman Company, NASD Arbitration
No. 98-05015 currently proceeding in arbitration in New York and a threatened
claim by Boca Raton Resort & Club, which has not been filed as of the date of
this Agreement, (a) there is no claim of any kind, suit, action, proceeding,
litigation, arbitration, investigation or controversy affecting CHI or any of
its subsidiaries pending or, to the knowledge of CHI, threatened; and
(b) neither CHI nor any of its subsidiaries is subject to any continuing order
of, or written agreement or memorandum of understanding with, or continuing
material investigation by, any governmental entity or authority, or any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator.
SECTION 5.9. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by CHI or its subsidiaries for inclusion
in (a) the Registration Statement, or (b) the Proxy Statement will, in the case
of the Proxy Statement or any amendments thereof or supplements
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thereto, at the time of the mailing of the Proxy Statement and any amendments or
supplements thereto, at the time of the meetings of stockholders of CHI to be
held in connection with the transactions contemplated by this Agreement, and at
the Effective Time, or, in the case of the Registration Statement, as amended or
supplemented, at the time it is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Registration Statement and Proxy Statement/Prospectus will comply in all
material respects as to form and substance with the requirements of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by CHI with respect to
information supplied by EChapman for inclusion therein.
SECTION 5.10. NO VIOLATION OF LAW. Except as disclosed in CHI SEC Reports
and a finding by the National Association of Securities Dealers, Inc. of a net
cap violation by The Chapman Co., on February 9, 16, and 23, 1996, neither CHI
nor any of its subsidiaries is in violation of or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment including, without limitation, any applicable
environmental law, ordinance or regulation of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a CHI Material Adverse Effect. CHI and its
subsidiaries have all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct their businesses as presently conducted (collectively, the "CHI
Permits"), except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which, alone or in
the aggregate, would not have a CHI Material Adverse Effect. CHI and its
subsidiaries are not in violation of the terms of any CHI Permit, except for
delays in filing reports or violations which, alone or in the aggregate, would
not have a CHI Material Adverse Effect.
SECTION 5.11. COMPLIANCE WITH AGREEMENTS. Except as disclosed in CHI SEC
Reports, CHI and each of its subsidiaries are not in breach or violation of or
in default in the performance or observance of any term or provision of, and no
event has occurred which, with notice or lapse of time or action by a third
party, could result in a default under (a) the respective charters or By-laws of
CHI or any of its subsidiaries; or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which CHI or any of its subsidiaries is a party or by which
any of them is bound or to which any of their property is subject, which
breaches, violations and defaults, would have, in the aggregate, a CHI Material
Adverse Effect.
SECTION 5.12. TAXES. CHI and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns required to be filed by
them for all periods ending on or prior to the date hereof, and such Tax Returns
are true, correct and complete in all material respects, and (ii) duly paid in
full all Taxes due in connection with or with respect to the filing of such Tax
Returns and have paid all other Taxes as are due, except such as are being
contested in good faith by appropriate government proceedings and with respect
to which CHI is maintaining reserves adequate for their payment. Neither the IRS
nor any other governmental entity or taxing authority or agency is now
asserting, either through audits, administrative proceedings, court proceedings
or otherwise, or, to the best of CHI's knowledge, threatening to assert against
CHI or any of its subsidiaries any deficiency or claim for additional Taxes.
Neither CHI nor any of its subsidiaries has been granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. There are no tax liens on any assets of CHI or any of
its subsidiaries. Neither CHI nor any of its subsidiaries has received a ruling
or entered into an agreement with the IRS or any other governmental entity or
taxing authority or agency that would have a CHI Material Adverse Effect, taken
as a whole, after the Effective Time. The accruals and reserves for Taxes
reflected in the CHI balance sheet reflected in the latest CHI SEC Report are
adequate to cover all Taxes accruable through the date thereof (including Taxes
being contested) in accordance with generally accepted accounting principles.
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No agreements relating to allocating or sharing of Taxes exist among CHI and its
subsidiaries. Neither CHI nor any of its subsidiaries is required to include in
income either (i) any material amount in respect of any adjustment under
Section 481 of the Code, or (ii) any material installment sale gain. Neither CHI
nor any of its subsidiaries has made an election under Section 341(f) of the
Code.
SECTION 5.13. EMPLOYEE BENEFITS PLANS; ERISA.
(a) Neither CHI nor its subsidiaries has any obligation to create any
material employee benefit plans, programs, arrangements and practices for
employees (such plans, programs, arrangements and practices of CHI and its
subsidiaries being referred to as the "CHI Plans"), including employee benefit
plans within the meaning set forth in Section 3(3) of ERISA, or other similar
material arrangements for the provision of benefits or to amend any such plan so
as to increase benefits thereunder, except as required under the terms of CHI
Plans, under existing collective bargaining agreements or to comply with
applicable law.
(b) No member of CHI's "controlled group," within the meaning of
Section 4001(a)(14) of ERISA, maintains or contributes to, or within the five
(5) years preceding the Effective Time has maintained or contributed to, an
employee pension benefit plan subject to Title IV of ERISA. None of the CHI
Plans obligates CHI or any of its subsidiaries to pay material separation,
severance, termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or as a result of a "change in
control," within the meaning of such term under Section 280G of the Code. None
of CHI Plans provides for or promises retiree medical, disability or life
insurance benefits to any current or former employee, officer or director of CHI
or any of its subsidiaries except as otherwise required with respect to health
plan coverage in Section 4980B of the Code. Each of CHI Plans is subject only to
the laws of the United States or a political subdivision thereof.
(c) Each CHI Plan has been operated in all respects in accordance with the
requirements of all applicable laws and all persons who participate in the
operation of such CHI Plans and all CHI Plan "fiduciaries" (within the meaning
of Section 3(21) of ERISA) have acted in accordance with the provisions of all
applicable laws, except where violations of such applicable laws would not,
individually or in the aggregate, have a CHI Material Adverse Effect, taken as a
whole. CHI and its subsidiaries have performed all obligations required to be
performed by any of them under, are not in any respect in default under or in
violation of, and CHI has no knowledge of any default or violation by any party
to, any CHI Plan, except where such failures, defaults or violations would not,
individually or in the aggregate, have a CHI Material Adverse Effect, taken as a
whole. No legal action, suit or claim is pending or, to the knowledge of CHI,
threatened with respect to any CHI Plan (other than claims for benefits in the
ordinary course) and, to the knowledge of CHI, no fact or event exists that
could give rise to any such action, suit or claim. Neither CHI nor any of its
subsidiaries has incurred any material liability to the Pension Benefit Guaranty
Corporation (other than premiums payable to the Pension Benefit Guaranty
Corporation in the ordinary course) or any material "withdrawal liability"
within the meaning of Section 4201 of ERISA.
(d) Each CHI Plan that is intended to be qualified under Section 401(a) of
the Code or Section 401(k) of the Code has received a favorable determination
letter from the IRS that it is so qualified, and each trust established in
connection with any CHI Plan that is intended to be exempt from federal income
taxation under Section 501(a) of the Code is so exempt, and, to the knowledge of
CHI, no fact or event has occurred since the date of such determination letter
from the IRS to adversely affect the qualified status of any such CHI Plan or
the exempt status of any such trust. No trust maintained or contributed to by
CHI or any of its subsidiaries is intended to be qualified as a voluntary
employees' beneficiary association or is intended to be exempt from federal
income taxation under Section 501(c)(9) of the Code.
(e) To CHI's knowledge, there has been no non-exempt prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any CHI Plan. CHI
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and each of its subsidiaries has not incurred any liability for any excise tax
arising under Section 4972 or 4980B of the Code and, to the knowledge of CHI, no
fact or event exists that could give rise to any such liability except for
liability which singly or in the aggregate could not reasonably be expected to
cause a CHI Material Adverse Effect.
(f) All contributions, premiums or payments required to be made with
respect to any CHI Plan have been made on or before their due dates.
(g) The CHI Minute Book sets forth a true and complete list of each current
or former employee, officer or director of CHI or any of its subsidiaries who
holds any option to purchase CHI Common Stock as of the date of this Agreement,
together with the number of shares of CHI Common Stock subject to such option,
the date of grant of such option, the option price of such option, whether such
option is intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code (an "ISO") and the expiration date of such option.
The CHI Minute Book also sets forth the total number of such ISOs and such
non-qualified options.
(h) Neither CHI nor any of its subsidiaries is a party to any employment,
severance, consulting or other similar contracts with any employees, officers or
directors of CHI or any of its subsidiaries other than such contracts that are
disclosed in CHI SEC Reports. Neither CHI nor any of its subsidiaries is a party
to any collective bargaining agreements.
SECTION 5.14. LABOR CONTROVERSIES. Except as set forth in the CHI SEC
Reports, (a) there are no material controversies pending or, to the knowledge of
CHI, threatened between CHI or its subsidiaries and any representatives of any
of their employees; (b) to the knowledge of CHI, there are no material
organizational efforts presently being made or threatened involving any of the
presently unorganized employees of CHI or its subsidiaries; (c) CHI and its
subsidiaries have, to the knowledge of CHI, complied in all material respects
with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, civil rights, administration of leave and rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985 and the payment of social
security and similar taxes; and (d) no person has, to the knowledge of CHI,
asserted that CHI or any of its subsidiaries is liable in any material amount
for any arrears of wages or any taxes or penalties for failure to comply with
any of the foregoing, except for such controversies, organizational efforts,
non-compliance and liabilities which, singly or in the aggregate, could not
reasonably be expected to cause a CHI Material Adverse Effect.
SECTION 5.15. TITLE TO ASSETS. CHI and each of its subsidiaries has good and
marketable title to all their respective properties and assets, real and
personal, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (a) liens for Taxes not yet due
and payable; (b) such imperfections in title and easements and encumbrances, if
any, as are not material in character, amount or extent and do not materially
and adversely affect the value or interfere with the present use of the property
subject thereto or affected thereby, or otherwise materially impair CHI's
present business operations; (c) as disclosed in CHI SEC Reports; or
(d) mortgages incurred in the ordinary course of business, and except for such
matters which, singly or in the aggregate, could not reasonably be expected to
cause a CHI Material Adverse Effect. All leases under which CHI leases any
material real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or lapse of time or both
would become a default other than defaults under such leases which in the
aggregate will not have a CHI Material Adverse Effect.
SECTION 5.16. CHI STOCKHOLDERS' APPROVAL. The affirmative vote of the
holders of a majority of the outstanding shares of CHI Common Stock entitled to
vote is necessary to approve the transactions contemplated by this Agreement.
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SECTION 5.17. TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE. CHI and its
subsidiaries own or have the right to use all of their Intellectual Property
Rights without any conflict with the rights of others, except for such conflicts
that have not had and are not reasonably likely to have a CHI Material Adverse
Effect, and the consummation of the transactions contemplated hereby will not
alter or impair such rights in any material respect. To the knowledge of CHI, no
claims are pending by any person with respect to the ownership, validity,
enforceability or use of any such Intellectual Property Rights challenging or
questioning the validity or effectiveness of any of the foregoing which claims
could reasonably be expected to have a CHI Material Adverse Effect. To CHI's
knowledge, none of it or its subsidiaries' key technical personnel is in
violation of any term of any employment agreement, patent disclosure agreement
or any other contract or agreement relating to the relationship of any such
employee with it or its subsidiaries or any other party the result of which has
had or is reasonably likely to have a CHI Material Adverse Effect.
SECTION 5.18. MATERIAL AGREEMENTS. CHI has no material agreements other than
those filed as exhibits to CHI SEC Reports or which will be filed with the
Registration Statement as follows: Support Agreement between CHI and Nathan A.
Chapman, Jr. dated November 12, 1999; Fully Disclosed Clearing Agreement between
Pershing Division, Donaldson, Lufkin & Jenrette Securities Corporation and the
Chapman Co., dated March 16, 1999.
SECTION 5.19. INSURANCE. Except to the extent there would be no CHI Material
Adverse Effect, to CHI's knowledge, all of CHI's and its subsidiaries'
liability, theft, life, health, fire, title, worker's compensation and other
forms of insurance, surety bonds and umbrella policies, insuring CHI and its
subsidiaries and their directors, officers, employees, independent contractors,
properties, assets and businesses, are valid and in full force and effect
(without any premium past due or pending notice of cancellation) and are, in the
reasonable judgment of CHI, adequate for the business of CHI and its
subsidiaries as now conducted, and there are no claims, singly or in the
aggregate, in excess of the limitations of coverage set forth in such policies.
The provision and/or reserves in CHI Financial Statements are adequate for any
and all self insurance programs maintained by CHI or its subsidiaries.
SECTION 5.20. BROKERS AND FINDERS. Neither CHI nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated hereby, except that CHI has retained Ferris,
Baker Watts, Incorporated as its financial advisor.
SECTION 5.21. CERTAIN TRANSACTIONS. Except as set forth in the CHI SEC
Reports, since December 31, 1998, none of the officers or directors of CHI or of
any of its subsidiaries, and, to CHI's knowledge, none of their employees or the
employees of any of its subsidiaries is a party to any transaction with it or
any of its subsidiaries (other than for services as an employee, officer or
director and other than transactions between it and one or more of its direct or
indirect wholly owned subsidiaries or between such subsidiaries), including
without limitation, any contract, agreement or other arrangement (i) providing
for the furnishing of services to or by, (ii) providing for rental of real or
personal property to or from, or (iii) otherwise requiring payments to or from,
any such officer, director, affiliate or employee, any member of the family of
any such officer, director or employee or any corporation, partnership, trust or
other entity in which any such officer, director or employee has a substantial
interest or which is an affiliate of such officer, director or employee (a "CHI
Affiliated Transaction") other than transactions which would not have a CHI
Material Adverse Effect.
SECTION 5.22. OPINION OF FINANCIAL ADVISOR. CHI received the opinion of
Ferris, Baker Watts, Incorporated, its financial advisor, dated November 11,
1999, to the effect that, as of such date, the transactions contemplated hereby
are fair to its stockholders from a financial point of view, a copy of which has
been delivered to the other parties hereto.
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SECTION 5.23. ANTI-TAKEOVER STATUTES. The provisions of Section 3-601 et
seq. (Special Voting Requirements) and Section 3-701 et seq. (Voting Rights of
Certain Control Shares) of the MGCL do not apply with respect to CHI in
connection with the transactions contemplated by this Agreement.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY CHI PENDING THE MERGER. Except as
otherwise contemplated by this Agreement, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless EChapman shall
otherwise agree in writing, CHI shall, and shall cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
(b) not, except as necessary to consummate the transactions contemplated
hereby, (i) amend or propose to amend their respective charters or By-laws,
(ii) split, combine or reclassify their outstanding capital stock, or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly owned subsidiary of CHI;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of or otherwise cause to become outstanding, any additional shares
of, or any options, warrants or rights of any kind to acquire any shares of
their capital stock of any class or any debt or equity securities convertible
into or exchangeable for such capital stock, except that CHI may issue shares
upon the exercise of CHI Options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to any
material indebtedness for borrowed money other than (x) borrowings in the
ordinary course of business not to exceed $100,000 or in other cases for amounts
in excess of $100,000 which shall be on terms reasonably acceptable to EChapman,
or (y) borrowings to refinance existing indebtedness, in the ordinary course of
business, (ii) redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or any options, warrants or rights to acquire any of
its capital stock or any security convertible into or exchangeable for its
capital stock, (iii) take or fail to take any action which action or failure
would cause CHI or its stockholders (except to the extent that any stockholders
receive cash in lieu of fractional shares) to recognize gain or loss for federal
income tax purposes as a result of the consummation of the Merger, (iv) make any
acquisition of any assets or businesses and expenditures for fixed or capital
(in each case, after consultation with EChapman) or expenditures in the ordinary
course of business which, in such cases of $100,000 or more, shall be on terms
reasonably acceptable to EChapman, (v) sell, pledge, dispose of or encumber any
assets or businesses other than sales in the ordinary course of business which,
in such cases involving $100,000 or more, shall be on terms reasonably
acceptable to EChapman, or (vii) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(e) use all commercially reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the services of
their respective present officers and key employees, and preserve the goodwill
and business relationships with customers, vendors and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer on a regular and frequent basis with one or more representatives
of EChapman to report operational matters of materiality and the general status
of ongoing operations;
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(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees except
in the ordinary course and consistent with past practice which shall be on terms
acceptable to EChapman;
(h) not adopt, enter into or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree except as required to
comply with changes in applicable law and increases in wages in the ordinary
course and consistent with past practice for non-executive employees which, in
such cases involving $25,000 or more, shall be on terms acceptable to EChapman;
(i) maintain with adequately capitalized insurance companies insurance
coverage for its assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice; and
(j) not enter into any arrangement or transaction of the type described in
Section 5.21.
SECTION 6.2. CONDUCT OF BUSINESS BY ECHAPMAN PENDING THE MERGER. Except as
otherwise contemplated by this Agreement, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless CHI shall
otherwise agree in writing, EChapman shall, and shall cause Merger Subsidiary,
to:
(a) conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
(b) not, except as necessary to consummate the transactions contemplated
hereby, (i) amend or propose to amend their respective charters or By-laws,
(ii) split, combine or reclassify their outstanding capital stock, or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a subsidiary of EChapman and except for cash dividends in
historic amounts payable in a manner consistent with past practices;
(c) use all commercially reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the services of
their respective present officers and key employees and preserve the goodwill
and business relationships with customers and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(d) confer on a regular and frequent basis with one or more representatives
of CHI to report operational matters of materiality and the general status of
ongoing operations;
(e) not enter into any arrangement or transaction of the type described in
Section 5.21.
SECTION 6.3. CONTROL OF CHI'S OPERATIONS. Nothing contained in this
Agreement shall give to EChapman, directly or indirectly, rights to control or
direct CHI's operations prior to the Effective Time. Prior to the Effective
Time, CHI shall exercise, consistent with and subject to the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.4. CONTROL OF ECHAPMAN'S OPERATIONS. Nothing contained in this
Agreement shall give to CHI, directly or indirectly, rights to control or direct
EChapman's operations prior to the Effective Time. Prior to the Effective Time,
EChapman shall exercise, consistent with and subject to the terms and conditions
of this Agreement, complete control and supervision of its operations.
SECTION 6.5. ACQUISITION TRANSACTIONS.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, CHI shall not, and shall not permit any of its
subsidiaries to, (i) initiate, solicit or seek,
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directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) to acquire all or any substantial part of the business and
properties of CHI and its subsidiaries or more than fifty percent (50%) of the
capital stock of CHI and its subsidiaries, whether by merger, purchase of
assets, tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof except for the transaction contemplated
herein (any such transactions being referred to herein as "Acquisition
Transactions"), or (ii) otherwise cooperate in any effort or attempt to
initiate, solicit or seek an Acquisition Transaction.
(b) Notwithstanding any other provision of this Agreement, in response to
an unsolicited proposal or inquiry (or a proposal or inquiry arising from a
general solicitation) with respect to an Acquisition Transaction and subject to
the duties of CHI's Board of Directors under applicable law, if such Acquisition
Transaction is a tender offer subject to the provisions of Section 14(d) under
the Exchange Act, CHI's Board of Directors may take and disclose to CHI's
stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act.
(c) In the event CHI shall receive any offer of an Acquisition Transaction,
it shall (i) immediately inform EChapman of such offer, and (ii) furnish to
EChapman the identity of the proponent of such offer and, unless the Board of
Directors of CHI concludes that such disclosure is inconsistent with its duties
under applicable law, a description of the material terms thereof.
(d) CHI may terminate this Agreement, withdraw, modify or not make its
recommendations referred to in Section 7.2, and enter into a definitive
agreement for an Acquisition Transaction if, but only if, (i) the Board of
Directors of CHI shall have consulted with legal counsel concerning its
obligations under applicable law and (ii) CHI shall have determined in good
faith after consultation with the independent financial advisors of CHI that
such Acquisition Transaction would be more favorable to CHI's stockholders from
a financial point of view than the Merger.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS TO INFORMATION. From and after the date hereof, each
party shall furnish promptly to one another a copy of each report and other
document filed or received by any of them pursuant to the requirements of
federal or state securities laws or which may have a material effect on their
respective businesses, properties or personnel, and work papers of their
respective accountants and other information or copies of such documentation and
access to senior management personnel as reasonably deemed necessary by the
requesting party's respective accountants, legal counsel or financial advisors
to complete the Proxy Statement/Prospectus and Registration Statement, and the
opinion referred to in Section 8.2(d) below. EChapman and its subsidiaries shall
hold and shall use their commercially reasonable efforts to cause EChapman's
representatives to hold, and CHI and its subsidiaries shall hold and shall use
their commercially reasonable efforts to cause CHI's representatives to hold, in
strict confidence all non-public documents and information furnished to EChapman
and Merger Subsidiary or to CHI, as the case may be, in connection with the
transactions contemplated by this Agreement. Notwithstanding the foregoing
(i) EChapman and CHI may disclose such information as may be necessary in
connection with seeking EChapman Required Statutory Approvals, CHI Required
Statutory Approvals and CHI Stockholders' Approval (as defined in Section 7.2
below), and (ii) each of EChapman, Merger Subsidiary and CHI may disclose any
information that it is required by law or judicial or administrative order to
disclose.
SECTION 7.2. STOCKHOLDERS' APPROVAL. Subject to the duties of the Board of
Directors of CHI under applicable law, CHI shall, as promptly as practicable,
submit the transactions contemplated hereby for the approval of its stockholders
at a meeting of stockholders and, subject to the duties of the Board of
Directors of CHI under applicable law, shall use its commercially reasonable
efforts to obtain stockholder approval and adoption (the "CHI Stockholders'
Approval") of this Agreement and the transactions contemplated hereby. Such
meeting of the stockholders shall be held as soon as practicable following the
date upon which the Registration Statement becomes effective. CHI shall, through
its Board of Directors, but subject to the duties of the members thereof under
applicable law, recommend to its stockholders approval of the transactions
contemplated by this Agreement. CHI acknowledges and agrees: (i) that a breach
of its covenant contained in this Section 7.2 to convene a meeting of its
stockholders and call for a vote with respect to the approval of this Agreement
and the Merger will result in irreparable harm to EChapman which will not be
compensable in money damages, and (ii) that such covenant shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to EChapman for a breach of such covenant.
SECTION 7.3. AFFILIATES OF CHI. Within 30 days after the date of this
Agreement: (i) CHI shall deliver to EChapman a letter identifying all persons
who may be deemed affiliates of CHI under Rule 145 of the Securities Act
("Rule 145"), including, without limitation, all directors and executive
officers of CHI; (ii) CHI shall advise the persons identified in such letter of
the resale restrictions imposed by applicable securities laws; (iii) the persons
identified in such letter shall each execute a Memorandum to Persons Deemed to
be Affiliated Persons of Chapman Holdings, Inc. in such form as is acceptable to
EChapman (the "145 Memorandum"); and (iv) Nathan A. Chapman, Jr. shall execute a
Support Agreement in such form as is acceptable to EChapman (the 145 Memorandum
and the Support Agreement are collectively referred to herein as the "Affiliate
Agreements").
SECTION 7.4. EXPENSES AND FEES. Each party hereto agrees to bear its own
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement, except:
(a) CHI shall pay and be responsible for all fees and expenses incurred in
connection with the printing, filing and mailing of the Proxy
Statement/Prospectus; and
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(b) If CHI (i) fails to fulfill its obligations as set forth in Section
6.5(a)-(c) or (ii) terminates this Agreement pursuant to Section 6.5(d), CHI
shall pay to EChapman the sum of $3.0 million in lieu of any other payments
or penalties or the reimbursement of expenses incurred by EChapman.
SECTION 7.5. AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use all commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable pursuant to all agreements, contracts,
indentures or other instruments to which the parties hereto are a party, or
under any applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including using its
commercially reasonable efforts to (i) obtain all necessary or appropriate
waivers, consents and approvals from lenders, landlords, security holders or
other parties whose waiver, consent or approval is required to consummate the
Merger, (ii) effect all necessary registrations, filings and submissions, and
(iii) lift any injunction or other legal bar to the Merger (and, in such
case, to proceed with the Merger as expeditiously as possible).
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, including any
Acquisition Transaction, EChapman shall have the right, at its own expense, to
participate therein, and CHI will not settle any such litigation without the
consent of EChapman, which consent will not be unreasonably withheld.
SECTION 7.6. PUBLIC STATEMENTS. The parties (i) shall consult with each
other prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby, and
(ii) shall not issue any such press release or written public statement prior to
such consultation, except as may be required by law and applicable listing
requirements.
SECTION 7.7. NOTIFICATION OF CERTAIN MATTERS. Each of CHI, EChapman and
Merger Subsidiary agrees to give prompt notice to each other of, and to use
their respective commercially reasonable efforts to prevent or promptly remedy
(i) the occurrence or failure to occur or the impending or threatened occurrence
or failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.8. PROXY STATEMENT/PROSPECTUS AND REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
EChapman and CHI shall prepare and file with the SEC a Proxy
Statement/Prospectus and Registration Statement on Form S-4 relating to the
approval of the Merger by the stockholders of CHI and shall use all commercially
reasonable efforts to cause the Registration Statement to become effective as
soon thereafter as practicable.
(b) Prior to the date of approval of the Merger by CHI's stockholders, each
of CHI, EChapman and Merger Subsidiary shall correct promptly any information
provided by it to be used specifically in the Proxy Statement/Prospectus and
Registration Statement that shall have become false or misleading in any
material respect and shall take all steps necessary to file with the SEC and
have declared effective or cleared by the SEC any amendment or supplement to the
Proxy Statement/Prospectus or the Registration Statement so as to correct the
same and to cause the Proxy Statement/Prospectus as so corrected to be
disseminated to the stockholders of CHI and EChapman, in each case to the extent
required by applicable law.
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SECTION 7.9. TAX-FREE TREATMENT OF MERGER. EChapman and CHI shall each use
its commercially reasonable efforts to cause the Merger to be treated as a
tax-free reorganization for federal, state and foreign income tax purposes and
agree that this Agreement shall serve as the Plan of Reorganization therefor.
SECTION 7.10. DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) The Surviving Corporation shall maintain in full force and observe any
liability, exculpation or indemnification provision (including payment or
advance of expenses) now existing in the Charter or By-laws of CHI for the
benefit of any individual who served as a director or officer of CHI at any time
prior to the Effective Time.
(b) For a period of six years from and after the Effective Time, the
Surviving Corporation and EChapman shall indemnify, defend and hold harmless
each individual who served as a director, or officer of CHI or any of its
subsidiaries (the "Indemnified Parties") at any time prior to the Effective Time
from and against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments or amounts that are paid in settlement with the approval of the
indemnifying party which approval shall not be unreasonably withheld (net of any
insurance proceeds obtained by the Indemnified Parties) of or in connection with
any claim, action, suit, proceeding or investigation based in whole or in part
on or arising in whole or in part out of the fact that such person is or was a
director or officer of the Company or any of its subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after the Effective Time
("Indemnified Liabilities) and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each case to the full
extent a corporation is permitted under the MGCL to indemnify its own directors
and officers, as the case may be (and the Surviving Corporation and EChapman
will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law).
Without limiting the foregoing, in the event that any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising before or after the Effective Time), (x) the Indemnified Parties may
retain counsel satisfactory to them and CHI (or them and the Surviving
Corporation and EChapman after the Effective Time), (y) CHI (or after the
Effective Time, the Surviving Corporation and EChapman) shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received, and (z) the Company (or after the Effective
Time, the Surviving Corporation and EChapman) will use all commercially
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither CHI nor the Surviving Corporation or EChapman shall be
liable for any settlement of any claim effected without their written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 7.10, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the CHI
or, after the Effective Time, the Surviving Corporation or EChapman (but the
failure so to notify an Indemnifying Party shall not relieve it from any
liability which it may have under this Section 7.10 except to the extent such
failure prejudices such party). The Indemnified Parties as a group may retain
only one law firm to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(c) The provisions of this Section 7.10 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, and his or her heirs
and representatives.
SECTION 7.11. AMENDMENT TO CCMHI MERGER AGREEMENT. Without the consent of
CHI, EChapman will not consent to any material amendment to the CCMCHI Merger
Agreement.
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ARTICLE VIII
CONDITIONS
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. Unless waived by the parties, the respective obligations of each party
to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) this Agreement and the transactions contemplated hereby, as appropriate,
shall have been approved and adopted by the requisite vote of the stockholders
of CHI under applicable law and applicable listing requirements;
(b) the Registration Statement shall have been declared effective by the SEC
in accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued by the SEC and remain in
effect and no proceedings for that purpose shall, on or prior to the Effective
Time, have been instituted or, to the knowledge of EChapman or CHI, threatened
by the SEC.
(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger shall have
been issued and remain in effect (each party agreeing to use its commercially
reasonable efforts to have any such injunction, order or decree lifted);
(d) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency which would prevent the consummation of the Merger or make the
consummation of the Merger illegal;
(e) all material governmental waivers, consents, orders and approvals,
legally required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the Effective
Time;
(f) EChapman shall have completed a public offering (pursuant to an
effective registration statement under the Securities Act of 1933, as then in
effect, or any comparable statement under any similar federal statute then in
force) of EChapman Shares in which (i) EChapman receives gross proceeds of no
less than Twenty Million dollars ($20,000,000), and (ii) the price paid by the
public for such shares reflects a preoffering valuation of EChapman of no less
than Eighty Million Dollars ($80,000,000.00) (the "EChapman Public Offering");
and
(g) The transactions contemplated by the CCMHI Merger Agreement shall have
closed; and
(h) CHI shall have received from Ferris, Baker Watts, Incorporated an
updated opinion reasonably acceptable to CHI, dated as of the date on or about
which the Proxy Statement/Prospectus is first distributed to the stockholders of
CHI, to the effect that the consideration to be received by the stockholders of
CHI in the Merger is fair, from a financial point of view, to the holders of CHI
Common Stock, and such opinion shall not have been withdrawn as of the Closing
Date.
SECTION 8.2. ADDITIONAL CONDITIONS TO OBLIGATION OF CHI TO EFFECT THE
MERGER. Unless waived by CHI, the obligation of CHI to effect the Merger shall
be subject to the fulfillment on or prior to the Closing Date of the following
additional conditions:
(a) EChapman and Merger Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of
EChapman and Merger Subsidiary contained in this Agreement shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects) on and as of the date made
and on and as of the Closing Date, except for those representations and
warranties which address matters only as of a particular date (which shall
remain
22
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true and correct as of such date), as if made at and as of such date, and CHI
shall have received a Certificate of the Chairman of the Board and the President
of EChapman and Merger Subsidiary to that effect;
(b) Chapman Capital Management Holdings, Inc. and CCMHI Merger
Subsidiary, Inc. shall have performed in all material respects their agreements
contained in the CCMHI Merger Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of Chapman Capital
Management Holdings, Inc. and CCMHI Merger Subsidiary, Inc. contained in the
CCMHI Merger Agreement shall be true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects) on and as of the date made and on and as of the Closing Date,
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such date), as if
made at and as of such date, and CHI shall have received a Certificate of the
Chairman of the Board and the President of EChapman to that effect;
(c) from the date hereof to the Closing Date, there shall have been no
changes that constitute, and no event or events shall have occurred which have
resulted in or constitute, an EChapman Material Adverse Effect, taken as a
whole; and
(d) CHI shall have received an opinion from the law firm of Venable, Baetjer
and Howard, LLP, dated the Closing Date, to the effect that the Merger should be
treated as a tax-free reorganization for federal and state income tax purposes.
SECTION 8.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF EChapman and Merger
Subsidiary to Effect the Merger. Unless waived by EChapman and Merger
Subsidiary, the obligations of EChapman and Merger Subsidiary to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the additional following conditions:
(a) CHI shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of CHI contained in this Agreement
shall be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects) on and as
of the date made and on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), as if made at and as
of such date, and EChapman shall have received a Certificate of the Chairman of
the Board and President of CHI to that effect;
(b) the Affiliate Agreements required to be delivered to EChapman pursuant
to Section 7.3 shall have been furnished as required by Section 7.3; and
(c) from the date hereof to the Closing Date, there shall have been no
changes that constitute, and no event or events shall have occurred which have
resulted in or constitute, a CHI Material Adverse Effect, taken as a whole.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. TERMINATION. This Agreement may be terminated by the mutual
consent of the parties, or at any time prior to the Closing Date, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of CHI, as follows:
(a) CHI shall have the right to terminate this Agreement;
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(i) if the Merger is not completed by June 30, 2000 other than on
account of delay or default on the part of CHI;
(ii) if the Merger or the transactions set forth in the CCMHI Merger
Agreement are enjoined by a final, unappealable court order not entered at
the request or with the support of CHI or any of their affiliates or
associates;
(iii) if the terms and conditions of Section 6.5(d) and Section 7.4(b)
are satisfied; or
(iv) if CHI's stockholders' vote is not sufficient to approve the
transactions contemplated by this Agreement.
(b) EChapman shall have the right to terminate this Agreement;
(i) if the Merger is not completed by June 30, 2000 other than on
account of delay or default on the part of EChapman;
(ii) if the Merger or the transactions set forth in the CCMHI Merger
Agreement are enjoined by a final, unappealable court order; or
(iii) if CHI's stockholders' vote is not sufficient to approve the
transactions contemplated by this Agreement.
SECTION 9.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either EChapman or CHI as provided in Section 9.1, this Agreement
shall forthwith become void and there shall be no further obligation on the part
of CHI, EChapman, Merger Subsidiary, or their respective officers or directors
(except as set forth in this Section 9.2 and in Sections 7.1, 7.4 and 7.6, all
of which shall survive the termination). Nothing in this Section 9.2 shall
relieve any party from liability for any breach of this Agreement.
SECTION 9.3. AMENDMENT. This Agreement may not be amended except by action
taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law.
SECTION 9.4. WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall not be deemed to
be continuing or to apply to any future obligation or requirement of any part
hereto provided herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Articles IV and V of this Agreement
shall not survive the Merger, and after effectiveness of the Merger, CHI,
EChapman, Merger Subsidiary or their respective officers or directors shall have
no further obligation with respect thereto. The covenants and agreements set
forth in this Agreement shall survive the Merger.
SECTION 10.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt
24
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requested) or sent via facsimile to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) If to EChapman or Merger Subsidiary to:
EChapman.com, Inc.
World Trade Center--Baltimore
28(th) Floor
401 East Pratt Street
Baltimore, MD 21202
Attention: Nathan A. Chapman, Jr.
with a copy to:
Venable, Baetjer and Howard, LLP
Suite 1800
2 Hopkins Plaza
Baltimore, MD 21201
Attention: Elizabeth R. Hughes, Esq.
(b) If to CHI, to:
Chapman Holdings, Inc.
World Trade Center--Baltimore
28(th) Floor
401 East Pratt Street
Baltimore, MD 21202
Attention: Donald V. Watkins
Lottie H. Shackelford
with a copy to:
Blank Rome Comisky & McCauley LLP
250 West Pratt Street
Baltimore, MD 21201
Attention: James R. Deveney, II, Esq.
SECTION 10.3. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears (i) the words "herein," "hereof" and "hereunder" and other words of
similar impact refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
SECTION 10.4. MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
(b) is not intended to confer upon any other person any rights or remedies
hereunder except for rights of indemnified parties under Section 7.10, and
(c) shall not be assigned by operation of law or otherwise. THIS AGREEMENT SHALL
BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY
THE LAWS OF THE STATE OF MARYLAND APPLICABLE TO CONTRACTS EXECUTED AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE.
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SECTION 10.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement. Each of the parties agrees to
accept and be bound by facsimile signatures hereto.
SECTION 10.6. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.7. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred
to in this Agreement shall be attached hereto and are incorporated by reference
herein.
SECTION 10.8. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, and parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.9. DEFINITION OF KNOWLEDGE. For those warranties and
representations set forth in Article IV which are subject to the qualification
"to EChapman's knowledge," EChapman will be deemed to have knowledge of a matter
if (i) Nathan A. Chapman, Jr. has knowledge of the matter, or (ii) such matter
has come, or should reasonably be expected to have come, to the attention of
such individual if such individual had conducted a reasonable due diligence
review of EChapman's operations and business, including, without limitation,
reasonable inquiries to key personnel of EChapman regarding the business and
operations of EChapman and a review of, and discussion with key personnel
regarding, pertinent books and records of EChapman. For those warranties and
representations set forth in Article V which are subject to the qualification
"to CHI's knowledge," CHI will be deemed to have knowledge of a matter if
(i) Nathan A. Chapman, Jr. has knowledge of the matter, or (ii) such matter has
come, or should reasonably be expected to have come, to the attention of any of
such individual if such individual had conducted a reasonable due diligence
review of CHI's operations and business, including, without limitation,
reasonable inquiries to key personnel of CHI regarding the business and
operations of CHI and a review of, and discussion with key personnel regarding,
pertinent books and records of CHI.
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IN WITNESS WHEREOF, EChapman, Merger Subsidiary and CHI have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
<TABLE>
<S> <C> <C>
EChapman.COM, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
Chairman of the Board and President
CHI MERGER SUBSIDIARY, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
President
CHAPMAN HOLDINGS, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
Chairman of the Board and President
</TABLE>
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- -------------------------------------------------------------------------------
Exhibit 10.4
AGREEMENT AND PLAN
OF MERGER
BY AND AMONG
ECHAPMAN.COM, INC.,
CCMH MERGER SUBSIDIARY, INC.
AND
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I.................................................................... 1
SECTION 1.1. THE MERGER.................................................. 1
SECTION 1.2. EFFECTIVE TIME OF THE MERGER................................ 1
ARTICLE II................................................................... 2
SECTION 2.1. CHARTER..................................................... 2
SECTION 2.2. BY-LAWS..................................................... 2
SECTION 2.3. EFFECT OF THE MERGER........................................ 2
SECTION 2.4. DIRECTORS................................................... 2
SECTION 2.5. OFFICERS.................................................... 2
ARTICLE III.................................................................. 3
SECTION 3.1. CONVERSION OF CCMH SHARES IN THE MERGER..................... 3
SECTION 3.2. CONSIDERATION............................................... 4
SECTION 3.3. EXCHANGE OF CERTIFICATES.................................... 4
SECTION 3.4. NO FRACTIONAL SECURITIES.................................... 6
SECTION 3.5. CLOSING..................................................... 6
SECTION 3.6. CLOSING OF CCMH'S TRANSFER BOOKS............................ 7
ARTICLE IV................................................................... 7
SECTION 4.1. ORGANIZATION................................................ 7
SECTION 4.2. CAPITALIZATION.............................................. 7
SECTION 4.2. AUTHORITY; NON-CONTRAVENTION; APPROVALS..................... 8
SECTION 4.4. ABSENCE OF UNDISCLOSED LIABILITIES.......................... 9
SECTION 4.5. ABSENCE OF LITIGATION....................................... 9
SECTION 4.6. REGISTRATION STATEMENT AND PROXY STATEMENT.................. 9
SECTION 4.7. COMPLIANCE WITH AGREEMENTS.................................. 10
SECTION 4.8. ECHAPMAN STOCKHOLDERS' APPROVAL............................. 10
SECTION 4.9. BROKERS AND FINDERS......................................... 10
SECTION 4.10. CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.................... 10
SECTION 4.11. ANTI-TAKEOVER STATUTES...................................... 11
ARTICLE V.................................................................... 11
SECTION 5.1. ORGANIZATION AND QUALIFICATION.............................. 11
SECTION 5.2. CAPITALIZATION.............................................. 11
SECTION 5.3. SUBSIDIARIES................................................ 12
SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS..................... 12
SECTION 5.5. SECURITIES REPORTS AND FINANCIAL STATEMENTS................. 13
SECTION 5.6. ABSENCE OF UNDISCLOSED LIABILITIES.......................... 14
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS........................ 14
SECTION 5.8. ABSENCE OF LITIGATION....................................... 14
SECTION 5.9. REGISTRATION STATEMENT AND PROXY STATEMENT.................. 15
SECTION 5.10. NO VIOLATION OF LAW......................................... 15
SECTION 5.11. COMPLIANCE WITH AGREEMENTS.................................. 15
SECTION 5.12. TAXES....................................................... 16
SECTION 5.13. EMPLOYEE BENEFITS PLANS; ERISA.............................. 16
SECTION 5.14. LABOR CONTROVERSIES......................................... 18
SECTION 5.15. TITLE TO ASSETS............................................. 18
SECTION 5.16. CCMH STOCKHOLDERS' APPROVAL................................. 19
SECTION 5.17. TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE............. 19
SECTION 5.18. MATERIAL AGREEMENTS......................................... 19
SECTION 5.19. INSURANCE................................................... 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 5.20. BROKERS AND FINDERS......................................... 19
SECTION 5.21. CERTAIN TRANSACTIONS........................................ 19
SECTION 5.22. OPINION OF FINANCIAL ADVISOR................................ 20
SECTION 5.22. ANTI-TAKEOVER STATUTES...................................... 20
ARTICLE VI................................................................... 20
SECTION 6.1. CONDUCT OF BUSINESS BY CCMH PENDING THE MERGER.............. 20
SECTION 6.2. CONDUCT OF BUSINESS BY ECHAPMAN PENDING THE MERGER.......... 22
SECTION 6.3. CONTROL OF CCMH'S OPERATIONS................................ 22
SECTION 6.4. CONTROL OF ECHAPMAN'S OPERATIONS............................ 22
SECTION 6.5. ACQUISITION TRANSACTIONS.................................... 23
ARTICLE VII.................................................................. 23
SECTION 7.1. ACCESS TO INFORMATION....................................... 24
SECTION 7.2. STOCKHOLDERS' APPROVAL...................................... 24
SECTION 7.3. AFFILIATES OF CCMH.......................................... 24
SECTION 7.4. EXPENSES AND FEES........................................... 25
SECTION 7.5. AGREEMENT TO COOPERATE...................................... 25
SECTION 7.6. PUBLIC STATEMENTS........................................... 25
SECTION 7.7. NOTIFICATION OF CERTAIN MATTERS............................. 26
SECTION 7.8. PROXY STATEMENT/PROSPECTUS AND REGISTRATION STATEMENT....... 26
SECTION 7.9. TAX-FREE TREATMENT OF MERGER................................ 26
SECTION 7.10. DIRECTORS' AND OFFICERS' INDEMNIFICATION.................... 26
SECTION 7.11. AMENDMENT TO CHI MERGER AGREEMENT........................... 27
ARTICLE VIII................................................................. 28
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER...................................................... 28
SECTION 8.2. ADDITIONAL CONDITIONS TO OBLIGATION OF CCMH TO EFFECT THE
MERGER...................................................... 29
SECTION 8.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ECHAPMAN AND MERGER
SUBSIDIARY TO EFFECT THE MERGER............................. 30
ARTICLE IX................................................................... 30
SECTION 9.1. TERMINATION................................................. 30
SECTION 9.2. EFFECT OF TERMINATION....................................... 31
SECTION 9.3. AMENDMENT................................................... 31
SECTION 9.4. WAIVER...................................................... 31
ARTICLE X.................................................................... 31
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............. 31
SECTION 10.2. NOTICES..................................................... 32
SECTION 10.3. INTERPRETATION.............................................. 33
SECTION 10.4. MISCELLANEOUS............................................... 33
SECTION 10.5. COUNTERPARTS................................................ 33
SECTION 10.6. PARTIES IN INTEREST......................................... 33
SECTION 10.7. EXHIBITS AND SCHEDULES...................................... 33
SECTION 10.8. SEVERABILITY................................................ 33
SECTION 10.9. DEFINITION OF KNOWLEDGE..................................... 34
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), made this 15(th) day of
November, 1999, by and among EChapman.com, Inc., a Maryland corporation
("EChapman"), CCMH Merger Subsidiary, Inc., a Maryland corporation and wholly
owned subsidiary of EChapman ("Merger Subsidiary"), and Chapman Capital
Management Holdings, Inc., a Maryland corporation ("CCMH").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of EChapman and CCMH have each
determined that the merger of CCMH with and into Merger Subsidiary (the
"Merger") is consistent with and in furtherance of the long-term business
strategy of EChapman and CCMH and subject to receipt of the fairness opinion
referred to hereinafter is fair to, and in the best interests of, CCMH and its
stockholders;
WHEREAS, the respective Boards of Directors of EChapman, Merger Subsidiary
and CCMH have each approved the Merger, upon the terms and subject to the
conditions set forth herein; and
WHEREAS, EChapman, Merger Subsidiary and CCMH intend to qualify the Merger
as a tax-free reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Maryland General Corporation Law (the "MGCL"), CCMH shall be merged
with and into Merger Subsidiary and the separate corporate existence of CCMH
shall thereupon cease. Merger Subsidiary shall be the surviving corporation
under the name Chapman Capital Management Holdings, Inc. in the Merger and is
hereinafter sometimes referred to as the "Surviving Corporation." The Surviving
Corporation will be governed by laws of the State of Maryland as a direct,
wholly owned subsidiary of EChapman.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in Articles of
Merger, in a form mutually acceptable to EChapman and CCMH, to be filed with the
State Department of Assessments and Taxation of Maryland (the "SDAT") in
accordance with the MGCL (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the Closing (as defined in
Section 3.5) of the transactions contemplated by this Agreement.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1. CHARTER. The Charter of Merger Subsidiary, as in effect
immediately prior to the Effective Time, except that the name of the Surviving
Corporation will change to Chapman Capital Management Holdings, Inc., shall be
the Charter of the Surviving Corporation until duly amended in accordance with
applicable law.
SECTION 2.2. BY-LAWS. The By-laws of Merger Subsidiary, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until duly amended in accordance with applicable law.
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SECTION 2.3. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of the MGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of Merger Subsidiary and
CCMH shall vest in the Surviving Corporation, all debts, liabilities and duties
of Merger Subsidiary and CCMH shall become the debts, liabilities and duties of
the Surviving Corporation in the same manner as if the Surviving Corporation had
itself incurred them, and the separate corporate existence of Merger Subsidiary
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth herein.
SECTION 2.4. DIRECTORS. The directors of Merger Subsidiary immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation and shall hold office until their respective successors are duly
elected and qualified in accordance with the Charter and By-laws of the
Surviving Corporation, or their earlier death, resignation or removal.
SECTION 2.5. OFFICERS. The officers of Merger Subsidiary immediately prior
to the Effective Time shall be the initial officers of the Surviving Corporation
and shall serve as the officers of the Surviving Corporation at the pleasure of
the Board of Directors of the Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. CONVERSION OF CCMH SHARES IN THE MERGER. Subject to
Section 3.4 regarding fractional shares, at the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any shares of CCMH's
common stock, par value $0.001 per share ("CCMH Common Stock"):
(a) Each share of CCMH Common Stock issued and outstanding immediately
prior to the Effective Time, other than CCMH Common Stock owned by EChapman
or Merger Subsidiary or owned by an Objecting Stockholder (as defined in
Section 3.1(c)) shall be converted in accordance with Section 3.3 into the
right to receive the Merger Consideration (as defined in Section 3.2).
(b) Each share of CCMH Common Stock owned by EChapman or Merger
Subsidiary (each a "Non-Converting Share") immediately prior to the
Effective Time, if any, shall be cancelled and extinguished without
conversion thereof into EChapman Shares (as defined in Section 3.2(a)) or
payment therefor.
(c) Any holder (an "Objecting Stockholder") of CCMH Common Stock
("Objecting Shares") who files with CCMH a written objection to the proposed
Merger at or before the stockholders' meeting at which the proposed Merger
will be considered, whose shares are not voted in favor of the approval of
the Merger at the meeting of CCMH stockholders at which the Merger is
approved, and who, within twenty (20) days after the Effective Time (which
time will be set forth in a notice provided to any such stockholder by
EChapman and Merger Subsidiary by certified mail, return receipt requested
pursuant to Section 3-207(b) of the MGCL), makes a written demand upon
Merger Subsidiary for payment for such Objecting Shares, accompanied by a
surrender of the certificates for such Objecting Shares, all pursuant to the
provisions of Title 3, Subtitle 2 of the MGCL, or any successor statute
thereto, shall be entitled to receive from Merger Subsidiary in cash the
fair value of such Objecting Shares determined in accordance with the
aforesaid provisions of the MGCL, or any successor statute thereto. The
amount paid to any Objecting Stockholder shall be debited against the
capital accounts of Merger Subsidiary. If any Objecting Stockholder objects
to the Merger and demands payment in cash for his Objecting Shares as
aforesaid, EChapman shall pay to Merger Subsidiary, as a contribution to its
capital, cash
2
<PAGE>
at a price per share equal to the price per share paid by Merger Subsidiary
to such Objecting Stockholder.
(d) Each unexpired option to purchase CCMH Common Stock ("CCMH
Options") that is outstanding at the Effective Time shall be converted into
an option to purchase the number of EChapman Shares (as defined in
Section 3.2) equal to the number of shares of CCMH Common Stock which could
be acquired upon the exercise of such CCMH Options multiplied by the
Exchange Ratio (as defined in Section 3.2), at an exercise price per share
equal to the per share exercise price of such CCMH Options divided by the
Exchange Ratio rounded to the nearest whole cent and in any case an amount
which, is not less than the par value, if any, of EChapman Shares (the
"Exchanged Options"). EChapman shall maintain sufficient authorized shares
of stock to issue EChapman Shares that will become issuable upon the
exercise of the Exchanged Options.
(e) At the Effective Time, each issued and outstanding share of common
stock, par value $.001 per share, of Merger Subsidiary shall remain
outstanding.
(f) No share of CCMH Common Stock shall be deemed to be outstanding or
to have any rights other than those set forth in this Section 3.1 after the
Effective Time unless specified by applicable provisions of the MGCL.
SECTION 3.2. CONSIDERATION.
(a) The consideration to be issued to each holder of CCMH Common Stock
in the Merger ("Merger Consideration") will be that number of shares of
EChapman common stock, par value $0.001 per share ("EChapman Shares"), which
is determined by multiplying the Exchange Ratio (as defined below) by the
number of shares of CCMH Common Stock held by such holder of CCMH Common
Stock on the Closing Date (as defined in Section 3.5). The "Exchange Ratio"
shall equal 2.23363 EChapman Shares for each share of CCMH Common Stock.
(b) No fractional EChapman Shares shall be issued, and, in lieu
thereof, a Fractional Share Payment shall be made (as defined in
Section 3.4).
(c) The Merger Consideration shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split or
other change (other than pursuant to exercises of outstanding options) in
the number of EChapman Shares or CCMH Common Stock outstanding prior to
Closing.
SECTION 3.3. EXCHANGE OF CERTIFICATES.
(a) Except as otherwise provided in Section 3.1(c) or by the MGCL, from
and after the Effective Time, all CCMH Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each holder of a certificate representing shares of CCMH
Common Stock shall cease to have any rights with respect thereto, except the
right to receive in exchange therefor, upon surrender thereof to a bank or
trust company designated by EChapman and acceptable to CCMH (the "Exchange
Agent"), a certificate representing EChapman Shares to which such holder is
entitled pursuant to Section 3.1 plus the Fractional Share Payment.
Notwithstanding any other provision of this Agreement, until holders or
transferees of certificates theretofore representing shares of CCMH Common
Stock have surrendered them for exchange as provided herein, no dividends or
other distributions declared or made after the Effective Time with respect
to EChapman Shares with a record date after the Effective Time shall be paid
with respect to any EChapman Shares represented by such certificates and no
Fractional Share Payment shall be made. Upon surrender of a certificate
which immediately prior to the Effective Time represented shares of CCMH
Common Stock, there shall be paid to the holder of such certificate by
EChapman without interest, (i) promptly, the amount of any Fractional Share
Payment with respect to a fractional EChapman Share to which such holder is
entitled, (ii) except as provided in (iii), below, the amount of dividends
or other distributions
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(without interest) with a record date after the Effective Time which
theretofore became payable with respect to whole EChapman Shares, and
(iii) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect
to such whole EChapman Shares.
(b) If any EChapman Shares are to be issued in a name other than that
in which the certificate for shares of CCMH Common Stock surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer and the person requesting such exchange shall
have paid to EChapman or the Exchange Agent any applicable transfer or other
taxes required by reason of such issuance.
(c) As of the Effective Time, EChapman shall deposit, or cause to be
deposited, with the Exchange Agent, for the account of Merger Subsidiary,
the number of EChapman Shares required to effect the exchanges referred to
in paragraph (a) above, and cash for purposes of the Fractional Share
Payment. EChapman shall thereafter from time to time deposit, or cause to be
deposited, with the Exchange Agent cash for payment of any dividend or
distributions in respect of such EChapman Shares with a record date after
the Effective Time.
(d) As soon as reasonably practicable after the Effective Time,
EChapman or the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record as of the Effective Time of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding shares of CCMH Common Stock (the "CCMH Certificates"), whose
shares were converted into the right to receive EChapman Shares (i) a letter
of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to CCMH Certificates shall pass, only upon delivery
of CCMH Certificates to the Exchange Agent), and (ii) instructions for use
in effecting the surrender of CCMH Certificates in exchange for EChapman
Shares. Upon surrender of a CCMH Certificate for cancellation to the
Exchange Agent, together with a duly executed letter of transmittal, the
holder of such CCMH Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole EChapman Shares
into which the shares of CCMH Common Stock theretofore represented by CCMH
Certificates so surrendered shall have been converted pursuant to the
provisions of Section 3.1, and CCMH Certificates so surrendered shall be
cancelled. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of CCMH Common Stock for
any EChapman Shares or dividends or distributions thereon delivered to a
public official pursuant to applicable abandoned property, escheat or
similar laws.
(e) Promptly following the date which is six (6) months after the
Effective Time, EChapman or the Surviving Corporation shall cause the
Exchange Agent to deliver to EChapman all certificates, property and other
documents in its possession relating to the transactions described in this
Agreement. Thereafter, each holder of a CCMH Certificate may surrender such
CCMH Certificate to EChapman and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor a certificate
representing EChapman Shares to which such person is entitled, any dividends
or distributions with respect to the EChapman Shares and any Fractional
Share Payment, in each case without any interest thereon. Notwithstanding
the foregoing, none of the Exchange Agent, EChapman, Merger Subsidiary, or
the Surviving Corporation shall be liable to a holder of CCMH Common Stock
for any EChapman Shares delivered to a public official pursuant to
applicable abandoned property, escheat and similar laws.
(f) In the event any CCMH Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such CCMH Certificate to be lost, stolen or destroyed, and the
posting of a bond by such person in such amount as EChapman may direct
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as indemnity against any claim that may be made against it or the Exchange
Agent with respect to such CCMH Certificate, the Exchange Agent, EChapman or
the Surviving Corporation, as the case may be, shall issue in exchange for
such lost, stolen or destroyed CCMH Certificate, a certificate representing
the proper number of EChapman Shares deliverable in respect thereof
determined in accordance with this Section 3.3, and cash for the Fractional
Share Payment and any other dividends or distributions in respect of
EChapman Shares with a record date after the Effective Time.
SECTION 3.4. NO FRACTIONAL SECURITIES. No fractional EChapman Shares shall
be issued in the Merger and no stock dividend, stock split or interest shall
relate to any fractional security, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a security holder.
In lieu of any such fractional shares, each holder of CCMH Common Stock, who
would otherwise have been entitled to receive a certificate representing a
fractional EChapman Share upon surrender of CCMH Certificates for exchange
pursuant to this Article III, shall be entitled to receive from the Exchange
Agent a cash payment (the "Fractional Share Payment") equal to the product of
the fractional share interest to which such holder would otherwise be entitled
multiplied by $34.
SECTION 3.5. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Venable,
Baetjer and Howard, LLP, Suite 1800, 2 Hopkins Plaza, Baltimore, MD 21201, on
the day of CCMH's Stockholders' Approval as such term is defined in
Section 7.2, below, or at such other time and place as EChapman and CCMH shall
reasonably agree (the date on which the Closing occurs is referred to in this
Agreement as the "Closing Date").
SECTION 3.6. CLOSING OF CCMH'S TRANSFER BOOKS. At the Effective Time, the
stock transfer books of CCMH shall be closed and no transfer of shares of CCMH
Common Stock which were outstanding immediately prior to the Effective Time
shall thereafter be made. From and after the Effective Time, the holders of CCMH
Certificates representing shares of CCMH Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights as stockholders of
CCMH, except as otherwise provided herein or by law. If, after the Effective
Time, subject to the terms and conditions of this Agreement, CCMH Certificates
formerly representing CCMH Common Stock are presented to the Exchange Agent,
EChapman or Surviving Corporation, as the case may be, they shall be cancelled
and exchanged for certificates representing EChapman Shares and cash for the
Fractional Share Payment and any other dividends or distributions in respect of
EChapman Shares with a record date after the Effective Time in accordance with
this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ECHAPMAN AND MERGER SUBSIDIARY
EChapman and Merger Subsidiary each represent and warrant to CCMH as of the
date hereof as follows:
SECTION 4.1. ORGANIZATION. The Merger Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Maryland. EChapman is a corporation duly organized and validly existing and in
good standing under the laws of the state of Maryland. Each of EChapman and
Merger Subsidiary has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. Neither EChapman nor Merger Subsidiary is in violation of any
of the provisions of their respective charters or By-laws.
SECTION 4.2. CAPITALIZATION.
(a) The authorized capital stock of EChapman consists of 50,000,000
shares of EChapman Shares, of which one share is outstanding. The issued and
outstanding EChapman Share is, and all EChapman Shares to be issued at the
Effective Time shall be, when issued, duly authorized, validly
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issued, fully paid, nonassessable and free of preemptive rights granted by
EChapman or by applicable law.
(b) Except as set forth in this Agreement, the Affiliate Agreements (as
defined in Section 7.3) and the CHI Merger Agreement (as defined in
Section 4.10) and in connection with the EChapman Public Offering (as
defined in Section 8.1(f)), there are (i) no outstanding subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement and
also including any rights plan or other anti-takeover agreement, obligating
EChapman or any subsidiary of EChapman to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of the capital stock of
EChapman or obligating EChapman or any subsidiary of EChapman to grant,
extend or enter into any such agreement or commitment, and (ii) no voting
trusts, proxies or other agreements or understandings to which EChapman or
any subsidiary of EChapman is a party or is bound with respect to the voting
of any shares of capital stock of EChapman and, to the knowledge of
EChapman, there are no such trusts, proxies, agreements or understandings
by, between or among any of EChapman's stockholders with respect to EChapman
Shares.
(c) The authorized capital stock of Merger Subsidiary consists of
20,000,000 shares of Merger Subsidiary Common Stock, of which 1,000 shares
are issued and outstanding, all of which are owned beneficially and of
record by EChapman. EChapman has no other direct or indirect subsidiaries,
except CHI Merger Subsidiary, Inc. and CIHI Merger Subsidiary, Inc.
SECTION 4.3. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) EChapman and Merger Subsidiary each have full corporate power and
authority to enter into this Agreement and, subject to EChapman Required
Statutory Approvals (as defined in Section 4.3(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of EChapman and Merger Subsidiary and by the sole
stockholder of EChapman and Merger Subsidiary, and no other corporate
proceedings on the part of EChapman or Merger Subsidiary are necessary to
authorize the execution and delivery of this Agreement or the consummation
by EChapman and Merger Subsidiary of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of EChapman and
Merger Subsidiary, and, assuming the due authorization, execution and
delivery hereof by CCMH, constitutes a valid and legally binding agreement
of each of EChapman and Merger Subsidiary, enforceable against each of them
in accordance with its terms, except that such enforcement may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally, and
(ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of EChapman
and Merger Subsidiary does not, and the performance of this Agreement and
the transactions contemplated hereby by EChapman and Merger Subsidiary shall
not, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
EChapman or Merger Subsidiary, under any of the terms, conditions or
provisions of (i) the respective charters and By-laws of EChapman or Merger
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
governmental authority, domestic or foreign, applicable to EChapman or
Merger Subsidiary or any of their respective properties or assets, or
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which EChapman or Merger Subsidiary
is now a party or by which EChapman or
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Merger Subsidiary or any of their respective properties or assets may be
bound. Excluded from the foregoing sentences of this paragraph (b), insofar
as they apply to the terms, conditions or provisions described in clauses
(ii) and (iii) of the first sentence of this paragraph (b), are such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of EChapman and Merger Subsidiary, taken as a whole (an "EChapman
Material Adverse Effect").
(c) Except for (i) the filing of the Registration Statement (as defined
in Section 4.6) with the SEC pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities and
any other required filings in other jurisdictions to register or exempt
EChapman Shares issuable pursuant hereto, and (ii) the making of the Merger
Filing with the SDAT in connection with the Merger (collectively referred to
as the "EChapman Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority, domestic or foreign, is
necessary for the execution and delivery of this Agreement by EChapman or
Merger Subsidiary or the consummation by EChapman or Merger Subsidiary of
the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained, as the case may be, would not, in the aggregate, have a
EChapman Material Adverse Effect, or affect Merger Subsidiary's ability to
consummate the Merger.
SECTION 4.4. ABSENCE OF UNDISCLOSED LIABILITIES. Neither EChapman nor
Merger Subsidiary has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities that were incurred in
the ordinary course of business and that will not have an EChapman Material
Adverse Effect.
SECTION 4.5. ABSENCE OF LITIGATION. There is no claim of any kind, suit,
action, proceeding, litigation, arbitration, investigation or controversy
affecting EChapman or Merger Subsidiary pending or, to the knowledge of
EChapman, threatened and neither EChapman nor any of its subsidiaries is subject
to any continuing order of, or written agreement or memorandum of understanding
with, or continuing material investigation by, any governmental entity or
authority, or any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator.
SECTION 4.6. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by EChapman for inclusion in (a) the
Registration Statement on Form S-4 to be filed under the Securities Act with the
SEC by EChapman and CCMH in connection with the Merger for the purpose of
registering EChapman Shares and Exchanged Options to be issued in connection
with the Merger (the "Registration Statement"), or (b) the proxy statement to be
distributed in connection with CCMH's meeting of stockholders to vote upon this
Agreement and the transactions contemplated hereby (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Proxy
Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, at the time of the
meeting of stockholders of CCMH to be held in connection with the transactions
contemplated by this Agreement, and at the Effective Time, or, in the case of
the Registration Statement, as amended or supplemented, at the time it is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement and Proxy Statement/
Prospectus shall comply in all material respects as to form and substance with
the requirements of the Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder, except that no
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representation is made by EChapman with respect to information supplied by CCMH
for inclusion therein.
SECTION 4.7. COMPLIANCE WITH AGREEMENTS. EChapman and Merger Subsidiary
are not in breach or violation of or in default in the performance or observance
of any term or provision of, and no event has occurred which, with notice or
lapse of time or action by a third party, could result in a default under
(a) their respective charters or By-Laws; or (b) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which EChapman or Merger Subsidiary is a party
or by which any of them is bound or to which any of their property is subject,
which breaches, violations and defaults, in the case of clause (b) of this
Section 4.11, would have, in the aggregate, a EChapman Material Adverse Effect.
SECTION 4.8. EChapman Stockholders' Approval. The affirmative vote of the
holders of a majority of the outstanding shares of EChapman Shares entitled to
vote is not necessary to approve the transactions contemplated by this
Agreement.
SECTION 4.9. BROKERS AND FINDERS. Neither EChapman nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated hereby.
SECTION 4.10. CHAPMAN HOLDINGS, INC. The representations and warranties of
Chapman Holdings, Inc. set forth in Article V of the Agreement and Plan of
Merger dated as of the date of this Agreement (the "CHI Merger Agreement") by
and between Chapman Holdings, Inc., CHI Merger Subsidiary, Inc. and EChapman are
true and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement is true and correct in all respects).
SECTION 4.11. ANTI-TAKEOVER STATUTES The provisions of Section 3-601 et
seq. (Special Voting Requirements) and Section 3-701 et seq. (Voting Rights of
Certain Control Shares) of the MGCL do not apply with respect to EChapman or
Merger Subsidiary in connection with the transactions contemplated by this
Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CCMH
CCMH represents and warrants to EChapman as of the date hereof as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION. CCMH is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. CCMH is qualified to do business and is in good standing, where
applicable, in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all other such failures, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of CCMH and its
subsidiaries, taken as a whole (a "CCMH Material Adverse Effect"). CCMH is not
in violation of any of the provisions of its charter or By-Laws.
SECTION 5.2. CAPITALIZATION.
(a) The authorized capital stock of CCMH consists of 20 million shares of
CCMH Common Stock, of which 3,351,334 shares are issued and outstanding. All of
the issued and outstanding shares of CCMH's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights granted by CCMH or by applicable law.
(b) Except as disclosed in CCMH SEC Reports (as defined in Section 5.5) and
in the CCMH minute book, as of the date hereof, there are (i) no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement and also including any rights plan or other anti-takeover agreement,
obligating CCMH or any subsidiary of CCMH to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of the capital stock of CCMH or
obligating CCMH or any subsidiary of CCMH to grant, extend or enter into any
such agreement or commitment, and (ii) no voting trusts, proxies or other
agreements or understandings to which CCMH or any subsidiary of CCMH is a party
or is bound with respect to the voting of any shares of capital stock of CCMH
and, to the knowledge of CCMH, there are no such trusts, proxies, agreements or
understandings by, between or among any of CCMH's stockholders with respect to
CCMH Common Stock.
SECTION 5.3. SUBSIDIARIES. Except as disclosed in CCMH SEC Reports (as
defined in Section 5.5), CCMH has no subsidiaries. Each direct and indirect
subsidiary of CCMH is duly organized, validly existing and in good standing,
where applicable, under the laws of its jurisdiction of incorporation or
organization and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, except where any failure would not have a CCMH Material Adverse
Effect. Each subsidiary of CCMH is qualified to do business, and is in good
standing, where applicable, in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so qualified and in
good standing would not have a CCMH Material Adverse Effect. All of the
outstanding shares of capital stock of each corporate subsidiary of CCMH have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights and are beneficially owned directly or indirectly by
CCMH, free and clear of any liens, claims or encumbrances. There are no
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights with
respect to any shares of capital stock of any subsidiary of CCMH, including any
right of conversion or exchange under any outstanding security, instrument or
agreement.
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SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) CCMH has full corporate power and authority to enter into this Agreement
and, subject to CCMH Stockholders' Approval (as defined in Section 7.2 and CCMH
Required Statutory Approvals (as defined in Section 5.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the Board
of Directors of CCMH, and no other corporate proceedings on the part of CCMH are
necessary to authorize the execution and delivery of this Agreement or, except
for CCMH Stockholders' Approval, the consummation by CCMH of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
CCMH, and, assuming the due authorization, execution and delivery hereof by
EChapman and Merger Subsidiary, constitutes a valid and legally binding
agreement of CCMH, enforceable against CCMH in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by CCMH does not, and the
performance of this Agreement and the transactions contemplated hereby by CCMH
shall not, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of CCMH or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or By-laws of CCMH or any of its subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to
CCMH or any of its subsidiaries or any of their respective properties or assets,
or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which CCMH or any of its subsidiaries is now a party or by which
CCMH or any of its subsidiaries or any of their respective properties or assets
may be bound. The consummation by CCMH of the transactions contemplated hereby
will not result in any violation, conflict, breach, termination, acceleration or
creation of liens under any of the terms, conditions or provisions described in
clauses (i) through (iii) of the preceding sentence, subject (x) in the case of
the terms, conditions or provisions described in clause (ii) above, to obtaining
(prior to the Effective Time) CCMH Required Statutory Approvals and CCMH
Stockholders' Approval, and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the Effective
Time) consents required from lenders, lessors or other third parties. Excluded
from the foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have a CCMH Material
Adverse Effect.
(c) Except for (i) the filing of the Registration Statement with the SEC
pursuant to the Securities Act and the Exchange Act and the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, and (ii) the making of the Merger Filing with the SDAT of the State
of Maryland in connection with the Merger (the filings and approvals referred to
in clauses (i) through (iii) above are collectively referred to as the "CCMH
Required Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by CCMH or the consummation by CCMH of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, would not, in the aggregate, have a CCMH Material Adverse Effect.
SECTION 5.5. SECURITIES REPORTS AND FINANCIAL STATEMENTS. Since
December 31, 1998, CCMH has filed with the SEC all forms, statements, reports
and documents (including all exhibits, amendments
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and supplements thereto) required to be filed by it under each of the Securities
Act, the Exchange Act and the respective rules and regulations thereunder, all
of which, as amended if applicable, complied in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder (collectively, the "CCMH SEC Reports"). As of their respective dates,
CCMH SEC Reports did not contain any 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 light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements of CCMH included in such reports
(collectively, the "CCMH Financial Statements") have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly present
the financial position of CCMH and its subsidiaries as of the dates thereof and
the results of their operations and changes in financial position for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal year-end and audit adjustments and any other adjustments
described therein.
SECTION 5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in CCMH
SEC Reports, neither CCMH nor any of its subsidiaries had at December 31, 1998,
nor has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except:
(a) liabilities, obligations or contingencies (i) which are accrued or reserved
against in CCMH Financial Statements or reflected in the notes thereto, or
(ii) which were incurred after December 31, 1998 and were incurred in the
ordinary course of business and consistent with past practices;
(b) liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a CCMH Material Adverse Effect, or (ii) have been discharged or
paid in full prior to the date hereof; and (c) liabilities and obligations which
are of a nature not required to be reflected in the consolidated financial
statements of CCMH and its subsidiaries prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the normal course of business.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
CCMH SEC Reports since December 31, 1998, CCMH and its subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and since December 31, 1998, there has not been
(a) any change in the financial condition, results of operations or business of
CCMH or any of its subsidiaries having, in the aggregate, a CCMH Material
Adverse Effect; (b) any damage, destruction or loss (whether or not covered by
insurance) with respect to any assets of CCMH or any of its subsidiaries having,
in the aggregate, a CCMH Material Adverse Effect; (c) any change by CCMH in its
accounting methods, principles or practices; (d) any revaluation by CCMH of any
of its material assets in any material respect; (e) any entry by CCMH or any of
its subsidiaries into any commitment or transactions material to CCMH and its
subsidiaries, taken as a whole; or (f) any declaration, setting aside or payment
of any dividends or distributions in respect of shares of CCMH Common Stock or
any redemption, purchase or other acquisition of any of its securities or any of
the securities of any subsidiary of CCMH.
SECTION 5.8. ABSENCE OF LITIGATION. Except as disclosed in CCMH SEC Reports,
(a) there is no claim of any kind, suit, action, proceeding, litigation,
arbitration, investigation or controversy affecting CCMH or any of its
subsidiaries pending or, to the knowledge of CCMH, threatened; and (b) neither
CCMH nor any of its subsidiaries is subject to any continuing order of, or
written agreement or memorandum of understanding with, or continuing material
investigation by, any governmental entity or authority, or any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator.
SECTION 5.9. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by CCMH or its subsidiaries for inclusion
in (a) the Registration Statement, or (b) the Proxy Statement will, in the case
of the Proxy Statement or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement and any amendments or supplements
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thereto, at the time of the meetings of stockholders of CCMH to be held in
connection with the transactions contemplated by this Agreement, and at the
Effective Time, or, in the case of the Registration Statement, as amended or
supplemented, at the time it is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Registration Statement and Proxy Statement/Prospectus will comply in all
material respects as to form and substance with the requirements of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by CCMH with respect to
information supplied by EChapman for inclusion therein.
SECTION 5.10. NO VIOLATION OF LAW. Except as disclosed in CCMH SEC Reports,
neither CCMH nor any of its subsidiaries is in violation of or has been given
notice or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment including, without limitation, any applicable
environmental law, ordinance or regulation of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a CCMH Material Adverse Effect. CCMH and its
subsidiaries have all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct their businesses as presently conducted (collectively, the "CCMH
Permits"), except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which, alone or in
the aggregate, would not have a CCMH Material Adverse Effect. CCMH and its
subsidiaries are not in violation of the terms of any CCMH Permit, except for
delays in filing reports or violations which, alone or in the aggregate, would
not have a CCMH Material Adverse Effect.
SECTION 5.11. COMPLIANCE WITH AGREEMENTS. Except as disclosed in CCMH SEC
Reports, CCMH and each of its subsidiaries are not in breach or violation of or
in default in the performance or observance of any term or provision of, and no
event has occurred which, with notice or lapse of time or action by a third
party, could result in a default under (a) the respective charters or By-laws of
CCMH or any of its subsidiaries; or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which CCMH or any of its subsidiaries is a party or by which
any of them is bound or to which any of their property is subject, which
breaches, violations and defaults, would have, in the aggregate, a CCMH Material
Adverse Effect.
SECTION 5.12. TAXES. CCMH and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns required to be filed by
them for all periods ending on or prior to the date hereof, and such Tax Returns
are true, correct and complete in all material respects, and (ii) duly paid in
full all Taxes due in connection with or with respect to the filing of such Tax
Returns and have paid all other Taxes as are due, except such as are being
contested in good faith by appropriate government proceedings and with respect
to which CCMH is maintaining reserves adequate for their payment. Neither the
IRS nor any other governmental entity or taxing authority or agency is now
asserting, either through audits, administrative proceedings, court proceedings
or otherwise, or, to the best of CCMH's knowledge, threatening to assert against
CCMH or any of its subsidiaries any deficiency or claim for additional Taxes.
Neither CCMH nor any of its subsidiaries has been granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. There are no tax liens on any assets of CCMH or any of
its subsidiaries. Neither CCMH nor any of its subsidiaries has received a ruling
or entered into an agreement with the IRS or any other governmental entity or
taxing authority or agency that would have a CCMH Material Adverse Effect, taken
as a whole, after the Effective Time. The accruals and reserves for Taxes
reflected in the CCMH balance sheet reflected in the latest CCMH SEC Report are
adequate to cover all Taxes accruable through the date thereof (including Taxes
being contested) in accordance with generally accepted accounting principles. No
agreements relating to allocating or sharing of Taxes exist
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among CCMH and its subsidiaries. Neither CCMH nor any of its subsidiaries is
required to include in income either (i) any material amount in respect of any
adjustment under Section 481 of the Code, or (ii) any material installment sale
gain. Neither CCMH nor any of its subsidiaries has made an election under
Section 341(f) of the Code.
SECTION 5.13. EMPLOYEE BENEFITS PLANS; ERISA.
(a) Neither CCMH nor its subsidiaries has any obligation to create any
material employee benefit plans, programs, arrangements and practices for
employees (such plans, programs, arrangements and practices of CCMH and its
subsidiaries being referred to as the "CCMH Plans"), including employee benefit
plans within the meaning set forth in Section 3(3) of ERISA, or other similar
material arrangements for the provision of benefits or to amend any such plan so
as to increase benefits thereunder, except as required under the terms of CCMH
Plans, under existing collective bargaining agreements or to comply with
applicable law.
(b) No member of CCMH's "controlled group," within the meaning of
Section 4001(a)(14) of ERISA, maintains or contributes to, or within the five
(5) years preceding the Effective Time has maintained or contributed to, an
employee pension benefit plan subject to Title IV of ERISA. None of the CCMH
Plans obligates CCMH or any of its subsidiaries to pay material separation,
severance, termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or as a result of a "change in
control," within the meaning of such term under Section 280G of the Code. None
of CCMH Plans provides for or promises retiree medical, disability or life
insurance benefits to any current or former employee, officer or director of
CCMH or any of its subsidiaries except as otherwise required with respect to
health plan coverage in Section 4980B of the Code. Each of CCMH Plans is subject
only to the laws of the United States or a political subdivision thereof.
(c) Each CCMH Plan has been operated in all respects in accordance with the
requirements of all applicable laws and all persons who participate in the
operation of such CCMH Plans and all CCMH Plan "fiduciaries" (within the meaning
of Section 3(21) of ERISA) have acted in accordance with the provisions of all
applicable laws, except where violations of such applicable laws would not,
individually or in the aggregate, have a CCMH Material Adverse Effect, taken as
a whole. CCMH and its subsidiaries have performed all obligations required to be
performed by any of them under, are not in any respect in default under or in
violation of, and CCMH has no knowledge of any default or violation by any party
to, any CCMH Plan, except where such failures, defaults or violations would not,
individually or in the aggregate, have a CCMH Material Adverse Effect, taken as
a whole. No legal action, suit or claim is pending or, to the knowledge of CCMH,
threatened with respect to any CCMH Plan (other than claims for benefits in the
ordinary course) and, to the knowledge of CCMH, no fact or event exists that
could give rise to any such action, suit or claim. Neither CCMH nor any of its
subsidiaries has incurred any material liability to the Pension Benefit Guaranty
Corporation (other than premiums payable to the Pension Benefit Guaranty
Corporation in the ordinary course) or any material "withdrawal liability"
within the meaning of Section 4201 of ERISA.
(d) Each CCMH Plan that is intended to be qualified under Section 401(a) of
the Code or Section 401(k) of the Code has received a favorable determination
letter from the IRS that it is so qualified, and each trust established in
connection with any CCMH Plan that is intended to be exempt from federal income
taxation under Section 501(a) of the Code is so exempt, and, to the knowledge of
CCMH, no fact or event has occurred since the date of such determination letter
from the IRS to adversely affect the qualified status of any such CCMH Plan or
the exempt status of any such trust. No trust maintained or contributed to by
CCMH or any of its subsidiaries is intended to be qualified as a voluntary
employees' beneficiary association or is intended to be exempt from federal
income taxation under Section 501(c)(9) of the Code.
(e) To CCMH's knowledge, there has been no non-exempt prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any CCMH Plan.
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CCMH and each of its subsidiaries has not incurred any liability for any excise
tax arising under Section 4972 or 4980B of the Code and, to the knowledge of
CCMH, no fact or event exists that could give rise to any such liability except
for liability which singly or in the aggregate could not reasonably be expected
to cause a CCMH Material Adverse Effect.
(f) All contributions, premiums or payments required to be made with respect
to any CCMH Plan have been made on or before their due dates.
(g) The CCMH Minute Book sets forth a true and complete list of each current
or former employee, officer or director of CCMH or any of its subsidiaries who
holds any option to purchase CCMH Common Stock as of the date of this Agreement,
together with the number of shares of CCMH Common Stock subject to such option,
the date of grant of such option, the option price of such option, whether such
option is intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code (an "ISO") and the expiration date of such option.
The CCMH Minute Book also sets forth the total number of such ISOs and such
non-qualified options.
(h) Neither CCMH nor any of its subsidiaries is a party to any employment,
severance, consulting or other similar contracts with any employees, officers or
directors of CCMH or any of its subsidiaries other than such contracts that are
disclosed in CCMH SEC Reports. Neither CCMH nor any of its subsidiaries is a
party to any collective bargaining agreements.
SECTION 5.14. LABOR CONTROVERSIES. Except as set forth in the CCMH SEC
Reports, (a) there are no material controversies pending or, to the knowledge of
CCMH, threatened between CCMH or its subsidiaries and any representatives of any
of their employees; (b) to the knowledge of CCMH, there are no material
organizational efforts presently being made or threatened involving any of the
presently unorganized employees of CCMH or its subsidiaries; (c) CCMH and its
subsidiaries have, to the knowledge of CCMH, complied in all material respects
with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, civil rights, administration of leave and rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985 and the payment of social
security and similar taxes; and (d) no person has, to the knowledge of CCMH,
asserted that CCMH or any of its subsidiaries is liable in any material amount
for any arrears of wages or any taxes or penalties for failure to comply with
any of the foregoing, except for such controversies, organizational efforts,
non-compliance and liabilities which, singly or in the aggregate, could not
reasonably be expected to cause a CCMH Material Adverse Effect.
SECTION 5.15. TITLE TO ASSETS. CCMH and each of its subsidiaries has good
and marketable title to all their respective properties and assets, real and
personal, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (a) liens for Taxes not yet due
and payable; (b) such imperfections in title and easements and encumbrances, if
any, as are not material in character, amount or extent and do not materially
and adversely affect the value or interfere with the present use of the property
subject thereto or affected thereby, or otherwise materially impair CCMH's
present business operations; (c) as disclosed in CCMH SEC Reports; or
(d) mortgages incurred in the ordinary course of business, and except for such
matters which, singly or in the aggregate, could not reasonably be expected to
cause a CCMH Material Adverse Effect. All leases under which CCMH leases any
material real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or lapse of time or both
would become a default other than defaults under such leases which in the
aggregate will not have a CCMH Material Adverse Effect.
SECTION 5.16. CCMH STOCKHOLDERS' APPROVAL. The affirmative vote of the
holders of a majority of the outstanding shares of CCMH Common Stock entitled to
vote is necessary to approve the transactions contemplated by this Agreement.
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SECTION 5.17. TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE. CCMH and its
subsidiaries own or have the right to use all of their Intellectual Property
Rights without any conflict with the rights of others, except for such conflicts
that have not had and are not reasonably likely to have a CCMH Material Adverse
Effect, and the consummation of the transactions contemplated hereby will not
alter or impair such rights in any material respect. To the knowledge of CCMH,
no claims are pending by any person with respect to the ownership, validity,
enforceability or use of any such Intellectual Property Rights challenging or
questioning the validity or effectiveness of any of the foregoing which claims
could reasonably be expected to have a CCMH Material Adverse Effect. To CCMH's
knowledge, none of it or its subsidiaries' key technical personnel is in
violation of any term of any employment agreement, patent disclosure agreement
or any other contract or agreement relating to the relationship of any such
employee with it or its subsidiaries or any other party the result of which has
had or is reasonably likely to have a CCMH Material Adverse Effect.
SECTION 5.18. MATERIAL AGREEMENTS. CCMH has no material agreements other
than those filed as exhibits to CCMH SEC Reports or which will be filed with the
Registration Statement except for Support Agreement between CCMH and Nathan A.
Chapman, Jr., dated November 12, 1999.
SECTION 5.19. INSURANCE. Except to the extent there would be no CCMH
Material Adverse Effect, to CCMH's knowledge, all of CCMH's and its
subsidiaries' liability, theft, life, health, fire, title, worker's compensation
and other forms of insurance, surety bonds and umbrella policies, insuring CCMH
and its subsidiaries and their directors, officers, employees, independent
contractors, properties, assets and businesses, are valid and in full force and
effect (without any premium past due or pending notice of cancellation) and are,
in the reasonable judgment of CCMH, adequate for the business of CCMH and its
subsidiaries as now conducted, and there are no claims, singly or in the
aggregate, in excess of the limitations of coverage set forth in such policies.
The provision and/or reserves in CCMH Financial Statements are adequate for any
and all self insurance programs maintained by CCMH or its subsidiaries.
SECTION 5.20. BROKERS AND FINDERS. Neither CCMH nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated hereby, except that CCMH has retained Tucker
Anthony Cleary Gull as its financial advisor.
SECTION 5.21. CERTAIN TRANSACTIONS. Except as set forth in the CCMH SEC
Reports, since December 31, 1998, none of the officers or directors of CCMH or
of any of its subsidiaries, and, to CCMH's knowledge, none of their employees or
the employees of any of its subsidiaries is a party to any transaction with it
or any of its subsidiaries (other than for services as an employee, officer or
director and other than transactions between it and one or more of its direct or
indirect wholly owned subsidiaries or between such subsidiaries), including
without limitation, any contract, agreement or other arrangement (i) providing
for the furnishing of services to or by, (ii) providing for rental of real or
personal property to or from, or (iii) otherwise requiring payments to or from,
any such officer, director, affiliate or employee, any member of the family of
any such officer, director or employee or any corporation, partnership, trust or
other entity in which any such officer, director or employee has a substantial
interest or which is an affiliate of such officer, director or employee (a "CCMH
Affiliated Transaction") other than transactions which would not have a CCMH
Material Adverse Effect.
SECTION 5.22. OPINION OF FINANCIAL ADVISOR. CCMH received the opinion of
Tucker Anthony Cleary Gull, its financial advisor, dated November 11, 1999, to
the effect that, as of such date, the transactions contemplated hereby are fair
to its stockholders from a financial point of view.
SECTION 5.23. ANTI-TAKEOVER STATUTES The provisions of Section 3-601 et seq.
(Special Voting Requirements) and Section 3-701 et seq. (Voting Rights of
Certain Control Shares) of the MGCL do not apply with respect to CCMHI in
connection with the transactions contemplated by this Agreement.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY CCMH PENDING THE MERGER. Except as
otherwise contemplated by this Agreement, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless EChapman shall
otherwise agree in writing, CCMH shall, and shall cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
(b) not, except as necessary to consummate the transactions contemplated
hereby, (i) amend or propose to amend their respective charters or By-laws,
(ii) split, combine or reclassify their outstanding capital stock, or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly owned subsidiary of CCMH;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of or otherwise cause to become outstanding, any additional shares
of, or any options, warrants or rights of any kind to acquire any shares of
their capital stock of any class or any debt or equity securities convertible
into or exchangeable for such capital stock, except that CCMH may issue shares
upon the exercise of CCMH Options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to any material
indebtedness for borrowed money other than (x) borrowings in the ordinary course
of business not to exceed $100,000 or in other cases for amounts in excess of
$100,000 which shall be on terms reasonably acceptable to EChapman, or
(y) borrowings to refinance existing indebtedness, in the ordinary course of
business, (ii) redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or any options, warrants or rights to acquire any of
its capital stock or any security convertible into or exchangeable for its
capital stock, (iii) take or fail to take any action which action or failure
would cause CCMH or its stockholders (except to the extent that any stockholders
receive cash in lieu of fractional shares) to recognize gain or loss for federal
income tax purposes as a result of the consummation of the Merger, (iv) make any
acquisition of any assets or businesses and expenditures for fixed or capital
(in each case, after consultation with EChapman) or expenditures in the ordinary
course of business which, in such cases of $100,000 or more, shall be on terms
reasonably acceptable to EChapman, (v) sell, pledge, dispose of or encumber any
assets or businesses other than sales in the ordinary course of business which,
in such cases involving $100,000 or more, shall be on terms reasonably
acceptable to EChapman, or (vii) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(e) use all commercially reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the services of
their respective present officers and key employees, and preserve the goodwill
and business relationships with customers, vendors and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer on a regular and frequent basis with one or more representatives
of EChapman to report operational matters of materiality and the general status
of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees except
in the ordinary course and consistent with past practice which shall be on terms
acceptable to EChapman;
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(h) not adopt, enter into or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree except as required to
comply with changes in applicable law and increases in wages in the ordinary
course and consistent with past practice for non-executive employees which, in
such cases involving $25,000 or more, shall be on terms acceptable to EChapman;
(i) maintain with adequately capitalized insurance companies insurance
coverage for its assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice; and
(j) not enter into any arrangement or transaction of the type described in
Section 5.21.
SECTION 6.2. CONDUCT OF BUSINESS BY ECHAPMAN PENDING THE MERGER. Except as
otherwise contemplated by this Agreement, after the date hereof and prior to the
Closing Date or earlier termination of this Agreement, unless CCMH shall
otherwise agree in writing, EChapman shall, and shall cause Merger Subsidiary,
to:
(a) conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
(b) not, except as necessary to consummate the transactions contemplated
hereby, (i) amend or propose to amend their respective charters or By-laws,
(ii) split, combine or reclassify their outstanding capital stock, or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a subsidiary of EChapman and except for cash dividends in
historic amounts payable in a manner consistent with past practices;
(c) use all commercially reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available the services of
their respective present officers and key employees and preserve the goodwill
and business relationships with customers and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(d) confer on a regular and frequent basis with one or more representatives
of CCMH to report operational matters of materiality and the general status of
ongoing operations;
(e) not enter into any arrangement or transaction of the type described in
Section 5.21.
SECTION 6.3. CONTROL OF CCMH'S OPERATIONS. Nothing contained in this
Agreement shall give to EChapman, directly or indirectly, rights to control or
direct CCMH's operations prior to the Effective Time. Prior to the Effective
Time, CCMH shall exercise, consistent with and subject to the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.4. CONTROL OF ECHAPMAN'S OPERATIONS. Nothing contained in this
Agreement shall give to CCMH, directly or indirectly, rights to control or
direct EChapman's operations prior to the Effective Time. Prior to the Effective
Time, EChapman shall exercise, consistent with and subject to the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.5. ACQUISITION TRANSACTIONS.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, CCMH shall not, and shall not permit any of its
subsidiaries to, (i) initiate, solicit or seek, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) to acquire all or
any substantial part of the business and properties of CCMH and its subsidiaries
or more than fifty percent (50%) of the capital stock of CCMH and its
subsidiaries, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
except for the
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transaction contemplated herein (any such transactions being referred to herein
as "Acquisition Transactions"), or (ii) otherwise cooperate in any effort or
attempt to initiate, solicit or seek an Acquisition Transaction.
(b) Notwithstanding any other provision of this Agreement, in response to an
unsolicited proposal or inquiry (or a proposal or inquiry arising from a general
solicitation) with respect to an Acquisition Transaction and subject to the
duties of CCMH's Board of Directors under applicable law, if such Acquisition
Transaction is a tender offer subject to the provisions of Section 14(d) under
the Exchange Act, CCMH's Board of Directors may take and disclose to CCMH's
stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act.
(c) In the event CCMH shall receive any offer of an Acquisition Transaction,
it shall (i) immediately inform EChapman of such offer, and (ii) furnish to
EChapman the identity of the proponent of such offer and, unless the Board of
Directors of CCMH concludes that such disclosure is inconsistent with its duties
under applicable law, a description of the material terms thereof.
(d) CCMH may terminate this Agreement, withdraw, modify or not make its
recommendations referred to in Section 7.2, and enter into a definitive
agreement for an Acquisition Transaction if, but only if, (i) the Board of
Directors of CCMH shall have consulted with legal counsel concerning its
obligations under applicable law and (ii) CCMH shall have determined in good
faith after consultation with the independent financial advisors of CCMH that
such Acquisition Transaction would be more favorable to CCMH's stockholders from
a financial point of view than the Merger, and (iii) the Board of Directors of
CCMH shall conclude in good faith that such action is necessary in order for the
Board of Directors of CCMH to act in a manner that is consistent with its
obligations under applicable law.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS TO INFORMATION. From and after the date hereof, each
party shall furnish promptly to one another a copy of each report and other
document filed or received by any of them pursuant to the requirements of
federal or state securities laws or which may have a material effect on their
respective businesses, properties or personnel, and work papers of their
respective accountants and other information or copies of such documentation and
access to senior management personnel as reasonably deemed necessary by the
requesting party's respective accountants, legal counsel or financial advisors
to complete the Proxy Statement/Prospectus and Registration Statement, and the
opinion referred to in Section 8.2(d) below. EChapman and its subsidiaries shall
hold and shall use their commercially reasonable efforts to cause EChapman's
representatives to hold, and CCMH and its subsidiaries shall hold and shall use
their commercially reasonable efforts to cause CCMH's representatives to hold,
in strict confidence all non-public documents and information furnished to
EChapman and Merger Subsidiary or to CCMH, as the case may be, in connection
with the transactions contemplated by this Agreement. Notwithstanding the
foregoing (i) EChapman and CCMH may disclose such information as may be
necessary in connection with seeking EChapman Required Statutory Approvals, CCMH
Required Statutory Approvals and CCMH Stockholders' Approval (as defined in
Section 7.2 below), and (ii) each of EChapman, Merger Subsidiary and CCMH may
disclose any information that it is required by law or judicial or
administrative order to disclose.
SECTION 7.2. STOCKHOLDERS' APPROVAL. Subject to the duties of the Board of
Directors of CCMH under applicable law, CCMH shall, as promptly as practicable,
submit the transactions contemplated hereby for the approval of its stockholders
at a meeting of stockholders and, subject to the duties of the Board of
Directors of CCMH under applicable law, shall use its commercially reasonable
efforts to obtain stockholder approval and adoption (the "CCMH Stockholders'
Approval") of this Agreement and the transactions contemplated hereby. Such
meeting of the stockholders shall be held as soon as practicable following the
date upon which the Registration Statement becomes effective. CCMH shall,
through its Board of Directors, but subject to the duties of the members thereof
under applicable law, recommend to its stockholders approval of the transactions
contemplated by this Agreement. CCMH acknowledges and agrees: (i) that a breach
of its covenant contained in this Section 7.2 to convene a meeting of its
stockholders and call for a vote with respect to the approval of this Agreement
and the Merger will result in irreparable harm to EChapman which will not be
compensable in money damages, and (ii) that such covenant shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to EChapman for a breach of such covenant.
SECTION 7.3. AFFILIATES OF CCMH. Within 30 days after the date of this
Agreement: (i) CCMH shall deliver to EChapman a letter identifying all persons
who may be deemed affiliates of CCMH under Rule 145 of the Securities Act
("Rule 145"), including, without limitation, all directors and executive
officers of CCMH; (ii) CCMH shall advise the persons identified in such letter
of the resale restrictions imposed by applicable securities laws; (iii) the
persons identified in such letter shall each execute a Memorandum to Persons
Deemed to be Affiliated Persons of Chapman Capital Management Holdings, Inc. in
such form as is acceptable to EChapman (the "145 Memorandum"); and
(iv) Nathan A. Chapman, Jr. shall execute a Support Agreement in such form as is
acceptable to EChapman (the 145 Memorandum and the Support Agreement are
collectively referred to herein as the "Affiliate Agreements").
SECTION 7.4. EXPENSES AND FEES. Each party hereto agrees to bear its own
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement, except:
(a) CCMH shall pay and be responsible for all fees and expenses incurred in
connection with the printing, filing and mailing of the Proxy
Statement/Prospectus; and
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(b) If CCMH (i) fails to fulfill its obligations as set forth in
Section 6.5(a)-(c) or (ii) terminates this Agreement pursuant to
Section 6.5(d), CCMH shall pay to EChapman the sum of $3.0 million in lieu of
any other payments or penalties or the reimbursement of expenses incurred by
EChapman.
SECTION 7.5. AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto shall use all commercially reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable pursuant to all agreements, contracts, indentures or other
instruments to which the parties hereto are a party, or under any applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its commercially reasonable
efforts to (i) obtain all necessary or appropriate waivers, consents and
approvals from lenders, landlords, security holders or other parties whose
waiver, consent or approval is required to consummate the Merger, (ii) effect
all necessary registrations, filings and submissions, and (iii) lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible).
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, including any
Acquisition Transaction, EChapman shall have the right, at its own expense, to
participate therein, and CCMH will not settle any such litigation without the
consent of EChapman, which consent will not be unreasonably withheld.
SECTION 7.6. PUBLIC STATEMENTS. The parties (i) shall consult with each
other prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby, and
(ii) shall not issue any such press release or written public statement prior to
such consultation, except as may be required by law and applicable listing
requirements.
SECTION 7.7. NOTIFICATION OF CERTAIN MATTERS. Each of CCMH, EChapman and
Merger Subsidiary agrees to give prompt notice to each other of, and to use
their respective commercially reasonable efforts to prevent or promptly remedy
(i) the occurrence or failure to occur or the impending or threatened occurrence
or failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.8. PROXY STATEMENT/PROSPECTUS AND REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
EChapman and CCMH shall prepare and file with the SEC a Proxy
Statement/Prospectus and Registration Statement on Form S-4 relating to the
approval of the Merger by the stockholders of CCMH and shall use all
commercially reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable.
(b) Prior to the date of approval of the Merger by CCMH's stockholders, each
of CCMH, EChapman and Merger Subsidiary shall correct promptly any information
provided by it to be used specifically in the Proxy Statement/Prospectus and
Registration Statement that shall have become false or misleading in any
material respect and shall take all steps necessary to file with the SEC and
have declared effective or cleared by the SEC any amendment or supplement to the
Proxy Statement/ Prospectus or the Registration Statement so as to correct the
same and to cause the Proxy Statement/ Prospectus as so corrected to be
disseminated to the stockholders of CCMH and EChapman, in each case to the
extent required by applicable law.
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SECTION 7.9. TAX-FREE TREATMENT OF MERGER. EChapman and CCMH shall each use
its commercially reasonable efforts to cause the Merger to be treated as a
tax-free reorganization for federal, state and foreign income tax purposes and
agree that this Agreement shall serve as the Plan of Reorganization therefor.
SECTION 7.10. DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) The Surviving Corporation shall maintain in full force and observe any
liability, exculpation or indemnification provision (including payment or
advance of expenses) now existing in the Charter or By-laws of CCMH for the
benefit of any individual who served as a director or officer of CCMH at any
time prior to the Effective Time.
(b) For a period of six years from and after the Effective Time, the
Surviving Corporation and EChapman shall indemnify, defend and hold harmless
each individual who served as a director, or officer of CCMH or any of its
subsidiaries (the "Indemnified Parties") at any time prior to the Effective Time
from and against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments or amounts that are paid in settlement with the approval of the
indemnifying party which approval shall not be unreasonably withheld (net of any
insurance proceeds obtained by the Indemnified Parties) of or in connection with
any claim, action, suit, proceeding or investigation based in whole or in part
on or arising in whole or in part out of the fact that such person is or was a
director or officer of the Company or any of its subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after the Effective Time
("Indemnified Liabilities) and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each case to the full
extent a corporation is permitted under the MGCL to indemnify its own directors
and officers, as the case may be (and the Surviving Corporation and EChapman
will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law).
Without limiting the foregoing, in the event that any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising before or after the Effective Time), (x) the Indemnified Parties may
retain counsel satisfactory to them and the CCMH (or them and the Surviving
Corporation and EChapman after the Effective Time), (y) CCMH (or after the
Effective Time, the Surviving Corporation and EChapman) shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received, and (z) the Company (or after the Effective
Time, the Surviving Corporation and EChapman) will use all commercially
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither CCMH nor the Surviving Corporation or EChapman shall be
liable for any settlement of any claim effected without their written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 7.10, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the CCMH
or, after the Effective Time, the Surviving Corporation or EChapman (but the
failure so to notify an Indemnifying Party shall not relieve it from any
liability which it may have under this Section 7.10 except to the extent such
failure prejudices such party). The Indemnified Parties as a group may retain
only one law firm to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(c) The provisions of this Section 7.10 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, and his or her heirs
and representatives.
SECTION 7.11. AMENDMENT TO CHI MERGER AGREEMENT. Without the consent of
CCMH, EChapman will not consent to any material amendment to the CHI Merger
Agreement.
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ARTICLE VIII
CONDITIONS
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
Unless waived by the parties, the respective obligations of each party to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) this Agreement and the transactions contemplated hereby, as appropriate,
shall have been approved and adopted by the requisite vote of the stockholders
of CCMH under applicable law and applicable listing requirements;
(b) the Registration Statement shall have been declared effective by the SEC
in accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued by the SEC and remain in
effect and no proceedings for that purpose shall, on or prior to the Effective
Time, have been instituted or, to the knowledge of EChapman or CCMH, threatened
by the SEC.
(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger shall have
been issued and remain in effect (each party agreeing to use its commercially
reasonable efforts to have any such injunction, order or decree lifted);
(d) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency which would prevent the consummation of the Merger or make the
consummation of the Merger illegal;
(e) all material governmental waivers, consents, orders and approvals,
legally required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the Effective
Time;
(f) EChapman shall have completed a public offering (pursuant to an
effective registration statement under the Securities Act of 1933, as then in
effect, or any comparable statement under any similar federal statute then in
force) of EChapman Shares in which (i) EChapman receives gross proceeds of no
less than Twenty Million dollars ($20,000,000), and (ii) the price paid by the
public for such shares reflects a preoffering valuation of EChapman of no less
than Eighty Million Dollars ($80,000,000.00) (the "EChapman Public Offering");
and
(g) The transactions contemplated by the CHI Merger Agreement shall have
closed; and
(h) CCMH shall have received from Tucker Anthony Cleary Gull an updated
opinion reasonably acceptable to CCMH, dated as of the date on or about which
the Proxy Statement/Prospectus is first distributed to the stockholders of CCMH,
to the effect that the consideration to be received by the stockholders of CCMH
in the Merger is fair, from a financial point of view, to the holders of CCMH
Common Stock, and such opinion shall not have been withdrawn as of the Closing
Date; and
SECTION 8.2. ADDITIONAL CONDITIONS TO OBLIGATION OF CCMH TO EFFECT THE
MERGER. Unless waived by CCMH, the obligation of CCMH to effect the Merger shall
be subject to the fulfillment on or prior to the Closing Date of the following
additional conditions:
(a) EChapman and Merger Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of
EChapman and Merger Subsidiary contained in this Agreement shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects) on and as of the date made
and on and as of the Closing Date, except for those representations and
warranties which address matters only as of a particular date (which shall
remain
22
<PAGE>
true and correct as of such date), as if made at and as of such date, and CCMH
shall have received a Certificate of the Chairman of the Board and the President
of EChapman and Merger Subsidiary to that effect;
(b) Chapman Holdings, Inc. and CHI Merger Subsidiary, Inc. shall have
performed in all material respects their agreements contained in the CHI Merger
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Chapman Holdings, Inc. and CHI Merger
Subsidiary, Inc. contained in the CHI Merger Agreement shall be true and correct
in all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects) on and as of the date made and on and as of
the Closing Date, except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), as if made at and as of such date, and CCMH shall have received a
Certificate of the Chairman of the Board and the President of EChapman to that
effect;
(c) from the date hereof to the Closing Date, there shall have been no
changes that constitute, and no event or events shall have occurred which have
resulted in or constitute, an EChapman Material Adverse Effect, taken as a
whole; and
(d) CCMH shall have received an opinion from the law firm of Venable,
Baetjer and Howard, LLP, dated the Closing Date, to the effect that the Merger
should be treated as a tax-free reorganization for federal and state income tax
purposes.
SECTION 8.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF EChapman and Merger
Subsidiary to Effect the Merger. Unless waived by EChapman and Merger
Subsidiary, the obligations of EChapman and Merger Subsidiary to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the additional following conditions:
(a) CCMH shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of CCMH contained in this Agreement
shall be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects) on and as
of the date made and on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), as if made at and as
of such date, and EChapman shall have received a Certificate of the Chairman of
the Board and President of CCMH to that effect;
(b) the Affiliate Agreements required to be delivered to EChapman pursuant
to Section 7.3 shall have been furnished as required by Section 7.3; and
(c) from the date hereof to the Closing Date, there shall have been no
changes that constitute, and no event or events shall have occurred which have
resulted in or constitute, a CCMH Material Adverse Effect, taken as a whole.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. TERMINATION. This Agreement may be terminated by the mutual
consent of the parties, or at any time prior to the Closing Date, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of CCMH, as follows:
(a) CCMH shall have the right to terminate this Agreement;
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(i) if the Merger is not completed by June 30, 2000 other than on
account of delay or default on the part of CCMH;
(ii) if the Merger or the transactions set forth in the CHI Merger
Agreement are enjoined by a final, unappealable court order not entered at
the request or with the support of CCMH or any of their affiliates or
associates;
(iii) if the terms and conditions of Section 6.5(d) and Section 7.4(b)
are satisfied; or
(iv) if CCMH's stockholders' vote is not sufficient to approve the
transactions contemplated by this Agreement.
(b) EChapman shall have the right to terminate this Agreement;
(i) if the Merger is not completed by June 30, 2000 other than on
account of delay or default on the part of EChapman;
(ii) if the Merger or the transactions set forth in the CHI Merger
Agreement are enjoined by a final, unappealable court order; or
(iii) if CCMH's stockholders' vote is not sufficient to approve the
transactions contemplated by this Agreement.
SECTION 9.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either EChapman or CCMH as provided in Section 9.1, this Agreement
shall forthwith become void and there shall be no further obligation on the part
of CCMH, EChapman, Merger Subsidiary, or their respective officers or directors
(except as set forth in this Section 9.2 and in Sections 7.1, 7.4 and 7.6, all
of which shall survive the termination). Nothing in this Section 9.2 shall
relieve any party from liability for any breach of this Agreement.
SECTION 9.3. AMENDMENT. This Agreement may not be amended except by action
taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law.
SECTION 9.4. WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall not be deemed to
be continuing or to apply to any future obligation or requirement of any part
hereto provided herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES.The
representations and warranties contained in Articles IV and V of this Agreement
shall not survive the Merger, and after effectiveness of the Merger, CCMH,
EChapman, Merger Subsidiary or their respective officers or directors shall have
no further obligation with respect thereto. The covenants and agreements set
forth in this Agreement shall survive the Merger.
SECTION 10.2. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt
24
<PAGE>
requested) or sent via facsimile to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) If to EChapman or Merger Subsidiary to:
EChapman.com, Inc.
World Trade Center--Baltimore
28(th) Floor
401 East Pratt Street
Baltimore, MD 21202
Attention: Nathan A. Chapman, Jr.
with a copy to:
Venable, Baetjer and Howard, LLP
Suite 1800
2 Hopkins Plaza
Baltimore, MD 21201
Attention: Elizabeth R. Hughes, Esq.
(b) If to CCMH, to:
Chapman Capital Management Holdings, Inc.
World Trade Center--Baltimore
28(th) Floor
401 East Pratt Street
Baltimore, MD 21202
Attention: Robert Wallace
Theron Stokes
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
300 E. Lombard Street
Suite 1900
Baltimore, MD 21202
Attention: James J. Hanks, Jr., Esq.
SECTION 10.3. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears (i) the words "herein," "hereof" and "hereunder" and other words of
similar impact refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
SECTION 10.4. MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
(b) is not intended to confer upon any other person any rights or remedies
hereunder except for rights of indemnified parties under Section 7.10, and
(c) shall not be assigned by operation of law or otherwise. THIS AGREEMENT SHALL
BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY
THE LAWS OF THE STATE OF
25
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MARYLAND APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE.
SECTION 10.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement. Each of the parties agrees to
accept and be bound by facsimile signatures hereto.
SECTION 10.6. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 10.7. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to
in this Agreement shall be attached hereto and are incorporated by reference
herein.
SECTION 10.8. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, and parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.9. DEFINITION OF KNOWLEDGE. For those warranties and
representations set forth in Article IV which are subject to the qualification
"to EChapman's knowledge," EChapman will be deemed to have knowledge of a matter
if (i) Nathan A. Chapman, Jr. has knowledge of the matter, or (ii) such matter
has come, or should reasonably be expected to have come, to the attention of
such individual if such individual had conducted a reasonable due diligence
review of EChapman's operations and business, including, without limitation,
reasonable inquiries to key personnel of EChapman regarding the business and
operations of EChapman and a review of, and discussion with key personnel
regarding, pertinent books and records of EChapman. For those warranties and
representations set forth in Article V which are subject to the qualification
"to CCMH's knowledge," CCMH will be deemed to have knowledge of a matter if
(i) Nathan A. Chapman, Jr. has knowledge of the matter, or (ii) such matter has
come, or should reasonably be expected to have come, to the attention of any of
such individual if such individual had conducted a reasonable due diligence
review of CCMH's operations and business, including, without limitation,
reasonable inquiries to key personnel of CCMH regarding the business and
operations of CCMH and a review of, and discussion with key personnel regarding,
pertinent books and records of CCMH.
26
<PAGE>
IN WITNESS WHEREOF, EChapman, Merger Subsidiary and CCMH have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
<TABLE>
<S> <C> <C>
ECHAPMAN.COM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
CHAIRMAN OF THE BOARD AND PRESIDENT
CCMH MERGER SUBSIDIARY, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
PRESIDENT
CHAPMAN CAPITAL MANAGEMENT
HOLDINGS, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
CHAIRMAN OF THE BOARD AND PRESIDENT
</TABLE>
27
<PAGE>
Exhibit 10.5
CHAPMAN INSURANCE HOLDINGS, INC.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), made this
15th day of November, 1999, by and among eChapman.com, Inc., a Maryland
corporation ("eChapman"), CIH Merger Subsidiary, Inc., a Maryland corporation
and wholly owned subsidiary of eChapman ("Merger Subsidiary"), and Chapman
Insurance Holdings, Inc., a Maryland corporation (the "Corporation").
1. THE MERGER
Chapman Insurance Holdings, Inc. (the "Corporation") will merge (the
"Merger") with and into Chapman Merger Subsidiary, Inc. (the "Merger
Subsidiary"). The Merger Subsidiary will be the surviving corporation (the
"Surviving Corporation") in the Merger. The Charter and the Bylaws of the Merger
Subsidiary, in effect on the date of the Merger, will continue in full force and
effect as the Charter and Bylaws of the Surviving Corporation. The Surviving
Corporation will continue to be liable for all of the Corporation's pre-Merger
debts and obligations.
Under this Agreement, eChapman, the parent of Merger Subsidiary, will
pay the holders of shares of Common Stock of the Corporation will receive for
each share of Common Stock of the Corporation outstanding immediately prior to
the Merger, $0.6284.
2. METHOD OF CARRYING OUT THE PLAN
The proposed merger has been declared advisable by the Board of
Directors of the Corporation on substantially the terms and conditions set forth
in this Agreement and the Board of Directors has directed that the Agreement be
presented for consideration and approval at a special meeting of the
Stockholders of the Corporation. If the Agreement is duly approved at the
special meeting of the stockholders of the Corporation by the holders of at
least a majority of all outstanding shares of Common Stock, then:
The Board of Directors of each of the Corporation and the Merger
Subsidiary will cause the appropriate officers of the respective corporations to
prepare and execute Articles of Merger in such form as said officers, with the
advice of counsel, deem appropriate and to file the Articles of Merger with the
State Department of Assessments and Taxation (the "SDAT").
<PAGE>
IN WITNESS WHEREOF, eChapman.com., Inc., CIH Merger Subsidiary, Inc. and
Chapman Insurance Holdings, Inc. have caused this Agreement and Plan to be
executed by their respective officers thereunto duly authorized as of the date
first above.
eCHAPMAN.COM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-------------------------------
Nathan A. Chapman, Jr.
Chairman of the Board President
CIH MERGER SUBSIDIARY, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-------------------------------
Nathan A. Chapman, Jr.
President
CHAPMAN INSURANCE HOLDINGS, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-------------------------------
Nathan A. Chapman, Jr.
Chairman of the Board and President
2
<PAGE>
Exhibit 10.6
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (the "Agreement") dated as of
November 12, 1999, between eChapman.com, Inc., a Maryland
corporation ("eChapman.com"), and Nathan A. Chapman, Jr. (the
"Stockholder").
WHEREAS, the Stockholder individually possesses the right
to vote, or direct the voting of, an aggregate of 1,828,115 shares of common
stock, $0.001 par value ("Shares"), of Chapman Holdings, Inc., a Maryland
corporation ("CHI"), which constitute approximately 61.9% of the outstanding
capital stock of CHI, no other shares of any other class of capital stock of
CHI being issued or outstanding; and
WHEREAS, the Stockholder individually possesses the power
to dispose of, or to direct the disposition of, an aggregate of 1,828,115
Shares, which constitute approximately 61.9% of the outstanding capital stock
of CHI; and
WHEREAS, eChapman.com has entered into an
Agreement of Merger with CHI, dated as of the date hereof (the "Merger
Agreement"), pursuant to which eChapman.com would acquire CHI and
The Chapman Co., CHI's wholly-owned subsidiary, through the conversion of
each outstanding Share into shares of common stock of eChapman.com
and cash in lieu of fractional shares pursuant to a merger of CHI into a
subsidiary of eChapman.com (the "Merger"); and
WHEREAS, as a condition to entering into the Merger
Agreement, eChapman.com has requested that the Stockholder agree,
and the Stockholder has agreed, to support the Merger.
NOW, THEREFORE, to induce eChapman.com to enter
into the Merger Agreement and in consideration of the mutual covenants and
agreements set forth herein and in the Merger Agreement, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. REPRESENTATIONS OF STOCKHOLDER. The Stockholder
represents that:
(a) (1) he possesses the sole right to vote, or direct
the voting of, all of the Shares, (2) such number of Shares constitutes all
of the Shares with respect to which the Stockholder possesses the sole right
to vote, or direct the voting of, as the case may be, and (3) he has good and
merchantable title to all of the Shares, free of all restrictions and
encumbrances of every kind and character.
(b) (1) he possesses the sole power to dispose of, or
direct the disposition of, the Shares, (2) such number of Shares constitutes
all of the Shares with respect to which the Stockholder possesses or will
possess the sole power to dispose of or direct the
<PAGE>
disposition of, and (3) he has good and merchantable title to all of the
Shares free of all restrictions and encumbrances of any kind or character.
(c) he does not own, of record or beneficially, any
other shares of CHI's capital stock. For the purposes of this Agreement,
beneficial ownership has the meaning set forth in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended.
(d) he has full right, power and authority to enter
into, deliver and perform this Agreement; this Agreement has been duly
executed and delivered by such stockholder; and this Agreement constitutes
the legal, valid and binding obligation of the Stockholder, and is
enforceable in accordance with its terms.
2. COVENANTS OF STOCKHOLDER. The Stockholder covenants as
follows:
(a) RESTRICTIONS ON TRANSFER. During the term of this
Agreement, the Stockholder shall not pledge, hypothecate, grant a security
interest in, sell, transfer or otherwise dispose of or encumber any of the
Shares and will not enter into any agreement, arrangement or understanding or
grant a proxy (other than a proxy for the purpose of voting his Shares in
accordance with Subparagraph 2(b) hereof) which would, during the term of
this Agreement (i) restrict, (ii) establish a right of first refusal to, or
(iii) otherwise relate to the transfer or voting of such Shares.
(b) MERGER. The Stockholder shall vote the Shares in
favor of the Merger Agreement, and the Merger and the transactions
contemplated thereby. The Stockholder agrees not to vote his Shares in favor
of any merger, consolidation, share exchange or sale of assets or other
business combination involving CHI other than the Merger during the term of
this Agreement.
(c) ADDITIONAL SHARES. The provisions of subparagraphs
(a) and (b) above shall apply to all Shares currently owned and hereafter
acquired, of record or beneficially, by each of the Stockholder.
3. TERMINATION. This Agreement shall terminate upon the
termination of the Merger Agreement.
4. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed under the laws of Maryland, all rights and remedies
being governed by such laws, without regard to conflict of law principles.
5. BENEFIT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective personal representatives, successors and assigns,
except that neither party may transfer or assign any of its respective rights
or obligations hereunder without the prior written consent of the other party
or, if by eChapman.com, in accordance with the Merger Agreement.
-2-
<PAGE>
6. COUNTERPARTS. For convenience of the parties hereto,
this Agreement may be executed in several counterparts, each of which shall
be deemed an original, all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, eChapman.com and the
Stockholder has caused this Agreement to be duly executed as of the day and
year first above written.
eCHAPMAN.COM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
----------------------------------------
Nathan A. Chapman, Jr., President,
Chief Executive Officer and
Chairman of the Board
STOCKHOLDER
/s/ NATHAN A. CHAPMAN, JR.
--------------------------------------------
Nathan A. Chapman, Jr.
-3-
<PAGE>
Exhibit 10.7
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (the "Agreement") dated as of
November 12, 1999, between eChapman.com, Inc., a Maryland corporation
("eChapman"), and Nathan A. Chapman, Jr. (the "Stockholder").
WHEREAS, the Stockholder individually possesses the right
to vote, or direct the voting of, an aggregate of 2,290,143 shares of common
stock, $0.001 par value ("Shares"), of Chapman Capital Management Holdings,
Inc., a Maryland corporation ("CCMHI"), which constitute approximately 68.2%
of the outstanding capital stock of CCMHI, no other shares of any other class
of capital stock of CCMHI being issued or outstanding; and
WHEREAS, the Stockholder individually possesses the power
to dispose of, or to direct the disposition of, an aggregate of 2,290,143
Shares, which constitute approximately 68.2% of the outstanding capital stock
of CCMHI; and
WHEREAS, eChapman has entered into an Agreement of Merger
with CCMHI, dated as of the date hereof (the "Merger Agreement"), pursuant to
which eChapman would acquire CCMHI and The Chapman Co., CCMHI's wholly-owned
subsidiary, through the conversion of each outstanding Share into shares of
common stock of eChapman and cash in lieu of fractional shares pursuant to a
merger of CCMHI into a subsidiary of eChapman (the "Merger"); and
WHEREAS, as a condition to entering into the Merger
Agreement, eChapman has requested that the Stockholder agree, and the
Stockholder has agreed, to support the Merger.
NOW, THEREFORE, to induce eChapman to enter into the Merger
Agreement and in consideration of the mutual covenants and agreements set
forth herein and in the Merger Agreement, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. REPRESENTATIONS OF STOCKHOLDER. The Stockholder
represents that:
(a) (1) he possesses the sole right to vote, or the
voting of, all of the Shares, (2) such number of Shares constitutes all of
the Shares with respect to which the Stockholder possesses the sole right to
vote, or direct the voting of, as the case may be, and (3) he has good and
merchantable title to all of the Shares, free of all restrictions and
encumbrances of every kind and character.
(b) (1) he possesses the sole power to dispose of, or
the disposition of, the Shares, (2) such number of Shares constitutes all of
the
<PAGE>
Shares with respect to which the Stockholder possesses or will possess the
sole power to dispose of or direct the disposition of, and (3) he has good
and merchantable title to all of the Shares free of all restrictions and
encumbrances of any kind or character.
(c) he does not own, of record or beneficially, any
other shares of CCMHI's capital stock. For the purposes of this Agreement,
beneficial ownership has the meaning set forth in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended.
(d) he has full right, power and authority to enter
into, deliver and perform this Agreement; this Agreement has been duly
executed and delivered by such stockholder; and this Agreement constitutes
the legal, valid and binding obligation of the Stockholder, and is
enforceable in accordance with its terms.
2. COVENANTS OF STOCKHOLDER. The Stockholder covenants as
follows:
(a) RESTRICTIONS ON TRANSFER. During the term of this
Agreement, the Stockholder shall not pledge, hypothecate, grant a security
interest in, sell, transfer or otherwise dispose of or encumber any of the
Shares and will not enter into any agreement, arrangement or understanding or
grant a proxy (other than a proxy for the purpose of voting his Shares in
accordance with Subparagraph 2(b) hereof) which would, during the term of
this Agreement (i) restrict, (ii) establish a right of first refusal to, or
(iii) otherwise relate to the transfer or voting of such Shares.
(b) MERGER. The Stockholder shall vote the Shares in
favor of the Merger Agreement, and the Merger and the transactions
contemplated thereby. The Stockholder agrees not to vote his Shares in favor
of any merger, consolidation, share exchange or sale of assets or other
business combination involving CCMHI other than the Merger during the term of
this Agreement.
(c) ADDITIONAL SHARES. The provisions of subparagraphs
(a) and (b) above shall apply to all Shares currently owned and hereafter
acquired, of record or beneficially, by each of the Stockholder.
3. TERMINATION. This Agreement shall terminate upon the
termination of the Merger Agreement.
4. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed under the laws of Maryland, all rights and remedies
being governed by such laws, without regard to conflict of law principles.
5. BENEFIT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective personal representatives, successors and assigns,
except that neither party may transfer or assign any of its respective rights
or obligations hereunder without the prior written consent of the other party
or, if by eChapman, in accordance with the Merger Agreement.
-2-
<PAGE>
6. COUNTERPARTS. For convenience of the parties hereto,
this Agreement may be executed in several counterparts, each of which shall
be deemed an original, all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, eChapman and the Stockholder has caused
this Agreement to be duly executed as of the day and year first above written.
eCHAPMAN.COM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
----------------------------------------
Nathan A. Chapman, Jr., President,
Chief Executive Officer and
Chairman of the Board
STOCKHOLDER
/s/ NATHAN A. CHAPMAN, JR.
-------------------------------------------
Nathan A. Chapman, Jr.
-3-
<PAGE>
Exhibit 10.8
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (the "Agreement") dated as of November
12, 1999, between EChapman.com, Inc., a Maryland corporation ("EChapman"), and
Nathan A. Chapman, Jr. (the "Stockholder").
WHEREAS, the Stockholder individually possesses the right to
vote, or direct the voting of, an aggregate of 1,828,115 shares of common stock,
$0.001 par value ("Shares"), of Chapman Insurance Holdings, Inc., a Maryland
corporation ("CIH"), which constitute approximately 91.9% of the outstanding
capital stock of CIH, no other shares of any other class of capital stock of CIH
being issued or outstanding; and
WHEREAS, the Stockholder individually possesses the power to
dispose of, or to direct the disposition of, an aggregate of 1,828,115 Shares,
which constitute approximately 91.9% of the outstanding capital stock of CIH;
and
WHEREAS, EChapman has entered into an Agreement of Merger with
CIH, dated as of the date hereof (the "Merger Agreement"), pursuant to which
EChapman would acquire CIH and The Chapman Co., CIH's wholly-owned subsidiary,
through the conversion of each outstanding Share into shares of common stock of
EChapman and cash in lieu of fractional shares pursuant to a merger of CIH into
a subsidiary of EChapman (the "Merger"); and
WHEREAS, as a condition to entering into the Merger Agreement,
EChapman has requested that the Stockholder agree, and the Stockholder has
agreed, to support the Merger.
NOW, THEREFORE, to induce EChapman to enter into the Merger
Agreement and in consideration of the mutual covenants and agreements set forth
herein and in the Merger Agreement, and intending to be legally bound hereby,
the parties hereto agree as follows:
1. REPRESENTATIONS OF STOCKHOLDER. The Stockholder represents
that:
(a) (1) he possesses the sole right to vote, or direct the
voting of, all of the Shares, (2) such number of Shares constitutes all of the
Shares with respect to which the Stockholder possesses the sole right to vote,
or direct the voting of, as the case may be, and (3) he has good and
merchantable title to all of the Shares, free of all restrictions and
encumbrances of every kind and character.
(b) (1) he possesses the sole power to dispose of, or
direct the disposition of, the Shares, (2) such number of Shares constitutes all
of the Shares with respect to which the Stockholder possesses or will possess
the sole power to dispose of or direct the
<PAGE>
disposition of, and (3) he has good and merchantable title to all of the Shares
free of all restrictions and encumbrances of any kind or character.
(c) he does not own, of record or beneficially, any other
shares of CIH's capital stock. For the purposes of this Agreement, beneficial
ownership has the meaning set forth in Rule 13d-3 of the Securities Exchange Act
of 1934, as amended.
(d) he has full right, power and authority to enter into,
deliver and perform this Agreement; this Agreement has been duly executed and
delivered by such stockholder; and this Agreement constitutes the legal, valid
and binding obligation of the Stockholder, and is enforceable in accordance with
its terms.
2. COVENANTS OF STOCKHOLDER. The Stockholder covenants as
follows:
(a) RESTRICTIONS ON TRANSFER. During the term of this
Agreement, the Stockholder shall not pledge, hypothecate, grant a security
interest in, sell, transfer or otherwise dispose of or encumber any of the
Shares and will not enter into any agreement, arrangement or understanding or
grant a proxy (other than a proxy for the purpose of voting his Shares in
accordance with Subparagraph 2(b) hereof) which would, during the term of this
Agreement (i) restrict, (ii) establish a right of first refusal to, or (iii)
otherwise relate to the transfer or voting of such Shares.
(b) MERGER. The Stockholder shall vote the Shares in favor
of the Merger Agreement, and the Merger and the transactions contemplated
thereby. The Stockholder agrees not to vote his Shares in favor of any merger,
consolidation, share exchange or sale of assets or other business combination
involving CIH other than the Merger during the term of this Agreement.
(c) ADDITIONAL SHARES. The provisions of subparagraphs (a)
and (b) above shall apply to all Shares currently owned and hereafter acquired,
of record or beneficially, by each of the Stockholder.
3. TERMINATION. This Agreement shall terminate upon the
termination of the Merger Agreement.
4. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed under the laws of Maryland, all rights and remedies
being governed by such laws, without regard to conflict of law principles.
5. BENEFIT OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of, and shall be enforceable by, the parties hereto and
their respective personal representatives, successors and assigns, except that
neither party may transfer or assign any of its respective rights or obligations
hereunder without the prior written consent of the other party or, if by
EChapman, in accordance with the Merger Agreement.
-2-
<PAGE>
6. COUNTERPARTS. For convenience of the parties hereto, this
Agreement may be executed in several counterparts, each of which shall be deemed
an original, all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, EChapman and the Stockholder has caused
this Agreement to be duly executed as of the day and year first above written.
ECHAPMAN.COM, INC.
By:/s/ NATHAN A. CHAPMAN, JR.
-----------------------------------
Nathan A. Chapman, Jr., President,
Chief Executive Officer and
Chairman of the Board
STOCKHOLDER
/s/ NATHAN A. CHAPMAN, JR.
--------------------------------------
Nathan A. Chapman, Jr.
<PAGE>
Exhibit 10.9
FULLY DISCLOSED CLEARING AGREEMENT
OF
PERSHING DIVISION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
THIS AGREEMENT is made and entered into as of the March 16, 1999, by and between
the Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation
("Pershing"), a Delaware Corporation, and The Chapman Company ("Broker"), a
Delaware Corporation.
1.0 APPROVAL
This Agreement shall be subject to approval by the New York Stock
Exchange, Inc. ("NYSE") and by any other self-regulatory organization vested
with the authority to review or approve it. Pershing shall submit this Agreement
to the NYSE and Broker shall submit the Agreement to any other such organization
from which Broker is required to obtain approval. In the event of disapproval,
the parties shall bargain in good faith to achieve the requisite approval.
2.0 AGREEMENT
From the opening of business on the later of March 16, 1999, or the
effectiveness of the registration of Broker with the NASD, until the termination
of this Agreement as provided for in Paragraph 21 hereof, Pershing shall carry
the cash and margin accounts of the customers of Broker introduced by Broker to
Pershing, and accepted by Pershing, and shall clear transactions on a fully
disclosed basis for such accounts, in the manner and to the extent set forth in
this Agreement.
3.0 ALLOCATION OF RESPONSIBILITY
3.1 RESPONSIBILITIES OF THE PARTIES.
Pursuant to NYSE Rule 382, responsibility for compliance with all
applicable laws, rules, and regulations of the Securities and Exchange
Commission ("SEC"), the National Association of Securities Dealers, Inc.
("NASD"), the NYSE, and any other regulatory or self-regulatory agency or
organization shall be allocated between Pershing and Broker as set forth in this
Agreement. To the extent that a particular function is allocated to one party
under this Agreement, the other party shall supply that party with information
in its possession pertinent to the proper performance and supervision of that
function.
<PAGE>
3.2. RELATIONSHIP WITH CUSTOMERS.
Except as provided in Paragraph 26.11 of this Agreement, all
customers receiving services pursuant to this Agreement shall remain customers
of Broker. Pershing shall provide services under this Agreement to Broker only
to the extent explicitly required by specific provisions contained in this
Agreement and shall not be responsible for any duties or obligations not
specifically allocated to Pershing pursuant to this Agreement. Broker shall
enter into appropriate contractual arrangements with customers on its own
behalf, and such agreements shall make Broker, and not Pershing, responsible to
customers for the provision of services. Broker shall not be deemed to be an
agent of Pershing for any purpose, except to the limited extent expressly set
forth in paragraph 9.1.8 of this Agreement, nor shall Pershing be deemed to have
a fiduciary relationship with any of Broker's customers. Broker acknowledges
that Pershing does not control the business or operations of Broker.
4.0 REPRESENTATIONS AND WARRANTIES
4.1. BROKER. Broker represents and warrants that:
4.1.1 CORPORATION DULY ORGANIZED. Broker is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation.
4.1.2 REGISTRATION. Broker is duly registered and in good standing as a broker
dealer with the SEC and is a member firm in good standing of the NASD.
4.1.3 AUTHORITY TO ENTER AGREEMENT. Broker has all requisite authority, whether
arising under applicable federal or state law or the rules and regulations of
any regulatory or self-regulatory organization to which Broker is subject, to
enter into this Agreement and to retain the services of Pershing in accordance
with the terms of this Agreement.
4.1.4 SUBSTANTIAL COMPLIANCE WITH RULES AND REGULATIONS. Broker and each of its
employees is in substantial compliance with, and during the term of this
Agreement shall remain in substantial compliance with, the registration,
qualification, capital, financial reporting, customer protection, and other
requirements of every self-regulatory organization of which Broker is a member,
of the SEC, and of every state to the extent that Broker or any of its employees
is subject to the jurisdiction of that state.
4.1.5 NO PENDING ACTION, SUIT, INVESTIGATION OR INQUIRY. Broker has disclosed to
Pershing every action, suit, investigation, inquiry, or proceeding (formal or
informal) pending or threatened against or affecting Broker, any of its
affiliates, or any officer, director, or general securities principal or
financial and operations principal of Broker, or their respective property or
assets, by or before any court or other tribunal, any arbitrator, any
governmental authority, or any self-regulatory organization of which any of them
is a member. Broker shall notify Pershing promptly, but in any event within
three business
-2-
<PAGE>
days, of the initiation of any such action, suit, investigation, inquiry, or
proceeding that may have a material impact on the capital of Broker.
4.2 PERSHING. Pershing represents and warrants that:
4.2.1 CORPORATION DULY ORGANIZED. Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") is a corporation duly organized, validly existing, and in
good standing under the laws of the state of Delaware.
4.2.2 REGISTRATION. DLJ is duly registered and in good standing as a broker
dealer with the SEC and is a member firm in good standing of the NYSE and the
NASD.
4.2.3 AUTHORITY TO ENTER AGREEMENT. DLJ has all requisite authority, whether
arising under applicable federal or state law, or the rules and regulations of
any regulatory or self-regulatory organization to which DLJ is subject, to enter
into this Agreement and provide services in accordance with the terms of this
Agreement.
4.2.4 COMPLIANCE WITH REGISTRATION. Pershing and each of its employees is in
substantial compliance with, and during the term of this Agreement shall remain
in substantial compliance with the registration, qualification, capital,
financial reporting, customer protection, and other requirements of every
self-regulatory organization of which Pershing is a member, of the SEC, and
every state.
5.0 ESTABLISHING AND ACCEPTING NEW ACCOUNTS
5.1 ACCEPTANCE OF NEW ACCOUNTS. Broker shall be responsible for opening and
approving new accounts.
5.2 MAINTENANCE OF ACCOUNT INFORMATION. Pershing may rely without inquiry on the
validity of all customer information furnished to it by Broker.
5.3 PERSHING OPERATIONS MANUAL. Broker acknowledges receipt and familiarity with
the Pershing "Customer Reference Guide" and agrees to familiarize itself with
any modifications or supplements to such guide that may be issued from time to
time.
6.0 SUPERVISION OF ORDERS AND ACCOUNTS
6.1 RESPONSIBILITY FOR COMPLIANCE. Broker shall be solely responsible for
compliance with Suitability, "Know Your Customer" rules and other requirements
of federal and state law and regulatory and self-regulatory rules and
regulations governing transactions and accounts. Possession by Pershing of
surveillance records, exception reports, or other similar data shall not
obligate Pershing to establish procedures for dealing with such material or to
review or be aware of their contents. Pershing shall not be required to make any
investigation into the facts surrounding any transaction that it may execute or
clear for Broker or any customer of Broker.
-3-
<PAGE>
6.2 COMPLIANCE PROCEDURES. Broker agrees to diligently supervise compliance with
all applicable laws, rules, and regulations of the SEC, NASD, NYSE, and any
other regulatory or self-regulatory agency or organization having jurisdiction
over Broker through the use of a compliance manual or other written procedures.
Broker shall review transactions and accounts to assure compliance with
prohibitions against manipulative practices and insider trading and other
requirements of federal and state law and applicable regulatory and
self-regulatory rules and regulations to which Broker or its customer are
subject. Without limiting the above, Broker shall be responsible for compliance
with the supervisory requirements in Section 15(b)(4) of the Securities Exchange
Act of 1934, as amended, NASD Rule 3010, NYSE Rules 342, 431 and 351, and
similar rules adopted by any other regulatory or self-regulatory agency or
organization, to the extent applicable.
6.3 KNOWLEDGE OF CUSTOMER'S FINANCIAL RESOURCES AND INVESTMENT OBJECTIVES.
Broker shall comply with Rule 405(l) of the NYSE or comparable requirements of
similar rules of any other self-regulatory organization to which Broker is
subject. Broker shall obtain all essential facts relating to each customer, each
cash and margin account, each order, and each person holding a power of attorney
over any account, in order to assess the suitability of transactions when
required by applicable rules, the authenticity of orders, signatures,
endorsements, certificates, or other documentation, and the frequency of
trading. Broker warrants that, to the best of its knowledge, it will not open or
maintain accounts for persons who are minors or who are otherwise legally
incompetent and that it will comply with NYSE Rule 407 and other laws, rules, or
regulations that govern the manner and circumstances in which accounts may be
opened or transactions authorized.
6.4 FURNISHING OF INVESTMENT ADVICE. Broker shall be solely responsible for any
recommendation or advice it may offer to its customers.
6.5 DISCRETIONARY ACCOUNTS. Broker shall be solely responsible for obtaining
customer approval for and supervising discretionary accounts.
6.6 OPTION ACCOUNTS. Before engaging in option trading for any customer, Broker
shall deliver to the customer a current disclosure statement of the Options
Clearing Corporation and any effective supplements. Broker shall obtain the
required signatures on all option agreements, shall obtain proper approval of
the opening of all option accounts and shall otherwise comply with all
applicable laws, rules and regulations relating to options accounts and option
trading. Broker shall deliver to Pershing a copy of a signed option agreement
for each customer approved by it for options trading in a form acceptable to
Pershing.
6.7 ACCOUNTS OF EMPLOYEES OF MEMBER ORGANIZATIONS, SELF-REGULATORY
ORGANIZATIONS, AND FINANCIAL INSTITUTIONS. Broker shall give required notices
and obtain required approvals of employers in each case in which a customer is
an employee of a broker-dealer, a self-regulatory organization, or a financial
institution.
-4-
<PAGE>
7.0 EXTENSION OF CREDIT
7.1 PRESUMPTION OF CASH ACCOUNT. Pershing may, but is not required to, permit
customers of Broker to purchase securities on margin, but all transactions for a
customer will be deemed to be cash transactions, and payment for those
transactions will be required in the manner applicable to cash transactions,
unless, on or prior to settlement, Broker has furnished Pershing with a properly
executed and binding customer margin agreement and consent to loan of securities
in a form acceptable to Pershing.
7.2 MARGIN REQUIREMENTS. All margin accounts introduced by Broker shall be
subject to Pershing's margin requirements as in effect from time to time.
Pershing reserves the right (but shall not be obligated) to refuse to accept any
transaction in a margin account or group of accounts without the actual receipt
of the necessary margin and to impose a higher margin requirement for a
particular account when, in Pershing's discretion, the past history or nature of
the account or other factors or the securities held in it warrant such action.
In all instances, Broker shall be responsible for determining the amount of
credit suitable for every account and may require higher margin than imposed by
Pershing for any particular account, group of accounts, or all accounts
introduced by Broker to Pershing.
7.3 MARGIN MAINTENANCE AND COMPLIANCE WITH REGULATION T AND SEC RULE 15c3-3(m).
7.3.1 INITIAL MARGIN. Broker shall be responsible for the initial margin
requirement for any transaction until such initial margin has been received by
Pershing in acceptable form.
7.3.2 MARGIN CALLS. After the initial margin for a transaction has been
received, subsequent margin calls may be made by Pershing at its discretion.
Pershing shall calculate the maintenance requirement and notify Broker of any
amounts due. Broker shall be responsible for issuing the margin call to its
customer and obtaining the amount due directly from Broker's customer. If Broker
fails to take the appropriate action, Pershing reserves the right to collect the
amount due directly from Broker's customer. Broker agrees to cooperate with
Pershing in complying with and obtaining margin in response to such calls. If
any customer fails to meet a maintenance call, Broker shall be liable to
Pershing for any loss or damage it may incur unless the Broker establishes that
the loss or damage was directly attributable to Pershing's failure to give
proper and timely notification to Broker or customer.
7.3.3 ACTIONS UPON FAILURE TO MEET MARGIN CALLS OR DELIVER SECURITIES. In the
event that satisfactory margin is not provided within the time specified by
Pershing, or securities sold are not delivered as required, Pershing may take
such actions as Pershing deems appropriate, including but not limited to the
sale or purchase of securities in connection with the account. Broker shall
cooperate with Pershing by entering appropriate orders to buy-in or sell-out
securities in any such instance. Compliance with a request to withhold
-5-
<PAGE>
action shall not be deemed a waiver by Pershing of any of its rights under this
Agreement, including but not limited to the right to close out a contract or
position if in Pershing's judgment changing conditions render such action
advisable, with or without prior notification to customer or Broker.
7.4 CHARGING OF INTEREST AND DISCLOSURES PURSUANT TO RULE 10b-16. Interest
charged with respect to debit balances in customers' accounts shall be
determined in accordance with the fully disclosed pricing schedule attached to
this Agreement. Broker shall send each margin customer a written disclosure
statement, in a form acceptable to Pershing, at the time of the opening of a
margin account as required by SEC Rule 10b-16.
7.5 UNSECURED DEBITS OR UNSECURED SHORT POSITIONS. Pershing shall charge against
the account of Broker an amount equal to the value of any unsecured debit or
short position (on a "mark to market" basis) in a customer account if that
position has not been promptly resolved by payment or delivery. Any remaining
debit shall be charged against Broker's Deposit Account and be considered a
claim against Broker pursuant to Paragraph 19 of this Agreement.
8.0 MAINTENANCE OF BOOKS AND RECORDS
8.1 STOCK RECORDS. Pershing shall maintain stock records and other prescribed
books and records of all transactions executed or cleared through it in
accordance with generally accepted practices in the securities industry.
8.2 REGULATORY REPORTS AND RECORDS. Broker shall prepare, submit, and maintain
copies of all reports, records, and regulatory filings required of Broker by any
entity that regulates it, including, but not limited to, copies of all account
agreements and similar documentation obtained pursuant to paragraph 5.0 of this
Agreement and any reports and records required to be made or kept under the
Currency and Foreign Transactions Reporting Act of 1970, the Money Laundering
Act of 1986, and any rules and regulations promulgated pursuant thereto. To the
extent that Pershing is required to prepare or submit any reports or records by
any entity that regulates it, Broker shall cooperate in providing Pershing with
any information needed in order to prepare such reports or records.
8.3 AUDIOTAPING OF TELEPHONE CONVERSATIONS. Broker understands that for quality
control, dispute resolution or other business purposes, Pershing records some or
all telephone conversations between Broker and Pershing. Broker hereby consents
to such recording and will inform its employees, representatives and agents of
this practice. It is further understood that all such conversations are deemed
to be solely for business purposes.
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9.0 RECEIPT AND DELIVERY OF FUNDS AND SECURITIES
9.1 RECEIPT AND DELIVERY OF FUNDS AND SECURITIES.
9.1.1 CASHIERING FUNCTIONS. Pershing shall perform normal and reasonable
cashiering functions for customer accounts introduced by Broker. These functions
shall include receipt and delivery of securities purchased, sold, borrowed, and
loaned; receipt and payment of funds owed by or to customers; and provision of
custody for securities and funds. Broker shall provide Pershing with the basic
data and documents that are necessary or appropriate to permit Pershing to
perform its obligations under this Paragraph, including but not limited to
copies of records documenting receipt of customers' funds and securities
received directly by Broker. Such data and documents must be compatible with the
requirements of Pershing's data processing systems.
9.1.2 PURCHASES. Broker shall be responsible for purchases made for customers
until actual and complete payment has been received by Pershing. When payment is
tendered to Pershing in the form of a check, Broker shall remain responsible
until the check has been paid and the proceeds actually received and finally
credited to Pershing (without any subsequent chargeback) by its bank. Pershing
shall use due diligence in depositing any checks that it receives directly from
customers of Broker.
9.1.3 SALES. Broker shall be responsible for sales until Pershing has received,
in acceptable form, the securities involved in a transaction. If Pershing does
not receive delivery of securities in an acceptable form, Pershing may buy-in
all or part of the securities for the accounts of the customer of Broker or
Broker.
9.1.4 WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. In the case of the purchase
or sale of securities on a "when issued" basis, and in the case of a purchase or
sale where distribution or delivery is otherwise delayed (except pursuant to a
margin agreement), Broker shall remain responsible, as set forth in this
Agreement, until necessary and satisfactory payment of funds or delivery of
securities, as required by the margin rules, has been received by Pershing.
9.1.5 FUNDS AND SECURITIES RECEIVED BY BROKER. Broker shall promptly deposit
with Pershing funds or securities received by Broker from its customers,
together with such information as may be relevant or necessary to enable
Pershing to record such remittances and receipts in the respective customer
accounts.
9.1.6 FAILURE TO SETTLE OR PAY. In the event of a failure to timely deposit
required funds or securities, Pershing may take appropriate remedial action.
Without waiving or otherwise limiting its right to take other remedial action,
Pershing may at its option charge interest at rates as agreed in Schedule A to
this Agreement. Broker may pass such charges on to its customers but Broker
remains responsible therefor until actually paid.
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9.1.7 SETTLEMENT AND DELIVERY. Broker shall obtain each customer's agreement to
accept partial deliveries and to abide by other clearance arrangements as may be
directed by any exchange or association. With respect to any settlements which
involve the drafting of securities, draft charges, including interest expense,
will be borne by Broker.
9.1.8 CHECK WRITING AUTHORITY. Pershing may, but is not required to, authorize
certain of Broker's employees to sign checks to Broker's customers for amounts
due to, and requested by them, with respect to their accounts. Broker shall
designate in writing the names of any employees it wishes to receive the
authorization described in this subparagraph. All checks must be signed by two
employees who have received authorization from Pershing. No check or checks
totaling more than $100,000 shall be provided to any customer by Broker on the
same business day. All expenses incurred in connection with the issuance of
checks under the authority described in this subparagraph shall be charged to
Broker. Broker remains responsible for the disbursement and delivery of such
checks to its customers. Any lien on the customer's property granted by the
customer to Broker or Pershing shall extend to any funds which may be segregated
in a separate account in connection with the exercise of the authority described
in this subparagraph.
9.2. TRANSFER OF SECURITIES AND ACCOUNTS. Upon receiving written or oral
instructions from Broker, or written instructions from a customer, Pershing
shall make reasonable efforts to effectuate such transfers of securities or
accounts as may be requested. Whenever practicable, Pershing shall first notify
the Broker before acting on a customer's written request.
9.3 RESTRICTED AND CONTROL STOCK REQUIREMENTS. Broker shall be responsible for
determining whether any securities held in Broker's or its customer accounts are
restricted or control securities as defined by applicable laws, rules, or
regulations. Broker is responsible for assuring that orders executed for such
securities comply with such laws, rules, and regulations.
9.4 PAYMENT OF DIVIDENDS AND HANDLING OF EXCHANGE OR TENDER OFFERS, RIGHTS,
WARRANTS AND REDEMPTIONS. Whenever Pershing has been instructed to retain
custody of the securities in any account, Pershing may hold the securities in
the customer's name, the name of Pershing or its nominee, or in the names of
nominees of any depository used by Pershing. Pershing shall perform the services
required in connection with holding the securities in custody in each account,
including (1) collection and payment of dividends and interest; (2) transmittal
and handling (through Broker) of tenders or exchanges pursuant to tender offers
and exchange offers; (3) transmittal of proxy materials and other shareholder
communications if Pershing is appropriately compensated; and (4) handling of
exercises or expirations of rights, options, warrants and redemptions.
9.5 COD-ORDERS. Broker shall not introduce any retail or individual accounts
requiring settlement on a "delivery versus payment" or "receive versus payment"
basis without the prior written approval of Pershing. If such approval has been
given, Broker shall arrange
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for timely settlement of all such transactions. Broker shall be responsible for
complying with the requirements of NYSE Rule 387 with respect to those
transactions, except that Pershing shall be responsible for delivering
confirmations pursuant to NYSE Rule 387.
10.0 SAFEGUARDING OF FUNDS AND SECURITIES
Except as otherwise provided in this Agreement, Pershing shall be
responsible for the safekeeping of all money and securities received by it
pursuant to this Agreement. However, Pershing will not be responsible for any
funds or securities delivered by a customer to Broker until such funds or
securities are actually received by Pershing or deposited in bank accounts
maintained by Pershing.
11.0 CONFIRMATIONS AND STATEMENTS
11.1 PREPARATION AND TRANSMISSION OF CONFIRMATIONS AND STATEMENTS. Pershing
shall prepare confirmations and summary periodic statements and shall, to the
extent required, transmit them to customers and Broker in a timely fashion
except to the extent Broker has agreed to transmit confirmations to customers.
Confirmations and statements shall be prepared on forms disclosing that the
account is carried on a fully disclosed basis for the Broker in accordance with
applicable rules, regulations and interpretations. Broker will have the ultimate
regulatory responsibility for compliance with the prospectus delivery
requirements of the Securities Act of 1933, as amended, regardless of its
retention of a prospectus fulfillment service to perform delivery of same.
11.2 EXAMINATION AND NOTIFICATION OF ERRORS. Broker shall examine promptly all
confirmations, statements, and other reports provided to Broker by Pershing.
Broker must promptly notify Pershing of any error claimed by Broker in any
account. If Broker fails to notify Pershing promptly of any error the existence
of which was, or should reasonably have been, discoverable by review of
confirmations, statements, and reports provided to Broker by Pershing, Broker
shall be deemed to have waived its right to make any claim against Pershing with
respect to such error.
12.0 ACCEPTANCE AND EXECUTION OF TRANSACTIONS
12.1 RESPONSIBILITY TO ACCEPT OR REJECT TRADES. Pershing shall execute
transactions in customers' accounts and release or deposit money or securities
to or for accounts only upon Broker's instructions. Pershing reserves the right
to accept written or oral transaction orders from Broker's customers in
circumstances where it determines that the customers are unable to execute those
transactions through Broker. Notwithstanding any instructions to the contrary,
Pershing may, after giving reasonable notice, (i) refuse to confirm a
transaction or cancel a confirmation, (ii) reject a delivery or receipt of
securities or money, (iii) refuse to clear a trade executed by Broker, or (iv)
refuse to execute a trade for the account of a customer or Broker.
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12.2 RESPONSIBILITY FOR ERRORS IN EXECUTION. Broker shall be responsible for
transmission to Pershing of all customer orders and for any errors in the
Broker's recording or transmission of such orders. Pershing shall be responsible
for any errors it might make in the further transmission and execution of such
orders after their receipt, in proper and complete form, from Broker.
12.3 SETTLEMENT OF CONTRACTS AND TRANSACTION. Unless otherwise agreed in
writing, Pershing shall have no obligation to settle contracts and transactions
in securities (i) between Broker and other brokers and dealers, (ii) between
Broker and its customers and (iii) between Broker and third persons.
13.0 OTHER OBLIGATIONS AND RESPONSIBILITIES OF BROKER
13.1 OTHER CLEARING AGREEMENTS. During the term of this Agreement, Broker shall
not enter into any other similar agreement or obtain the services contemplated
by this Agreement from any other party or supply the services contemplated by
the Agreement without the prior written approval of Pershing.
13.2 DISCIPLINARY ACTION, SUSPENSION, OR RESTRICTION. If Broker becomes subject
to disciplinary action, suspension, or restriction by a federal or state agency,
stock exchange, or regulatory or self-regulatory organization having
jurisdiction over Broker or Broker's securities or commodities business, Broker
shall notify Pershing immediately, orally and in writing, and provide Pershing a
copy of any decision relating to such action, suspension, or restriction. Broker
shall reimburse Pershing for the fees and expenses associated with any legal
advice Pershing may seek with respect to the effect of such action, suspension,
or restriction on the rights and obligations of Pershing under this Agreement..
Pershing may take any action it reasonably deems to be necessary (i) to assure
that it will continue to comply with all applicable legal, regulatory, and
self-regulatory requirements, notwithstanding such action, suspension, or
restriction, and (ii) to comply with any requests, directives, or demands made
upon Pershing by any such federal or state agency, stock exchange, or regulatory
or self-regulatory organization.
13.3 PROVISION OF FINANCIAL INFORMATION. Broker shall furnish Pershing copies of
FOCUS Reports, financial statements for the current fiscal year, the executed
Forms X-17a-5 (Parts I and IIA) filed with the SEC, any amendments to Broker's
Form BD, and any other regulatory or financial reports Pershing may from time to
time require. Broker shall provide such reports to Pershing at the time Broker
files such reports with its primary examining authority. Broker shall also
notify Pershing in advance of withdrawals of more than 10% of its net capital.
13.4 FIDELITY BOND. Broker shall maintain throughout the term of this Agreement
fidelity insurance coverage in at least the minimum amount required under NASD
rules.
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Pershing may require that Broker obtain additional fidelity insurance coverage
if it reasonably determines that such coverage is necessary to assure Broker's
performance of its obligations under this Agreement.
13.5 EXECUTING BROKERS. If Broker wishes to act as an "Executing Broker" as such
term is understood in that certain letter dated January 25, 1994 from the
Division of Market Regulation of the Securities and Exchange Commission, as the
same may be amended, modified or supplemented from time to time (the "No-Action
Letter") then all terms herein shall have the same meaning as ascribed thereto
either in the Agreement or in the No-Action Letter as the sense thereof shall
require. Broker may, from time to time, execute trades (either directly or
through Pershing) for Prime Brokerage Accounts in compliance with the
requirements of the No-Action Letter. (The No-Action Letter requires, INTER ALIA
that a contract be executed between Pershing and Prime Broker, and between
Broker and Prime Brokerage Customer prior to the transaction of any business
hereunder). Broker shall promptly notify Pershing, but in no event later than
5:00 p.m. New York time of trade date in a mutually acceptable fashion, of such
trades in sufficient detail for Pershing to be able to report and transfer any
trade executed by Broker on behalf of a Prime Brokerage Account to the relevant
Prime Broker. Broker understands and agrees that if Prime Broker shall disaffirm
or "dk" any trade executed by Broker on behalf of a Prime Brokerage Account;
Broker shall open an account for such Prime Brokerage Account in its range of
accounts and shall transfer or deliver the trade to such account at the risk and
expense of Broker to the same extent as for any account introduced by Broker
pursuant to the Agreement. Broker understands and agrees that all Prime
Brokerage Accounts shall be conducted in accordance with the requirements of the
No-Action Letter and any relevant agreement between Broker and a Prime Brokerage
Customer, or between Pershing and relevant Prime Broker. Broker further agrees
to supply Pershing with such documents, papers and things, which from time to
time are reasonably required by Pershing to carry out the intention of this
Paragraph. Broker agrees that it shall know its customer, obtain appropriate
documentation, including new account form, conduct its own credit check and
determine the availability of shares for any short sales. Broker shall maintain
facilities to clear any disaffirmed trades.
14.0 OTHER OBLIGATIONS AND RESPONSIBILITIES OF PERSHING
14.1 USE OF THIRD PARTY SERVICES. Pershing may, at its reasonable option, and
consistent with common industry practice, retain one or more independent data
processing or other service bureaus to perform functions (including, but not
necessarily limited to pricing services or proxy mailing services) superfluous
assigned to Pershing under this Agreement. If any such service bureau fails to
perform an assigned function accurately, in accordance with specifications, or
within the customary time periods, Pershing shall cause the service bureau to
correct any error in its next regularly scheduled processing operation and to
deliver any overdue work as soon as reasonably practicable. Except as stated in
this subparagraph, Pershing shall not be responsible for any losses, damages,
liability, or expenses claimed by Broker or its customers arising from any such
failure
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beyond the amount of such losses, damages or expense which Pershing is able to
recover pursuant to the terms of its agreement with such service bureau.
14.2 BACKUP WITHHOLDING. Broker hereby agrees to take necessary measures to
comply with the backup withholding requirements of Section 3406 and the
nonresident alien withholding requirements of Section 1441 of the Internal
Revenue Code of 1986, as amended, with respect to its customer accounts. Broker
agrees to furnish to Pershing in writing or by electronic transmission any tax
information in its possession relating to each customer account transferred to
Pershing and to each future customer (including the customer's taxpayer
identification number and any certifications provided by the customer on IRS
Forms W-9, W-8, or 1001 or any authorized substitute) and agrees that Pershing
may rely on such information. Pershing agrees to notify Broker of any account
not in compliance with such back-up withholding requirements. Broker hereby
authorizes Pershing to employ any procedures permitted under applicable law or
regulation to achieve compliance with withholding obligations under the federal
income tax law, including procedures pertaining to backup withholding on orders
to purchase or sell securities which are received from customers by telephone or
electronic transmission.
15.0 SERVICES FOR WHICH PERSHING IS NOT RESPONSIBLE
Unless otherwise expressly agreed in writing, Pershing shall not
provide nor be responsible for providing any of the following services:
15.1 Accounting, bookkeeping, record-keeping, cashiering, or other services
involving commodity transactions, or any other transactions not involving
securities; or any matter not contemplated by the Agreement.
15.2 Preparation of Broker's payroll records, financial statements, or any
analysis thereof.
15.3 Preparation or issuance of checks in payment of Broker's expenses, other
than expenses incurred by Pershing on behalf of Broker pursuant to this
Agreement.
15.4 Payment of commissions to Broker's sales personnel.
16.0 LIABILITY OF PERSHING
16.1 PERSHING INDEMNIFICATION. In addition to any other obligations it may
possess under other provisions of this Agreement, Pershing shall indemnify,
defend, and hold harmless Broker from and against all claims, demands,
proceedings, suits, actions, liabilities, expenses, attorney's fees, and costs
in connection therewith arising out of any reckless, dishonest, fraudulent, or
criminal act or omission on the part of any of its officers or employees with
respect to the services provided by Pershing under this Agreement.
Notwithstanding the foregoing, Pershing shall have no liability to any of
Broker's
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customers for any loss suffered by any customer. Pershing's liability will be
only to Broker and then only to the extent expressly set forth in this
Agreement.
16.2 DEFENSE OF THIRD PARTY CLAIMS. If, within 10 days after receiving written
notice of any claim, demand, suit, proceeding, or action with respect to which
Broker may have any colorable claims to indemnification under this Agreement,
Pershing shall fail to institute the defense of Broker in connection with such
claim, demand, suit, proceeding, or action, or if thereafter Pershing shall fail
diligently to pursue such defense, Broker shall have the right to defend such
action or settle such action. The reasonable costs and expenses, including
attorney's fees, associated with such a defense or settlement shall be borne by
Pershing. The exercise of the right to participate in or assume the
responsibility for any such defense shall not limit in any way Broker's right to
indemnification under this Paragraph.
16.3 DAMAGES. Pershing shall not be liable for special, indirect, incidental,
consequential or punitive damages which Broker, a customer of Broker, or any
other third party may incur or experience, whether such damages are incurred or
experienced as a result of entering into or relying on this Agreement or
otherwise, even if Pershing has been advised of the possibility of such damages.
Broker and Pershing each agree not to assist any claim for punitive damages
against the other.
16.4 PERSHING RIGHT TO COMPETE. Nothing in this Agreement shall be deemed to
restrict in any way the right of Pershing or any affiliate of Pershing to
compete with Broker in any or all aspects of Broker's business.
17.0 LIABILITY OF BROKER
17.1 BROKER INDEMNIFICATION. In addition to any other obligations it may possess
under other provisions of this Agreement, Broker shall indemnify, defend, and
hold harmless Pershing, and any controlling person of Pershing, from and against
all claims, demands, proceedings, suits, and actions and all liabilities,
expenses, attorney's fees (including fees and costs incurred in enforcing its
right to indemnification), and costs in connection therewith arising out of one
or more of Broker's or any of its employee's negligent, dishonest, fraudulent or
criminal act or omission or any of the following:
17.1.1 FAILURE TO MAKE PAYMENT OR DELIVER SECURITIES. Failure of Broker or a
customer of Broker to make any payment or deliver any securities when due. A
check received by Pershing from a customer shall not constitute payment until it
has been paid and the proceeds are actually received and finally credited to
Pershing (without any subsequent chargeback) by its bank.
17.1.2 MARGIN CALLS. Failure of a customer to meet any initial margin call or
any maintenance call, except that Pershing shall be responsible for the portion
of any such loss or damage that Broker establishes was directly attributable to
Pershing's failure to give notification to the Broker as required in paragraph
7.2 of this Agreement
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17.1.3 BROKER'S FAILURE TO PERFORM. Failure of Broker to perform any duty,
obligation, or responsibility with respect to customer accounts as set forth in
this Agreement. Broker's indemnification obligation under this subparagraph
shall not be affected by the participation of Pershing or any person controlling
it or controlled by it within the meaning of the Securities Exchange Act of
1934, as amended, in any transaction giving rise to such an obligation, unless
such participation constitutes recklessness, fraud, or criminal conduct.
17.1.4 IMPROPER CONDUCT BY AGENTS. Any negligent, dishonest, fraudulent, or
criminal act or omission on the part of any of Broker's officers, directors,
employees or agents.
17.1.5 FAILURE OF A CUSTOMER TO PERFORM OBLIGATIONS. Any failure by any of
Broker's customers to perform any commitment or obligation with respect to a
transaction carried by Pershing under this Agreement, whether or not such
failure was under the control of Broker.
17.1.6 CUSTOMER CLAIMS AND DISPUTES. Any claim or dispute between Broker and a
customer with respect to services provided under this Agreement, including but
not limited to any claim or dispute concerning the validity of a customer order
in the form the order was transmitted to Pershing by Broker and any claim
arising in connection with Pershing's guarantee of any signature of any customer
of Broker.
17.1.7 WARRANTIES. Any adverse claim with respect to any security delivered or
cleared by Pershing, including a claim of a defect in title with respect to
securities that are alleged to have been forged, counterfeited, raised or
otherwise altered, or if they are alleged to have been lost or stolen. The
parties agree that Pershing shall be deemed to be an intermediary between Broker
and customer and shall be deemed to make no warranties other than as provided in
Section 8-306(3) of the Uniform Commercial Code.
17.1.8 DEFAULT OF THIRD PARTY BROKER. Any default by a third party broker with
whom the Broker deals on a principal or agency basis in a transaction either not
executed by Pershing or not cleared by Pershing even if permitted by Pershing as
provided herein.
17.1.9 CHECK SIGNING. Any negligence, fraud, malfeasance, or error of any
employee of Broker with respect to the use of the checksigning authority granted
under paragraph 9.1.8 of this Agreement.
17.1.10 PRIOR SELF-CLEARING ARRANGEMENTS. Any guarantee, indemnification, or
hold harmless agreement in connection with Broker's business or customers that
Pershing may provide to the National Securities Clearing Corporation, the
Depository Trust Company, or any other clearing, depository, or self-regulatory
organization with respect to transactions self-cleared by Broker prior to
transfer of such functions to Pershing.
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17.1.11 BREACH OF WARRANTY BY BROKER. Any breach by Broker of any representation
or warranty made by it under this Agreement.
17.1.12 DEPOSIT OF CHECKS TO CUSTOMER ACCOUNTS. Any failure to exercise due
diligence in reviewing checks received from customers to insure that same are in
proper form, or in the issuance of instructions to Pershing regarding the
accounts into which checks are to be deposited.
17.1.13 ASSETS NOT HELD IN BROKERAGE ACCOUNT. Any claim asserted against
Pershing alleging the inaccuracy of any information appearing on Broker's
customer brokerage account statements with respect to assets not held in the
brokerage account, regardless of whether such information was provided by
Broker, customer or a third party.
17.2 DEFENSE OF THIRD PARTY CLAIMS. If, within 10 days after receiving written
notice of any claim, demand, suit, proceeding, or action with respect to which
Pershing may have any colorable claim to indemnification under this Agreement,
Broker shall fail to institute the defense of Pershing in connection with such
claim, demand, suit, proceeding, or action, or if thereafter Broker shall fail
diligently to pursue such defense, Pershing shall have the right to defend such
action or settle such action. The costs and expenses, including attorney's fees,
associated with such a defense or settlement shall be borne by Broker. The
exercise of the right to participate in or assume the responsibility for any
such defense shall not limit in any way Pershing's rights to indemnification
under this Paragraph.
18.0 FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS
18.1 COMMISSIONS. Pershing shall charge each of Broker's customers the
commission, markup and any other charge or expense that Broker instructs it to
charge for each transaction. If instructions are not received with respect to a
transaction in the time period required by Pershing to implement those
instructions, Pershing shall charge the customer the commission, markup, or
other charge or expense prescribed in the basic commission schedule delivered to
Pershing by Broker. This basic schedule may be amended from time to time by
Broker by written instructions delivered to Pershing. Pershing shall only be
required to implement such amendments to the basic schedule to the extent such
amendments are within the usual capabilities of Pershing's data processing and
operations systems and only within such reasonable time limitations as Pershing
may deem necessary to avoid disruption of its normal operating capabilities.
18.2 RESPONSIBILITY FOR PRICING. Broker shall establish the commissions,
mark-ups and other charges or expenses to be charged to customers in accordance
with all applicable laws, rules, and regulations of the SEC, NASD, NYSE, and
other regulatory and self-regulatory agencies and organizations. Pershing shall
exercise no control or influence over the establishment of such commissions,
mark-ups or other charges or expenses. This provision shall not affect
Pershing's right to charge Broker or Broker's customers reasonable fees for the
services provided under this Agreement, including SEC
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transaction fees, fees for inactive accounts, and other appropriate fees. Broker
may instruct Pershing to charge such fees to its customers but remains liable
for the payment thereof. Broker shall notify its customers of fees charged to
them.
18.3 SETTLEMENT. Commissions charged Broker's customers shall be collected by
Pershing and credited to Broker, after deducting Pershing's compensation
referred to in Subparagraph 18.4 below and any other amount owed to Pershing
pursuant to this Agreement. Such commissions shall be remitted to Broker on a
monthly basis, approximately ten days after the final settlement date of each
month. More frequent remittances may be advanced to Broker if the parties so
agree and if the estimated current activity in the accounts and prior experience
justify such advances.
18.4 FEES FOR CLEARING SERVICES. As compensation for services provided pursuant
to this Agreement, Pershing shall deduct from the commissions, mark-up,
mark-down or fees charged Broker's customers the amounts set forth in the fully
disclosed pricing schedule attached hereto as Schedule A. The compensation
schedule may be changed by Pershing at any time on thirty days prior written
notice to Broker or from time to time as may be agreed by both parties. Broker
shall promptly notify Pershing of any change in the nature or mix of the
business engaged in by Broker.
19.0 DEPOSIT ACCOUNT
19.1 ESTABLISHMENT OF DEPOSIT ACCOUNT. To further assure Broker's performance of
its obligations under this Agreement, including but not limited to its
indemnification obligations under Paragraph 17, Broker shall, on or before the
execution of this Agreement, establish an account at Pershing to be designated
as the Broker's Deposit Account (the "Deposit Account"). The Deposit Account
shall at all times contain cash, securities, or a combination of both, having a
market value of at least the amount set forth in Schedule A. The securities
placed in the Deposit Account shall consist only of direct obligations issued by
or guaranteed as to principal and interest by the United States Government. In
the event of a substantial change in the nature and extent of Broker's business
operations, Pershing may require immediately that an additional amount be
deposited in the Deposit Account. If such a deposit is not made in the amount
specified whether or not Broker agrees that the amount is justified under this
subparagraph, Pershing shall have the right to terminate this Agreement
forthwith.
19.2 PERSHING RIGHT TO OFFSET COMMISSIONS AND DEPOSIT ACCOUNT. If (i) Pershing
shall have any claim against Broker or a customer of Broker which has not been
resolved within five business days after Pershing presents such claim to Broker,
or (ii) if Pershing shall suffer any loss or incur any expense for which it is
entitled to be indemnified pursuant to this Agreement, and Broker shall fail to
make such indemnification within five business days after being requested to do
so, Pershing may deduct the amount of such claim, loss, or expense from the
commissions to be credited to Broker on the next monthly or other periodic
settlement date pursuant to Paragraph 18.3. If the amount of these commissions
is less than the amount of such claim, loss, or expense, Pershing may
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withdraw from the Deposit Account cash or securities (or both) having a market
value equal to the amount of such deficiency. Broker shall be obligated to make
an immediate deposit in the Deposit Account of cash or securities sufficient to
bring the Account back to a value of at least the amount required by Schedule A.
19.3 TERMINATION OF DEPOSIT ACCOUNT. Upon the termination of this Agreement, or
as soon thereafter as practical, Pershing shall pay and deliver to Broker the
funds and securities in the Deposit Account, less any amounts which it is
entitled under the preceding paragraph; provided, however, that Pershing may
retain in the Deposit Account such amount for such period as it deems
appropriate for its protection from any claim or proceeding of any type, then
pending or threatened, until the final determination of such claim or proceeding
is made. If a threatened claim or proceeding is not resolved or if a legal
action or proceeding is not instituted within a reasonable time after the
termination of this Agreement, any amount retained with respect to such claim,
proceeding, or action shall be paid or delivered to Broker.
20.0 COMMUNICATION WITH CUSTOMERS
20.1 NOTICE TO CUSTOMERS. Pershing shall, upon the opening of an account
pursuant to paragraph 5 of this Agreement, mail to each customer a copy of the
Notice to Customers required by NYSE Rule 382(c).
20.2 CUSTOMER INQUIRIES AND COMPLAINTS. Broker and Pershing each agree to
forward to the other any written complaint received from a customer regarding a
function the other has agreed to perform pursuant to this Agreement.
20.3. RESTRICTION ON ADVERTISING. Neither Pershing nor Broker shall utilize the
name of the other in any way without the other's prior written consent nor shall
either party employ the other's name in such a manner as to create the
impression that the relationship between them is anything other than that of
clearing broker and introducing broker. Broker shall not hold itself out as an
agent of Pershing or as a subsidiary or company controlled directly or
indirectly by or affiliated with Pershing.
21.0 TERMINATION OF AGREEMENT
This Agreement shall continue until terminated as hereinafter provided:
21.1 TERMINATION UPON 90-DAY NOTICE. This Agreement may be terminated by either
party without cause upon ninety days prior written notice delivered in person or
by registered or certified mail. If either party terminates the Agreement
pursuant to this subparagraph, Pershing shall have the right to impose
reasonable limitations upon Broker's activities during the period between the
giving of notice and the transfer of Broker's accounts.
-17-
<PAGE>
21.2 CHANGE IN COMPENSATION SCHEDULE. If, pursuant to paragraph 18.4 of this
Agreement, Pershing shall make any unilateral change in the compensation
schedule described in that subparagraph, and that change causes the increase in
Pershing's compensation to exceed 10 percent during any calendar year, Broker
may, upon 15 days prior written notice to Pershing, terminate this Agreement on
the effective date of such unilateral change.
21.3 DEFAULT. If either party defaults in the performance of its obligations
under this Agreement, or otherwise violates the provisions of this Agreement,
the nondefaulting party may terminate this Agreement by delivering written
notice to the defaulting party (i) specifying the nature of the default and (ii)
notifying the defaulting party that unless the default is cured within a period
of ten days from receipt of the notice, this Agreement will be terminated
without further proceedings by the nondefaulting party.
21.4 DISABILITY. This Agreement may be terminated by Pershing or Broker
immediately in the event that the other party is enjoined, disabled, suspended,
prohibited, or otherwise becomes unable to engage in the securities business or
any part of it by operation of law or as a result of any administrative or
judicial proceeding or action by the SEC, any state securities law
administrator, or any regulatory or self-regulatory organization having
jurisdiction over such party.
21.5 CONVERSION OF ACCOUNTS. In the event that this Agreement is terminated for
any reason, Broker shall arrange for the conversion of Broker's and its customer
accounts to another clearing broker or to Broker if it becomes self-clearing.
Broker shall give Pershing notice (the "Conversion Notice") of (i) the name of
the broker that will assume responsibility for clearing services for Customers
and Broker, (ii) the date on which such broker will commence providing such
services, (iii) Broker's undertaking, in form and substance satisfactory to
Pershing, that Broker's agreement with such broker provides that such broker
will accept on conversion all Broker and customers accounts then maintained by
Pershing, and (iv) the name of an individual or individuals within new clearing
broker's organization whom Pershing may contact to coordinate the conversion.
The Conversion Notice shall accompany Broker's notice of termination given
pursuant to this paragraph. If Broker fails to give Conversion Notice to
Pershing, Pershing may give to Broker's customers such notice as Pershing deems
appropriate of the termination of this Agreement and may make such arrangements
as Pershing deems appropriate for transfer or delivery of customer and Broker
accounts. The expense of providing such notice and making such arrangements
shall be charged to Broker.
21.6 SURVIVAL. Termination of this Agreement in any manner shall not release
Broker or Pershing from any liability or responsibility to the other with
respect to transactions effected prior to the effective date of such
termination, whether or not claims relating to such transactions shall have been
made before or after such termination.
21.7 TERMINATION FEE. If Broker terminates this Agreement pursuant to
subparagraph 21.1 or 21.2 above, or Pershing terminates this Agreement pursuant
to subparagraph 21.3
-18-
<PAGE>
or 21.4 above within the period specified in Schedule A, Broker shall pay to
Pershing a termination fee as stated in Schedule A.
22.0 CONFIDENTIAL NATURE OF DOCUMENTS AND OTHER INFORMATION
Neither Pershing nor Broker shall disclose the terms of this Agreement
or information obtained as a result thereof to any outside party except to
regulatory or self-regulatory organizations with appropriate jurisdiction,
pursuant to judicial process or to authorized employees of the other on a
need-to-know basis. Any other publication or disclosure of the terms of this
Agreement may be made only with the prior written consent of the other party.
Broker and Pershing shall each maintain the confidentiality of documents and
information received from the other party pursuant to this Agreement. Pershing
and Broker each agree that any information regarding the identity of the other's
customers shall be kept confidential and not used by the other except as
required in connection with obligations under this agreement.
Broker acknowledges that the services Pershing provides hereunder
involve Broker access to proprietary technology, trading and other systems, and
that techniques, algorithms and processes contained in such systems constitute
trade secrets and shall be safeguarded by Broker, and the Broker shall exercise
reasonable care to protect Pershing's interest in such trade secrets. Broker
agrees to make the proprietary nature of such systems known to those of its
consultants, staff, agents or clients who may reasonably be expected to come
into contact with such systems. Broker agrees that any breach of this
confidentiality provision may result in its being liable for damages as provided
by law.
23.0 ACTION AGAINST CUSTOMERS BY PERSHING.
Pershing may, in its sole discretion and at its own expense, upon
written notice to Broker institute and prosecute in its name any action or
proceeding against any of Broker's customers in relation to any controversy or
claim arising out of Pershing's transactions with Broker or with Broker's
customers. Nothing contained in this Agreement shall be deemed either (a) to
require Pershing to institute or prosecute such an action or proceeding; or (b)
to impair or prejudice its right to do so, should it so elect, nor shall the
institution or prosecution of any such action or proceeding relieve Broker of
any liability or responsibility which Broker would otherwise have had under this
Agreement. Broker shall assign to Pershing its rights against its customers to
the extent requested by Pershing and necessary to effectuate the provisions of
this Paragraph.
24.0 NOTICES
Any notice or request required or permitted to be given under this
Agreement shall be sufficient if it is in writing and sent by hand or by
certified mail, return receipt requested, to the parties at the following
address:
-19-
<PAGE>
Broker:
The Chapman Company
401 East Pratt Street, 28h Floor
Baltimore, MD 21202
Attn: Nathan A. Chapman, President
Pershing:
Pershing Division
Donaldson, Lufkin & Jenrette Securities Corporation
One Pershing Plaza
Jersey City, N.J. 07399
Attn: Alton C. Jones, Managing Director
cc: Legal and Compliance Department
25.0 ARBITRATION
25.1 ARBITRATION REQUIREMENT. Any dispute between Broker and Pershing that
cannot be settled shall be taken to arbitration as set forth in paragraph 25.3
below.
25.2 ARBITRATION DISCLOSURE.
- ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
- THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL.
- PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
- THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO
SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY
LIMITED.
- THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
25.3 ARBITRATION AGREEMENT.
ANY CONTROVERSY BETWEEN US ARISING OUT OF YOUR BUSINESS OR THIS
AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE
NEW YORK STOCK
-20-
<PAGE>
EXCHANGE, INC., OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC., AND IN ACCORDANCE WITH THE RULES OBTAINING OF THE SELECTED
ORGANIZATION AND SHALL BE CONDUCTED AS A BROKER TO BROKER OR
MEMBER VS MEMBER DISPUTE. ARBITRATION MUST BE COMMENCED BY SERVICE
UPON THE OTHER PARTY OF A WRITTEN DEMAND FOR ARBITRATION OR A
WRITTEN NOTICE OF INTENTION TO ARBITRATE, THEREIN ELECTING THE
ARBITRATION TRIBUNAL.
NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION
AGREEMENT AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE
CLASS ACTION AND WHO IS A MEMBER OF A PUTATIVE CLASS AND WHO HAS
NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED
BY THE PUTATIVE CLASS ACTION UNTIL: (i) THE CLASS CERTIFICATION IS
DENIED; (ii) THE CLASS IS DECERTIFIED; OR (iii) THE CUSTOMER IS
EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE
AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
26.0 GENERAL PROVISIONS
26.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the respective successors and assigns of Broker and
Pershing. No assignment of this Agreement by Broker shall be effective unless
Pershing's written consent shall be first obtained.
26.2 SEVERABILITY. If any provision or condition of this Agreement shall be held
to be invalid or unenforceable, the validity or enforceability of the remaining
provisions and conditions shall not be affected thereby.
26.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute a single agreement.
26.4 ENTIRE AGREEMENT/AMENDMENTS. This Agreement represents the entire agreement
between the parties with respect to the subject matter contained herein. This
Agreement may not be changed orally, but only by an agreement in writing signed
by the parties.
26.5 CAPTIONS. Captions herein are for convenience only and are not of
substantive effect.
-21-
<PAGE>
26.6 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to the conflicts of laws principles thereof.
26.7 CITATIONS. Any reference to the rules or regulations of the SEC, the NYSE
or any other regulatory or self-regulatory organization are current citations.
Any changes in the citations (whether or not there are any changes in the text
of such rules or regulations) shall be automatically incorporated herein.
26.8 CONSTRUCTION OF AGREEMENT. Neither this Agreement nor the performance of
the services hereunder shall be considered to create a joint venture or
partnership between Pershing and Broker or between Broker and other brokers for
whom Pershing may perform the same or similar service.
26.9 THIRD PARTIES. This Agreement is between the parties hereto and is not
intended to confer any benefits on third parties, including, but not limited to,
customers of Broker.
26.10 NON-EXCLUSIVITY OF REMEDIES. The enumeration herein of specific remedies
shall not be exclusive of any other remedies. Any delay or failure by a party to
this Agreement to exercise any right, power, remedy or privilege herein
contained, or now or hereafter existing under any applicable statute or law,
shall not be construed to be a waiver of such right, power, remedy, or
privilege. No single, partial, or other exercise of any such right, power,
remedy, or privilege shall preclude the further exercise thereof or the exercise
of any other right, power, remedy, or privilege.
26.11 SEC RELEASE 34-31511 PROVISION. Pursuant to the interpretation of
Introducing Accounts on a Fully Disclosed Basis contained in SEC Release
34-41511, it is hereby agreed between Broker and Pershing that, insofar as the
"financial responsibility rules" of the SEC and Securities Investor Protection
Act only are applicable, the accounts Broker introduces to Pershing on a fully
disclosed basis shall be considered to be accounts of Pershing and not Broker's
accounts. Nothing in this paragraph will otherwise change or affect the
provisions of this Agreement which provide that the customer account remains
Broker's customer account for all other purposes, including but not limited to,
supervision, suitability and indemnification.
-22-
<PAGE>
IN WITNESS WHEREOF the parties have hereto affixed their hands and
seals by their duly authorized officers on the day and date first above written.
This Agreement contains a pre-dispute arbitration clause in paragraph
25 on pages 19 and 20. Broker acknowledges receiving a copy of this Agreement.
BROKER:
THE CHAPMAN COMPANY
/s/ NATHAN A. CHAPMAN
By: Nathan A. Chapman
Title: President
PERSHING DIVISION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
/s/ ALTON C. JONES
By: Alton C. Jones
Title: Managing Director
-23-
<PAGE>
Exhibit 21
SUBSIDIARIES OF ECHAPMAN.COM, INC.
CHI Merger Subsidiary, Inc.
CCMHI Merger Subsidiary, Inc.
CIH Merger Subsidiary, Inc.
<PAGE>
[LETTERHEAD]
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
registration statement.
Baltimore, Maryland /s/ ARTHUR ANDERSEN LLP
November 15, 1999
<PAGE>
Exhibit 24.1
ECHAPMAN.COM, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director(s) and
Executive Officers of ECHAPMAN.COM, INC., a Maryland corporation, hereby
constitute and appoint NATHAN A. CHAPMAN, JR., and EARL U. BRAVO, SR. and either
of them, the true and lawful agents and attorney-in-fact of the undersigned with
full power and authority in either said agent and attorney-in-fact, to sign for
the undersigned and in their respective names as Directors and Executive
Officers of EChapman.com, 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
/S/ NATHAN A. CHAPMAN, JR. NOVEMBER 15, 1999
- ---------------------------------- ----------------------------------
Nathan A. Chapman, Jr., President and
Director (Principal Executive Officer)
/S/ EARL U. BRAVO, SR. NOVEMBER 15, 1999
- --------------------------------------- ----------------------------------
Earl U. Bravo, Sr., Director
/S/ DEMETRIS BROWN NOVEMBER 15, 1999
- --------------------------------------- ----------------------------------
Demetris Brown, Chief Financial
Officer (Principal Accounting and
Financial Officer)
<PAGE>
Exhibit 24.2
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to serve as a director of EChapman.com, Inc.
(the "Company") subject to his/her appointment by the Board of Directors of the
Company or election by the stockholders of the Company, as the case may be, and
to the inclusion of him/her as a nominee for director of the Company is any
proxy statement or registration statement filed and/or distributed by or on
behalf of the Company.
November 3, 1999 /s/ RAYMOND HAYSBERT
- -------------------------- --------------------------
Date Raymond Haysbert
<PAGE>
Exhibit 24.3
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to serve as a director of EChapman.com, Inc.
(the "Company") subject to his/her appointment by the Board of Directors of the
Company or election by the stockholders of the Company, as the case may be, and
to the inclusion of him/her as a nominee for director of the Company is any
proxy statement or registration statement filed and/or distributed by or on
behalf of the Company.
November 4, 1999 /s/ KWEISI MFUME
- -------------------------- --------------------------
Date Kweisi Mfume
<PAGE>
Exhibit 24.4
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to serve as a director of EChapman.com, Inc.
(the "Company") subject to his/her appointment by the Board of Directors of the
Company or election by the stockholders of the Company, as the case may be, and
to the inclusion of him/her as a nominee for director of the Company in any
proxy statement or registration statement filed and/or distributed by or on
behalf of the Company.
November 11, 1999 /s/ MARK JEFFERSON
- -------------------------- --------------------------
Date Mark Jefferson
<PAGE>
Exhibit 24.5
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to serve as a director of EChapman.com, Inc.
(the "Company") subject to his/her appointment by the Board of Directors of the
Company or election by the stockholders of the Company, as the case may be, and
to the inclusion of him/her as a nominee for director of the Company in any
proxy statement or registration statement filed and/or distributed by or on
behalf of the Company.
November 11, 1999 /s/ ADOLPH WASHINGTON
- -------------------------- --------------------------
Date Adolph Washington
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements of the Company for the period from May 14, 1999(inception) to
September 30, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAY-14-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,000
<CURRENT-LIABILITIES> 238,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (220,000)
<TOTAL-LIABILITY-AND-EQUITY> 18,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 220,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (220,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (220,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,000)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
