<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
REGISTRATION NO. 333-91329
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ECHAPMAN.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 7375 52-2184621
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code Number)
organization)
</TABLE>
---------------------
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET
SUITE 2800
BALTIMORE, MARYLAND 21202
(410) 625-9656
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
------------------------------
NATHAN A. CHAPMAN, JR., PRESIDENT
ECHAPMAN.COM, INC.
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET
SUITE 2800
BALTIMORE, MARYLAND 21202
(410) 625-9656
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
ELIZABETH R. HUGHES, ESQ.
MICHAEL W. CONRON, ESQ.
LARA L. HJORTSBERG, ESQ.
VENABLE, BAETJER AND HOWARD, LLP
TWO HOPKINS PLAZA
SUITE 1800
BALTIMORE, MARYLAND 21201
(410) 244-7400
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If the
securities being registered on this form are to be offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, 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, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
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>
<TABLE>
<S> <C>
--------------------
[LOGO] PROSPECTUS RELATING TO
7,485,640 SHARES COMMON STOCK
ECHAPMAN.COM, INC.
--------------------
PROXY STATEMENT RELATING TO
A SPECIAL MEETING OF STOCKHOLDERS OF
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
--------------------
</TABLE>
April 7, 2000
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Chapman Capital Management Holdings, Inc. which we will hold at 7:30 a.m. local
time on Monday, April 17, 2000 at the World Trade Center--Baltimore, 401 East
Pratt Street, Suite 2800, Baltimore, Maryland.
The purpose of the meeting is to approve the merger of Chapman Capital
Management Holdings into a subsidiary of EChapman.com, Inc. In the merger, each
Chapman Capital Management Holdings share, other than any dissenting shares,
will convert into the right to receive 2.23363 shares of EChapman.com common
stock, except that EChapman.com will pay cash for fractional shares.
The Board of Directors of Chapman Capital Management Holdings is soliciting
your proxy for the special meeting of stockholders to approve the merger.
Chapman Capital Management Holdings will bear the costs of printing and mailing
the prospectus and proxy statement and of soliciting proxies.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF CHAPMAN CAPITAL MANAGEMENT HOLDINGS AND ITS
STOCKHOLDERS AND RECOMMENDS THAT YOU APPROVE THE MERGER AGREEMENT AND THE
MERGER.
We are enclosing a prospectus and proxy statement containing detailed
information concerning EChapman.com, the merger and the merger agreement. FOR
RISKS IN CONNECTION WITH THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 13.
Sincerely,
/s/ NATHAN A. CHAPMAN, JR.
President and Chairman of the Board
---------------------
THE SECURITIES AND EXCHANGE COMMISSION AND THE STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THE SHARES OF ECHAPMAN.COM COMMON STOCK TO BE ISSUED
IN THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This prospectus and proxy statement is dated March 30, 2000 and was first
mailed to stockholders on or about April 7, 2000.
<PAGE>
<TABLE>
<S> <C>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
------------------
[LOGO] NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 17, 2000
------------------
</TABLE>
We will hold a special meeting of stockholders of Chapman Capital Management
Holdings, Inc. at the World Trade Center--Baltimore, 401 East Pratt Street,
Suite 2800, Baltimore, Maryland 21202, on April 17, 2000 at 7:30 a.m. local
time, for the following purposes:
1. To consider and approve the Agreement and Plan of Merger, dated as of
November 15, 1999, by and among Chapman Capital Management Holdings, Inc.,
EChapman.com, Inc. and CCMHI Merger Subsidiary, Inc., a copy of which is
included as Annex I to the accompanying prospectus and proxy statement,
which provides that (a) Chapman Capital Management Holdings shall merge into
CCMHI Merger Subsidiary and (b) each share of Chapman Capital Management
Holdings common stock, other than dissenting shares, shall convert into the
right to receive 2.23363 shares of EChapman.com common stock, except that
cash will be paid in lieu of fractional shares.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Stockholders may, if the merger is approved and consummated, assert
dissenters' rights under Article 3, Subtitle 2 of the Maryland General
Corporation Law. Exercise of such rights requires strict compliance with the
procedures set forth in the applicable statute. A copy of Article 3, Subtitle 2
of the Maryland General Corporation Law is included as Annex III to the
accompanying prospectus and proxy statement.
We have fixed the close of business on January 25, 2000, as the record date
for determining those stockholders entitled to vote at the special meeting and
any adjournments or postponements of the special meeting. Accordingly, only
holders of record of Chapman Capital Management Holdings common stock on that
date are entitled to receive notice of and to vote at the special meeting or any
adjournments or postponements of the special meeting.
By Order of the Board of Directors
Earl U. Bravo, Sr.
Secretary
March 30, 2000
THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF CHAPMAN
CAPITAL MANAGEMENT HOLDINGS COMMON STOCK ENTITLED TO VOTE ON THESE MATTERS IS
REQUIRED TO APPROVE THE MERGER. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED ENVELOPE. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and answers about the special meeting of Chapman
Capital Management Holdings stockholders.................. 3
Summary..................................................... 5
Chapman Capital Management Holdings' Summary Financial
Information............................................... 9
Risk factors................................................ 13
The Chapman Capital Management Holdings Special Meeting..... 19
The merger.................................................. 23
Certain other agreements.................................... 46
Description of Chapman Capital Management Holdings.......... 48
Description of EChapman.com................................. 75
Selected historical and pro forma consolidated financial
statements................................................ 100
EChapman.com management's discussion and analysis of
financial condition and results of operations............. 104
Management of EChapman.com.................................. 113
Description of EChapman.com, capital stock.................. 123
Comparison of stockholder rights of holders of EChapman.com.
Chapman Capital Management Holdings common stock.......... 124
Shares eligible for future sale............................. 126
Legal matters............................................... 127
Experts..................................................... 127
Where you can find more information......................... 128
Index to financial statements............................... F-1
Annex I--Agreement of Merger................................ I-1
Annex II--Opinion of Tucker Anthony Cleary Gull............. II-1
Annex III--Dissenters' Rights Statutory Provisions.......... III-1
</TABLE>
THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES CERTAIN IMPORTANT BUSINESS
AND FINANCIAL INFORMATION ABOUT ECHAPMAN.COM. THIS INFORMATION IS AVAILABLE,
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, BY STOCKHOLDERS OF CHAPMAN CAPITAL
MANAGEMENT HOLDINGS, INCLUDING ANY BENEFICIAL OWNER, FROM ECHAPMAN.COM, WORLD
TRADE CENTER--BALTIMORE, 401 EAST PRATT STREET, SUITE 2800, BALTIMORE, MARYLAND
21202, ATTENTION: SECRETARY (TELEPHONE (410) 625-9656). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL 10, 2000.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING OF
CHAPMAN CAPITAL MANAGEMENT HOLDINGS STOCKHOLDERS
Q: WILL THE MERGER PROPOSAL BE APPROVED?
A: Yes. Nathan A. Chapman, Jr., the president and chairman of the board of
both Chapman Capital Management Holdings and EChapman.com, has executed an
irrevocable support agreement. The support agreement requires Mr Chapman to vote
all of his shares with respect to which he holds voting power as of the record
date, which constituted approximately 72.3% of the outstanding shares of our
common stock, in favor of the merger. This support agreement ensures that the
merger will be approved even if all of our other stockholders vote their shares
against the merger. Nevertheless, we encourage you to attend the special
meeting, either in person or by proxy, because of its importance to your
investment in Chapman Capital Management Holdings.
Q: WHAT DO I NEED TO DO NOW?
A: Simply indicate on your proxy card how you want to vote and then mail
your signed and dated proxy card in the enclosed postage-paid return envelope as
soon as possible.
Q: WHAT IF I PLAN TO ATTEND THE SPECIAL MEETING IN PERSON?
A: We recommend that you send in your proxy card even if you plan to attend
the special meeting in person. Sending in your proxy card will ensure that your
vote is counted in the event that you cannot attend the special meeting.
However, sending in your proxy card will not prevent you from attending the
special meeting or voting in person.
Q: IF MY SHARES ARE HELD BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will not be able to vote your shares of common stock without
voting instructions from you on the proposal. You should instruct your broker
how to vote your shares on the proposal, following the directions provided by
your broker.
Q: WHAT SHOULD I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY
SIGNED PROXY CARD?
A: You can change your vote by sending in a notice of revocation or a later-
dated, signed proxy card to Secretary, Chapman Capital Management
Holdings, Inc., World Trade Center--Baltimore, 401 East Pratt Street, Suite
2800, Baltimore, Maryland 21202 before the special meeting or attending the
special meeting in person and voting. If you attend in person and vote, you will
override any previously submitted proxy.
3
<PAGE>
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working towards competing the merger as quickly as possible and
expect that the merger will become effective shortly after the special meeting.
Q: WHAT DO I NEED TO DO TO GET MY ECHAPMAN.COM SHARES?
A: After we complete the merger, we will send former Chapman Capital
Management Holdings stockholders written instructions for exchange of their
shares. If you hold Chapman Capital Management Holdings shares in physical form,
you should not send in your stock certificates now.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the proposal or the merger, you should
contact Mr. Earl U. Bravo, Sr. at: Chapman Capital Management Holdings, Inc.,
World Trade Center--Baltimore, 401 East Pratt Street, Suite 2800, Baltimore,
Maryland 21202. Telephone: (410) 625-9656. E-mail: [email protected].
4
<PAGE>
SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. WHERE APPROPRIATE, WE HAVE INCLUDED PAGE REFERENCES TO DIRECT YOU TO A MORE
COMPLETE DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE PARTIES
ECHAPMAN.COM, INC. (PAGE 75)
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, SUITE 2800
BALTIMORE, MARYLAND 21202
TELEPHONE: (410) 625-9656
EChapman.com is a newly formed corporation designed to bring together the
financial services capabilities of
- Chapman Holdings, Inc. and its operating subsidiary, The Chapman Co.
- Chapman Capital Management Holdings, Inc. and its operating subsidiary,
Chapman Capital Management, Inc.
- Chapman Insurance Holdings, Inc. and its operating subsidiary, The Chapman
Insurance Agency Incorporated
EChapman.com intends to bring together these entities, while at the same
time taking advantage of the unique opportunities presented by the growth of the
Internet. The EChapman.com web site, 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.
CCMHI Merger Subsidiary is a wholly-owned subsidiary of EChapman.com. CCMHI
Merger Subsidiary was formed solely for the purpose of effecting the merger with
Chapman Capital Management Holdings.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. (PAGE 48)
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, SUITE 2800
BALTIMORE, MARYLAND 21202
TELEPHONE: (410) 625-9656
Chapman Capital Management Holdings, Inc. is an African-American controlled
holding company whose subsidiary, Chapman Capital Management, provides
investment advisory services to its proprietary mutual funds, a private
investment trust and corporate, institutional and individual investors on a
separate account basis. In providing these services, Chapman Capital Management
seeks to invest in U.S. companies which are owned or controlled by
African-Americans, Asian-Americans, Hispanic-Americans and women.
5
<PAGE>
As of February 29, 2000, Chapman Capital Management's total assets under
management was over $864 million.
THE MERGER (Page 23)
GENERAL. On November 15, 1999, Chapman Capital Management Holdings entered
into a merger agreement with EChapman.com and CCMHI Merger Subsidiary which
provides that Chapman Capital Management Holdings will merge into CCMHI Merger
Subsidiary.
We have attached the merger agreement to this document as Annex I. Please
read the merger agreement. It is the legal document that governs the merger.
VOTE REQUIRED. The affirmative vote of at least a majority, or 1,675,668, of
the outstanding shares of Chapman Capital Management Holdings common stock as of
January 25, 2000, the record date for the special meeting, will be required to
approve the merger.
As of the record date:
- Mr. Chapman had voting power with respect to 2,423,018 shares constituting
approximately 72.3% of the outstanding shares of Chapman Capital
Management Holdings common stock.
- Executive officers and directors of Chapman Capital Management Holdings
and their affiliates had voting power with respect to 2,434,143 shares
constituting approximately 72.6% of the outstanding shares of Chapman
Capital Management Holdings common stock
- Executive officers and directors of EChapman.com and their affiliates had
voting power with respect to 2,425,393 shares constituting approximately
72.4% of the outstanding shares of Chapman Capital Management Holdings
common stock
- Executive officers and directors of EChapman.com and Chapman Capital
Management Holdings and their respective affiliates had voting power with
respect to 2,434,143 shares constituting approximately 72.6% of the
outstanding shares of Chapman Capital Management Holdings common stock
RECOMMENDATION OF THE BOARD OF DIRECTORS. The board of directors believes
that the merger is fair to you and in your best interests, and unanimously
recommends that you vote FOR the proposal to approve the merger.
OUR REASONS FOR THE MERGER. We are proposing to merge because we believe
that by combining Chapman Capital Management Holdings with EChapman.com we can
create a stronger and more diversified company. We believe that the merger will
strengthen our position as a competitor in the financial services industry,
which is rapidly changing and growing more competitive, while at the same time,
taking advantage of the growth opportunities provided by the Internet.
6
<PAGE>
CONDITIONS TO COMPLETION OF THE MERGER. The completion of the merger depends
on a number of conditions being met, including:
- Consummation of the merger of Chapman Holdings, Inc. into CHI Merger
Subsidiary, a wholly-owned subsidiary of EChapman.com
- Completion of an initial public offering of EChapman.com common stock in
which
- EChapman.com receives cash gross proceeds of no less than $20 million
and
- the price paid by the public for such shares reflects valuation of
EChapman.com of no less than $80 million following the mergers but
before completion of the cash offering
- Chapman Capital Management Holdings shall have received from its financial
adviser an opinion to the effect that the consideration to be received by
the stockholders of Chapman Capital Management Holdings in the merger is
fair, from a financial point of view, to the holders of Chapman Capital
Management Holdings common stock
- Chapman Capital Management Holdings shall have received an opinion from
counsel to EChapman.com to the effect that the merger will be treated as a
tax-free reorganization for federal and state income tax purposes
ACCOUNTING TREATMENT. We expect to account for the merger using the purchase
method of accounting.
TRANSACTION GENERALLY TAX-FREE FOR CHAPMAN CAPITAL MANAGEMENT HOLDINGS
STOCKHOLDERS (Page 44)
We expect that your exchange of shares of Chapman Capital Management
Holdings common stock for shares of common stock of EChapman.com generally will
not cause you to recognize any gain or loss for U.S. federal income tax
purposes. You will, however, have to recognize income or gain in connection with
any cash received in lieu of fractional shares. THIS TAX TREATMENT MAY NOT APPLY
TO ALL CHAPMAN CAPITAL MANAGEMENT HOLDINGS STOCKHOLDERS. YOU SHOULD CONSULT YOUR
TAX ADVISER FOR A FULL UNDERSTANDING OF THE MERGER'S TAX CONSEQUENCES TO YOU.
STOCKHOLDERS HAVE APPRAISAL RIGHTS (Page 20)
Maryland law permits holders of Chapman Capital Management Holdings common
stock to dissent from the merger and to have the fair value of their Chapman
Capital Management Holdings common stock appraised by a court and paid to them
in cash by CCMHI Merger Subsidiary. TO DO THIS, HOLDERS OF THESE SHARES MUST
FOLLOW REQUIRED PROCEDURES, INCLUDING FILING NOTICES WITH CHAPMAN CAPITAL
MANAGEMENT HOLDINGS, AND, IF THEY ARE ENTITLED TO VOTE, EITHER ABSTAINING OR
VOTING AGAINST THE MERGER. If you hold shares of Chapman Capital Management
Holdings
7
<PAGE>
common stock, and you dissent from the merger and follow the required
procedures, your shares of Chapman Capital Management Holdings common stock will
not become shares of common stock of EChapman.com. Instead, your only right will
be to receive the appraised value of your shares in cash. The steps that you
must take in order to preserve these rights are described in "The
Merger--Dissenters Rights." We have also attached the applicable provisions of
Maryland law related to dissenters' rights to this document as Annex III.
DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS (Page 124)
The rights of stockholders of Chapman Capital Management Holdings are
governed by Maryland law and by the charter and bylaws of Chapman Capital
Management Holdings. The rights of EChapman.com stockholders are governed by
Maryland law and by its charter and bylaws. Upon completion of the merger, the
rights of former stockholders of Chapman Capital Management Holdings will be
governed by Maryland law and by the EChapman.com charter and bylaws which are
substantially similar to the existing charter and bylaws of Chapman Capital
Management Holdings; however certain anti-takeover provisions of Maryland law
from which Chapman Capital Management Holdings has opted out are applicable to
EChapman.com.
MARKET PRICE DATA
Chapman Capital Management Holdings common stock is publicly traded and
quoted on the Nasdaq SmallCap Market under the symbol "CMGT." The market value
of Chapman Capital Management Holdings common stock on November 15, 1999, the
last full trading day preceding the public announcement of the execution of the
merger agreement, based on the closing price as reported on the Nasdaq SmallCap
Market, was $5 per share. The market value of Chapman Capital Management
Holdings common stock on March 28, 2000, the last practicable date prior to the
date of this prospectus and proxy statement, based on the closing price as
reported on the Nasdaq SmallCap Market, was $14.50 per share.
EChapman.com common stock is not traded on any exchange, and no established
trading market exists for EChapman.com common stock; however, EChapman.com
common stock has been approved for listing on the Nasdaq National Market under
the symbol "ECMN".
USE OF CERTAIN TERMS
Unless we indicate otherwise, in each section of this prospectus and proxy
statement other than those sections which relate solely to Chapman Capital
Management Holdings, the special meeting and the merger, such as "Chapman
Capital Management Holdings Special Meeting," "The Merger" and "Description of
Chapman Capital Management Holdings," the terms "we," "us" and "our" refer to
EChapman.com, Inc. after the mergers.
Unless we indicate otherwise, all information in this prospectus and proxy
statement (1) gives effect to the consummation of the mergers and (2) the
initial public offering of EChapman.com at the minimum aggregate offering price.
8
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS' SUMMARY FINANCIAL INFORMATION
The summary of financial information set forth below is derived from Chapman
Capital Management Holdings' audited financial statements for each of the years
ended December 31, 1998 and 1999.
The summary unaudited pro forma Statement of Operations data for
EChapman.com gives effect to the mergers of Chapman Capital Management Holdings
and Chapman Holdings, Inc. as if the mergers had occurred as of
January 1, 1999. The unaudited pro forma balance sheet data for EChapman.com
gives effect to the mergers as if they had occurred as of December 31, 1999.
The summary unaudited as adjusted pro forma statement of operations data for
EChapman.com gives effect to the mergers and an initial public offering of
EChapman.com at the minimum aggregate offering price required for the merger to
close as if the mergers had occurred as of January 1, 1999. The unaudited pro
forma as adjusted balance sheet data for EChapman.com gives effect to the
mergers and an initial public offering at the minimum aggregate offering price
as if they had occurred as of December 31, 1999.
The summary unaudited pro forma consolidated financial information does not
purport to represent what EChapman.com's results of operations or financial
condition would actually have been had the transactions described occurred on
the dates indicated or to project EChapman.com's results of operations or
financial condition for any future period or date.
The historical financial information for Chapman Capital Management Holdings
should be read in conjunction with such financial statements, including the
notes, included elsewhere in this prospectus and proxy statement.
<TABLE>
<CAPTION>
CHAPMAN CAPITAL MANAGEMENT
HOLDINGS HISTORICAL
---------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................................. $ 3,218,000 $ 4,622,000
Loss before income tax benefit............................ (151,000) (853,000)
Net loss.................................................. $ (106,000) $ (853,000)
=========== ===========
Basic and diluted loss per share.......................... $ (0.04) $ (0.25)
=========== ===========
Weighted average shares outstanding....................... 2,811,000 3,351,000
=========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
ECHAPMAN.COM PRO FORMA
-----------------------------
YEAR ENDED DECEMBER 31, 1999
-----------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
------------- -------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................................... $10,546,000 $10,546,000
Loss before income tax benefit.............................. (4,819,000) (4,819,000)
Net loss.................................................... $(4,718,000) $(4,718,000)
=========== ===========
Basic and diluted loss per share............................ $(0.36) $(0.29)
=========== ===========
Weighted average shares outstanding......................... 13,195,000 16,528,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CHAPMAN CAPITAL
MANAGEMENT HOLDINGS'
HISTORICAL ECHAPMAN.COM PRO FORMA
----------------------- ----------------------------
AS OF DECEMBER 31, 1999 AS OF DECEMBER 31, 1999
----------------------- ----------------------------
(UNAUDITED)
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities............................. $3,036,000 $ 4,185,000 $21,785,000
Total assets............................. 4,838,000 39,984,000 56,650,000
Total debt............................... 150,000 1,900,000 1,900,000
Total stockholders' equity............... 4,188,000 35,617,000(1) 53,217,000(1)
</TABLE>
- ------------------------
(1) Total stockholders' equity excludes 136,510 shares issuable upon exercise of
options that were outstanding as of December 31, 1999 and the underwriters'
over allotment option related to the EChapman offering.
10
<PAGE>
COMPARATIVE PER SHARE DATA
The following financial information reflects certain comparative per share
data relating to the merger. The information shown below should be read in
conjunction with the historical financial statements of EChapman.com, Chapman
Capital Management Holdings and Chapman Holdings, including the related notes,
which are included elsewhere in this prospectus and proxy statement.
The following information is not necessarily indicative of the results of
operations or financial position that would have resulted had the mergers of
Chapman Holdings and Chapman Capital Management Holdings been consummated on or
as of the dates indicated, nor is it necessarily indicative of the results of
operations in future periods.
The table below presents selected comparative consolidated per share
information
- For EChapman.com
- on a historical basis,
- on a pro forma basis assuming the mergers had occurred on January 1,
1998, and
- on a pro forma, as adjusted, basis as if the mergers and the initial
public offering of EChapman.com's common stock at the minimum level
required for the merger to close had occurred on January 1, 1998
- For Chapman Capital Management Holdings
- on a historical basis,
- on a pro forma equivalent basis, and
- on a pro forma, as adjusted, equivalent basis
- For Chapman Holdings
- on a historical basis
- on a pro forma equivalent basis, and
- on a pro forma, as adjusted, equivalent basis
- pro forma and pro forma, as adjusted, equivalent basis represents the
pro forma and pro forma, as adjusted, per share amounts of EChapman.com
multiplied by the exchange ratio of 1.93295 for Chapman Holdings and
2.23363 for Chapman Capital Management Holdings.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
PER COMMON SHARE:
LOSS FROM CONTINUING OPERATIONS:
EChapman.com--historical(1)................................. $ -- $(281,000)
EChapman.com--pro forma..................................... (0.19) (0.36)
EChapman.com--pro forma, as adjusted........................ $ (0.15) $ (0.29)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Chapman Capital Management Holdings--historical............. (0.04) (0.25)
Chapman Capital Management Holdings--pro forma equivalent... (0.43) (0.80)
Chapman Capital Management Holdings--pro forma, as adjusted,
equivalent................................................ (0.34) (0.64)
Chapman Holdings--historical................................ (0.31) (0.15)
Chapman Holdings--pro forma equivalent...................... (0.37) (0.69)
Chapman Holdings--pro forma, as adjusted, equivalent........ (0.29) (0.55)
CASH DIVIDENDS DECLARED:
EChapman.com--historical(1)................................. -- --
EChapman.com--pro forma combined............................ -- --
EChapman.com--pro forma, as adjusted, equivalent............ -- --
Chapman Capital Management Holdings--historical............. -- --
Chapman Capital Management Holdings--pro forma equivalent... -- --
Chapman Capital Management Holdings--pro forma, as adjusted,
equivalent................................................ -- --
Chapman Holdings--historical................................ -- --
Chapman Holdings--pro forma equivalent...................... -- --
Chapman Holdings--pro forma, as adjusted, equivalent........ -- --
BOOK VALUE:(2)
EChapman.com--historical(1)................................. (281,000)
EChapman.com--pro forma..................................... 2.70
EChapman.com--pro forma, as adjusted........................ 3.22
Chapman Capital Management Holdings--historical............. 1.25
Chapman Capital Management Holdings--pro forma equivalent... 6.03
Chapman Capital Management Holdings--pro forma, as
adjusted.................................................. 7.19
Chapman Holdings--historical................................ 1.99
Chapman Holdings--pro forma equivalent...................... 5.22
Chapman Holdings--pro forma, as adjusted, equivalent........ 6.22
</TABLE>
- ------------------------
(1) EChapman.com was incorporated on May 14, 1999. EChapman.com had one share of
common stock outstanding as of December 31, 1999, and there is currently no
public market for EChapman.com's common stock.
(2) As a balance sheet for the year ended December 31, 1998, is not required
financial information for this filing, no per share book value information
is provided for December 31, 1998.
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RISK FACTORS
THE MERGER AND OWNERSHIP OF ECHAPMAN.COM COMMON STOCK FOLLOWING THE MERGER
INVOLVE THE FOLLOWING RISKS. WE BELIEVE THAT 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. YOU SHOULD CAREFULLY CONSIDER THESE RISKS
TOGETHER WITH ALL OTHER INFORMATION CONTAINED IN THIS DOCUMENT IN EVALUATING THE
PROPOSED MERGER AND YOUR INVESTMENT IN ECHAPMAN.COM COMMON STOCK.
RISKS ASSOCIATED WITH ECHAPMAN.COM
WE ARE A NEW COMPANY WITH MINIMAL OPERATIONS TO DATE, AND WE HAVE NOT FORMALLY
LAUNCHED OUR WEB SITE; IF WE EXPERIENCE A DELAY IN COMPLETING AND LAUNCHING OUR
WEB SITE, OUR EARNINGS WILL SUFFER.
EChapman.com was formed in 1999 and has had minimal operations to date,
which have consisted solely of expenses incurred in developing our business
plan. Although we have launched a prototype of our web site, we are still in the
process of designing and developing our actual 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. If we experience
a delay in identifying and retaining qualified vendors for the completion and
launch of our web site, our ability to successfully implement our business
strategy will be adversely affected. In addition, since we are dependent upon
outside vendors for these services, our estimated time frames will depend upon
their availability.
BECAUSE WE HAVE NO INTERNET-RELATED OPERATING HISTORY, WE CANNOT ENSURE YOU THAT
OUR EXPANSION INTO THE AREA WILL BE PROFITABLE.
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.
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, development and launch of the EChapman.com web site
- Creation of public awareness of the EChapman.com brand and web site
- Successful expansion of our financial service businesses on the Internet
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition will be materially and
adversely affected.
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WE CURRENTLY HAVE NO AGREEMENTS WITH ADVERTISERS, STRATEGIC PARTNERS OR CONTENT
PROVIDERS, AND IF WE ARE UNABLE TO ESTABLISH AND MAINTAIN THESE RELATIONSHIPS,
OUR EARNINGS WILL SUFFER.
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. If we
cannot establish and maintain these relationships, our earnings will be
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 $4,718,000 for the year
ended December 31, 1999. 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. These 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 will be
materially and adversely affected.
BECAUSE OF OUR LIMITED EXPERIENCE WITH BUILDING THE ECHAPMAN.COM BRAND, WE MIGHT
NOT EFFECTIVELY UTILIZE RESOURCES NEEDED TO BUILD OUR BRAND, WHICH COULD
NEGATIVELY IMPACT OUR REVENUE AND OUR ABILITY TO ATTRACT USERS, ADVERTISERS AND
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. We intend to build our brand through advertising targeted to
segments of the DEM community and the DEM community as a whole, including print,
broadcast placements, public relations campaigns and the development of
strategic relationships with other companies which target segments of the DEM
community or, conversely, which desire access to the DEM community. We have
minimal practical experience with building our brand through these channels or
in establishing strategic relationships. If our efforts to build our brand
through these channels do not generate a corresponding increase in revenue, our
financial results could be adversely affected. Successful promotion and
marketing of our brand will also depend on providing up-to-date, 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.
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<PAGE>
NATHAN A. CHAPMAN, JR. HAS BEEN AN INSTRUMENTAL FORCE IN THE GROWTH OF CHAPMAN
HOLDINGS AND CHAPMAN CAPITAL MANAGEMENT HOLDINGS AND IN THE CREATION OF THE DEM
STRATEGY, AND THE LOSS OF MR. CHAPMAN'S SERVICES WOULD DEPRIVE US OF MR.
CHAPMAN'S KNOWLEDGE OF AND SKILL IN THE FINANCIAL SERVICES AND DEM MARKETS,
WHICH WOULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND GROWTH PROSPECTS.
For the foreseeable future, we intend to place substantial reliance upon the
personal efforts and abilities of Nathan A. Chapman, Jr., president of
EChapman.com. Mr. Chapman has provided the strategic vision for and has played a
key role in executing the business plans of Chapman Holdings and Chapman Capital
Management Holdings and the DEM strategy in the past. Therefore, the loss of the
services of Mr. Chapman would have a material adverse effect on our business,
operations, revenue and business prospects because of our reliance on his
strategic vision and his experience in the financial services and DEM markets.
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.
USE OF THE DEM STRATEGY ON THE INTERNET IS NEW AND UNTESTED, AND IF WE ARE
UNABLE TO ATTRACT MEMBERS OF THE DEM COMMUNITY TO OUR WEB SITE, OUR FUTURE
PROFITABILITY WILL BE MATERIALLY AND ADVERSELY AFFECTED.
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 because of the existing and
increasing competition for Internet-based business and the relatively limited
market represented by members of the DEM community compared to the market for
Internet users as a whole.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND IF A PUBLIC MARKET FOR
OUR SECURITIES DOES NOT DEVELOP OR IS NOT SUSTAINED, OUR STOCK PRICE COULD BE
ADVERSELY AFFECTED.
Prior to our initial public 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.
Because we lack an operating history and because the Internet industry is
relatively new and rapidly evolving, it is difficult to predict the extent to
which investor interest in our common stock will lead to a trading market or how
liquid that market might become.
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RISKS RELATED TO ECOMMERCE AND THE INTERNET
WE FACE INTENSE COMPETITION, AND IF WE DO NOT RESPOND TO THIS COMPETITION
EFFECTIVELY, WE MAY NOT BE ABLE TO RETAIN AND ATTRACT USERS, ADVERTISERS AND
STRATEGIC PARTNERS, WHICH COULD REDUCE OUR REVENUE AND HARM OUR FINANCIAL
RESULTS.
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, advertisers and strategic partners 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
- Publishers and distributors of traditional media, such as television,
radio and print
- Online and traditional brokerages and investment banks
- Traditional brokerages and investment banks
If we do not respond to this competition effectively, we may not be able to
attract users, advertisers and strategic partners, which would reduce our
revenue and harm our financial results. In addition, increased competition could
result in price reductions, reduced margins or loss of market share, any of
which could adversely affect our business.
FAILURES OF OUR NETWORK INFRASTRUCTURE COULD RESULT IN UNANTICIPATED EXPENSES
AND PREVENT OUR USERS FROM EFFECTIVELY UTILIZING OUR SERVICES, WHICH COULD
NEGATIVELY IMPACT OUR ABILITY TO ATTRACT AND RETAIN USERS AND ADVERTISERS AND
OTHER STRATEGIC PARTNERS.
Our ability to successfully create an interactive online community and to
deliver our financial services online depends in large part on the capacity,
reliability and security of our network hardware, software and
telecommunications infrastructure. Failures of our network infrastructure could
result in unanticipated expenses to address these failures and could prevent our
users from effectively utilizing our services, which could prevent us from
retaining and attracting users, advertisers and other strategic partners. In
addition, if we were to experience a network failure, we could be subject to
regulatory sanctions in connection with our online brokerage services.
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<PAGE>
Our system is susceptible to natural and man-made disasters, including fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect the operation of our web site.
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.
In addition, our users will depend on Internet service providers, online
service providers and other web site operators for access to our web site. Due
to the rapid growth of the Internet, 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. These
problems could also harm our business by preventing users from effectively
utilizing our services.
THE CHAPMAN CO. IS PARTICULARLY SUSCEPTIBLE TO LIQUIDITY RISK WHILE TRADING FOR
ITS OWN ACCOUNT DUE TO ITS LARGE INVENTORY OF ECHAPMAN.COM COMMON STOCK.
As a result of the mergers, The Chapman Co.'s inventory of Chapman Holdings
common stock and Chapman Capital Management Holdings common stock will convert
into shares of EChapman.com common stock. EChapman.com common stock has been
approved for listing on the Nasdaq National Market. As a newly-listed Nasdaq
National Market security, EChapman.com common stock may have less liquidity and
higher spreads between bid and ask prices than other securities listed on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market. Accordingly, The Chapman Co. is subject to liquidity risk with respect
to this security and may take longer to liquidate its inventory of these
securities than it would for investments in more liquid securities. Liquidity
risk is the risk that this security may be difficult or impossible to sell at
the time and for the price that The Chapman Co. deems appropriate. Further,
liquidity risk implies that any effort on the part of The Chapman Co. to
liquidate its portfolio in a short period of time may adversely affect the price
of the EChapman.com common stock.
OUR INVESTMENT ADVISORY SUBSIDIARY IS DEPENDENT ON A FEW MAJOR INVESTMENT
MANAGEMENT CLIENTS, AND IF ANY OF THESE CLIENTS TERMINATED THEIR ADVISORY
ARRANGEMENTS WITH US, OUR ADVISORY FEE REVENUE WOULD BE MATERIALLY HARMED.
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 February 29, 2000, eight clients, including all three of those
invested in DEM-MET Trust and The Chapman U.S. Treasury Money Fund, represented
approximately 74.5% of our total assets under management. As of February 29,
2000, DEM-MET Trust, with $329.3 million in assets under management, represented
approximately 38.1% of our total assets under management. One of the
participants in the
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DEM-MET Trust has informed us that it intends to withdrawal approximately
$100 million of its investment in the trust. This withdrawal represents
approximately 11.6% of Chapman Capital Management's assets under management as
of February 29, 2000 and approximately 30.4% of the assets under management in
the DEM-MET Trust as of February 29, 2000. We expect this withdrawal to be
effective early in April 2000. If the DEM-MET Trust or any of our key investment
management clients terminate their advisory arrangements with us or make
additional substantial withdrawals of their assets under management, our
advisory fee revenue would be materially and adversely affected.
WARNING AS TO OUR USE OF FORWARD-LOOKING STATEMENTS
This prospectus and proxy statement 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. In
particular, because 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. 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 and proxy
statement generally and economic and business factors, some of which are beyond
our control. In analyzing an investment in shares of our common stock, you
should carefully consider, along with other matters referred to in this
prospectus and proxy statement, the risk factors described below and throughout
this prospectus and proxy statement.
18
<PAGE>
THE CHAPMAN CAPITAL MANAGEMENT HOLDINGS SPECIAL STOCKHOLDERS' MEETING
DATE, PLACE AND TIME
The Chapman Capital Management Holdings special meeting of stockholders will
be held at the World Trade Center--Baltimore, 401 East Pratt Street, Suite 2800,
Baltimore, Maryland 21202, on April 17, 2000 at 7:30 a.m. local time.
PURPOSE OF THE SPECIAL MEETING
At the Chapman Capital Management Holdings special meeting, stockholders
will consider and vote upon
- The proposal to approve the merger agreement and the merger in which each
share of Chapman Capital Management Holdings common stock, other than
shares held by Chapman Capital Management Holdings stockholders who
properly perfect their dissenters' rights, automatically shall become and
be converted into the right to receive 2.23363 shares of EChapman.com
common stock and cash in lieu of fractional shares of EChapman.com common
stock, and
- Such other matters as may properly be brought before the Chapman Capital
Management Holdings special meeting.
RECORD DATE
The Chapman Capital Management Holdings board of directors has fixed the
close of business on January 25, 2000 as the record date for determining holders
entitled to notice of and to vote at the special meeting. Accordingly, only
holders of record of Chapman Capital Management Holdings common stock at the
close of business on the record date will be entitled to notice of, and to cast
their vote at, the special meeting. As of January 25, 2000, there were 3,351,334
shares of Chapman Capital Management Holdings common stock issued and
outstanding held by approximately 22 holders of record.
VOTING INFORMATION
Each holder of record of shares of Chapman Capital Management Holdings
common stock on the record date is entitled to cast one vote per share, in
person or by properly executed proxy, on any matter that may properly come
before the special meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the shares of Chapman Capital Management
Holdings common stock outstanding on the record date is necessary to constitute
a quorum at the special meeting.
The approval of the merger requires the affirmative vote of the holders of
at least a majority of the outstanding shares of Chapman Capital Management
Holdings common stock entitled to vote thereon.
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<PAGE>
Votes cast by proxy or in person at the special meeting will be tabulated to
determine whether or not a quorum is present.
ABSTENTIONS
Where, as to any matter submitted to the stockholders for a vote,
stockholders appear in person but abstain from voting, such abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter (a "broker non-vote"), those shares are also treated as shares
that are present and entitled to vote for quorum purposes. Because the required
vote of stockholders on the merger agreement and the merger are based upon the
total number of outstanding shares of Chapman Capital Management Holdings common
stock, the failure to submit a proxy card, or the failure to vote in person at
the special meeting, the abstention from voting and any broker non-vote will,
except for purposes of rights of dissenting stockholders, have the same effect
as a vote against the merger agreement and the merger.
REVOCATION OF PROXIES
You may revoke a previously submitted proxy at any time prior to its
exercise at the special meeting by
- giving written notice of your desire to revoke your proxy on or prior to
the date of the special meeting to Nathan A. Chapman, Jr., president of
Chapman Capital Management Holdings, or Earl U. Bravo, Sr., secretary of
Chapman Capital Management Holdings,
- by signing and returning a later dated proxy, or
- voting in person at the special meeting.
Mere attendance at the special meeting will not alone have the effect of
revoking the proxy.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Maryland General Corporation Law, certain relevant sections of
which are attached to this prospectus and proxy statement as Annex III, each
holder of Chapman Capital Management Holdings common stock will be entitled to
demand and receive payment of the "fair value" of his or her shares in cash, if
he or she
- prior to or at the special meeting, files with Chapman Capital Management
Holdings a written objection to the merger,
- does not vote in favor of the merger by person or by proxy, and
- within 20 days after Articles of Merger have been accepted for record by
the Maryland State Department of Assessments and Taxation, makes written
20
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demand on CCMHI Merger Subsidiary for payment of his or her shares,
stating the number and class of shares for which payment is demanded.
A written demand for payment should be sent to Earl U. Bravo, Sr.,
secretary, CCMHI Merger Subsidiary, Inc., World Trade Center--Baltimore, 401
East Pratt Street, Suite 2800, Baltimore, Maryland 21202. Any stockholder who
fails to comply with the requirements described above will be bound by the terms
of the merger agreement.
A VOTE AGAINST OR AN ABSTENTION WITH REGARD TO THE MERGER WILL NOT ITSELF
CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT AND A FAILURE TO
VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
EChapman.com will promptly deliver or mail to each stockholder requesting
appraisal written notice of the date of acceptance of the articles of merger for
record by the Maryland State Department of Assessments and Taxation. Within
50 days after acceptance of the articles of merger for record by the State
Department of Assessments and Taxation, any such stockholder who has not
received payment for his or her shares may petition a court of equity in
Baltimore City, Maryland, for an appraisal to determine the "fair value" of such
shares. If the court finds that a stockholder is entitled to appraisal of his or
her stock, the court will appoint three disinterested appraisers to determine
the "fair value" of such shares as of the date of the special meeting on terms
and conditions the court considers proper, and the appraisers will, within
60 days after appointment, or such longer period as the court may direct, file
with the court and mail to each party to the proceeding their report stating
their conclusion as to the "fair value" of the shares.
Within 15 days after the filing of the report, any party may object to the
report and request a hearing thereon. The court will, upon motion of any party,
enter an order either confirming, modifying or rejecting the report and, if
confirmed or modified, enter judgment directing the time within which payment
must be made. If the appraisers' report is rejected, the court may determine the
"fair market" value of the shares of the stockholders requesting appraisal or
may remit the proceeding to the same or other appraisers.
Any judgment entered in a court proceeding will include interest from the
date of the stockholders' vote related to the transaction giving rise to the
rights of appraisal, unless the court finds that the stockholder's refusal to
accept a written offer to purchase the stock which may previously have been made
by CCMHI Merger Subsidiary as required by Section 3-207 of the Maryland General
Corporation Law was arbitrary and vexatious or not in good faith. Costs of the
proceeding excluding attorneys' fees will be determined by the court and will be
assessed against CCMHI Merger Subsidiary or, under certain circumstances, the
stockholder requesting appraisal, or both.
At any time after the filing of a petition for appraisal, the court may
require any stockholder requesting appraisal to submit his or her certificates
representing shares
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<PAGE>
to the clerk of the court for notation of the pendency of the appraisal
proceedings. In order to receive payment, whether by agreement with EChapman.com
or pursuant to a judgment, the stockholder must surrender the stock certificates
endorsed in blank and in proper form for transfer.
A stockholder demanding payment for shares will not have the right to
receive any dividends or distributions payable to holders of record after the
close of business on the date of the stockholders' vote and shall cease to have
any rights as a stockholder with respect to the shares except the right to
receive payment of the "fair value" for his or her shares. The stockholder's
rights may be restored only upon the withdrawal, with the consent of
EChapman.com of the demand for payment, failure of either party to file a
petition for appraisal within the time required, a determination of the court
that the stockholder is not entitled to an appraisal, or the abandonment or
rescission of the merger.
Any dissenting stockholder who exercises his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary income or capital gain will be
determined in accordance with applicable provisions of the Internal Revenue
Code.
This summary of the rights of stockholders requesting appraisal contains all
material information relating to the exercise of appraisal rights. The
preservation and exercise of appraisal rights are conditioned on strict
adherence to the applicable provisions of the Maryland General Corporation Law.
Each stockholder desiring to exercise appraisal rights should refer to Title 3,
Subtitle 2, of the Maryland General Corporation Law for a complete statement of
the stockholder's rights and the steps which must be followed in connection with
the exercise of those rights. No further notice of the events giving rise to
dissenters' rights or any steps associated therewith will be furnished to
Chapman Capital Management Holdings stockholders, except as indicated above or
otherwise required by law.
For further information relating to the exercise of appraisal rights, see
Annex III to this prospectus and proxy statement.
22
<PAGE>
THE MERGER
GENERAL
EChapman.com, Inc. is a newly-formed company and has had minimal operations
to date. EChapman.com has three wholly-owned subsidiaries:
- CCMHI Merger Subsidiary, Inc.
- CHI Merger Subsidiary, Inc.
- CIHI Merger Subsidiary, Inc.
These subsidiaries were formed for the sole purpose of effecting the mergers
described below.
On November 15, 1999, EChapman.com entered into merger agreements with each
of Chapman Holdings, Chapman Capital Management Holdings, Inc. and Chapman
Insurance Holdings, Inc. to acquire all of the outstanding stock of each of
these companies. The merger agreements provide that:
- Chapman Capital Management Holdings will merge with CCMHI Merger
Subsidiary
- Chapman Holdings will merge with CHI Merger Subsidiary
- Chapman Insurance Holdings will merge with CIH Merger Subsidiary.
CCMHI Merger Subsidiary, CHI Merger Subsidiary and CIH Merger Subsidiary
will each be the surviving entities in their respective mergers and will be
renamed Chapman Capital Management Holdings, Inc., Chapman Holdings, Inc. and
Chapman Insurance Holdings, Inc., respectively.
Upon consummation of the acquisitions, EChapman.com will directly own 100%
of Chapman Capital Management Holdings, Chapman Holdings and Chapman Insurance
Holdings and will indirectly control:
- The Chapman Co., a full service securities brokerage and investment
banking firm and wholly-owned subsidiary of Chapman Holdings
- Chapman Capital Management, Inc., an investment advisory firm and wholly-
owned subsidiary of Chapman Capital Management Holdings
- The Chapman Insurance Agency Incorporated, a licensed insurance agency
that sells annuity products and which is a wholly-owned subsidiary of
Chapman Insurance Holdings
Chapman Holdings was incorporated in Maryland on December 12, 1997, has been
publicly traded since February 1998 and is quoted on the Nasdaq SmallCap Market
under the symbol CMGT.
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Chapman Capital Management Holdings was incorporated in Maryland on
January 8, 1998, has been publicly traded since August 1998 and is quoted on the
Nasdaq SmallCap Market under the symbol CMGT.
Chapman Insurance Holdings was incorporated in Maryland on January 8, 1998,
has remained a privately-held company and has not had significant operations to
date.
Upon consummation of the mergers and the initial public offering of
EChapman.com, Nathan A. Chapman, Jr., will be the majority stockholder of
EChapman.com, with beneficial ownership of 58.3% of the outstanding common
stock. Accordingly, Mr. Chapman will have control over all fundamental matters
affecting EChapman.com, such as the election of directors, mergers, sales of all
or substantially all of EChapman.com's assets, charter amendments and other
matters requiring stockholder approval. Mr. Chapman's votes with respect to
these matters may be adverse to your interests. In addition, this concentration
of ownership may also have the effect of delaying or preventing a change in
control, which could have an adverse effect on EChapman.com's stock price.
THE MERGER AGREEMENT
GENERAL
The merger agreement provides that, subject to the satisfaction or waiver of
certain conditions, Chapman Capital Management Holdings will be merged into
CCMHI Merger Subsidiary, whereupon, the separate existence of Chapman Capital
Management Holdings shall cease and CCMHI Merger Subsidiary will be the
surviving corporation and change its name to Chapman Capital Management
Holdings, Inc. Each share of Chapman Capital Management Holdings common stock,
other than shares held by Chapman Capital Management Holdings stockholders who
properly perfect their dissenters' rights, automatically shall become and be
converted into the right to receive 2.23363 shares of EChapman.com common stock
and payment for fractional shares held. Certificates for Chapman Capital
Management Holdings common stock shall be exchanged for certificates of
EChapman.com common stock as described below.
Upon consummation of the merger and the EChapman.com initial public
offering, former Chapman Capital Management Holdings stockholders will own
approximately 45.3% of the outstanding EChapman.com common stock.
CONDITIONS TO MERGER
Consummation of the merger is conditioned upon, among other things, approval
of the merger by an affirmative vote of at least a majority of the outstanding
shares of Chapman Capital Management Holdings common stock entitled to vote on
the merger. As of January 25, 2000, the record date for the special meeting,
Nathan A. Chapman, Jr., the president and chairman of the board of both Chapman
Capital Management Holdings and EChapman.com, held the power to vote 2,423,018
shares,
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<PAGE>
constituting approximately 72.3% of the outstanding Chapman Capital Management
Holdings common stock. He has executed an irrevocable support agreement to
support and to vote to approve the merger. This support agreement ensures that
the merger and the merger agreement will be approved even if all of our other
stockholders of Chapman Capital Management Holdings vote their shares against
the proposal.
The obligation of EChapman.com and Chapman Capital Management Holdings to
consummate the merger is also subject to the satisfaction of certain further
conditions including the following:
- completion of an initial public offering of EChapman.com common stock in
which
- EChapman receives cash gross proceeds of no less than $20 million and
- the price paid by the public for such shares reflects a valuation of
EChapman after the mergers but before the cash offering of no less than
$80 million
- closing of the proposed merger of Chapman Holdings, Inc. into CHI Merger
Subsidiary
- receipt of an opinion of counsel confirming certain of the tax
consequences of the merger for Chapman Capital Management Holdings
stockholders as set forth below under the heading "--Certain Federal
Income Tax Consequences"
- the effectiveness of the registration statement pertaining to the issuance
of the shares of EChapman.com common stock to be issued to holders of
Chapman Capital Management Holdings common stock in the merger
- the receipt by Chapman Capital Management Holdings of the written opinion
of Tucker Anthony to the effect that the consideration to be received by
the stockholders of Chapman Capital Management Holdings in the merger is
fair from a financial point of view
- the accuracy and satisfaction of various financial and legal
representations and conditions, including representations and conditions
of Chapman Holdings in the merger agreement by and among EChapman.com, CHI
Merger Subsidiary and Chapman Holdings, as of the date of closing of the
EChapman.com initial public offering
Where the law permits, a party to the merger agreement could elect to waive
a condition to its obligation to complete the merger although that condition has
not been satisfied. We cannot be certain when or if the conditions to the merger
will be satisfied or waived or that the merger will be completed. If the parties
to the merger waived material conditions to the merger, such as those conditions
requiring the merger of Chapman Holdings and the initial public offering of
EChapman.com's common stock, Chapman Capital Management Holdings would resolicit
your proxies
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in order to obtain stockholder approval of the merger by filing an amendment to
the registration statement, of which this prospectus and proxy statement forms a
part, with the SEC and mailing you a revised prospectus and proxy statement.
INDEMNIFICATION
The merger agreement also provides that for a period of six years from and
after the merger, CCMHI Merger Subsidiary and EChapman.com shall indemnify,
defend and hold harmless each individual who served as a director, or officer of
Chapman Capital Management Holdings or any of its subsidiaries at any time prior
to the merger from and against
- all losses, claims, damages, costs, expenses, liabilities or judgments or
amounts that are paid in settlement 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 Chapman Capital Management Holdings or any of its
subsidiaries, whether pertaining to any matter existing or occurring at or
prior to the merger and whether asserted or claimed prior to, or at or
after the merger and
- all such liabilities based in whole or in part on, or arising in whole or
in part out of, or pertaining to the merger agreement or the transactions
contemplated by the merger agreement,
in each case to the full extent a corporation is permitted under the Maryland
General Corporation Law to indemnify its own directors and officers.
NO SOLICITATION
The merger agreement provides that after the date of the merger agreement
and prior to the effective time of the merger, Chapman Capital Management
Holdings shall not, and shall not permit any of its subsidiaries to
- 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 Chapman Capital
Management Holdings and its subsidiaries or more than fifty percent (50%)
of the capital stock of Chapman Capital Management Holdings 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
- otherwise cooperate in any effort or attempt to make, implement or accept
an Acquisition Transaction.
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Notwithstanding any other provision of the merger 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 Chapman Capital Management Holdings' board of directors under
applicable law, if an Acquisition Transaction is a tender offer subject to the
provisions of Section 14(d) under the Exchange Act, Chapman Capital Management
Holdings' board of directors may take and disclose to Chapman Capital Management
Holdings' stockholders a position contemplated by Rule 14e-2(a) under the
Exchange Act.
In the event Chapman Capital Management Holdings receives any offer of an
Acquisition Transaction, it shall
- immediately inform EChapman.com of such offer, and
- furnish to EChapman.com the identity of the proponent of such offer and,
unless the board of directors of Chapman Capital Management Holdings
concludes that such disclosure is inconsistent with its duties under
applicable law.
Chapman Capital Management Holdings may terminate the merger agreement,
withdraw, modify or not recommend the merger to Chapman Capital Management
Holdings stockholders, and enter into a definitive agreement for an Acquisition
Transaction if, but only if,
- the board of directors of Chapman Capital Management Holdings shall have
consulted with legal counsel concerning its obligations under applicable
law,
- Chapman Capital Management Holdings shall have determined in good faith
after consultation with the independent financial advisors of Chapman
Capital Management Holdings that such Acquisition Transaction would be
more favorable to Chapman Capital Management Holdings stockholders from a
financial point of view than the merger, and
- the board of directors of Chapman Capital Management Holdings shall
conclude in good faith that such action is necessary in order for the
board of directors of Chapman Capital Management Holdings to act in a
manner that is consistent with its obligations under applicable law.
TERMINATION
The parties to the merger agreement may terminate it by mutual consent.
Chapman Capital Management Holdings may unilaterally terminate the merger
agreement at any time prior to the closing of the merger even if the
stockholders have approved the merger if:
- the merger is not completed by June 30, 2000 other than on account of
delay or default on the part of Chapman Capital Management Holdings
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- 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 Chapman Capital Management Holdings or any of its
affiliates or associates
- Chapman Capital Management Holdings enters into a qualifying Acquisition
Transaction and Chapman Capital Management Holdings has paid EChapman.com
$3 million in lieu of any other payments or penalties or the reimbursement
of expenses incurred by EChapman.com
- Chapman Capital Management Holdings stockholders' vote is not sufficient
to approve the merger
Similarly, EChapman.com may unilaterally terminate the merger agreement at
any time prior to closing if:
- the merger is not completed by June 30, 2000 other than on account of
delay or default on the part of EChapman.com
- the merger or the transactions set forth in the merger agreement are
enjoined by a final, unappealable court order
- Chapman Capital Management Holdings stockholders' vote is not sufficient
to approve the merger
The merger 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 and in compliance with applicable law.
At any time prior to the effective time of the merger, any party to the
merger agreement may
- extend the time for the performance of any of the obligations or other
acts of the other parties hereto
- waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant thereto
- waive compliance with any of the agreements or conditions contained in the
merger agreement.
Any extension or waiver shall not be deemed to be continuing or to apply to
any future obligation or requirement of any part hereto provided in the merger
agreement. Any agreement on the part of a party to the merger agreement to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of party.
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RECOMMENDATION OF CHAPMAN CAPITAL MANAGEMENT HOLDINGS BOARD OF DIRECTORS
The board of directors has concluded that the terms of the merger are
advisable and are fair to, and in the best interests of, Chapman Capital
Management Holdings and the Chapman Capital Management Holdings stockholders.
The board of directors recommends that the Chapman Capital Management
stockholders vote to approve the merger agreement and the merger.
Upon consummation of the merger, the former Chapman Capital Management
Holdings stockholders who become holders of EChapman.com common stock will be
stockholders in a larger entity whose common stock will be publicly traded on
the Nasdaq National Market. Each Chapman Capital Management Holdings stockholder
who becomes a holder of EChapman.com common stock will possess the same rights
as other EChapman.com holders, and former Chapman Capital Management Holdings
stockholders as a group will no longer be taking action at the Chapman Capital
Management Holdings corporate level because they will be stockholders of
EChapman.com rather than Chapman Capital Management Holdings.
BACKGROUND OF THE MERGER
Since the initial public offerings of Chapman Holdings and Chapman Capital
Management Holdings, their common management has discussed various strategies
that could be separately implemented to exploit opportunities available through
the Internet to market their traditional financial services to their target
market, the DEM community. They have further considered various alternatives
that would be available to raise the necessary capital to implement these
strategies.
Separate from these discussions, Nathan A. Chapman, Jr., president, chairman
of the board and majority stockholder of each of Chapman Holdings and Chapman
Capital Management Holdings, has recognized that, in addition to the traditional
financial services, other products and services can effectively be marketed to
the DEM community through the Internet. Over the past year, these separate
discussions have evolved into the EChapman.com business plan which includes the
combination of Chapman Holdings and Chapman Capital Management Holdings and
their various subsidiaries.
On August 25, 1999, Mr. Chapman discussed the proposed EChapman.com business
plan with the Chapman Capital Management Holdings board of directors. On
November 1, 1999, the board reconvened to consider the business plan and
authorized Chapman Capital Management Holdings to retain legal, accounting and
financial advisors to commence implementation of the merger. In light of the
interested status of Mr. Chapman and Earl U. Bravo, Sr., a director and the
secretary of each of Chapman Capital Management Holdings and EChapman.com, the
board established a merger committee, consisting of Robert Wallace and Theron
Stokes, the independent directors of Chapman Capital Management Holdings, to
consider the proposed merger. The merger committee retained Ballard Spahr
Andrews & Ingersoll, LLP as its counsel to assist in negotiating the terms of
the merger and the merger agreement.
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Prior to the November 1, 1999 meeting, representatives of Ballard Spahr
conducted extensive due diligence reviews over a period of three days with
respect to Chapman Capital Management Holdings and each of the other companies
expected to merge into EChapman.com.
On November 3, 1999, the merger committee held a meeting, at which
representatives of Ballard Spahr were present throughout, and at which a
preliminary due diligence report was provided to the merger committee. Also at
that meeting, representatives of Tucker Anthony Cleary Gull made a presentation
to the merger committee, and the merger committee asked questions of such
representatives about the background, experience and independence of Tucker
Anthony. After this presentation and questioning, the merger committee formally
engaged Tucker Anthony Cleary Gull as its financial adviser to assist in
determining whether the merger is fair to the Chapman Capital Management
Holdings stockholders from a financial point of view.
On November 8, 1999, a representative of Tucker Anthony conducted a due
diligence visit at the corporate headquarters of Chapman Capital Management
Holdings. In addition, discussions were held with certain executives of Chapman
Capital Management Holdings. During the week of November 8, 1999,
representatives of Ballard Spahr continued to negotiate the terms of the merger
agreement with the legal advisors of EChapman.com.
On November 11, 1999, the merger committee held a meeting, at which
representatives of Ballard Spahr and Tucker Anthony were present, which
continued for over six hours. Tucker Anthony presented its written opinion to
the merger committee to the effect that the merger is fair to the Chapman
Capital Management Holdings stockholders from a financial point of view and
explained to the merger committee in detail the analysis undertaken by Tucker
Anthony. Extensive discussion and questioning followed the presentation by
Tucker Anthony. Representatives of Ferris, Baker Watts, in its capacity as
qualified independent underwriter for the initial public offering by
EChapman.com, were invited to participate in part of the meeting as were
representatives of Chapman Capital Management Holdings, including Mr. Chapman,
for the purpose of responding to questions from the merger committee and its
legal and financial advisors. The merger committee adjourned the meeting to
allow committee members sufficient time to review and consider the materials
provided by Tucker Anthony as well as certain other documents.
On November 12, 1999, the merger committee held a meeting, at which
representatives of Ballard Spahr were present, to further consider the proposed
merger. Representatives of Ballard Spahr gave a detailed presentation to the
merger committee regarding the material terms of the merger agreement, including
the termination provisions, and presented a final due diligence report. After
extensive discussion and questioning among the members of the merger committee
and the representatives of Ballard Spahr, the merger committee determined that
it needed to
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give additional consideration to whether the merger agreement should include
covenants requiring
- the consent of the merger committee in order to amend the merger agreement
between Chapman Holdings and EChapman.com, and
- that EChapman.com and Mr. Chapman enter into an employment and
noncompetition agreement.
The merger committee adjourned the meeting and decided to meet again on
November 14, 1999 to make its final determination about the merger.
Between the November 12, 1999 and November 14, 1999 merger committee
meetings, representatives of Ballard Spahr and representatives of the legal
advisors of EChapman.com continued to negotiate the terms of the merger
agreement.
On November 14, 1999, the merger committee held a meeting, at which
representatives of Tucker Anthony and Ballard Spahr were present, to discuss the
terms of the proposed merger to which they had given additional consideration.
The merger committee ultimately decided to include the provision requiring the
merger committee's consent before the Chapman Holdings merger agreement could be
amended, but the merger committee concluded that the possibility of Mr. Chapman
leaving EChapman.com following the merger was remote and decided that it would
be comfortable proceeding without the employment and noncompetition requirement.
After this discussion and questioning, the merger committee adopted a resolution
recommending that the board of directors of Chapman Capital Management approve
the merger.
Immediately thereafter on November 14, 1999, the board of directors of
Chapman Capital Management held a meeting, at which representatives of Tucker
Anthony, the legal advisors of EChapman.com and Ballard Spahr were present.
Tucker Anthony reiterated the opinion delivered to the merger committee and the
board of directors unanimously approved the merger agreement and merger,
declared the merger advisable and recommended approval to the stockholders.
Tucker Anthony delivered a revised written opinion dated November 15, 1999 to
the effect that the merger is fair to the Chapman Capital Management Holdings
stockholders from a financial point of view.
REASONS FOR THE MERGER
In the course of evaluating recent trends in the financial industry, our
management has recognized both the opportunities presented by the Internet and
the challenges faced by us and comparably sized companies with respect to
exploiting such opportunities. These considerations led us to analyze
alternatives that would enhance stockholder value and permit us to implement an
Internet strategy.
The alternatives we considered included the possibility of additional
capital-raising transactions and debt financing. However, we ultimately
determined that we
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could provide a more extensive line of services and achieve substantial
economies of scale if we pursued a common Internet strategy with Chapman
Holdings. We also recognized that, in addition to financial services, the
combined company would be better able to raise capital and, therefore, could
provide additional, non-financial services to the DEM community that we have
developed. Further, we considered that a merger would diversify our existing
business, improve our prospects for long-term growth and thereby increase
stockholder value. The other alternatives analyzed by our board of directors did
not offer the same growth opportunities as the proposed merger.
The board determined that the merger with a wholly-owned subsidiary of
EChapman.com was comparatively better than the alternative strategy of
individually accessing the capital markets or obtaining debt financing because
the merger offers us the opportunity to provide a broader line of financial
services to the DEM community and the proposed Ecommerce strategy of
EChapman.com represents an opportunity for our stockholders and clients.
Our management believes that the merger will reduce risks associated with
our continued independent operations, including the:
- limited ability to access capital due to our smaller capital base and
operational resources;
- potential downside exposure associated with the limited financial services
that we currently provide; and
- the increasing challenge in meeting the growth expectations of our
stockholders.
Management believes that our stockholders will benefit from the merger and
resulting investment in EChapman.com because the merger provides:
- the potential for increasing products and services that we can offer our
client base;
- an experienced, growth-oriented management team focused on the combined
operations of EChapman.com;
- a means to create operational efficiencies and cost savings in the
combined operations through
- lowering our financing costs; and
- further integrating administrative operations.
- the opportunity to diversify our operations and, as a result, expand our
customer base;
- improved market liquidity and a greater ability to attract market makers,
stock market analysts and institutional investors to our stock; and
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- ownership in a larger entity with significant growth opportunities for our
stockholders.
Management also believes that there are some detriments and uncertainties to
the merger which are related to the fact that following the merger you will be a
stockholder of EChapman.com and, therefore, subject to the risks of ownership of
this stock. The material risks associated with an investment in EChapman.com are
detailed in the "Risk Factors" section located at the beginning of this
prospectus and proxy statement.
After consulting with and considering the analysis of Tucker Anthony, our
board of directors determined that it was in the best interests of our
stockholders to pursue the merger. In making this determination, the board
considered the positive and negative factors set forth above. Our legal counsel
advised the board about its duties under Maryland law in the evaluation of the
proposed transaction. Among the items considered by the board were the
presentations made by Mr. Chapman at the board meetings on August 25, 1999 and
November 1, 1999 and the opinion of Tucker Anthony delivered November 11, 1999,
reiterated on November 14, 1999 and updated and delivered in writing on November
15, 1999 to the effect that, subject to the assumptions, limitations and
qualifications set forth in the opinion, the exchange ratio used to determine
the number of shares of EChapman.com common stock to be issued in exchange for
our common stock in connection with the merger is fair to our stockholders from
a financial point of view. Our board of directors believes that the terms of the
merger remain fair and in the best interests of our stockholders as of the date
of this prospectus and proxy statement.
The preceding discussion sets forth the material information and factors
considered by our board of directors in determining the fairness to our
stockholders of the stock issuance in connection with the merger and the
associated change of control. In view of the variety of factors considered in
connection with its evaluation of the merger, the board did not find it
practicable or necessary to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination.
Moreover, the board did not expressly adopt the Tucker Anthony opinion as a
conclusive endorsement of the transaction, but did weigh it along with the other
factors described. Individual members of the board may have given different
weights to different factors.
EFFECTIVE DATE
As soon as practicable after the performance of all agreements and
obligations of the parties under the merger agreement and upon fulfillment or
waiver of all conditions precedent contained in the merger agreement, Merger
Subsidiary and Chapman Capital Management Holdings will execute and deliver
Articles of Merger, and will file the articles with the State Department of
Assessments and Taxation of the State of Maryland. The merger shall become
effective on such date and time as
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set forth in the Articles of Merger as filed with the State Department of
Assessments and Taxation.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
On and after the effective date of the merger, certificates for shares of
Chapman Capital Management Holdings common stock shall represent the right to
receive certificates representing the number of whole shares of EChapman.com
common stock and cash in lieu of fractional shares. Certificates representing
shares of Chapman Capital Management Holdings common stock may be exchanged
after the effective date of the merger by surrendering these certificates to UMB
Bank, N.A., acting as exchange agent, or such other or additional exchange agent
as EChapman.com may select, in exchange for new certificates representing the
appropriate number of whole shares of EChapman.com common stock determined by
the exchange ration and for cash in lieu of any fractional shares.
No certificates for fractional shares of EChapman.com common stock shall be
issued but, in lieu thereof, and solely as a mechanism for rounding
stockholdings to whole shares, EChapman.com will pay cash for these fractional
shares on the basis of $34 per share, without interest, upon surrender of
certificates for Chapman Capital Management Holdings common stock representing
these fractional shares. No holder of fractional shares shall be entitled to
dividends, voting rights or any other rights of stockholders in respect of any
fractional share.
Shortly after the effective date of the merger, Chapman Capital Management
Holdings stockholders will receive transmittal forms and instructions as to the
time and method of surrendering their certificates. Until surrendered,
certificates formerly representing shares of Chapman Capital Management Holdings
common stock, other than shares of dissenting stockholders, will be deemed for
all corporate purposes to evidence the number of whole shares of EChapman.com
common stock that a holder would be entitled to receive upon surrender and the
cash to be paid in lieu of fractional shares. Dividends and other distributions,
if any, that become payable on whole shares of EChapman.com common stock pending
exchange of certificates representing shares of Chapman Capital Management
Holdings common stock will be retained by EChapman.com or the exchange agent
until surrender of the certificates, at which time those dividends and any other
distributions will be paid without interest.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS STOCKHOLDERS SHOULD NOT FORWARD STOCK
CERTIFICATES UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS AND INSTRUCTIONS FROM
THE EXCHANGE AGENT. CHAPMAN CAPITAL MANAGEMENT HOLDINGS STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
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OPINION OF TUCKER ANTHONY CLEARY GULL
The merger committee of the board of directors of Chapman Capital Management
Holdings retained Tucker Anthony Cleary Gull to render a written opinion as to
the fairness, from a financial point of view, of the consideration to be
received by the independent public stockholders, excluding insiders and
affiliates, of Chapman Capital Management Holdings' common stock in the merger
Tucker Anthony included the limitation with respect to insiders and affiliates
because the merger committee needed to determine if the merger and the merger
consideration were in the best interests of the non-interested stockholders of
Chapman Capital Management Holdings.
The merger committee selected Tucker Anthony to render the fairness opinion
for a number of reasons including its experience and reputation in the area of
valuation and financial advisory work generally, and in relation to financial
institutions specifically. Tucker Anthony is a nationally recognized investment
banking firm and is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes.
Tucker Anthony has rendered a written opinion to the merger committee to the
effect that, as of November 15, 1999 and as of the date of this prospectus and
proxy statement, the consideration to be paid to the independent public holders,
excluding insiders and affiliates, of Chapman Capital Management Holdings'
common stock is fair, from a financial point of view, to the holders of the
Chapman Capital Management Holdings' common stock. THE FULL TEXT OF THE FAIRNESS
OPINION DATED AS OF THE DATE OF THIS PROSPECTUS AND PROXY STATEMENT, SETTING
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND CERTAIN
LIMITATIONS ON THE REVIEW UNDERTAKEN BY TUCKER ANTHONY, IS INCLUDED AS ANNEX II
HERETO. THE NOVEMBER 15TH OPINION IS SUBSTANTIALLY IDENTICAL TO THE OPINION
ATTACHED AS ANNEX II OF THIS PROSPECTUS AND PROXY STATEMENT.
The fairness opinion represents one of many factors that the merger
committee considered in deciding that the merger is fair to and in the best
interest of the stockholders of Chapman Capital Management and in recommending
the merger to the full board of directors and ultimately to the stockholders of
Chapman Capital Management.
This opinion is directed to the merger committee of the board of directors
of Chapman Capital Management Holdings and does not constitute a recommendation
to any holder of Chapman Capital Management Holdings' common stock as to how
such stockholder should vote at the meeting. Tucker Anthony and the merger
committee have agreed that they do not believe any party other than the merger
committee has the legal right to rely on the opinion and, absent any controlling
precedent, would resist any assertion otherwise.
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Because there is no state or federal law or regulation which requires that a
fairness opinion be issued or obtained in connection with this transaction, it
is the view of Tucker Anthony that the determination as to who may rely on the
fairness opinion and to whom Tucker Anthony may be liable in connection with the
opinion is determined by the agreement to provide the fairness opinion between
Tucker Anthony and the merger committee. Tucker Anthony intends to assert this
disclaimer and the limitations in the agreement pertaining to the use of, and
the liability arising in connection with, the fairness opinion as an affirmative
defense to any claim brought by any shareholder against Tucker Anthony under
applicable state law. Tucker Anthony believes that the law of the state of
Maryland governs this transaction. To the best of its knowledge, Tucker Anthony
believes that Maryland law has not addressed the availability of this
affirmative defense and therefore a court of competent jurisdiction in Maryland
would have to resolve the availability of this affirmative defense. In any
event, such a defense, whether or not available to Tucker Anthony, would not
affect the rights and responsibilities of the board of directors under governing
state law or the federal securities law or the rights and responsibilities of
Tucker Anthony under the federal securities laws.
Unless a material condition to the closing of the merger is waived,
including the closing of the EChapman.com initial public offering and the merger
of Chapman Holdings, we do not anticipate that Tucker Anthony will update its
opinion after the date of this prospectus and proxy statement. However, the
merger agreement provides that in order to close the merger, the Tucker Anthony
must not have withdrawn its fairness opinion.
As compensation for its services in rendering the fairness opinion, Chapman
Capital Management Holdings has agreed to pay Tucker Anthony
- a retainer fee of $12,500 due upon execution of the letter of engagement;
- an opinion fee of $50,000 at the time of delivery of the written fairness
opinion; and
- an update fee of $25,000 at the time of delivery of the update opinion.
All of these amounts have been paid as of the date of this prospectus and
proxy statement. Chapman Capital Management Holdings has also agreed to
reimburse Tucker Anthony for its out-of-pocket expenses and to indemnify Tucker
Anthony against certain liabilities arising out of its services.
In arriving at its opinion dated as of the date of this prospectus and proxy
statement, Tucker Anthony, among other things,
- reviewed the merger agreement
- reviewed the merger agreement by and among EChapman.com, Inc., CHI Merger
Subsidiary, Inc. and Chapman Holdings, Inc. dated November 15, 1999
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- reviewed the EChapman.com registration statement on Form SB-2 dated
November 15, 1999
- reviewed certain historical financial and other information concerning
Chapman Capital Management Holdings and Chapman Holdings for the nine
month period ended September 30, 1999 and for the fiscal years ended
December 31, 1998 and December 31, 1997, as filed with the SEC
- reviewed certain estimated financial and other information concerning
Chapman Capital Management Holdings and Chapman Holdings for the fiscal
year ending December 31, 1999
- held discussions with the senior management of Chapman Capital Management
Holdings, Chapman Holdings and EChapman.com with respect to their past and
current financial performance, financial condition and future prospects
- reviewed certain internal financial data, projections and other
information of Chapman Capital Management Holdings, Chapman Holdings and
EChapman.com including financial projections prepared by management
- reviewed certain historical financial and other information concerning
Chapman Insurance Holdings for the nine month period ended September 30,
1999 and for the fiscal years ended December 31, 1998 and December 31,
1997
- held discussions with the senior management of Chapman Insurance Holdings
with respect to their past and current financial performance, financial
condition and future prospects and reviewed the proposed Chapman Insurance
Holdings merger terms as presented in Form SB-2
- analyzed certain publicly available information of other asset management
and investment banking firms deemed comparable or otherwise relevant to
our inquiry and compared Chapman Capital Management Holdings and Chapman
Holdings from a financial point of view with certain of these firms
- compared the consideration to be received by the stockholders of Chapman
Capital Management Holdings and Chapman Holdings with the consideration
received by stockholders in other acquisitions of asset management and
investment banking firms deemed comparable or otherwise relevant to its
inquiry
- reviewed historical trading activity and ownership data of Chapman Capital
Management Holdings and Chapman Holdings common stock and considered the
prospects for price movement in each
- conducted such other financial studies, analyses and investigations and
reviewed such other information as it deemed appropriate to enable it to
render its opinion.
In its review, Tucker Anthony also took into account an assessment of
general economic, market and financial conditions and certain industry trends
and related
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matters. Tucker Anthony's opinions were necessarily based upon conditions as
they existed and could be evaluated on the date of its opinion and the
information made available to Tucker Anthony through that date. The merger
committee did not impose any limitations with respect to the investigations made
or procedures followed by Tucker Anthony in its review and analysis.
Tucker Anthony noted that the merger is subject to the condition that
EChapman.com completes a public offering of its common stock in which
- EChapman.com receives gross proceeds of no less than $20 million and
- the price paid by the public for shares of EChapman.com common stock
reflects a post-merger, pre-offering valuation of EChapman.com of no less
than $80 million, which would equate to a pre-merger, pre-offering
valuation of Chapman Capital Management Holdings of approximately
$45.2 million, or $13.40 per share.
Tucker Anthony has assumed that this and all other conditions to the merger
will be satisfied prior to completion of the merger.
Tucker Anthony's opinion assumes that the EChapman.com public offering is
fairly priced and that each of the constituent transactions is adequately
disclosed in EChapman.com's Form SB-2. Tucker Anthony also noted that Ferris,
Baker Watts, Incorporated is expected to act as qualified independent
underwriter for the proposed offering of shares of EChapman.com common stock and
that Tucker Anthony is not opining on the fairness of that offering to any
person. Tucker Anthony has also assumed that the CHI Merger will be closed
simultaneously with the merger, without waiver of any of Chapman Holdings' terms
and conditions.
In its review and analysis and in arriving at its opinion, Tucker Anthony
assumed and relied upon the accuracy and completeness of all the financial
information publicly available or provided to it by Chapman Capital Management
Holdings and Chapman Holdings and did not attempt to independently verify any of
this information. Tucker Anthony assumed that
- the financial projections of Chapman Capital Management Holdings provided
to it with respect to the results of operations likely to be achieved by
Chapman Capital Management Holdings were prepared on a basis reflecting
the best currently available estimates and judgments of Chapman Capital
Management Holdings' management as to future financial performance and
results and
- that such forecasts and estimates will be realized in the amounts and in
the time periods currently estimated by management.
Tucker Anthony did not make or obtain any independent evaluations or
appraisals of any assets or liabilities of Chapman Capital Management Holdings,
Chapman Holdings or any of their respective subsidiaries or affiliates, nor did
it verify any of Chapman Capital Management Holdings' or Chapman Holdings' books
or records. As of November 15, 1999, the implied value of the merger
consideration to
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Chapman Capital Management Holdings' stockholders was approximately $33.50 per
share at the mid-point of the filing range in the preliminary Form SB-2. Based
upon the termination provisions in the merger agreement, the implied value would
be approximately $13.40 per share.
On November 14, 1999, Tucker Anthony made a presentation and subsequently
rendered a written fairness opinion to the merger committee of the board of
directors of Chapman Capital Management Holdings. Set forth below is a summary
of the main elements of the financial analyses performed by Tucker Anthony in
connection with that opinion. It does not purport to be a complete description
of the analyses performed by Tucker Anthony or of the presentation of Tucker
Anthony to the merger committee. In connection with its opinion attached as
Annex II to this prospectus and proxy statement, Tucker Anthony performed
procedures to update certain analyses and reviewed the assumptions on which such
analyses were based and the factors considered in connection therewith. Taken as
a whole, Tucker Anthony believes these analyses support the conclusion that the
consideration to be paid to holders of Chapman Capital Management Holdings
common stock is fair from a financial point of view to the holders of Chapman
Capital Management Holdings common stock.
ACQUISITION PRICE ANALYSIS. Tucker Anthony considered the ranges of
possible acquisition prices which could result under the merger agreement and
their impact on the consideration to be received by Chapman Capital Management
Holdings stockholders. In particular, Tucker Anthony focused its analysis on the
implied per share offer price of $33.50 at the mid-point of the EChapman.com
filing range and considered the implied offer price of $13.40 at the termination
level of the offering.
CONTRIBUTION ANALYSIS. Tucker Anthony analyzed the contribution of each of
Chapman Capital Management Holdings and Chapman Holdings to, among other things,
the stockholders' equity and after-tax net income of the pro forma combined
company. This analysis showed, among other factors, that Chapman Capital
Management Holdings would have contributed 35.8%, 44.0% and 43.0% of the total
assets, stockholders' equity and revenues of the pro forma combined company as
of and for the nine months ended September 30, 1999, respectively. This is
compared with a proposed ownership of 56.5% of the combined company to be held
by the holders of Chapman Capital Management Holdings common stock following the
merger.
STOCK TRADING ANALYSIS. Tucker Anthony examined the historical trading
prices and volume for Chapman Capital Management Holdings and Chapman Holdings
common stock, and compared the historical trading prices of these stocks in
relation to movements in certain stock indices, specifically the Nasdaq
Composite Index, the Nasdaq Financial Stocks Index, the Russell 2000 Index, as
well as to indices of other selected publicly traded asset management and
investment banking firms. Tucker
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Anthony noted that Chapman Capital Management Holdings' common stock closed at
its 52 week low of $5.00 per share on November 12, 1999.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Tucker Anthony compared
selected financial data and financial ratios of Chapman Capital Management
Holdings to the corresponding data and ratios of certain publicly traded asset
management firms with total assets under management of less than $35.0 billion.
The asset management firms included in the comparison were:
- Atalanta/Sosnoff Capital Corporation
- Conning Corporation
- Lexington Global Asset Managers, Inc.
- U.S. Global Investors, Inc.
- Winmill & Co. Incorporated.
The selected asset management firms, as a group, exhibited certain
characteristics--including assets under management, business composition and
business risk--similar to those exhibited by Chapman Capital Management
Holdings. Tucker Anthony chose to exclude the ratio of Chapman Capital
Management Holdings' common stock price to earnings per share because Chapman
Capital Management Holdings reported a net loss for the latest twelve months
ended September 30, 1999.
Tucker Anthony also compared selected financial data and financial ratios of
Chapman Holdings to the corresponding data and ratios of certain publicly traded
investment banking firms with revenues between $20.1 million and
$230.4 million. The investment banking firms included in the comparison were:
- First Albany Companies Inc.
- First Montauk Financial Corp.
- Kinnard Investments, Inc.
- Olympic Cascade Financial Corporation
- Paulson Capital Corp.
- Research Partners International, Inc.
- Stifel Financial Corp.
The selected investment banking firms, as a group, exhibited certain
characteristics--including business composition and business risk--similar to
those exhibited by Chapman Holdings. Tucker Anthony chose to exclude the ratio
of Chapman Holdings' common stock price to earnings per share because Chapman
Holdings reported a net loss for the latest twelve months ended September 30,
1999.
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The comparison of Chapman Capital Management Holdings to the selected asset
management peer group showed among other things that based on financial data as
of September 30, 1999 for Chapman Capital Management Holdings and for the
selected peer group:
- the ratio of Chapman Capital Management Holdings' equity to total assets
was 87.3%, as compared to an average of 72.0% for the peer group
- the ratio of Chapman Capital Management Holdings' advisory fees to assets
under management was 0.6%, as compared to an average of 0.2% for the peer
group
- the ratio of Chapman Capital Management Holdings' advisory fees to total
revenues was 95.2%, as compared to an average of 88.8% for the peer group
The comparison of Chapman Holdings to the selected investment banking peer
group showed among other things that based on financial data as of
September 30, 1999 for Chapman Holdings and for the selected peer group:
- the ratio of Chapman Holdings' equity to total assets was 67.5%, as
compared to an average of 48.5% for the peer group
- the ratio of Chapman Holdings' investment banking fees to total revenues
was 20.0%, as compared to 8.6% for the peer group
- the ratio of Chapman Holdings' commissions to total revenues was 88.2%, as
compared to 57.3% for the peer group
- the ratio of Chapman Holdings' interest income to total revenues was 5.7%,
as compared to an average of 8.4% for the peer group
- the ratio of Chapman Holdings' other revenues to total revenues was 13.9%,
as compared to 6.6% for the peer group
ANALYSIS OF SELECTED ACQUISITION TRANSACTIONS. Tucker Anthony reviewed and
performed analysis on 17 selected asset management firm mergers and acquisitions
announced between January 1, 1997 and July 20, 1999 in the U.S. with transaction
characteristics that Tucker Anthony deemed comparable to Chapman Capital
Management Holdings, specifically transactions in which the transaction size was
less than $300.0 million and where the target asset management firm's assets
under management were less than $10.0 billion. The selected asset management
transactions were chosen because they represented merger and acquisition
transactions which involved target asset management firms exhibiting certain
characteristics--including assets under management, revenues and business
risk--similar to Chapman Capital Management Holdings. Tucker Anthony noted that
the median of the transaction consideration to latest twelve months revenues was
3.9x for the selected asset management transactions.
Tucker Anthony also reviewed and performed analysis on seven selected
investment banking firm mergers and acquisitions announced between January 1,
1997
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and April 1, 1999 in the U.S. with transaction characteristics Tucker Anthony
deemed comparable to Chapman Holdings, specifically transactions in which the
transaction size was less than $1.0 billion, and where the target investment
banking firm's price to book multiple was 1.2x to 4.4x. The selected investment
banking transactions were chosen because they represented merger and acquisition
transactions which involved target investment banking firms exhibiting certain
characteristics--including business composition and business risk--similar to
Chapman Holdings. Tucker Anthony noted that the mean of the transaction
consideration to book value was 2.7x for the selected investment banking
transactions.
Set forth below is a summary of the analysis with respect to the selected
asset management transactions:
<TABLE>
<CAPTION>
PRELIMINARY IPO SELECTED ASSET
MID-POINT FILING TERMINATION MANAGEMENT
RANGE(1) LEVEL (2) TRANSACTIONS
OFFER OFFER MEDIAN
---------------- ----------- --------------
<S> <C> <C> <C>
Consideration/Assets Under Management................. 16.4% 6.5% 2.0%
Consideration/LTM Revenues............................ 28.0x 11.2x 3.9x
Price/Book Value (3).................................. 24.9x 10.0x NA
Price Premium to Current Market Price (4)............. 570.0% 168.0% NA
</TABLE>
- ------------------------
(1) Based upon the mid-point EChapman.com offering filing range value of $15.00
per share, the implied value of the merger consideration to Chapman Capital
Management Holdings' stockholders would be approximately $33.50 per share.
(2) Based upon the EChapman.com offering termination level of $6.00 per share,
the implied value of the merger consideration to Chapman Capital Management
Holdings' stockholders would be approximately $13.40 per share.
(3) Based upon Chapman Capital Management Holdings' book value per share of
$1.35 as of September 30, 1999.
(4) Based upon Chapman Capital Management Holdings' closing price of $5.00 per
share on November 12, 1999.
DISCOUNTED CASH FLOW ANALYSIS. Tucker Anthony also performed an analysis
for a forecast period ending December 31, 2004, which estimated the present
value per Chapman Capital Management Holdings common share of future earnings
per share and possible share prices for Chapman Capital Management Holdings'
common stock, assuming that the merger were not consummated and Chapman Capital
Management Holdings performed in accordance with the earnings forecasts of its
management. To approximate the terminal value of Chapman Capital Management
Holdings' common stock at December 31, 2004, Tucker Anthony applied
price/earnings multiples ranging from 10.0x to 18.0x. The earnings per share
stream and terminal values were then discounted to present values using discount
rates ranging from 15.0% to 25.0% chosen to reflect different assumptions
regarding required rates of return of holders or prospective buyers of Chapman
Capital Management Holdings' common stock. This
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analysis indicated an imputed range of values per share of Chapman Capital
Management Holdings' common stock of $4.67 to $11.55.
In connection with its analysis, Tucker Anthony considered and discussed
with the Chapman Capital Management Holdings board of directors how the present
value analysis would be affected by changes in the underlying assumptions,
including variations with respect to growth rates, assets under management and
stock price trading multiples.
The above discussion is a summary of the main elements of the financial
analyses performed by Tucker Anthony, but it does not purport to be a complete
description of such analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
summary description. Accordingly, notwithstanding the separate factors
summarized above, Tucker Anthony believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors considered by
it, without considering all analyses and factors, or attempting to ascribe
relative weights to some or all of such analyses or factors, could create an
incomplete view of the evaluation process underlying Tucker Anthony's opinion.
In addition, Tucker Anthony may have used the various analyses for different
purposes and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Tucker Anthony's
view of the actual value of Chapman Capital Management Holdings or Chapman
Holdings. The fact that any specific analysis has been referred to in the
summary above is not meant to indicate that such analysis was given more weight
than any other analyses.
In performing its analyses, Tucker Anthony made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of Chapman Capital
Management Holdings and Chapman Holdings. The analyses performed by Tucker
Anthony are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than those suggested
by such analyses. Such analyses were prepared solely as a part of Tucker
Anthony's analysis of the fairness, from a financial point of view, to the
holders of Chapman Capital Management Holdings' common stock of the
consideration to be paid in the merger of Chapman Capital Management Holdings
and were provided to the merger committee of the board of directors of Chapman
Capital Management Holdings in connection with the delivery of Tucker Anthony's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which Chapman Holdings or Chapman Capital Management Holdings might actually
be sold or the prices at which any securities may trade at the present time or
at any time in the future. In addition, as described above, Tucker Anthony's
opinion is just one of the many factors taken into consideration by the
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merger committee of the board of directors of Chapman Capital Management
Holdings.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income tax
consequences of the merger:
- the merger should qualify as a tax-free reorganization within the meaning
of Sections 368(a)(2)(D) of the Internal Revenue Code of 1986, to which
EChapman.com, CCMHI Merger Subsidiary and Chapman Capital Management
Holdings will each be a party
- no gain or loss should be recognized by EChapman.com, CCMHI Merger
Subsidiary or Chapman Capital Management Holdings in the merger
- no gain or loss should be recognized by the Chapman Capital Management
Holdings stockholders upon receipt by them of EChapman.com common stock in
exchange for Chapman Capital Management Holdings common stock in the
merger
- provided that the Chapman Capital Management Holdings common stock is held
as a capital asset, the tax basis of the EChapman.com common stock
received by each Chapman Capital Management Holdings stockholder should be
the same as the tax basis of the Chapman Capital Management Holdings
common stock surrendered and exchanged in the merger decreased by the
amount of any cash received by the stockholder and increased by the amount
of any gain recognized by the stockholder
- provided that the Chapman Capital Management Holdings common stock is held
as a capital asset, the holding period of the EChapman.com common stock
received by the Chapman Capital Management Holdings stockholders should
include the holding period during which the Chapman Capital Management
Holdings common stock surrendered in exchange therefor was held
The obligation of Chapman Capital Management Holdings to consummate the
merger is subject to the receipt of an opinion of Venable, Baetjer and Howard,
LLP, counsel to EChapman.com, or such other qualified law firm as Chapman
Capital Management Holdings shall select, with respect to the federal income tax
consequences of the merger, substantially to the effect of the paragraphs set
forth above. This opinion will address the state aspects of the merger, but will
not address the local or foreign tax aspects of the merger.
Any cash received by Chapman Capital Management Holdings stockholders,
whether as a result of the exercise of their dissenters' rights or in lieu of
the issuance of fractional shares, could result in taxable income to Chapman
Capital Management Holdings stockholders. The receipt of cash generally will be
treated as a sale or exchange of the stock resulting in capital gain or loss
measured by the difference
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between the cash received and an allocable portion of the basis of the stock
relinquished. The receipt of cash may be treated as a dividend and taxed as
ordinary income in certain limited situations.
The discussion set forth above is included for general information only. It
does not address the state, local or foreign tax aspects of the merger. In
addition, it does not discuss the federal income tax considerations that may be
relevant to certain persons, and may not apply to certain holders subject to
special tax rules, including dealers in securities and foreign holders. The
discussion is based upon currently existing provisions of the Internal Revenue
Code, existing Treasury regulations thereunder and current administrative
rulings and court decisions. All of the foregoing are subject to change and any
such change could affect the continuing validity of this discussion.
Each Chapman Capital Management Holdings stockholder should consult his own
tax adviser with respect to the specific tax consequences of the merger to him,
including the application and effect of state, local and foreign tax laws.
ACCOUNTING TREATMENT
The merger will be treated as a purchase for accounting purposes. Under the
purchase method of accounting, the merger of Chapman Capital Management
Holdings, Chapman Holdings and EChapman.com will result in the recording and
recognition of approximately $28.3 million of goodwill. This amount of goodwill
may change depending on the market value of Chapman Holdings at the date of the
merger or the selling price of shares sold in the EChapman.com's initial public
stock offering. The 28.3 million of goodwill will be amortized over an estimated
period of not more than 20 years.
RESALE OF ECHAPMAN.COM COMMON STOCK AFTER THE MERGER BY CONTROLLING PERSONS
Under federal securities laws there are certain potential limitations on the
sale of EChapman.com common stock received in the merger that will affect
certain Chapman Capital Management Holdings stockholders who may be controlling
persons of Chapman Capital Management Holdings. EChapman.com and Chapman Capital
Management Holdings believe that the only Chapman Capital Management Holdings
stockholders who may be deemed controlling persons subject to these limitations
are the directors and certain officers of Chapman Capital Management Holdings
and certain persons related to them who have been advised of these restrictions
and have agreed in writing to them.
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CERTAIN OTHER AGREEMENTS
THE SUPPORT AGREEMENT
As a condition to EChapman.com entering into the merger agreement, Nathan A.
Chapman, Jr., the president and chairman of the board of both Chapman Capital
Management Holdings and EChapman.com, who, as of January 25, 2000, the record
date for the special meeting, held voting power over 2,423,018 shares of Chapman
Capital Management Holdings common stock constituting approximately 72.3% of the
outstanding Chapman Capital Management Holdings common stock, has entered into a
support agreement with EChapman.com. Mr. Chapman has agreed
- not to pledge, hypothecate, grant a security interest in, sell, transfer
or otherwise dispose of or encumber nor enter into any agreement,
arrangement or understanding which would restrict, establish a right of
first refusal to or otherwise relate to the transfer or voting of the
shares of Chapman Capital Management Holdings common stock owned or
acquired during the term of the support agreement
- subject to his obligation as a director of Chapman Capital Management
Holdings under Maryland law, not to directly or indirectly, solicit,
initiate or encourage inquiries or proposals from, or participate in
discussions or negotiations with, or provide any information to, any
individual or entity other than EChapman.com and its employees and agents,
concerning any sale of assets, sale or exchange of stock, merger,
consolidation or similar transactions involving Chapman Capital Management
Holdings, and to use all commercially reasonable efforts to assure that
Chapman Capital Management Holdings takes no such steps
- promptly advise EChapman.com of any such inquiry or proposal of which such
person has knowledge
- to vote his shares of Chapman Capital Management Holdings common stock in
favor of the merger agreement and the transactions contemplated thereby,
and, in his capacity as a stockholder, to use his best efforts to cause
the merger to be effected
The terms of the support agreement expire upon the termination of the merger
agreement.
AFFILIATE UNDERTAKINGS
In connection with the execution and delivery of the merger agreement, the
directors and officers of Chapman Capital Management Holdings also executed a
memorandum, undertaking and agreement pursuant to which they have undertaken to
comply with certain provisions of the federal securities laws which restrict the
sale of shares of EChapman.com common stock by such persons.
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UNDERWRITING AGREEMENT
In connection with the initial public offering of EChapman.com common stock,
EChapman.com and The Chapman Co., an affiliate of Chapman Capital Management
Holdings, will enter into an underwriting agreement. The Chapman Co. will be
entitled to receive up to 7% of the offering proceeds under the terms of this
agreement; however, because The Chapman Co. has not determined how many
underwriters will participate in the underwriting syndicate, or the allocations
each underwriter will receive as of the date of this prospectus and proxy
statement, the exact amount of underwriting compensation is not available.
THE SERVICE MARK LICENSE AGREEMENT
As of November 12, 1999, EChapman.com and Mr. Chapman entered into a
revocable, non-exclusive, royalty-free service mark licensing agreement
pertaining to the use of the DEM-TM-, Domestic Emerging Markets-TM-, DEM
Index-TM-, DEM Profile-TM-, DEM Universe-TM-, DEM Company-TM-, DEM
Multi-Manager-TM-, Chapman-TM-, Chapman Trading-TM-, Chapman Network-TM-,
Chapman Education-TM-, Chapman Marketplace-TM-, Chapman Kids Club-TM-,
EChapman.com-TM- and stylized C-Eagle-TM- trademarks that are owned by
Mr. Chapman.
SECTION 16(B) EXEMPTION
Section 16(b) of the Securities Exchange Act of 1934 provides that all
profits realized by 10% beneficial owners, directors and officers of an issuer
from the purchase and sale of the securities of such issuer are recoverable by
the issuer where the purchase and sale occur within six months of each other.
This section is intended to prevent insiders from benefiting from information
they gain due to their position with a company. In connection with the merger,
the board of directors of Chapman Capital Management Holdings expects to exempt
the company's directors and officers from section 16(b).
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DESCRIPTION OF
CHAPMAN CAPITAL MANAGEMENT HOLDINGS
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--BUSINESS
Chapman Capital Management Holdings, Inc. is an African-American controlled
holding company. Its 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 February 29, 2000, Chapman Capital Management's total assets under
management attributable to mutual funds were approximately 8.2% 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 February 29, 2000, the DEM Equity Fund had approximately
$34.6 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 February 29, 2000, the DEM Index
Fund had approximately $302,000 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 February 29, 2000, The
Chapman U.S. Treasury Money Fund had approximately $36.3 million in assets. The
Chapman U.S. Treasury Money Fund began operations in June 1989.
THE DEM MULTI-MANAGER FUNDS AND THE DEM MULTI-MANAGER STRATEGY. 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 amendment to The
Chapman Funds registration statement registering, the DEM Multi-Manager Equity
Fund became effective on December 14, 1998 by virtue of Rule 485(a)(2)
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under the Securities Act. Similarly, the amendment to The Chapman Funds
registration statement registering the DEM Multi-Manager Bond Fund became
effective on September 28, 1999.
In addition, the Chapman Funds filed its annual update to its registration
statement with respect to these funds on December 30, 1999. This registration
statement became effective on February 28, 2000 under Rule 485(a)(i) under the
Securities Act. We have delayed sales of these funds until there is a greater
public awareness of the DEM Multi-Manager Strategy, and we anticipate that the
launch of our web site will help to provide this promotion; however, at present
we cannot provide a realistic estimate of when we expect to begin to market and
sell these two funds.
The DEM Multi-Manager Bond Fund will seek to earn high current income with
the potential for capital appreciation through investment in fixed income
securities of companies identified by multiple sub-advisors. The DEM
Multi-Manager Equity Fund will seek aggressive long-term growth through capital
appreciation by investment in equity securities of companies identified by
multiple sub-advisors.
In managing the DEM Multi-Manager funds, Chapman Capital Management will
seek to enhance performance and reduce market risk of each fund by allocating
each fund's assets among multiple sub-advisers. The sub-advisers may have, but
are not necessarily required to have, dissimilar investment styles and security
selection disciplines. Chapman Capital Management will monitor the performance
of both the total fund portfolio and the portion of the total fund portfolio
allocated to each sub-adviser and will reallocate fund assets among individual
sub-advisers, or recommend to the board of directors of The Chapman Funds that
the fund employ or terminate particular sub-advisers, to the extent Chapman
Capital Management deems appropriate to achieve the overall investment
objectives of the particular fund. Chapman Capital Management may recommend
reallocations if, in Chapman Capital Management's opinion, a sub-adviser's
allocation becomes overweighted as a result of extended appreciation and in
order that undervalued securities and management styles receive additional
allocations.
Other circumstances under which Chapman Capital Management might reallocate
a fund's assets among a fund's sub-adviser include poor performance of the
assets under the management of a sub-adviser, concerns about the manner in which
a sub-adviser is conducting its business or a change in a sub-adviser's
portfolio management team. Chapman Capital Management also uses this
multi-manager management style in the DEM-MET Trust, which is discussed below.
When selecting sub-advisers for the Multi-Manager funds, Chapman Capital
Management intends to actively recruit sub-advisers which meet the DEM profile;
however, Chapman Capital Management does not intend to discriminate on the basis
of race, gender or national origin in the selection of sub-advisers.
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We refer to this strategy as the DEM Multi-Manager strategy. The DEM Multi-
Manager strategy is in the early stages of implementation. We have not conducted
any marketing surveys to test its marketability, and we have not conducted any
significant marketing of these strategies. Therefore, the viability of the DEM
Multi-Manager strategy and its potential level of market acceptance is largely
unknown. However, we intend to use a portion of the net proceeds of this
offering to promote this strategy.
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
adviser to the DEM-MET Trust and in such capacity is responsible for selecting
and monitoring the sub-advisors.
As of February 29, 2000, Chapman Capital Management had sub-advisory
relationships with 12 investment advisors. When selecting sub-advisers for the
DEM-MET Trust, Chapman Capital Management actively recruits sub-advisers which
meet the DEM profile; however, Chapman Capital Management does not intend to
discriminate on the basis of race, gender or national origin in the selection of
sub-advisers.
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.
In June 1999, one of the four participants in the DEM-MET Trust withdrew the
entire amount of its investment in the trust, totaling approximately
$11.4 million, or 3.7% of the total assets managed by the DEM-MET Trust.
As of February 29, 2000, the DEM-MET Trust had approximately $329.3 million
in assets, representing 38.1% of Chapman Capital Management's total assets under
management. However, one of the participants in the DEM-MET Trust recently
informed us that it intends to withdrawal approximately $100 million of its
investment in the trust. This withdrawal represents approximately 11.6% of
Chapman Capital Management's assets under management as of February 29, 2000 and
approximately 30.4% of the assets under management in the DEM-MET Trust as of
February 29, 2000. We expect this withdrawal to be effective early in
April 2000.
DEM, INC. In June 1998, the board of directors of DEM, Inc., a closed end
investment company managed by Chapman Capital Management, determined that the
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continued operation of the company was not in the best interests of the
company's stockholders considering all relevant factors including, that the
company's shares had been trading at a discount from their net asset value for
approximately six months and that since inception, the company's expense ratio
had continuously been above the average expense ratio of small capitalization
growth funds as reported by Morningstar. The board of directors concluded that
(1) the discount on the company's shares could be attributed primarily to the
small size of the fund and its relatively high expense ratio; and (2) that
because investors could purchase shares of DEM, Inc. in the secondary market
below the shares' net asset value and because the Investment Company Act of 1940
generally prohibits investment companies from offering shares below their net
asset value, there was no feasible way in which to successfully increase the
size of the fund in order to reduce the expense ratio and reduce or eliminate
the discount at which the company's shares were then trading.
The stockholders of DEM, Inc. approved the liquidation and dissolution of
the company on September 1, 1998, at which time the officers of the company
began liquidating its assets in order to distribute the net proceeds to the
stockholders. The Chapman Co. incurred a loss on trading of DEM, Inc. stock of
$159,000 in connection with stock of DEM, Inc. held in market-making inventory
at the time of the liquidation.
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 February 29, 2000, approximately 78.2% 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 February 29, 2000, Chapman Capital Management managed approximately
$463.9 million in assets for separate accounts, of which approximately
$362.6 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
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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 February 29, 2000, Chapman Capital Management employed four 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.
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.
DEPENDENCE ON KEY INVESTMENT MANAGEMENT CLIENTS
At February 29, 2000, there were three participants in the DEM-MET Trust.
The $329.3 million in assets in the DEM-MET Trust represented 38.1% of Chapman
Capital Management's assets under management as of February 29, 2000. In
addition, for the year ending December 31, 1999, the DEM-MET Trust accounted for
approximately 50.4% of Chapman Capital Management Holdings' revenue. One
participant in the DEM-MET Trust recently informed us that it intends to
withdrawal approximately $100 million of its investment from the trust. If the
participants of the trust terminated their agreements with the DEM-MET Trust or
make additional
52
<PAGE>
withdrawals of a substantial amount of their assets, our advisory fee revenue
would be materially and adversely affected.
GOVERNMENT REGULATION
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 adviser 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:
- Suspension of individual employees
- Limitations on engaging in certain lines of business for specified periods
of time
- Revocation of investment adviser and other registrations
- Censures
- 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 adviser to:
- Employ any device, scheme, or artifice to defraud any client or
prospective client
- Engage in any transaction, practice, or course of business which operates
as a fraud or deceit upon any client or prospective client
- Engage in any act, practice, or course of business which is fraudulent,
deceptive or manipulative.
The Advisers Act imposes numerous other obligations on registered investment
advisors including:
- Fiduciary duties
- Recordkeeping requirements
- Operational requirements
- 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 advisor'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 adviser 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
53
<PAGE>
regulations adopted thereunder, and the SEC may prohibit an investment adviser
to an investment company from continuing to act in its capacity as an investment
adviser to an investment company. Stockholders of registered investment
companies or the SEC may also bring an action against the officers, directors,
and investment adviser for breach of fiduciary duty in establishing the
compensation paid to the investment adviser.
The mutual funds managed by Chapman Capital Management are registered with
the SEC under the Investment Company Act, and the sale of shares in these fund
has been registered under the Securities Act. 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 60% 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. In the
case of investment companies, such as The Chapman Funds, which have adopted
12b-1 plans for its portfolios in order to permit these portfolios to pay for
distribution expenses, the rules under the Investment Company Act require that
no more than 50% of the fund's directors can be interested persons.
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. We do not believe that the
merger of Chapman Holdings will result in an assignment and automatic
termination of The Chapman Co.'s underwriting agreements with The Chapman Funds,
because we do not believe that the merger constitutes a change of control for
purposes of the Investment Company Act. 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, Chapman
Capital Management investment management agreements terminate automatically if
assigned without the client's consent. Under the Investment Company Act,
advisory
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<PAGE>
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. We do not believe that the merger of Chapman Capital Management
Holdings will result in an assignment and automatic termination of Chapman
Capital Management's advisory agreements, because we do not believe that the
merger constitutes a change of control for purposes of the Investment Company
Act.
COMPETITION
Chapman Capital Management's investment advisory business competes with a
number of larger, more established investment advisors and securities firms.
Competition is influenced by various factors, including product offering,
quality of service and price. All aspects of the advisory business are
competitive, including competition for assets to manage. Large national firms,
often with more personnel, have much greater marketing, financial, technical,
research, and other capabilities. These firms offer a broader range of financial
services than Chapman Capital Management and compete not only with Chapman
Capital Management and among themselves but also with commercial banks,
insurance companies and others for retail and institutional clients.
The mutual 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 Chapman Capital Management's affiliated
investment funds under-perform specified market benchmarks. Chapman Capital
Management's ability to compete with other investment management firms also is
dependent, in part, on the relative attractiveness of their investment
philosophies and methods under prevailing market conditions.
A large number of investment products including mutual funds, are sold to
the public by investment management firms, broker/dealers, insurance companies
and banks in competition with the investment products offered by Chapman Capital
Management. Many of Chapman Capital Management's competitors apply substantial
resources to advertising and marketing their investment products which may
adversely affect the ability of Chapman Capital Management's investment products
to attract new assets. Chapman Capital Management expects that there will be
increasing pressures among investment advisors to obtain and hold market share.
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<PAGE>
PERSONNEL
At December 31, 1999, Chapman Capital Management Holdings had 12 full-time
employees and shared three officers with affiliated companies. None of these
personnel is covered by a collective bargaining agreement. Management considers
Chapman Capital Management Holdings' relationship with its employees to be good.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--PROPERTY
Chapman Capital Management Holdings' principal executive offices are located
at the World Trade Center-Baltimore, 401 East Pratt Street, 28(th) Floor,
Baltimore, Maryland 21202 where it shares approximately 10,000 square feet of
office space under a lease maintained by The Chapman Co. The Chapman Co.'s lease
for these premises expires in October 2000 and The Chapman Co. has an option to
renew this lease for another five years.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--TRADEMARKS
We have the right to use the following registered trademarks and common law
trademarks under 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 page of this prospectus and proxy
statement
- DEM Index-TM-
- DEM Profile-TM-
- DEM Universe-TM-
- DEM Company-TM-
- DEM Multi-Manager-TM-
- Chapman-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 rights without authorization.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--LEGAL PROCEEDINGS
Many aspects of Chapman Capital Management Holdings' business involve
substantial risks of liability, including exposure under federal and state
securities laws. Chapman Capital Management Holdings maintains an errors and
omissions insurance policy in the amount of $1 million insuring it against these
risks.
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<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--MARKET PRICE AND DIVIDEND INFORMATION
Since August 14, 1998, Chapman Capital Management Holdings common stock has
been traded in the over-the-counter market, and prices for Chapman Capital
Management Holdings common stock are quoted on the Nasdaq SmallCap Market under
the symbol CMGT. The following table sets forth the high and low bid prices of
Chapman Capital Management Holdings common stock as reported on the Nasdaq
SmallCap Market. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
PRICE RANGE PER SHARE
<TABLE>
<CAPTION>
CHAPMAN CAPITAL
MANAGEMENT
HOLDINGS
(CMGT)
-----------------------
HIGH LOW
---------- ----------
<S> <C> <C>
1998
3(rd) Quarter(1).......................................... 8 7
4(th) Quarter............................................. 8 3/8 7 1/16
1999
1(st) Quarter............................................. 8 1/4 7 1/4
2(nd) Quarter............................................. 8 3/8 7 1/4
3(rd) Quarter............................................. 7 3/4 7
4(th) Quarter............................................. 20 1 7/8
2000
1(st) Quarter(2).......................................... 16 1/2 11 3/8
</TABLE>
- ------------------------
(1) From August 14, 1998.
(2) Through March 28, 2000.
On January 25, 2000, there were approximately 22 record holders of Chapman
Capital Management Holdings' common stock. As of January 25, 2000, Chapman
Capital Management Holdings had 3,351,334 outstanding shares of common stock.
DIVIDENDS
Since its initial public offering in August 1998, Chapman Capital Management
Holdings has never declared or paid cash or other dividends on its common stock
and does not anticipate doing so in the foreseeable future. The payment of
dividends, if any, in the future is within the discretion of the board of
directors and will depend upon Chapman Capital Management Holdings' earnings, if
any, its financial condition, and other relevant factors. Chapman Capital
Management Holdings intends to retain any earnings in the foreseeable future for
its continued growth.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Chapman Capital Management Holdings, Inc. consolidated financial statements and
the notes included elsewhere in this document. The discussion of results, causes
and
57
<PAGE>
trends should not be construed to imply any conclusion that such result or
trends will necessarily continue in the future.
OVERVIEW AND GENERAL INDUSTRY CONDITIONS
Advisory and administrative revenue is earned by Chapman Capital Management
Holdings through its investment advisory and administrative services operations.
For the year ended December 31, 1999 Chapman Capital Management Holdings
generated revenues of $4,622,000 and a loss before income taxes of $853,000. For
the fiscal year ended December 31, 1998, Chapman Capital Management Holdings
generated revenue of $3,218,000 and loss before income taxes of $151,000.
Chapman Capital Management Holdings' primary source of revenue is advisory
and administrative fees. Chapman Capital Management Holdings' principal business
activities are by their nature affected by many factors, including general
economic and financial conditions, movement of interest rates and competitive
conditions. Although Chapman Capital Management Holdings seeks to maintain cost
controls, a significant portion of Chapman Capital Management Holdings' expenses
are fixed and do not vary significantly with the factors listed above. As a
result, substantial fluctuations can occur in Chapman Capital Management
Holdings' revenue and net income from period to period.
Revenues are derived primarily from fees for investment advisory services
provided to institutional and other clients. Investment advisory fees are
generally a function of the overall fee rate charged to each account and the
level of assets under management. Assets under management can be affected by the
addition of new client accounts or client contributions to existing accounts,
withdrawals of assets from or terminations of client accounts and investment
performance, which may depend on general market conditions. Assets under
management were $771 million as of December 31, 1999, compared to $591 million
as of December 31, 1998. The $180 million increase in assets under management
during 1999 resulted from investment performance.
On September 30, 1999 Chapman Capital Management was notified that one of
its clients, accounting for less than 1% of total revenues, was withdrawing its
funds from a separate account managed by Chapman Capital Management. The amount
withdrawn effective October 14, 1999 was $3.9 million, or less than 1% of assets
under management. The reduction in assets under management is expected to have a
corresponding reduction in the management and advisory fee revenues received in
future periods.
In order to comply with the expense limitation requirements of a proposed
sub-distributor of institutional shares of the DEM portfolios of The Chapman
Funds, Inc., Chapman Capital Management has agreed to a fee limitation in favor
of the institutional shares of the following portfolios in the following
percentages of average daily net assets:
- DEM Equity Fund 1.25%
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<PAGE>
- DEM Index Fund 2.00%
- DEM Multi-Manager Equity Fund 2.00%
- DEM Multi-Manager Bond Fund 2.00%
These expense limitations went into effect as of March 17, 2000.
In order to facilitate retail distribution of the investor shares of the DEM
portfolios, Chapman Capital Management has agreed to fee limitations in favor of
the investor shares of the following portfolios in the following percentages of
average daily net assets:
- DEM Equity Fund, 2.00%
- DEM Index Fund, 2.69%
- DEM Multi-Manager Equity Fund, 3.00%
- DEM Multi-Manager Bond Fund, 3.00%
These expense limitations went into effect as of March 17, 2000 and July 1,
1999, respectively.
In connection with these expense limitations, Chapman Capital Management has
agreed to reimburse the portfolios for all fees and expenses in excess of their
respective expense limitations until at least December 31, 2000. The service
providers to the portfolios typically charge a fixed fee combined with a
variable fee determined by such factors as the number of accounts and the net
assets of the portfolio. Due to these fixed fees, when the assets of a portfolio
are low, as they typically are at the commencement of operations, the fees
assessed by service providers can result in expenses significantly in excess of
the fee limitations discussed above, requiring reimbursement or direct payments
by Chapman Capital Management Holdings.
On December 31, 1999, the amount under management in the DEM Index Fund was
$516, and Chapman Capital Management Holdings paid costs of $63,085 pursuant to
the DEM Index Fund expense limitations for the year ended December 31, 1999.
Chapman Capital Management Holdings believes that it will be required to
reimburse expenses for DEM Index Fund in progressively lower amounts as net
assets rise until the expiration of the expense limitations or until the net
assets of DEM Index Fund exceed approximately $17 million. Further, Chapman
Capital Management Holdings expects the amounts that are required to be
reimbursed may increase in future periods with the implementation of the DEM
Equity Fund expense limitations and the commencement of operations of additional
DEM portfolios with their own expense limitations. There can be no assurance
that these portfolios will attract net assets sufficient to lower their expenses
below their respective expense limitations. To the extent these portfolios are
unsuccessful in lowering their expenses below their respective expense
limitations, Chapman Capital Management Holdings' results of operations could be
materially adversely affected.
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<PAGE>
RESULT OF OPERATIONS
The following table reflects items in the Statements of Operation as dollar
amounts and as percentages of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998
----------------------- -----------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNTS REVENUES AMOUNTS REVENUES
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Advisory and administrative
fees...................................................... $4,282,000 92.6% $3,136,000 97.5%
Other income................................................ 340,000 7.4 82,000 2.5
---------- ----- ---------- -----
Total revenue......................................... 4,622,000 100.0 3,218,000 100.0
---------- ----- ---------- -----
OPERATING EXPENSES:
Management fees............................................. 1,524,000 33.0 1,178,000 36.6
Compensation and benefits................................... 1,211,000 26.2 857,000 26.6
General and administrative.................................. 1,955,000 42.3 827,000 25.7
Amortization and depreciation expense....................... 234,000 5.1 232,000 7.2
Advertising, Promotion and Publicity........................ 545,000 11.8 249,000 7.8
Interest expense............................................ 6,000 0.1 26,000 0.8
---------- ----- ---------- -----
Total operating expenses.............................. 5,475,000 118.5 3,369,000 104.7
---------- ----- ---------- -----
Loss before income tax benefit.............................. (853,000) (18.5) (151,000) (4.7)
Income tax benefit.......................................... -- -- 45,000 1.4
---------- ----- ---------- -----
Net loss.................................................... $ (853,000) (18.5)% $ (106,000) (3.3)%
========== ===== ========== =====
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1998
Total Revenue increased by $1,404,000 or 43.6%, to $4,622,000 for 1999 from
$3,218,000 for 1998.
Net advisory and management fee revenue increased by $1,146,000 or 36.5%, to
$4,282,000 for 1999 from $3,136,000 for 1998. This increase was primarily due to
a net increase of $180,000,000 or 30.4% in assets under management to
$771,386,000 at the end of 1999, up from $591,385,000 at the end of 1998. The
increase in assets under management was due to investment performance and the
net changes in client decisions regarding the placement of their funds for
investment. During 1999, the net change in assets under management increased by
$180 million to a total of $771 million as of December 31, 1999 from
$591 million as of December 31, 1998.
Interest and other revenue increased by $258,000 or 314.6% to $340,000 for
1999 from $82,000 for 1998. This increase is due to higher cash balances
associated with the net proceeds from the Company's public offering of common
stock and a short-term loan to Chapman Holdings, Inc.
Total expense for 1999 increased by $2,106,000 or 62.5%, to $5,475,000 for
1999 from $3,369,000 for 1998. Expenses increased in all areas due expanded
operations and marketing efforts, development of new mutual funds and increases
in administrative support. Total expense increased to 118.5% of total revenue
for 1999 as compared to 104.7% of total revenue for 1998.
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<PAGE>
Management fee expense increased by $346,000 or 29.4%, to $1,524,000 for
1999 from $1,178,000 for 1998. This increase is attributable to additional
assets under management in the DEM-MET product as a result of investment
performance. Management fee expense as a percentage of revenues decreased to
33.0% of total revenue for 1999 as compared to 36.6% of total revenue for 1998.
Compensation and benefits increased by $354,000 or 41.3%, to $1,211,000 for
1999 from $857,000 for 1998. This increase is largely due to the addition of 4
employees during the year to support marketing efforts, a full year of salary
for two senior positions added in the fourth quarter of 1998, and associated
taxes. As a percentage of total revenue, these expenses decreased to 26.2% in
1999 from 26.6% 1998.
General and administrative expense increased by $1,128,000 or 136.4%, to
$1,955,000 for 1999 from $827,000 for 1998. An increase of $251,000 was caused
by the payment of expenses of new mutual funds, which primarily relate to
covering fund expenses in excess of expense limitation agreements. Professional
fee expenses increased $291,000 due to $161,000 of legal expenses of developing
the new mutual funds, the additional costs of legal and accounting reviews
associated with operating as a public company, and use of marketing consultants
to expand the DEM Strategy. Travel and business development increased $168,000
to pay costs associated with additional employees, and ancillary activities to
support the Company's increased marketing efforts.
The remainder of the change in general and administrative expense was
primarily due to increases in administrative support of $76,000 as a result of
increased staff, printing expenses of $76,000, and conferences and seminars of
$60,000.
Amortization and depreciation expense increased by $2,000 or 0.9%, to
$234,000 for 1999 from $232,000 for 1998. This increase is due to purchasing
additional equipment.
Advertising, promotion and publicity expense increased by $296,000 or
118.9%, to $545,000 for 1999 from $249,000 for 1998. This increase is
attributable to the Company's efforts to expand its market share and build name
awareness in the financial markets. As a percentage of total revenue, these
expenses increased to 11.8% in 1999 from 7.8% in 1998.
Interest expense decreased by $20,000 or 76.9%, to $6,000 in 1999 from
$26,000 in 1998. This decrease is attributable to the retirement of a note
payable to The Chapman Co., a subsidiary of Chapman Holdings, Inc. As a
percentage of total revenue, this expense decreased to 0.1% in 1999 from 0.8%
1998.
Income tax benefit decreased by $45,000 or 100.0% to $0 in 1999 from $45,000
for 1998. This decrease was due to a valuation reserve established for the year
ended December 31, 1999.
The net loss increased by $747,000 or 704.7% to $853,000 for 1999 from a net
loss of $106,000 for 1998. This change was a result of the items discussed
above.
61
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Chapman Capital Management Holdings has financed its
operations through capital contributions from its principal stockholder, loans
from affiliates, cash flow from operations and the sale of equity securities.
Chapman Capital Management Holdings' liquid assets consist primarily of
cash, cash equivalents and receivables from advisory clients. Chapman Capital
Management Holdings' total assets as of December 31, 1999 were $4,838,000.
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. Prior to
Chapman Capital Management Holdings' loans made on July 29, 1999, Chapman
Capital Management Holdings' 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 made an unsecured loan
of $3,220,000 to Chapman Holdings, Inc., an affiliate of Chapman Capital
Management Holdings in connection with its broker-dealer subsidiary, The Chapman
Co., seeking to qualify to participate in a municipal underwriting syndicate.
The loan was issued pursuant to a demand note that required Chapman Holdings to
repay the amount of the loan upon Chapman Capital Management Holdings' demand
and with interest due thereon at the brokers call rate as in effect from time to
time. Chapman Holdings repaid this loan with accrued interest in full on
September 14, 1999.
The final payment of $150,000 on a non-compete agreement pertaining to the
DEM-MET Trust is due on demand.
On July 29, 1999, the Company advanced Nathan A. Chapman, Jr., President of
the Company, $242,000 pursuant to an unsecured demand note bearing interest at
the rate of 5.45% per annum. As of December 31, 1999, the Company had
outstanding unsecured loans to Mr. Chapman in the amount of $372,000.
The Company's balance of cash and cash equivalents, following the
transactions above, was 2,680,000 as of December 31, 1999.
EFFECTS OF INFLATION
Chapman Capital Management Holdings' assets are to a large extent liquid in
nature and, accordingly, may be significantly affected by inflation. Chapman
Capital Management Holdings' expenses, such as employee compensation and
occupancy expenses are subject to inflation and the effects of inflation may not
be readily recoverable in the prices of services offered to Chapman Capital
Management Holdings customers. To the extent inflation results in rising
interest rates or has adverse effects upon the securities market, it may
adversely affect the Chapman Capital Management Holdings' financial position,
results of operations and assets under management.
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<PAGE>
YEAR 2000 SOFTWARE ISSUE
With the arrival of the Year 2000, existing software programs and operating
systems were reviewed to determine if they can accommodate information that
employs dates after December 31, 1999. As of December 31, 1999, Chapman Capital
Management Holdings' Year 2000 readiness costs were approximately $99,000 to
cover assessment of systems, internal testing, point-to-point testing, training,
replacement and modification of existing systems, and contingency planning.
Chapman Capital Management Holdings' Year 2000 readiness costs consist of
direct expenses incurred with respect to software, consulting and employee time
and Chapman Capital Management Holdings' share of readiness expenses for
upgraded computers, software, and communication systems to be paid or financed
by Chapman Holdings. Chapman Capital Management Holdings will reimburse Chapman
Holdings for its share of these Year 2000 expenses through increased charges for
support under the terms of its expense allocation agreement with Chapman
Holdings.
Chapman Capital Management Holdings estimates that its total Year 2000
readiness costs, direct and allocated by Chapman Holdings, will be approximately
$115,000 which primarily relates to future lease payments.
Chapman Capital Management Holdings' management prepared a written plan
detailing Chapman Capital Management Holdings' software and operating systems
readiness issues for the Year 2000. The plan identified mission critical and
non-mission critical operating systems of Chapman Capital Management Holdings.
Working with its hardware and software vendors and other third parties to
prepare for the Year 2000, Chapman Capital Management Holdings substantially
completed necessary hardware and software renovations during the second quarter
of 1999. We tested during the third quarter of 1999 to determine the effect of
our readiness efforts, and we continued to work with our hardware and software
vendors and other third parties to complete our Year 2000 contingency plan
through the end of 1999 and during the first quarter of the year 2000.
Chapman Capital Management Holdings' Year 2000 readiness plan involved 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 Chapman Capital Management
was 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.
PHASE III--TESTING. This phase involved testing all systems that are date
dependent and upgrading all non-compliant systems. Chapman Capital
Management Holdings completed this phase during the third quarter of
1999.
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<PAGE>
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 or hardware and also the
development of plans and strategies to continue operations should such
failures occur. Chapman Capital Management has prepared an initial plan
and will continue to refine and expand it as required through the first
quarter of 2000.
Within Chapman Capital Management Holdings' Year 2000 readiness plan, we
identified systems as "mission critical" and "non-mission critical." Systems
were identified 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. Systems were determined to be non-Y2K
compliant based on information from manufacturers. Systems were identified as
"non-mission critical" if loss of the system, although inconvenient, would not
cause an immediate stoppage of activity or significant impairment of a core
business area. The following table summarizes Chapman Capital Management
Holdings' estimate of the status of mission critical elements of Chapman Capital
Managements' Year 2000 readiness plan.
<TABLE>
<CAPTION>
NUMBER OF
CRITICAL
NUMBER OF CRITICAL CRITICAL SYSTEMS FOR
CRITICAL SYSTEMS SYSTEMS IN WHICH PHASE
Y2K PLAN PHASE SYSTEMS COMPLETED PROCESS NOT APPLICABLE
- -------------- --------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Assessment....................................... 32 32 -- --
Renovation....................................... 32 23 -- 9
Testing.......................................... 32 23 -- 9
Contingency Planning............................. 32 32 -- --
</TABLE>
Chapman Capital Management Holdings identified the third parties upon which
it relies for mission critical systems and contacted 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 of 1999 indicated that they
expected to reach compliance by the third quarter of 1999. As of the date of
this prospectus and proxy statement, all of our vendors of mission critical
systems have verified readiness, and we have not had any problems with these
vendors' systems not being Year 2000 ready.
Although we have suffered no significant Year 2000 problems at the start of
2000 or as of March 29, 2000, and while Chapman Capital Management Holdings
believes that it is taking prudent and necessary action to become Year 2000
ready, there can be no assurance that the Year 2000 issue will not result in
information or communications systems interruptions. Any such interruptions
could be expected to have a material adverse effect on Chapman Capital
Management Holdings' business, financial condition, results of operations and
business prospects and may subject Chapman Capital Management Holdings to
liability to its clients. Chapman Capital Management Holdings is currently
building upon its existing contingency plan in the event that Chapman Capital
Management Holdings or third parties do not successfully complete their
readiness efforts. These efforts may result in additional costs in excess of
current allocations and estimates.
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<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--MANAGEMENT
The directors and executive officers of Chapman Capital Management Holdings
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 Vice president, secretary, assistant
treasurer and director
Theron Stokes............................. 47 Director
Robert L. Wallace......................... 42 Director
Maria Markham Thompson.................... 42 Chief financial officer
M. Lynn Ballard........................... 56 Treasurer and assistant secretary
Tracey C. Rancifer........................ 29 Senior vice president
</TABLE>
The board of directors has appointed an audit committee, currently
consisting of its two independent directors. The audit committee reviews the
scope of accounting audits, reviews with the independent public accountants the
corporate accounting practices and policies and recommends to whom reports
should be submitted within the company, reviews with the independent public
accountants their final report, reviews with the independent public accountants
overall accounting and financial controls, and is available to the independent
public accountants during the year for consultation purposes.
The board of directors has also appointed a compensation committee of the
board of directors, currently consisting of the two independent directors. The
compensation committee reviews the performance of senior management, approves
the compensation of the president, recommends appropriate compensation levels
for officers other than the president and approves the issuance of stock options
pursuant to Chapman Capital Management Holdings' stock option plan. All
directors and officers serve until their successors are duly elected and
qualify.
NATHAN A. CHAPMAN, JR. 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 EChapman.com in 1999. Mr. Chapman
founded Chapman Insurance Holdings, Inc. in 1997 and its subsidiary, The 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., a registered open end investment company
for which Chapman Capital Management acts as investment adviser. 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.
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EARL U. BRAVO, SR. 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 director, senior vice president, secretary and assistant
treasurer of EChapman.com. 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.
LYNN BALLARD has been treasurer and assistant secretary since 1997 of The
Chapman Co., treasurer and assistant secretary of Chapman Holdings, Inc. since
1997 and Chapman Capital Management Holdings, Inc. since 1998. Ms. Ballard has
been employed as a senior financial executive of The Chapman Co. and Chapman
Capital Management, Inc. since 1988. Ms. Ballard is treasurer and assistant
secretary of The Chapman Funds, Inc.
THERON STOKES has been an attorney for the Alabama Education Association
since 1993 and has been a director of Chapman Capital Management Holdings, Inc.
since 1998.
ROBERT L. WALLACE has been President of the BiTH Group, Inc., an information
technology consulting and human development services firm, since 1993.
Mr. Wallace is the author of "Black Wealth Through Black Entrepreneurship." He
has been a director of Chapman Capital Management Holdings, Inc. since 1998.
MARIA MARKHAM THOMPSON has been chief financial officer of Chapman Capital
Management Holdings since 1998 and portfolio manager and administrator of
Chapman Capital Management, Inc. since 1997. Ms. Thompson was in private
practice as a certified public accountant from 1996 to 1997 and was director of
the Maryland Water Quality Financing Administration from 1989 to 1996, during
which she also served as director of finance and central services for the
Maryland Department of the Environment for 18 months.
TRACEY RANCIFER has been the senior vice president of corporate development
for Chapman Capital Management and EChapman.com 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, a research and policy organization,
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., a
construction management firm. 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.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by
Chapman Capital Management Holdings during the last three fiscal years, for
services rendered in all capacities to Chapman Capital Management Holdings and
its subsidiary, Chapman Capital Management, to the chief executive officer and
the other most highly paid executive officers Chapman Capital Management
Holdings whose total annual salary and bonus exceeded $100,000 during the year
ended December 31, 1998. No other executive officer of Chapman Capital
Management Holdings received salary and bonus of $100,000 or more during such
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr......................... 1999 $266,667 $100,000 5,000
President 1998 $200,000 $100,000 --
1997 $159,500 $100,000 --
Earl U. Bravo, Sr............................. 1999 $105,000 $ 50,000 5,000
Senior vice president, secretary and 1998 $105,000 $ 10,000 --
assistant treasurer 1997 $100,000 $ 5,000 --
Tracey Rancifer,.............................. 1999 $ 95,000 $ 20,000 1,000
Senior vice president 1998 N/A N/A N/A
1997 N/A N/A N/A
</TABLE>
Mr. Chapman's and Mr. Bravo's annual compensation for 1998 and 1999 includes
approximately 50% allocated to Chapman Holdings and The Chapman Insurance Agency
under certain expense sharing arrangements. Mr. Chapman's and Mr. Bravo's annual
compensation for 1997 includes amounts allocated to The Chapman Co., a
subsidiary of Chapman Holdings and then-parent of Chapman Capital Management and
The Chapman Insurance Agency, under certain informal expense allocation
agreements.
Ms. Rancifer's annual salary and bonus for 1998 was less than $100,000, and
she was not employed by Chapman Capital Management Holdings during 1997.
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The board of directors of Chapman Capital Management Holdings has
established the 1998 Chapman Capital Management Holdings, Inc. Omnibus Stock
Plan to enable Chapman Capital Management Holdings to grant equity compensation
to Chapman Capital Management Holdings directors, officers, employees and
consultants. Chapman Capital Management has reserved 150,000 shares for award
under the plan. The plan is administered by the compensation committee of the
board of directors. On May 14, 1999, the compensation committee granted a total
of 24,000 stock options under the plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR BASE
NAME OPTIONS GRANTED FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE
- ---- --------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr.,........... 5,000 20.8% $9.22 5/14/2002
President
Earl U. Bravo, Sr.,............... 5,000 20.8% $8.38 5/14/2002
Senior vice president, secretary
and assistant treasurer
Tracey Rancifer,.................. 1,000 4.2% $8.38 5/14/2002
Senior vice president
</TABLE>
COMPENSATION OF DIRECTORS
Directors receive no cash compensation for their service as directors;
however, they are reimbursed for all out-of-pocket expenses relating to
attendance at meetings of the Board of Directors and any committee thereof.
Members of the Board of Directors are eligible to receive stock options pursuant
to the stock option plan. On May 14, 1999, directors Stokes and Wallace were
awarded three-year stock options to purchase 1,000 shares each at $8.38 per
share, the then current market price.
CHAPMAN CAPITAL MANAGEMENT HOLDINGS--PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of the Chapman Capital Management Holdings common stock as
of January 25, 2000 by
- Each person known by Chapman Capital Management Holdings to own
beneficially 5% or more of its outstanding shares of common stock,
- Each director,
- Each executive officer, and
- All directors and executive officers as a group.
Except as otherwise indicated, Chapman Capital Management Holdings believes
that the beneficial owners of the common stock listed below, based on
information
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furnished by such owners, have sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL SHARES
OWNER (1) OWNERSHIP OUTSTANDING
- ---------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Nathan A. Chapman, Jr. (2)(3)............................. 2,433,666 shares 72.5%
Earl U. Bravo, Sr. (4).................................... 7,375 shares *
Theron Stokes (5)......................................... 9,750 shares *
Robert L. Wallace (6)..................................... 1,000 shares *
Tracey C. Rancifer (7).................................... 1,000 shares *
All Directors and Executive Officers as a Group (5 2,452,791 shares 72.9%
persons)................................................
</TABLE>
- ------------------------
* Represents less than one percent of the outstanding shares of common stock.
(1) Each stockholder's address is 401 East Pratt Street, suite 2800, Baltimore,
Maryland 21202 unless otherwise noted.
(2) Includes 137,875 shares, or 4.1% of the outstanding shares, held in
inventory by The Chapman Co., as market-maker for the common stock, and
5,628 shares held in investment advisory accounts over which the Chapman
Capital Management Holdings' wholly-owned subsidiary, Chapman Capital
Management, has dispository discretion. Such shares have no voting rights as
long as they are held by a subsidiary of Chapman Capital Management
Holdings. The Chapman Co. is a wholly-owned subsidiary of Chapman Holdings
and Mr. Chapman is president and director of Chapman Holdings and chairman
and majority stockholder of Chapman Holdings. Mr. Chapman is the sole
director of The Chapman Co. The executive officers of The Chapman Co. are
Mr. Chapman, president, Earl U. Bravo, Sr., secretary and assistant
treasurer, and M. Lynn Ballard, treasurer and assistant secretary.
Mr. Chapman disclaims beneficial ownership of the shares held by The Chapman
Co. and Chapman Capital Management.
(3) Includes shares issuable upon exercise of options to purchase 5,000 shares
of Chapman Capital Management Holdings common stock.
(4) Includes shares issuable upon exercise of options to purchase 5,000 shares
of Chapman Capital Management Holdings common stock.
(5) Includes shares issuable upon exercise of options to purchase 1,000 shares
of Chapman Capital Management Holdings common stock.
(6) Includes shares issuable upon exercise of options to purchase 1,000 shares
of Chapman Capital Management Holdings common stock.
(7) Includes shares issuable upon exercise of options to purchase 1,000 shares
of Chapman Capital Management Holdings common stock.
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CHAPMAN CAPITAL MANAGEMENT HOLDINGS--CERTAIN TRANSACTIONS
On January 8, 1998, Chapman Capital Management Holdings, a newly-formed
Maryland corporation, issued shares of common stock to The Chapman Co. in
exchange for all of the outstanding equity securities of Chapman Capital
Management. Accordingly, Chapman Capital Management is currently a wholly-owned
direct subsidiary of Chapman Capital Management Holdings.
On February 26, 1998, Chapman Holdings and its subsidiary The Chapman Co.
effected tax-free spin-off transactions in which all of the outstanding shares
of stock of the former subsidiaries of The Chapman Co., Chapman Capital
Management Holdings, Inc., parent of Chapman Capital Management, Inc. and
Chapman Insurance Holdings, Inc., parent of The Chapman Insurance
Agency, Incorporated were distributed to Chapman Holdings stockholders.
Nathan A. Chapman, Jr., the president, chairman of the board of directors
and majority stockholder of Chapman Capital Management Holdings, is the
president and chairman of the board of directors of each of EChapman.com,
Chapman Holdings, The Chapman Co., Chapman Capital Management, Chapman Insurance
Holdings, Chapman Insurance Agency and The Chapman Funds, Inc. and majority
stockholder of Chapman Holdings, Chapman Insurance Holdings and EChapman.com.
Earl U. Bravo, Sr., senior vice president, secretary, assistant treasurer,
and a director of Chapman Capital Management Holdings, is senior vice president,
secretary, assistant treasurer and a director of Chapman Capital Management
Holdings and Chapman Insurance Holdings. He also serves as secretary and
assistant treasurer of Chapman Capital Management, The Chapman Co. and The
Chapman Funds. He also serves as vice president of Chapman Capital Management.
M. Lynn Ballard, the treasurer and assistant secretary of Chapman Capital
Management Holdings and Chapman Capital Management, is also treasurer and
assistant secretary of The Chapman Co., Chapman Holdings and The Chapman Funds.
Lottie H. Shackelford, a director of Chapman Holdings, is a director of The
Chapman Funds.
Donald Watkins, a director of Chapman Holdings, served as a director of
Chapman Insurance Holdings.
Until its liquidation in 1998, Mr. Chapman, Mr. Bravo, and Ms. Ballard
served as senior executive officers of DEM, Inc., a closed-end registered
investment company managed and sponsored by Chapman Capital Management. Mr.
Chapman, Benjamin Hooks, Glenda Glover and Lottie Shackelford, a director of
Chapman Holdings, each a director of The Chapman Funds, James B. Lewis, a
director of The Chapman Funds until 1999, and Robert L. Wallace, a director of
Chapman Capital Management Holdings, each served as a director of DEM, Inc.
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The Chapman Co. acted as the underwriter, on a best efforts basis, for the
sale of DEM, Inc. common stock. The Chapman Co. was paid $432,008 and $0 in
management fees and commissions in the years ended December 31, 1997 and
December 31, 1998, respectively.
Until DEM, Inc.'s liquidation, Chapman Capital Management served as the
investment adviser and administrator of DEM, Inc. In connection with its
investment advisory relationship with DEM, Inc., Chapman Capital Management was
paid $139,000 and $150,000 in advisory and administrative fees in the years
ended December 31, 1997 and December 31, 1998, respectively.
Chapman Holdings acted as the underwriter, on a best efforts basis, for the
sale of Chapman Capital Management Holdings common stock. Chapman Holdings was
paid $296,623 in underwriting fees and commissions in the year ended
December 31, 1998.
In connection with Chapman Capital Management's provision of investment
advisory services to The Chapman U.S. Treasury Money Fund, Chapman Capital
Management was paid $259,991 and $593,568 in advisory and administrative fees
for the years ended December 31, 1998 and 1999, respectively. For the year ended
December 31, 1999, Chapman Capital Management has reimbursed the Chapman Funds,
on behalf of The Chapman U.S. Treasury Money Fund, $129,879 under an expense
limitation agreement with The Chapman Funds.
The DEM Equity Fund became active in April 1998, and Chapman Capital
Management was paid $69,356 and $121,862 in advisory and administrative fees for
the years ended December 31, 1998 and 1999, respectively. For the year ended
December 31, 1999, Chapman Capital Management has reimbursed The Chapman Funds
$29,056 under an expense limitation agreement with The Chapman Funds.
The DEM Index Fund became active in March 1999, and Chapman Capital
Management was paid $516 in advisory and administrative fees through
December 31, 1999. Chapman Capital Management has reimbursed The Chapman Funds,
on behalf of the DEM Index Fund, $63,085 in connection with its expense
limitation agreement with The Chapman Funds.
Chapman Capital Management has entered into agreements with The Chapman
Funds on behalf of three additional portfolios, the DEM Fixed Income Fund, the
DEM Multi-Manager Bond Fund and the DEM Multi-Manager Equity Fund, to provide
investment advisory and administration services. These funds are not currently
active. However, Chapman Capital Management has paid approximately $196,000 of
start-up expenses for these funds and the DEM Index Fund.
On March 17, 2000, Chapman Capital Management entered into a new ten year
expense limitation agreement with The Chapman Funds on behalf of certain of its
portfolios, including the DEM Equity Fund and the DEM Index Fund, under which
Chapman Capital Management will reimburse the covered portfolios for expenses
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<PAGE>
incurred on behalf of these portfolios in excess of stated percentages of the
portfolios' net assets.
The Chapman Co. is the distributor for The Chapman U.S. Treasury Money Fund,
DEM Equity Fund and DEM Index Fund under distribution agreements between The
Chapman Co. and The Chapman Funds. The Chapman Co. receives no compensation for
the distribution of shares of The Chapman U.S. Treasury Money Fund. The DEM
Index Fund had no operations in 1998. The Chapman Co. was paid $14,221 and
$31,639 in management fees and commissions in the years ended December 31, 1998,
1999, respectively, in connection with its distribution agreement with The
Chapman Funds pertaining to the DEM Equity Fund. Chapman Holdings has entered
into distribution agreements with The Chapman Funds with respect to three
additional funds; however, these funds have not yet commenced operations.
As of October 31, 1997, Chapman Capital Management executed a 10-year note
to Chapman Holdings in the amount of $771,889 accruing interest at 6.68% per
annum. Chapman Capital Management repaid this note in full during 1998. The
largest amounts owed by Chapman Capital Management, including this loan and
Chapman Capital Management's allocation of shared overhead, and other advances
were $958,302 and $800,672 during fiscal years ended December 31, 1998 and 1997,
respectively.
As of December 31, 1999, Mr. Chapman owed Chapman Capital Management
Holdings and Chapman Holdings $1,038,174 in connection with the following notes,
including accrued interest, which notes were issued for purposes unrelated to
the businesses of EChapman.com, Chapman Holdings, Chapman Capital Management
Holdings, or their respective affiliates:
- 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 $45,000, 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 $65,000, 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.
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<PAGE>
- 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.
- Three-year promissory note to The Chapman Co. dated December 31, 1999 in
the amount of $32,837, which accrues interest at 4.33% per annum.
Chapman Capital Management Holdings executed a 10-year note to Chapman
Holdings as of October 31, 1996 in the amount of $763,367 which accrued interest
at 6.68% per annum. The proceeds of this loan were used by Chapman Capital
Management to pay start-up costs in connection with its development of a
proprietary investment product and for a non-competition agreement. On
August 14, 1998, this loan was repaid in full.
On July 29, 1999, Chapman Capital Management Holdings made an unsecured loan
of $3,220,000 to Chapman Holdings, in connection with The Chapman Co., which was
seeking to qualify to participate in a municipal underwriting syndicate. The
loan was issued pursuant to a demand note that required Chapman Holdings to
repay the amount of the loan upon chapman Capital Management Holdings' demand
and with interest due thereon at the brokers call rate as in effect from time to
time. Chapman Holdings repaid this loan with accrued interest in full on
September 14, 1999.
Mr. Chapman is president and treasurer and Mr. Bravo is secretary of Chapman
General Partner One, Inc.,a Maryland corporation and the general partner of
Chapman Limited Partnership I, a Maryland limited partnership, the operations of
which consist solely of the ownership and rental of furniture and equipment to
The Chapman Co. The Chapman Co. leases furniture and equipment from this
partnership, with part of such cost being allocated to Chapman Capital
Management Holdings. The lease requires monthly payments of $9,846 and contains
one year renewable terms, at the option of The Chapman Co., through September
2000, at which time The Chapman Co. can purchase the furniture and equipment at
fair market value. Rent expense allocated to The Chapman Co. under the lease was
$118,152 in each of 1998, 1999, of which $0 and $0 were payable to the Chapman
Limited Partnership as of December 31, 1998 and December 31, 1999, respectively.
Rent expenses allocated to Chapman Capital Management Holdings under this lease
agreement was $59,076 in 1998 and $59,076 in 1999.
On December 14, 1998, The Chapman Co. and Chapman Capital Management paid
$19,536 on behalf of Chapman Limited Partnership I for certain taxes and related
payments, interest, and penalties. The Chapman Co. and Chapman Capital
Management characterized these 1998 payments as an expense for which they will
not be reimbursed by the partnership and which is related to The Chapman Co.'s
administration of the partnership. On October 22, 1999, Chapman Holdings and
Chapman Capital Management Holdings each paid $49,018 on behalf of the
partnership for the payment of certain taxes and related payments. Chapman
Holdings
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<PAGE>
and Chapman Capital Management Holdings each characterized $24,509 of these 1999
payments as an expense for which they will not be reimbursed by the partnership
and which is related to the administration of the partnership. The partnership
reimbursed each of Chapman Holdings and Chapman Capital Management Holdings
$19,000 of the 1999 payments on March 13, 2000.
Chapman Holdings shares office space, certain employees and other overhead
with certain other entities controlled by Mr. Chapman, including Chapman Capital
Management Holdings and Chapman Insurance Agency. Chapman Holdings allocates
compensation and benefits expense to Chapman Capital Management Holdings and
Chapman Insurance Agency based on actual compensation and benefits expense and
the estimated percentage of the employee's time spent performing services for
each entity. Chapman Holdings allocates other expenses based on estimated usage.
In connection with these allocation arrangements, as of December 31, 1998 and
December 31, 1999, Chapman Capital Management Holdings owed Chapman Holdings
$180,699 and $96,440, respectively. Chapman Holdings treats these outstanding
allocation amounts as normal receivables to be paid in the ordinary course of
business, and Chapman Capital Management Holdings treats these outstanding
allocation amounts as normal expenses to be paid in the ordinary course of
business.
On November 10, 1998, a receivable of The Chapman Co. was incorrectly coded
for deposit to Chapman Capital Management's account. This resulted in an
erroneous deposit of $291,207 in the securities account of Chapman Capital
Management Holdings. As of December 31, 1998, Chapman Capital Management
Holdings owed Chapman Holdings $104,270 of this amount. Chapman Capital
Management Holdings repaid the amount in full on January 12, 1999.
Chapman Holdings and Mr. Chapman entered into a non-exclusive, royalty-free
License Agreement on December 26, 1997 pertaining to the company's use of the
DEM-Registered Trademark- and Domestic Emerging Markets-Registered Trademark-
trademarks that are owned by Mr. Chapman.
As of June 9, 1998, Chapman Capital Management Holdings and Mr. Chapman
entered into a non-exclusive, royalty-free service mark licensing agreement
pertaining to the use of the DEM-Registered Trademark-, Domestic Engineering
Markets-Registered Trademark-, DEM Index-TM-, DEM Profile-TM-, DEM Universe-TM-,
DEM Company-TM-, DEM Multi-Manager-TM-, Chapman-TM-, and C-Eagle-TM- trademarks
that are owned by Mr. Chapman.
EChapman.com has 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.
All transactions with affiliates of Chapman Holdings and Chapman Capital
Management Holdings are approved by a majority of the Board of Directors,
including a majority of the disinterested Directors, in accordance with Maryland
law.
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DESCRIPTION OF ECHAPMAN.COM
ECHAPMAN.COM BUSINESS
GENERAL
EChapman.com, Inc. is a newly-formed Maryland corporation. We were
incorporated in Maryland on May 14, 1999, and we have had minimal operations to
date, which have consisted solely of expenses incurred in connection with the
development of our business plan. We estimate that we have incurred
approximately $281,000 of expenses since our inception. 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.
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.
Following the completion of the mergers, we will act as the holding company
for Chapman Holdings, Chapman Capital Management Holdings and Chapman Insurance
Holdings and their respective operating subsidiaries. In addition, EChapman.com
will be the entity responsible for the coordination and implementation of the
Internet strategy described below.
Prior to February 27, 1998, both Chapman Capital Management and Chapman
Insurance Agency were subsidiaries of The Chapman Co. The Chapman Co. spun-off
its subsidiaries in 1998 in order to facilitate the initial public offering of
Chapman Holdings. Because our operating subsidiaries were previously part of one
integrated company, we do not expect the integration of the operations of our
securities brokerage and investment banking, investment advisory and insurance
subsidiaries to pose a material hurdle to our combined operations and the
implementation of our Internet strategy. By combining our operations in this
manner, Nathan A. Chapman, Jr., who is currently acting as our president and
chief executive officer and the president and chief executive officer of each of
the merging companies, will be able to
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devote substantially all of his time and effort to the combined company and to
pursuing the EChapman.com business strategy.
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. We refer to
these groups collectively as the DEM community. We believe that our creation of
and leadership position in employing the DEM 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 our web site, a prototype of which was launched in
November 1999 under the domain name "EChapman.com." We intend to continue to use
this address once the formal site is up and running. We intend to launch the
online trading portion of the EChapman.com web site within two months following
the closing of the mergers. 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 the mergers.
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
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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.
Chapman Capital Management is a registered investment advisor that at
February 29, 2000, had over $864 million in assets under management. Chapman
Capital Management acts as financial advisor 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 members of the DEM community.
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, Chapman Capital Management has increased assets managed under
the DEM and DEM Multi-Manager strategies to over $726.8 million as of
February 29, 2000.
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
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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.COM 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
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, on an agency basis, subject to regulatory approval
- 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
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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 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
- Sales of products through the CHAPMAN MARKETPLACE channel
- Potential interest and fee income generated from the contemplated Internet
bank
BRAND AWARENESS
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
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- 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
THE INTERNET
GROWTH OF THE INTERNET
GENERAL
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
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Communications, an independent market research firm specializing in online
research and analysis, in a presentation given in 1999, 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
ECOMMERCE
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. As reported by NETWORK WORLD FUSION in
September 1999, an analyst from International Data Corporation, an independent
market research firm, reported during a conference on Internet economy that
online purchases, which were $50 billion in 1998, are expected to 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
ONLINE BROKERAGE
The online brokerage industry is also experiencing rapid growth. In a report
dated July 1999, Jupiter Communications forecasts that the total number of
online trading households is expected to grow from 4.3 million in 1998 to more
than 20.3 million in 2003. In another report dated July 1999, 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 anticipated 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
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- Lowering of commission prices for online brokerage transactions
- 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
MARKETING AND ADVERTISING OPPORTUNITIES
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.
Leading content providers can develop a loyal following of repeat users who
register with their sites by providing personal information and preferences.
Registration can benefit 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 their
needs and preferences. This user information also provides advertisers and
merchants with more focused demographic information, which can then be used to
maximize marketing opportunities.
However, if any of the content that we create and deliver to our users or
any content that is accessible from our web site to other web sites contains
errors, third parties could make claims against us 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. Our insurance may not cover claims of these types or may not
be adequate to indemnify us for all liability that may be imposed. Any
imposition of liability, particularly liability that is not covered by insurance
or is in excess of insurance coverage, could result in significant costs and
expenses and damage our reputation.
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Future demand and market acceptance for Internet advertising remains
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 continue 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.
In addition, if the security of our web site is compromised, the information
we gather from our users, including credit card information, may be accessed by
unauthorized users accessing our systems remotely. In such an event, current and
potential users may be reluctant to use our services or provide us with the
personal information we need to adequately develop and maintain individual user
profiles. This could prevent us from attracting and retaining the advertisers
and other strategic partners we require to achieve and sustain revenue growth.
In addition, as a result of these security and privacy concerns, we may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by security breaches, and we may be subject to legal
claims of users if unauthorized third parties gain access to our system and
alter, destroy or misappropriate our user's personal information. Also, any
public perception that we engaged in the unauthorized release of user
information, whether or not correct, would adversely affect our ability to
attract and retain users. In addition, the FTC and state agencies have been
investigating the use by Internet companies 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.
Our ability to fully capitalize on the growth opportunities presented by the
Internet depends primarily on the continued growth of the Internet. 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 the Internet may inhibit usage, including:
- Inadequate network infrastructure
- Security and privacy concerns
- Inconsistent quality of service
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- Lack of cost-effective, high speed service
- Failure of the Internet as a viable commercial marketplace.
On the other hand, if Internet usage grows too quickly, the infrastructure
may not be able to support the demands placed on it, 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 occur
frequently in the future, Internet usage, as well as usage of our web site,
could grow more slowly or decline.
Because the Internet is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry standards,
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 delay or
prevent the successful marketing of new products and services. In addition, any
enhancements must meet the requirements of our 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.
In addition, we are and expect to continue to be dependent on various third
parties for software, systems and related services. For example, we expect to
rely on third party service providers 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 the 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 other service providers. As a result, our
ability to deliver various services to our users may be adversely affected by
the failure of these third parties to provide reliable software, systems and
related services to us. This failure could harm our business.
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-
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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.
Because the core of our business strategy is the expansion of the DEM
strategy onto the Internet, our future success will depend on our ability to
attract members of the DEM community to our web site. Although this particular
population segment is more limited in terms of number and percentage of Internet
users than the overall U.S. population, we believe that the potential growth in
Internet usage by members of the DEM community represents an opportunity for
EChapman.com. However, if the DEM community does not follow the general trend
toward increased Internet usage or if we are unable to attract these potential
users to our web site, our business, results of operations and financial
condition would be materially and adversely affected.
ECHAPMAN.COM PLAN OF OPERATION
Our ability to implement our business strategy depends primarily upon the
successful and timely completion and launch of our web site. Although we
launched a prototype web site in November 1999, we are currently developing the
formal 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 within
approximately two months after the closing of the mergers. We have not
identified a developer for our formal web site at this point because we intend
to use a portion of the proceeds of our initial public offering to retain a
developer and to pay for the design and development of the web site.
We intend to operate CHAPMAN TRADING through Chapman On-Line, Inc, a
subsidiary of The Chapman Co., under the terms of a separate clearing agreement
between Chapman On-Line and the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corporation. Chapman On-Line has not yet commenced
operations. We anticipate that Chapman On-Line will be separately licensed as
broker-dealer with the SEC, all 50 states, Puerto Rico and the District of
Columbia and that it will become a member firm of the NASD.
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
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substantially completed and ready for visitors within six months after the
closing of the mergers.
These time frames are based upon our management's research of the online
industry as well as discussions with web site design and development firms.
Although we have engaged a web site design and development firm in connection
with the development of our prototype web site, we are only in the preliminary
stages of negotiations with respect to the design, development and hosting of
our formal web site and have not finalized any agreements with respect to those
services. Our ability to retain a qualified web site design, development firm
and hosting services are essential to our ability to implement our plan of
operation.
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
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
We currently estimate that during the next twelve months, the cost of web
site design and development will be at least $6 million and that our marketing
and advertising expenditures will total approximately $14 million. Because we
are a new entrant to the Internet market, these expenditures may be
significantly higher than we anticipate.
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
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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. We have made no arrangements for
additional financing, and in the event that we require additional financing, we
may not be able to obtain it on favorable terms, if at all.
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
Our securities brokerage and investment banking subsidiary, The Chapman Co.,
intends to use the DEM strategy in its business by marketing financial services,
primarily investment banking services, to DEM companies. We have identified
almost 200 DEM companies with which we seek to establish a relationship. Our
target client with respect to our brokerage and investment banking services are
small capitalization companies traded in the over-the-counter market and
privately-held companies undertaking an initial public offering.
BROKERAGE SERVICES
Our securities brokerage and investment banking subsidiary, The Chapman Co.,
provides brokerage services to institutional and retail clients. The Chapman Co.
is registered as a broker-dealer with the SEC and in 50 states, the District of
Columbia, and Puerto Rico and is a member firm of the NASD.
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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 Chicago Stock Exchanges and executes buy and sell orders in the
over-the-counter markets. Approximately 44% of The Chapman Co.'s revenue during
the years ended December 31, 1999 and 1998, were derived from its brokerage
business.
The Chapman Co. clears all transactions for its brokerage customers on a
fully-disclosed basis with its 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. Under
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.
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 25%
and 17% of The Chapman Co.'s revenue during the years ended December 31, 1999
and 1998, respectively, were derived from secondary market trading.
The Chapman Co. is approved to be a registered market-maker for the
securities of up to five companies at any time, including Chapman Holdings and
Chapman Capital Management Holdings. Of the number of trades of The Chapman Co.
as a registered market-maker during 1999, approximately 29.5% were in Chapman
Capital Management Holdings, 25.6% were in Broadvision, Inc., approximately
17.2% were in Popular, Inc., approximately 14.1% were in Gemstar International
Group LTD, approximately 9.5% were in Chapman Holdings, and approximately 4.1%
were in Autodesk, Inc.
The Chapman Co.'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. The stock of Chapman Holdings held by The
Chapman Co. in its market making inventory is recorded in the equity section at
cost like treasury stock. The Chapman Co. experienced a loss on trading of
$264,000 for the year ended December 31, 1998 and a gain on trading of
$1,617,000 for the year ended December 31, 1999. Most of the 1998 loss is
attributable to an unrealized loss of value on The Chapman Co.'s
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market-making inventory of Chapman Capital Management Holdings of approximately
$105,000. The 1999 gain is primarily attributable to the $1,290,000 unrealized
gain and a $168,000 realized gain on the value of The Chapman Co.'s
market-making inventory of Chapman Capital Management Holdings. As of
December 31, 1998 The Chapman Co.'s inventory of market making securities was
$1,500,000, which was attributable to Chapman Capital Management Holdings'
stock. As of December 31, 1999, The Chapman Co.'s inventory of market-making
securities was $2,084,000, which was attributable to Chapman Capital Management
Holdings' stock.
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, 1999 and 1998,
approximately 6% and 16%, 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 the future, The Chapman Co. plans to seek to manage or co-manage an
increasing number of the underwritings in which The Chapman Co. participates.
Our ability to extend the DEM strategy to corporate underwritings depends on our
ability to identify potential clients fitting the DEM company profile and
convincing such potential clients that The Chapman Co. is the right investment
banking firm for their needs. We have not conducted any independent research to
test the marketability of the DEM strategy, nor have we engaged in any
significant marketing of the strategy. Therefore, while we believe that the
concept is viable, the level of market acceptance is largely unknown. In
addition to this DEM corporate finance strategy, The Chapman Co. is aggressively
seeking larger allocations in corporate underwriting syndicates managed by other
investment banking firms.
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 88 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, 1999 and 1998, approximately 18% 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.
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The Chapman Co. is seeking larger positions in state and local public
finance transactions. We expect that the availability of the net proceeds from
this offering should enhance our ability to undertake larger participations, and
we believe that The Chapman Co. will be in a better position to seek manager
roles in these transactions, entitling it to receive management fees in addition
to selling concessions. We intend to expand The Chapman Co.'s presence in states
with major issuers of negotiated tax-exempt bonds and by seeking more
assignments as manager of such transactions. We also intend to expand The
Chapman Co.'s participation in agency debt transactions as a member of selling
groups in direct offerings and syndicates, as well as aggressively seeking
management roles in these offerings.
RESEARCH
The 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.
We believe that initially this expansion will not require increases in our
current staffing levels. Over the last 18 months, we have added three analysts
to our research department, and these analysts are working to build their list
of covered companies. We believe that these efforts will allow us to increase
the number of DEM companies covered by our research from 20 to 40 by the end of
2000 without hiring additional research personnel. However, we are also
contemplating hiring of up to three additional analysts over the next 12 months
as part of the overall EChapman.com plan of operation, and we believe that this
will allow us to further augment our research efforts and allow us to provide
research coverage of additional DEM companies.
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
The merger of Chapman Capital Management Holdings will facilitate our
provision of investment advisory services. A description of our investment
advisory services is located under the heading "Description of Chapman Capital
Management Holdings."
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 currently 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.
Following the consummation of the merger of Chapman Insurance Holdings, we
intend to continue to offer annuity products on an agency basis through Chapman
Insurance Agency. We also expect to expand our insurance operation to include
sales of annuity products through our web site. Our implementation of this
Internet strategy will, however, require us to register as an insurance agent in
all states in which we propose to sell insurance over the Internet. Because
Chapman Insurance Agency is currently registered as an agent only in Maryland,
we anticipate that obtaining the necessary regulatory approvals to sell
insurance in the remaining 49 states will be a lengthy and costly process.
However, because we have not begun this process, we cannot estimate the exact
amount of time or the cost which we may incur in pursuing this online insurance
strategy.
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
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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 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.
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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. and Chapman On-Line are each registered as a broker-dealer
with the SEC and 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 50 states and the District of Columbia and
Puerto Rico. Chapman On-Line is registered as a broker-dealer in 36 states, the
District of Columbia and Puerto Rico, has applications for registration pending
in 14 states, and is a member of the NASD.
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
- 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,
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charges and fees related to investment in any mutual fund registered under the
1940 Act.
As registered broker-dealers and member firms of the NASD, The Chapman Co.
and Chapman On-Line are 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 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, which consists of 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. As of December 31, 1999, The Chapman Co. had net
capital and a net capital requirement of $1,528,000 and $250,000, respectively.
The Chapman Co.'s ratio of aggregate indebtedness to net capital was .5 to 1,
which is slightly less than the ratio of 0.7 to 1 at December 31, 1998. As
Chapman On-Line is not yet active, it had the minimum required net capital of
$100,000 and net capital of $135,000 as of December 31, 1999, and it had no
aggregate indebtedness as of December 31, 1999.
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
under the 1995 consent agreement. Under 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; however, we do not believe that this will adversely affect our
business because 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
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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. As Chapman On-Line will be
primarily involved in brokerage activities, it is not currently anticipated that
its activities will require intensive use of capital.
INVESTMENT ADVISORY SERVICES
A description of government regulation affecting our investment advisory
services is located under the heading "Description of Chapman Capital Management
Holdings."
INTERNET BANKING
Our plans for establishing an Internet bank are still at a very preliminary
stage. At this point in our exploratory process, we have not yet decided whether
to proceed with owning and operating an Internet bank, nor have we determined,
among other things, which type of depository institution might offer the most
flexibility, or whether to charter a new institution or acquire an existing
institution. If we acquire a financial institution, we will be would be limited
by federal banking law, and particularly by the recently-enacted
Gramm-Leach-Bliley Act to activities that are financial in nature.
A company that owns or controls a bank or thrift may not engage in
commercial activities, including retail or manufacturing activities. While
EChapman.com's current activities in providing securities brokerage, investment
banking, investment advisory and annuity activities appear to be permissible
financial activities for a financial holding company that owns a bank or thrift
under the provisions of the recently-enacted Gramm-Leach-Bliley Act. However,
the acquisition of a bank or thrift could have the effect of curtailing
EChapman.com's future business opportunities, including those commercial
activities conducted via the Internet.
The banking regulators have not yet issued regulations or otherwise
interpreted the Gramm-Leach-Bliley Act; therefore, it is unclear what range of
Internet activities will be viewed as permissible because they are deemed
financial in nature or incidental to financial activities. Therefore, we must
also evaluate whether the establishment of an Internet Bank would prohibit or
seriously limit our expansion into the offering of non-financial products and
services to the DEM community.
If we do enter the banking business, the chartering and ownership of a bank
or thrift involve certain additional costs and risks. The acquisition of a bank
or thrift, particularly a bank or thrift proposing to engage in extensive
Internet activities, involves a lengthy and costly application process which
involves preparation of a
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detailed business plan, development of extensive policies and procedures, and
integration of a comprehensive back office structure with systems to conduct the
business, keep the records, and ensure regulatory compliance of the institution.
The application process also provides an opportunity for public comment on
the application, which could further delay the processing of an application.
Further, the banking agency reviews a plan to meet the needs of the community to
be served by the proposed bank or thrift and particularly low- and
moderate-income areas. The banking agency reviewing the proposed acquisition of
a bank or thrift could also impose additional conditions on the financial
institution and its proposed integration with the other financial services
subsidiaries of EChapman.com.
By owning a bank or thrift, EChapman.com would become a regulated holding
company of a financial institution. Not only the financial institution, but
EChapman.com itself, as the parent company, is likely to be required to meet
certain capital requirements and to subject itself to the regulatory
requirements and supervision of a federal and/or state banking agency. The bank
or thrift would be subject to extensive regulation, including regulations of its
activities and investments, its capitalization, its risk management policies and
procedures and its relationships with affiliated companies.
The need to address extensive regulatory conditions as well as the
comprehensive banking regulations could extend the period to integrate fully any
Internet bank with our existing range of financial products and thus could delay
the synergies we would hope to realize in acquiring a financial institution.
Therefore, we cannot assure you that we will implement our plans to establishing
an Internet bank or that, if established, this bank would represent a
significant source of revenue.
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 womancentral.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
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- 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.
To remain competitive, we must constantly expand and develop new content
areas and services; however, we may not be able to respond to changing consumer
preferences 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 products, our
business could be adversely affected.
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 as a result of the recently-enacted
Gramm-Leach-Bliley Act, which removes barriers to affiliation between banks,
insurance companies and securities firms.
Our securities brokerage and investment banking 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)
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- 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.
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 accomodate the additional employees we plan
to hire during our first 12 months of operations, we expect to lease additional
space.
We also maintain leases in the following cities for our securities
brokerage's branch sales offices:
- San Francisco, California--three year lease expiring December 2001
- Chicago, Illinois--one year lease expiring October 2000
- Memphis, Tennessee--one year lease expiring February 2001
- Dallas, Texas--six month lease with automatic six month extensions
Until November 30, 1999, we leased office space in Birmingham, Alabama on a
month-to-month basis. On March 10, 1999, we entered into a pre-lease agreement
for new office space in Birmingham, Alabama, which we have occupied since
December 1, 1999, and we are currently in the process of negotiating the terms
of this lease. In addition, we lease office space on a month-to-month basis in
Philadelphia, Pennsylvania. We also maintain a lease in Denver, Colorado which
expires in May 2000. This space previously housed one brokerage employee;
however, we have subleased this space to a third party and have relocated our
Denver sales office to the home office of our employee.
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-
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- 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 December 31, 1999, we had 61 full-time employees. As of December 31,
1999, EChapman.com had one full-time employee. As of December 31, 1999, The
Chapman Co. had 48 full-time employees, including 31 registered representatives.
As of December 31, 1999, Chapman Capital Management had 12 full-time employees
and three employees which it shares with The Chapman Co. These shared employees
serve as executive officers for both Chapman Capital Management and
The Chapman Co. As of December 31, 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. EChapman.com's future success will
depend on its ability to identify, attract, retain and motivate highly skilled
technical, managerial, sales, marketing and customer service personnel.
Competition for these persons is intense. We cannot assure you that we will be
able to attract or retain these personnel.
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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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 assumed
transactions 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 EChapman.com, Chapman
Holdings, Chapman Capital Management Holdings and Chapman Insurance Holdings
including the related notes which 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, 1999 for operating results and as of December 31,
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 $6 per share (the minimum price for the mergers to
close) less underwriting discounts, commissions and offering costs.
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<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
CHAPMAN
CAPITAL CHAPMAN
CHAPMAN MANAGEMENT INSURANCE
ECHAPMAN HOLDINGS HOLDINGS HOLDINGS PRO FORMA
HISTORICAL (A) HISTORICAL (A) HISTORICAL (A) HISTORICAL (A) ADJUSTMENTS PRO FORMA
-------------- -------------- -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA BALANCE SHEET:
Assets
Cash, cash equivalents
and marketable
securities.......... $ -- $1,274,000 $3,036,000 $ -- $ (125,000)(b) $ 4,185,000
Cash deposits with
clearing
organization........ -- 2,674,000 -- -- -- 2,674,000
Securities owned...... -- 2,084,000 -- -- (2,084,000)(c) --
Management fees
receivable.......... -- -- 575,000 -- -- 575,000
Receivables from
brokers and
dealers............. -- 584,000 -- -- -- 584,000
Other receivables..... -- 629,000 278,000 -- (456,000)(d) 451,000
Advances to officer/
employee............ -- 688,000 372,000 -- -- 1,060,000
Prepaids and other
assets.............. 934,000 499,000 332,000 -- -- 1,765,000
Intangibles........... -- 103,000 245,000 -- 28,342,000 (e) 28,690,000
---------- ---------- ---------- --------- ------------ -----------
Total assets.......... $ 934,000 $8,535,000 $4,838,000 $ -- $25,677,000 $39,984,000
========== ========== ========== ========= ============ ===========
Liabilities
Accounts payable and
accrued expenses.... $ 805,000 $ 873,000 $ 500,000 $ 301,000 $ (175,000)(d) $ 2,304,000
Margin loan payable... -- 1,750,000 -- -- -- 1,750,000
Other liabilities..... 410,000 34,000 150,000 -- (281,000)(d) 313,000
---------- ---------- ---------- --------- ------------ -----------
Total liabilities..... 1,215,000 2,657,000 650,000 301,000 (456,000) 4,367,000
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 -- 24,372,000 (f) 37,514,000
Accumulated deficit... (281,000) (1,025,000) (1,054,000) (303,000) 2,382,000 (g) (281,000)
Proprietary stock, at
cost................ -- (842,000) -- -- (794,000)(h) (1,636,000)
Cumulative realized
(loss) gain on
proprietary stock... -- (161,000) -- -- 168,000 (h) 7,000
---------- ---------- ---------- --------- ------------ -----------
Total stockholders'
(deficit) equity.... (281,000) 5,878,000 4,188,000 (301,000) 26,133,000 35,617,000
---------- ---------- ---------- --------- ------------ -----------
Total liabilities and
stockholders'
equity.............. $ 934,000 $8,535,000 $4,838,000 $ -- $25,677,000 $39,984,000
========== ========== ========== ========= ============ ===========
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
PRO FORMA BALANCE SHEET:
Assets
Cash, cash equivalents
and marketable
securities.......... $17,600,000 (i) $21,785,000
Cash deposits with
clearing
organization........ -- 2,674,000
Securities owned...... -- --
Management fees
receivable.......... -- 575,000
Receivables from
brokers and
dealers............. -- 584,000
Other receivables..... -- 451,000
Advances to officer/
employee............ -- 1,060,000
Prepaids and other
assets.............. (934,000)(j) 831,000
Intangibles........... -- 28,690,000
----------- -----------
Total assets.......... $16,666,000 $56,650,000
=========== ===========
Liabilities
Accounts payable and
accrued expenses.... $ (805,000)(j) $ 1,499,000
Margin loan payable... -- 1,750,000
Other liabilities..... (129,000)(j) 184,000
----------- -----------
Total liabilities..... (934,000) 3,433,000
Stockholders' Equity
Common stock.......... 3,000 (i) 16,000
Additional paid-in
capital............. 17,597,000 (i) 55,111,000
Accumulated deficit... -- (281,000)
Proprietary stock, at
cost................ -- (1,636,000)
Cumulative realized
(loss) gain on
proprietary stock... -- 7,000
----------- -----------
Total stockholders'
(deficit) equity.... 17,600,000 53,217,000
----------- -----------
Total liabilities and
stockholders'
equity.............. $16,666,000 $56,650,000
=========== ===========
</TABLE>
- ------------------------------
(a) See the financial statements included elsewhere in this prospectus.
(b) To reflect the $125,000 that will be paid to the stockholders of Chapman
Insurance Holdings in the purchase of all of the stock of Chapman Insurance
Holdings.
(c) To eliminate the proprietary stock of Chapman Capital Management held by
Chapman Co. to account for it like treasury stock on a consolidated basis.
(d) To eliminate intercompany receivable and payable.
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(e) To reflect the step up of the assets from the acquisitions of Chapman
Holdings and Chapman Insurance Holdings. As Chapman Capital Management
Holdings has the same majority owner as Chapman Holdings, the market value
(at the assumed IPO price of $15 per share) in excess of Chapman Holdings'
net book value for the percentage of Chapman Holdings shares held by owners
of Chapman Holdings other than the majority owner was stepped up. The
portion of Chapman Holdings' net book value representing the shares of the
same majority owner is recorded at historical net book value.
<TABLE>
<S> <C> <C>
Chapman Holdings' market value assuming the $15 per share
IPO price times the 5,709,204 shares (2,953,622 shares @ a
1.93295 conversion ratio)................................. $85,638,000
Less Chapman Holdings' book value as of December 31, 1999... 5,878,000
-----------
Excess market value......................................... 79,760,000
Percentage of stock held by non-controlling owners.......... 35%
-----------
Step up adjustment for Chapman Holdings..................... 27,916,000
Goodwill from Chapman Insurance Holdings acquisition:
Negative book value....................................... $301,000
Purchase price............................................ 125,000
--------
426,000
-----------
Total goodwill.............................................. $28,342,000
===========
</TABLE>
(f) To reflect the following changes to additional paid-in capital:
<TABLE>
<S> <C>
Eliminate accumulated deficit of Chapman Holdings........... $(1,025,000)
Eliminate accumulated deficit of Chapman Capital Management
Holdings.................................................. (1,054,000)
Eliminate accumulated deficit of Chapman Insurance
Holdings.................................................. (303,000)
Total Goodwill Step-up...................................... 28,342,000
Additional shares of common stock to reflect exchange of
Chapman Holdings and Chapman Capital Management Holdings
common shares for EChapman.com common shares.............. (5,000)
Eliminate effect of cash to be paid to the stockholders of
Chapman Insurance Holdings included in goodwill........... (125,000)
Eliminate the gain from proprietary stock of Chapman Capital
Management held by Chapman Co. in consolidation........... (1,458,000)
-----------
Total pro forma adjustment.................................. $24,372,000
===========
</TABLE>
(g) To eliminate the accumulated deficit of Chapman Holdings, Chapman Capital
Management Holdings and Chapman Insurance Holdings.
(h) To reflect cost of and realized gain on proprietary stock for Chapman
Capital Management Holdings held by Chapman Co. which is treated like
treasury stock in consolidation.
(i) To reflect net proceeds from issuance of 3,333,333 shares of common stock at
an assumed offering price of $6 per share (the minimum price for the mergers
to close) less underwriting discounts and commissions and offering costs.
(j) To record the offering cost incurred by EChapman.com against the net
offering proceeds and reduce the liability.
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<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------
CHAPMAN
CAPITAL CHAPMAN
CHAPMAN MANAGEMENT INSURANCE
ECHAPMAN HOLDINGS HOLDINGS HOLDINGS PRO FORMA PRO FORMA AS
HISTORICAL (A) HISTORICAL (A) HISTORICAL (A) HISTORICAL (A) ADJUSTMENTS ADJUSTED
-------------- -------------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
OPERATIONS:
REVENUE
Commissions............ $ -- $4,190,000 $ -- $ 45,000 $ -- $ 4,235,000
Underwriting and
management fees...... -- 1,168,000 -- -- -- 1,168,000
Investment management
fees................. -- -- 4,282,000 -- -- 4,282,000
Interest, dividends and
other income......... -- 399,000 340,000 -- (37,000)(b) 702,000
Gains on trading....... -- 1,617,000 -- -- (1,458,000)(c) 159,000
---------- ---------- ---------- --------- ----------- ------------
Total revenue...... -- 7,374,000 4,622,000 45,000 (1,495,000) 10,546,000
---------- ---------- ---------- --------- ----------- ------------
EXPENSE
Compensation and
benefits............. 62,000 3,567,000 1,211,000 16,000 -- 4,856,000
Floor brokerage and
clearing fees........ -- 702,000 -- -- -- 702,000
Management fees........ -- -- 1,524,000 -- -- 1,524,000
Other expenses......... 219,000 3,648,000 2,740,000 296,000 1,380,000(d) 8,283,000
---------- ---------- ---------- --------- ----------- ------------
Total expense...... 281,000 7,917,000 5,475,000 312,000 1,380,000 15,365,000
---------- ---------- ---------- --------- ----------- ------------
Loss before income tax
benefit.............. (281,000) (543,000) (853,000) (267,000) (2,875,000) (4,819,000)
INCOME TAX BENEFIT..... -- (101,000) -- -- -- (101,000)
---------- ---------- ---------- --------- ----------- ------------
Net loss............... $ (281,000) $ (442,000) $ (853,000) $(267,000) $(2,875,000) $ (4,718,000)
========== ========== ========== ========= =========== ============
</TABLE>
- ------------------------------
(a) See the financial statements included elsewhere in this prospectus.
(b) To eliminate interest on intercompany loan.
(c) To eliminate the gain on the proprietary stock activity of Chapman Capital
Management Holdings stock held by Chapman Co. which is treated like treasury
stock in consolidation.
(d) To reflect amortization of the goodwill, resulting from the mergers because
of the step up in basis (see page 101 and accompanying footnotes), of
$1,417,000 for the period ($28,342,000 over 20 years), and to eliminate the
intercompany interest expense of $37,000.
103
<PAGE>
ECHAPMAN.COM 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.
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 (1) EChapman.com was not
incorporated until May 14, 1999; and (2) its operations since May 1999 have
consisted of approximately $281,000 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 $28.3 million in goodwill, which will be amortized
over its estimated life of 20 years. This goodwill amortization will result in a
charge against earnings of $1,417,000 per year on a pre-tax basis.
104
<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,
---------------------------------------------------
1998 1999
------------------------ ------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNTS REVENUE AMOUNTS REVENUE
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Commissions............................................... $ 2,414,000 36.6% $ 4,190,000 39.9%
Underwriting and management fees.......................... 700,000 10.6 1,168,000 11.1
Investment management fees................................ 3,136,000 47.6 4,282,000 40.8
Interest and dividends.................................... 502,000 7.6 702,000 6.7
(Loss) gain on trading.................................... (159,000) (2.4) 159,000 1.5
----------- ----- ----------- ------
Total revenue........................................... 6,593,000 100.0 10,501,000 100.0
----------- ===== ----------- ======
EXPENSE:
Compensation and benefits................................. 3,043,000 46.2 4,778,000 45.5
Floor brokerage and clearing fees......................... 431,000 6.5 702,000 6.7
Management fees........................................... 1,178,000 17.9 1,524,000 14.5
Other expense............................................. 3,353,000 50.8 6,345,000 60.3
----------- ----- ----------- ------
Total expense........................................... 8,005,000 121.4 13,349,000 127.0
----------- ----- ----------- ------
Loss before income tax benefit............................ (1,412,000) (21.4) (2,848,000) (27.0)
INCOME TAX BENEFIT.......................................... (450,000) (6.8) (101,000) (0.9)
----------- ----- ----------- ------
Net Loss.................................................. $ (962,000) (14.6)% $(2,747,000) (26.1)%
=========== ===== =========== ======
</TABLE>
- ------------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total revenue increased by $3,908,000, or 59.3% to $10,501,000 for 1999 from
$6,593,000 for 1998. The increase in revenue was primarily related to an
increase in commission revenue and investment management fees. In addition, the
gain on trading increased by $318,000, or 200.0% to a gain of $159,000 for 1999
compared to a loss on trading of $159,000 in 1998.
Commissions revenue increased by $1,776,000, or 73.6% to $4,190,000 for 1999
from $2,414,000 for 1998. Commissions revenue from the sale of equities
increased $907,000 or 55.6%, to $2,538,000 for the year ended December 31, 1999
from $1,631,000 for the prior comparable period. Commission revenue on fixed
income securities increased $537,000, or 443.8% to $658,000 for the year ended
December 31, 1999 from $121,000 for the prior comparable period. This increase
in fixed income can be attributed to favorable interest rates throughout the
year. The overall increase in commission revenue was also due to targeted growth
in revenues from municipal syndications which increased $200,000, or 27.0% to
$942,000 for the year ended December 31, 1999 from $742,000 for the prior
comparable period. Chapman Co. participated in 48 municipal syndications during
the year ended December 31, 1999 compared to 40 in the prior comparable period.
Chapman Co. was also senior manager of seven municipal transactions in 1999
compared to four in 1998.
105
<PAGE>
Underwriting and management fees increased by $468,000, or 66.9% to
$1,168,000 for 1999 from $700,000 for 1998. The net increase for the year ended
December 31, 1999 is due to an increase in management fees of $598,000 and a
decrease in syndication fees of $130,000. The increase in management fees is
attributable to increased staffing within the public finance sector of the
business.
Investment management fees revenue increased by $1,146,000, or 36.5% to
$4,282,000 for 1999 from $3,136,000 for 1998. This increase was primarily due to
a net increase of $180,001,000 or 30.4% in assets under management to
$771,386,000 at the end of 1999, up from $591,385,000 at the end of 1998. The
increase in assets under management was due to investment performance and the
net changes in client decisions regarding the placement of their funds for
investment.
Interest and dividend revenue increased by $200,000, or 39.8% to $702,000
for 1999 from $502,000 for 1998. This increase is due to higher cash balances
associated with the net proceeds from Chapman Capital Management's offering of
common stock.
The gain on trading increased by $318,000, or 200.0% to a gain of $159,000
for 1999 compared to a loss on trading of $159,000 in 1998. This is primarily
due to a increase in the market value of Chapman Co.'s market making securities
inventory during the year.
Total expense increased by $5,344,000, or 66.8% to $13,349,000 for 1999 from
$8,005,000 for 1998. Expenses increased in all areas due to expanded operations
and marketing efforts, the opening of new offices in selected markets, and
development of new mutual funds.
Compensation and benefits increased by $1,735,000, or 57.0% to $4,778,000
for 1999 from $3,043,000 for 1998. As a percentage of revenue, these expenses
decreased to 45.5% in 1999 from 46.2% in 1998. Compensation expense includes
salaries and sales commissions paid to brokers, which varies in relation to
changes in commission revenue. The increase in compensation and benefits is
primarily attributable to the increase in commissions paid to brokers due to
increased retail and municipal sales volume. The Company added 18 salaried
employees during the year. In addition, there was a full year of salary for two
senior positions at Chapman Capital Management that were added during the fourth
quarter of 1998.
Floor brokerage and clearing fees increased by $271,000, or 62.9% to
$702,000 for 1999 from $431,000 for 1998. This increase is mainly due to an
increase in the number of broker's and related transaction volume offset by a
slight decline in the average cost per transaction as a result of changing
clearing firms in June of 1999.
Management fee expense, which consists primarily of Chapman Capital
Management's payments to sub-advisors in connection with the DEM-MET Trust,
increased by $346,000, or 29.4% to $1,524,000 for 1999 from $1,178,000 for 1998.
The increase in such fees reflects an increase in assets under management of
$180,001,000 or 30.4% to a total of $771,386,000 as of December 31, 1999 from
$591,385,000 as of
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<PAGE>
December 31, 1998. Management fee expense as a percentage of revenue decreased
to 14.5% of total revenue for 1999 as compared to 17.9% of total revenue for
1998.
Other expense increased by $2,992,000, or 89.2% to $6,345,000 for 1999 from
$3,353,000 for 1998. The increase was primarily due to increased travel and
development costs of $339,000, occupancy and equipment expense related to the
opening of new offices of $179,000, printing expenses of $159,000, communication
expense of $96,000, telephone costs of $84,000, and conference and seminar costs
of $92,000. The increase in these costs is due to our growth and expansion
efforts. The expansion strategy and being a public company have required us to
increase our use of professional services, which has resulted in an increase in
legal and consulting fees of $701,000, and increased marketing and advertising
of $475,000. The increase in legal fees is also due to legal expenses of
$161,000 for developing and registering four new DEM strategy mutual funds (the
"mutual funds") for which we will not be reimbursed. The increase in other
expense is also due to paying approximately $251,000 of expenses for the mutual
funds, which relate primarily to expenses in excess of expense limitation
agreements that we have with the mutual funds. As the size of these mutual funds
grow, the amount that we cannot be reimbursed for will increase.
Income tax benefit decreased by $349,000, or 77.6% to a tax benefit of
$101,000 for 1999 from a tax benefit of $450,000 for 1998. The tax benefit
decreased due to the valuation reserve established on its 1999 income tax
benefit.
The net loss increased by $1,785,000, or 185.6% to $2,747,000 in 1999 from
$962,000 in 1998. This change was a result of the 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 December 31, 1999 were $11,289,000.
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
December 31, 1999 was $1,528,000, which was $1,278,000 in excess of its minimum
NASD net capital requirement.
Our combined cash and cash equivalents were $3,715,000 as of December 31,
1999.
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<PAGE>
Cash flows used in operating activities decreased by $806,000 or 21.3% to
$2,982,000 for the year ended December 31, 1999 from $3,788,000 for the year
ended December 31, 1998. This decrease was due to a change in operating assets
and liabilities.
Cash flows used in investing activities decreased by $579,000, or 51.6%, to
$544,000 for the year ended December 31, 1999 from $1,123,000 for the year ended
December 31, 1998. This decrease was primarily due to fewer purchases of
investments during 1999 and less advances made to officer.
Cash flows from financing activities decreased by $12,044,000 or 100.8% to
$91,000 used in financing activities for the year ended December 31, 1999
compared to $11,953,000 provided by financing activities for the year ended
December 31, 1998. This decrease is due to the net proceeds from the Chapman
Holdings' and Chapman Capital Management Holdings' initial public offerings
received in February and August 1998, respectively.
On August 14, 1998, Chapman Capital Management Holdings consummated an
initial public offering of its common stock as a result of 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 U.S. government 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 December 31, 1999, we had outstanding unsecured loans to
Mr. Chapman in the amount of $1,038,174, 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.
108
<PAGE>
YEAR 2000 SYSTEM COSTS
Because of the arrival of the Year 2000, existing software programs and
operating systems were reviewed to determine if they can accommodate information
that employs dates after December 31, 1999. As of December 31, 1999, we have
incurred direct Year 2000 readiness costs of approximately $226,000 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 that our total Year 2000 readiness costs will
be approximately $338,500 of which most of the additional cost are payments on
equipment leases.
Our management prepared a written plan detailing our software and operating
systems readiness issues for the Year 2000. The plan identified 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 continued to work with
our hardware and software vendors and other third parties to complete our Year
2000 contingency plan through the end of 1999 and during the first quarter of
the year 2000.
Our Year 2000 readiness plan involved 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.
PHASE III--TESTING. This phase involved 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 a 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 identified systems as
"mission-critical" and "non mission-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
109
<PAGE>
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 identified the third parties upon which we rely for mission-critical
systems and contacted these third parties to confirm that their systems were
Year 2000 ready. Responses from the majority of these vendors during the first
and second quarters of 1999 indicated that they expected to reach compliance by
the third quarter of 1999. As of the date of this prospectus, all of our vendors
of mission critical systems have verified readiness, and we have not had any
problems with these vendors' systems not being Year 2000 ready.
Although we suffered no significant Year 2000 problems at the start of 2000
or through March 28, 2000, and 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 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. These efforts may
result in additional costs in excess of current allocation and estimates.
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<PAGE>
ECHAPMAN.COM PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of our common stock as of January 25, 2000 as adjusted to
reflect the sale of 3,333,333 shares of common stock in the initial public
offering of EChapman.com and the mergers by
- Each person known by us who will beneficially own 5% or more of the
outstanding shares of common stock following the initial public offering
and the mergers,
- Each of our directors, director nominees director nominees and director
nominees,
- Each executive officer named in the summary compensation table, and
- 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.
The number of shares of common stock outstanding used in calculating the
percentage for each listed person includes options exercisable within 60 days of
December 31, 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 January 25, 2000, and
16,528,178 shares outstanding upon consummation of the initial public offering
assuming completion of the pending mergers of Chapman Holdings and Chapman
Capital Management Holdings.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
AFTER MERGERS AND PRIOR AFTER THE MERGERS AND
TO OFFERING(2) OFFERING
NAME AND ADDRESS OF ---------------------------------- ----------------------------------
BENEFICIAL HOLDER(1) NUMBER PERCENTAGE NUMBER PERCENTAGE
- --------------------------------------------------- --------- ---------------------- --------- ----------------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr.(3)(4)....................... 9,643,008 73.0% 9,643,008 58.3%
Earl U. Bravo, Sr.(5).............................. 29,809 * 29,809 *
Demetris Brown..................................... 2,233 * 2,233 *
Raymond Haysbert................................... 1,932 * 1,932 *
Mark Jefferson..................................... 0 -- 0 --
Kweisi Mfume....................................... 0 -- 0 --
Adolph Washington.................................. 0 -- 0 --
Vincent McCarley(6)................................ 1,932 * 1,932 *
Tracey Rancifer(7)................................. 2,233 * 2,233 *
All directors and executive officers as a group
(9 persons)...................................... 9,681,147 73.2% 9,681,147 58.4%
</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.
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<PAGE>
(2) Includes a total of 36,165 shares subject to options that are currently
exercisable that are held by the persons named in the table.
(3) Includes shares issuable upon exercise of currently exercisable options to
purchase 11,168 shares.
(4) Includes 547,952 investment shares held by The Chapman Co. in its
market-making inventory and 446,068 shares held in investment advisory
accounts over which Chapman Capital Management, Inc. exercises voting and/or
dispository discretion. These shares have no voting rights so long as they
are held by a subsidiary of EChapman.com. Mr. Chapman is the sole director
of The Chapman Co. The executive officers of The Chapman Co. are Nathan A.
Chapman, president, Earl U. Brown, Sr., secretary and assistant treasurer,
and M. Lynn Ballard, treasurer and assistant secretary. Mr. Chapman
disclaims beneficial ownership of shares held by The Chapman Co. and Chapman
Capital Management, Inc.
(5) Includes shares issuable upon exercise of currently exercisable options to
purchase 20,832 shares of common stock.
(6) Includes shares issuable upon exercise of currently exercisable options to
purchase 1,932 shares.
(7) Includes shares issuable upon exercise of currently exercisable options to
purchase 2,233 shares.
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<PAGE>
MANAGEMENT OF ECHAPMAN.COM
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
Vincent McCarley.......................... 45 Senior vice president, public finance of
The Chapman Co.
Sabrina Warren Bush....................... 41 Senior vice president, equity sales
Tracey C. 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>
Background information for each of Mr. Chapman, Mr. Bravo, Mr. Brown and
Ms. Rancifer is presented under the heading "Chapman Capital Management
Holdings--Management" in this prospectus and proxy statement.
VINCENT MCCARLEY is Senior Vice President of Public Finance of The Chapman
Co. and has served in that capacity since 1998. Prior to his association with
The Chapman Co., Mr. McCarley was a senior vice president at Sieber Brandford
Shank & Co. LLC and the former Grigsby Brandford & Co. where he focused on lease
purchase/certificates of participation, infrastructure, school and redevelopment
financing. Mr. McCarley holds an MBA Pepperdine University and is a municipal
securities principal.
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. In 1997,
Mr. Easterling founded Straight Talk Communications, a production company. From
1988 to 1994, Mr. Easterling was the Program Manager for WJZ-TV. Mr. Easterling
earned his B.A. in Marketing from Howard University.
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., the former bank holding company of Maryland National Bank, 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.
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<PAGE>
CHARLES OWENS is our vice president of special events and has served as the
vice President of special events for The Chapman Co. 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, a
business development organization, 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 the initial public offering of
EChapman.com common stock. Mr. Haysbert has served as president of forum
caterers since 1991 and is the retired president and chairman of the Parks
Sausage Company, the first African-American controlled pubicly 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 the initial public offering of
EChapman.com common stock. 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 the initial public offering of
EChapman.com common stock. In 1999, Mr. Jefferson founded Funburst Media, LLC,
an online service provider, for which he also serves as chairman. In 1998,
Mr. Jefferson founded and became Principal of Envue Technologies, an ecommerce
service provider, a position he still holds. Mr. Jefferson served as vice
president of CertCo., Inc., an ecommerce security firm, from 1997 to 1998. From
1995 to 1997, Mr. Jefferson was a manager at Cisco Systems, a firm specializing
in networking equipment.
ADOLPH WASHINGTON has been nominated to serve as a member of the Board of
Directors of EChapman.com upon the closing of the initial public offering of
EChapman.com common stock. Since 1999, Mr. Washington has served as the Vice
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<PAGE>
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. 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 the initial public offering and the consummation of the mergers, the
audit committee will consist of three 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. Upon the closing of this offering and
the consummation of the mergers, the compensation committee will consist of
three independent directors.
All directors and officers of EChapman.com serve until their successors are
duly elected and qualify.
EXECUTIVE COMPENSATION
The summary compensation and option grants in last fiscal year tables give
effect to the Chapman Holdings and Chapman Capital Management Holdings mergers
as if they occurred at January 1, 1998 and set forth compensation paid to
executive officers by Chapman Holdings and/or Chapman Capital Management
Holdings.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation paid
during the last two fiscal years, to the chief executive officer and the other
four most highly compensated executive officers of EChapman.com whose total
annual salary and bonus exceeded $100,000 during the year ended December 31,
1999.
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<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Nathan A. Chapman Jr................................. 1999 $266,667 $100,000 11,168
President 1998 $200,000 $100,000 --
Vincent McCarley..................................... 1999 $150,000 $ 25,000 --
Senior vice president, public finance of The 1998 75,321 50,000 1,932
Chapman Co.
Earl U. Bravo, Sr.................................... 1999 $105,000 $ 50,000 11,168
Senior vice president, secretary and assistant 1998 $105,000 $ 10,000 9,664
treasurer
Tracey Rancifer...................................... 1999 $ 95,000 $ 20,000 2,234
Senior vice president 1998 N/A N/A N/A
Demetris Brown....................................... 1999 $ 90,000 $ 20,000 --
Chief Financial Officer 1998 N/A N/A N/A
</TABLE>
Mr. Brown's and Ms. Rancifer's annual compensation for 1998 was less than
$100,000.
The annual compensation information for each of Mr. Chapman, Mr. Bravo and
Ms. Rancifer is the same as that presented in the summary compensation table
located under the heading "Chapman Capital Management Holdings--Management--
Executive Compensation" in this prospectus and proxy statement. The compensation
figures represent the amounts paid to Mr. Chapman and Mr. Bravo and
Ms. Rancifer by Chapman Capital Management Holdings, and in the cases of
Mr. Chapman and Mr. Bravo by Chapman Holdings and The Chapman Insurance Agency,
under certain expense sharing arrangements, in each of the years indicated. The
compensation figures for Mr. Brown and Mr. McCarley represent the amounts paid
to them by Chapman Holdings in each of the years indicated.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
in 1999 to the executive officers named in the summary compensation table.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED FISCAL YEAR ($/SHARE) EXPIRATION DATE
- ---- ---------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr....................... 11,168 8.2% $4.13 5/14/2002
Earl U. Bravo, Sr........................... 11,168 8.2% $3.76 5/14/2002
Earl U. Bravo............................... 9,664 7.1% $4.92 9/28/2002
Vincent McCarley............................ 1,932 1.4% $4.92 9/28/2002
Tracey Rancifer............................. 2,233 1.6% $3.76 5/14/2002
</TABLE>
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On September 28, 1998, Chapman Holdings granted Mr. Bravo an option to
purchase 5,000 shares and Vincent McCarley an option to purchase 1,000 shares of
its common stock, each with an exercise price of $9.50, the fair market value of
the stock at the time of the grant, under its Omnibus Stock Plan. As a result of
the Chapman Holdings merger, these options will convert into options under
EChapman.com's Omnibus Stock Plan.
On May 14, 1999, Chapman Capital Management Holdings granted Mr. Chapman an
option for 5,000 shares, Mr. Bravo an option for 5,000 shares and Ms. Rancifer
an option for 1,000 shares of its common stock under its Omnibus Stock Plan.
Mr. Chapman's options were granted with an exercise price of $9.22, which was
110% of the fair market value of the stock of Chapman Holdings at the time of
the grant. Mr. Bravo's and Ms. Rancifer's options were granted with an exercise
price of $8.38, the fair market value of the stock at the time of the grant. As
a result of the Chapman Capital Management Holdings merger, these options will
convert into options under EChapman.com's Omnibus Stock Plan.
Neither of the original option grants by Chapman Holdings or Chapman Capital
Management Holdings were made in contemplation of the mergers and EChapman.com's
initial public offering.
The share number for Mr. McCarley and the 9,664 share number for Mr. Bravo
in the option table reflects the Chapman Holdings option grant multiplied by the
1.93295 exchange ratio for the Chapman Holdings merger, and the exercise price
reflects the original exercise price divided by this exchange ratio. The share
numbers in the option table for Mr. Chapman, Ms. Rancifer and 11,168 of
Mr. Bravo's shares are based upon the Chapman Capital Management option grants
multiplied by the 2.23363 exchange ratio for the Chapman Capital Management
merger. The exercise prices for these options were determined by dividing the
original exercise price of $9.22 in the case of Mr. Chapman and $8.38 in the
cases of Mr. Bravo and Ms. Rancifer by this exchange ratio.
1999 ECHAPMAN.COM, INC. OMNIBUS STOCK PLAN
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. We have
reserved 850,000 shares of our common stock per issuance under our stock option
plan.
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. Chapman Holdings granted options to purchase a total of
42,900 shares of its common stock, including the options granted to Mr. Bravo
and Mr. McCarley
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reflected in the option grant table above, on September 28, 1998. These options
were granted with an exercise price of $9.50 per share, the fair market value of
the Chapman Holdings common stock on the date of the option grants. Chapman
Capital Management Holdings granted options to purchase a total of 24,000
shares, including the options granted to Mr. Chapman, Mr. Bravo and
Ms. Rancifer reflected in the option table above, on May 14, 1999 These options,
except for that granted to Mr. Chapman, were granted with an exercise price of
$8.38, the fair market value of the Chapman Capital Management Holdings common
stock on the date of the option grants. Mr. Chapman's option was granted at 110%
of the fair market value of the Chapman Capital Management Holdings common stock
on the grant date.
Upon consummation of the mergers, there will be 136,510 shares subject to
outstanding stock options This number is based upon the option grants made by
Chapman Holdings and Chapman Capital Management Holdings under their respective
stock plans multiplied by the exchange ratios of 1.93295 and 2.23363 for the
Chapman Holdings and Chapman Capital Management Holdings mergers. As converted,
the Chapman Holdings options constitute 82,910 shares subject to options under
the EChapman.com stock plan, and the Chapman Capital Management Holdings options
constitute 53,600 shares subject to options under the EChapman.com stock plan.
The exercise price of the Chapman Holdings options will be $4.92 per share,
which is the original exercise price divided by the Chapman Holdings exchange
ratio. The exercise price of the Chapman Capital Management Holdings options,
except for that granted to Mr. Chapman, will be $3.76, which is the original
exercise price divided by the Chapman Capital Management Holdings exchange
ratio. Mr. Chapman's option will carry an exercise price of $4.13 per share.
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ECHAPMAN.COM 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, senior 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., a Maryland corporation and the general partner of
Chapman Limited Partnership I a Maryland limited partnership whose operations
consist solely of the ownership and rental of furniture and equipment to the
Chapman Co. 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 each of 1998 and 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 paid
$19,536 on behalf of Chapman Limited Partnership I for certain taxes and related
payments, interest, and penalties. The Chapman Co. and Chapman Capital
Management characterized these 1998 payments as an expense for which they will
not be reimbursed by the partnership and which is related to The Chapman Co.'s
administration of the partnership. On October 22, 1999, Chapman Holdings and
Chapman Capital Management Holdings each paid $49,018 on behalf of the
partnership for the payment of certain taxes and related payments. Chapman
Holdings and Chapman Capital Management Holdings each characterized $24,509 of
these 1999 payments as an expense for which they will not be reimbursed by the
partnership and which is related to the administration of the partnership. The
partnership reimbursed each of Chapman Holdings and Chapman Capital Management
Holdings $19,000 of the 1999 payments on March 13, 2000.
As of December 31, 1999, Mr. Chapman owed EChapman.com's subsidiaries
$1,038,174 in connection with the following notes, including accrued interest,
which notes were issued for purposes unrelated to the businesses of
EChapman.com, Chapman Holdings, Chapman Capital Management Holdings, or their
respective affiliates:
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- 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 $45,000, 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 $65,000, 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.
- Three-year promissory note to The Chapman Co. dated December 31, 1999 in
the amount of $32,836.53, which accrues interest at 4.33% per annum.
In December 1995, Mr. Chapman loaned Chapman Capital Management $100,000,
payable on demand, for the purchase of common stock of an affiliate. In
March 1996, Mr. Chapman loaned Chapman Capital Management an additional $45,000,
payable on demand. These loans provided for a fixed-interest payment of $14,500,
or an effective flat rate of 10% of the principal. On June 30, 1998, Chapman
Capital Management Holdings repaid these loans in full.
The Chapman Co. acted as the underwriter, on a best efforts basis, for the
sale of DEM, Inc. common stock. The Chapman Co. was paid $432,008 and $0 in
management fees and commissions in the years ended December 31, 1997 and
December 31, 1998, respectively.
Until DEM, Inc.'s, liquidation in 1998, Chapman Capital Management served as
the investment adviser and administrator of DEM, Inc. In connection with its
investment advisory relationship with DEM, Inc., Chapman Capital Management was
paid $139,000 and $150,000 in advisory and administrative fees in the years
ended December 31, 1997 and December 31, 1998, respectively.
In connection with Chapman Capital Management's provisions of investment
advisory services to The Chapman U.S. Treasury Money Fund, Chapman Capital
Management Holdings was paid $259,991 and $593,568 in advisory and
administrative fees for the years ended December 31, 1998 and 1999,
respectively. For the year ended December 31, 1999, Chapman Capital Management
has reimbursed The
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Chapman Funds, on behalf of The Chapman U.S. Treasury Money Fund, $129,879 under
an expense limitation agreement with The Chapman Funds.
The DEM Equity Fund became active in April 1998, and Chapman Capital
Management was paid $69,356 and $121,862 in advisory and administrative fees for
the years ended December 31, 1998 and 1999, respectively. For year ended
December 31, 1999, Chapman Capital Management has reimbursed The Chapman Funds,
on behalf of the DEM Equity Fund, $29,056 under an expense limitation agreement
with The Chapman Funds.
The DEM Index Fund became active in March 1999 and Chapman Capital
Management was paid $516 in advisory and administrative fees through
December 31, 1999. Chapman Capital Management reimbursed The Chapman Funds, on
behalf of the DEM Index Fund, $63,085 under an expense limitation agreement with
The Chapman Funds.
Chapman Capital Management has entered into agreements with The Chapman
Funds on behalf of three additional portfolios, the DEM Fixed Income Fund, the
DEM Multi-Manager Bond Fund and the DEM Multi-Manager Equity Fund, to provide
investment advisory and administration services. These funds are not currently
active. However, Chapman Capital Management has paid approximately $196,000 of
start-up expenses for these funds and the DEM Index Fund.
On March 17, 2000, Chapman Capital Management entered into a new ten year
expense limitation agreement with The Chapman Funds on behalf of certain of its
portfolios, including the DEM Equity Fund and the DEM Index Fund, under which
Chapman Capital Management will reimburse the covered portfolios for expenses
incurred on behalf of these portfolios in excess of stated percentages of the
portfolios' net assets.
The Chapman Co. is the distributor for The Chapman U.S. Treasury Money Fund,
DEM Equity Fund and DEM Index Fund under distribution agreements between The
Chapman Co. and The Chapman Funds, Inc. The Chapman Co. receives no compensation
for the distribution of shares of The Chapman U.S. Treasury Money Fund. The DEM
Index Fund had no operations in 1998. The Chapman Co. was paid $14,221 and
$31,639 in management fees and commissions in the years ended December 31, 1998
and, 1999, respectively, in connection with its distribution agreement with The
Chapman Funds pertaining to the DEM Equity Fund.
The Chapman Co. has entered into distribution agreements with The Chapman
Funds with respect to three additional funds; however, these funds have not yet
commenced operations.
Following the closing of the initial public offering, we will acquire
Chapman Holdings, Chapman Capital Management and Chapman Insurance Holdings
under to merger agreements between and among EChapman.com, each target company
and, in each case, a wholly-owned subsidiary of EChapman.com. Because
Mr. Chapman, the president and a director of EChapman.com, is the president, a
director and controlling
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stockholder of each of the two publicly traded target companies, the
disinterested members of the boards of directors of each of Chapman Holdings and
Chapman Capital Management approved the mergers 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.
In the past, transactions between Chapman Holdings or Chapman Capital
Management Holdings have been approved by a majority of the board of directors
of the respective Chapman-affiliated entity, including a majority of the
directors who do not have a material financial interest in the transactions, in
accordance with Maryland law. EChapman.com intends to continue its practice of
obtaining board and disinterested director approval for future transactions with
affiliates, including future loans, if any, to Mr. Chapman or other affiliates
of EChapman.com. Maryland law does not impose specific numerical restrictions as
to the amount of these affiliated transactions and loans, and our board of
directors has not adopted a policy which imposes any such restrictions.
ECHAPMAN.COM MARKET PRICE AND DIVIDEND INFORMATION
EChapman.com is a privately-held company and its common stock does not trade
in any market. EChapman.com has never paid dividends on its common stock.
Payment of dividends in the future will be at the discretion of its board of
directors and will be dependent upon earnings, financial condition, capital
requirements and other factors deemed relevant by the EChapman.com board of
directors.
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DESCRIPTION OF ECHAPMAN.COM CAPITAL STOCK
The authorized capital stock of EChapman.com consists of 50,000,000 shares
of common stock, par value $0.001 per share.
Following the consummation of the mergers, 13,194,845 shares of our common
stock will be issued and outstanding, held of record by approximately
52 stockholders. Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Stockholders
do not have cumulative voting rights. Holders of common stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor.
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 duly
authorized, validly issued, fully paid and nonassessable.
MARYLAND LAW AND CERTAIN CHARTER PROVISIONS
The charter of the EChapman.com, provides that EChapman.com shall indemnify
its currently acting and its former directors and officers against any and all
liabilities and expenses incurred in connection with their services in such
capacities to the maximum extent permitted by the Maryland General Corporation
Law, as from time to time amended. If approved by the Board of Directors,
EChapman.com may indemnify its employees, agents and persons who serve or have
served, at its request as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture or other enterprise to
the extent determined to be appropriate by the board of directors. EChapman.com
shall advance expenses to its directors and officers entitled to mandatory
indemnification to the maximum extent permitted by the Maryland General
Corporation Law and may in the discretion of the board of directors advance
expenses to employees, agents and others who may be granted indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of EChapman.com
pursuant to the foregoing provisions, or otherwise, EChapman.com has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Furthermore, the charter of EChapman.com provides that, to the fullest
extent permitted by the Maryland General Corporation Law 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
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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
- to the extent that it is proved that the director or officer actually
received an improper benefit, or profit in money, property, or services
for the amount of the benefit or profit in money, property or services
actually received, or
- 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 a stockholder are limited to equitable remedies such as
injunction or rescission.
COMPARISON OF STOCKHOLDER RIGHTS OF HOLDERS ECHAPMAN.COM
AND CHAPMAN CAPITAL MANAGEMENT HOLDINGS COMMON STOCK
Upon completion of the merger, Chapman Capital Management Holdings
stockholders will become EChapman.com stockholders and the rights of former
Chapman Capital Management Holdings stockholders will continue to be governed by
Maryland law, but will also be governed by the EChapman.com certificate of
incorporation and bylaws. There are no material differences between the current
rights of stockholders of Chapman Capital Management Holdings and the rights the
EChapman.com stockholders will have after completion of the merger, other than
as set forth below:
- DISSENTERS' RIGHTS For a description of the rights of dissenting
stockholders of Chapman Capital Management Holdings, see "The
Merger--Dissenters' Rights." Under Maryland law, a stockholder does not
have appraisal rights in certain circumstances, including in a merger or
consolidation, if the stockholder's stock is listed on a national exchange
or is designated as a security listed on the Nasdaq National Market. Since
EChapman.com has filed an application for its common stock to be quoted on
the Nasdaq National Market under the symbol "ECMN", stockholders receiving
EChapman.com common stock pursuant to the merger, dissenters' rights with
respect to future such transactions affecting EChapman.com common stock
will most likely not be available.
- BUSINESS COMBINATION LAW Under certain circumstances, Maryland law
restricts transactions between a corporation and its affiliates and
potential acquirers. The charter of Chapman Capital Management Holdings
specifically
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opts out of such provisions. The charter of EChapman.com specifically opts
into these provisions with the exception of transactions involving
- Nathan A. Chapman, Jr.
- any person that becomes an interested stockholder as a result of a
transfer of securities of EChapman.com under a written agreement to
which Mr. Chapman or any affiliate or associate of Mr. Chapman is a
party that provides for this exemption
- the respective affiliates and associates of Mr. Chapman and these
transferees.
Maryland law 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. The statute
refers to these beneficial owners as "interested stockholders". 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 this five-year period, a business combination with an
interested stockholder must be:
- recommended by the corporation's board of directors; and
- approved by the affirmative vote of at least 80% of the corporation's
outstanding shares entitled to vote and 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.
- CONSTITUENCY PROVISION
Maryland law permits a corporation to include in its charter a
constituency provision that allows the board of directors of the
corporation, in considering a potential acquisition of control of the
corporation, to consider the effect of the potential acquisition of
control on stockholders, employees, suppliers, customers, and creditors of
the corporation and the communities in which offices or other
establishments of the corporation are located. EChapman.com has included
such a provision in its charter.
- ANTI-TAKEOVER EFFECT
The charter provisions discussed in "Business Combination Law" and
"Constituency Provision" above may reduce the vulnerability of
EChapman.com to an unsolicited proposal for takeover. In some
circumstances, certain
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stockholders may consider these provisions to have disadvantageous
effects. Takeover offers are frequently made at prices above the market
price of the target company's stock. In addition, acquisitions of stock by
persons attempting to acquire control through market purchases may cause
the market price of the target company's stock to reach levels that are
higher than would otherwise be the case. EChapman.com's charter
provisions, as well as the statutory and regulatory provisions mentioned
above, may discourage any of these acquisitions, even though these
acquisitions might be beneficial to EChapman.com or its stockholders.
Accordingly, stockholders could be deprived of the opportunity to sell
their stock at prices in excess of current market prices, which often
prevail as the result of such occurrences.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the initial public offering of our common stock and the mergers,
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 the initial public offering of our common
stock and after the consummation of the mergers, EChapman.com will have
16,528,178 outstanding shares of common stock. 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, will be registered under the Securities
Act and freely transferable. 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
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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 the
initial public offering, as of December 31, 1999, Mr. Chapman beneficially owned
9,643,008 shares of common stock or approximately 58.3% 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 for the initial
public offering of our common stock during the 180 days following the closing of
the initial public 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:
- 1% of the then-outstanding shares of common stock; or
- 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.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby and the merger will be passed upon for EChapman.com by Venable,
Baetjer and Howard, LLP, Baltimore, Maryland.
EXPERTS
The audited financial statements included in this prospectus and proxy
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
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WHERE YOU CAN FIND MORE INFORMATION
Chapman Capital Management Holdings is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and files
reports, proxy statements and other information with the SEC. These reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549-1004. Copies of such materials may be
obtained at prescribed rates from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Chapman
Capital Management Holdings common stock is publicly traded and quoted on The
Nasdaq SmallCap Market under the symbol "CMGT."
The SEC maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information concerning Chapman
Capital Management Holdings which files electronically with the SEC.
EChapman.com has filed with the SEC a registration statement on Form S-4,
together with any annexes, exhibits and amendments, under the Securities Act of
1933, as amended covering 7,485,640 shares of EChapman.com Common Stock.
Statements contained in this prospectus and proxy statement concerning any
document filed as an exhibit to the registration statement are not necessarily
complete, and in each such instance reference is made to the copy of the
applicable document filed with the SEC or attached as an annex or exhibit.
EChapman.com will furnish to its stockholders annual reports containing
financial statements for each fiscal year audited by an independent accounting
firm.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
AND PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS AND PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROSPECTUS AND PROXY STATEMENT, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION, OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS AND PROXY STATEMENT NOR THE ISSUANCE OR
SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
SINCE THE DATE HEREOF OR INCORPORATED.
128
<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 Sheet as of December 31, 1999........ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998.............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998.......... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998.............................. F-6
Notes to Financial Statements............................. F-7
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
Report of Independent Public Accountants.................. F-21
Consolidated Balance Sheet as of December 31, 1999........ F-22
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998.............................. F-23
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998.......... F-24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998.............................. F-25
Notes to Financial Statements............................. F-26
CHAPMAN INSURANCE HOLDINGS, INC.
Report of Independent Public Accountants.................. F-35
Consolidated Balance Sheet as of December 31, 1999........ F-36
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998.............................. F-37
Consolidated Statements of Changes in Stockholders'
Deficit for the Years Ended December 31, 1999 and
1998.................................................... F-38
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998.............................. F-39
Notes to Financial Statements............................. F-40
ECHAPMAN.COM, INC.
Report of Independent Public Accountants.................. F-43
Balance Sheet as of December 31, 1999..................... F-44
Statement of Operations for the Period May 14, 1999
(inception) to December 31, 1999........................ F-45
Statement of Changes in Stockholders' Deficit for the
Period May 14, 1999 (inception) to December 31, 1999.... F-46
Statement of Cash Flows for the Period May 14, 1999
(inception) to December 31, 1999........................ F-47
Notes to Financial Statements............................. F-48
</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,
1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the two years then ended (as revised for
1998--see Note 2). 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 auditing standards generally
accepted in the United States. 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, 1999, and the results of
their operations and their cash flows for the two years then ended in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
January 31, 2000
F-2
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
----
<S> <C>
ASSETS:
Cash and cash equivalents................................. $1,035,000
Cash deposits with clearing organization.................. 2,674,000
Investments, available for sale........................... 239,000
Securities owned of affiliate, at market value............ 2,084,000
Receivables from brokers and dealers...................... 584,000
Receivables from affiliates............................... 333,000
Income taxes receivable................................... 296,000
Advances to officer/employee.............................. 688,000
Office equipment, net..................................... 93,000
Prepaids and other assets................................. 406,000
Intangible assets, net.................................... 103,000
----------
Total assets.......................................... $8,535,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses..................... $ 494,000
Margin loan payable....................................... 1,750,000
Accrued compensation...................................... 379,000
Deferred rent............................................. 34,000
----------
Total liabilities..................................... 2,657,000
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares
authorized, 2,953,622 shares issued and outstanding..... 3,000
Additional paid-in capital................................ 7,903,000
Accumulated deficit....................................... (1,025,000)
Proprietary stock of Company held by subsidiary, at cost,
126,000 shares.......................................... (842,000)
Cumulative realized loss on trading proprietary stock of
Company held by subsidiary.............................. (161,000)
----------
Total stockholders' equity............................ 5,878,000
----------
Total liabilities and stockholders' equity............ $8,535,000
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(RESTATED)
<S> <C> <C>
REVENUE:
Commissions............................................... $4,190,000 $ 2,538,000
Underwriting and management fees.......................... 1,168,000 700,000
Interest and dividends.................................... 399,000 446,000
Trading, net gains (losses), primarily affiliate stock.... 1,617,000 (264,000)
---------- -----------
Total revenue......................................... 7,374,000 3,420,000
---------- -----------
EXPENSE:
Compensation and benefits................................. 3,567,000 2,186,000
Floor brokerage and clearing fees......................... 702,000 431,000
Communications............................................ 288,000 192,000
Occupancy, equipment rental, and depreciation............. 639,000 460,000
Travel and business development........................... 398,000 255,000
Professional fees......................................... 826,000 416,000
Advertising, promotion and publicity...................... 363,000 184,000
Other operating expense................................... 1,134,000 538,000
---------- -----------
Total expense......................................... 7,917,000 4,662,000
---------- -----------
Loss before income tax benefit........................ (543,000) (1,242,000)
INCOME TAX BENEFIT.......................................... (101,000) (370,000)
---------- -----------
Net loss.............................................. $ (442,000) $ (872,000)
========== ===========
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net loss.................................................. $ (.15) $ (.31)
========== ===========
Weighted average shares outstanding....................... 2,954,000 2,793,000
========== ===========
</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, 1999 AND 1998
<TABLE>
<CAPTION>
CUMULATIVE
REALIZED
LOSS ON TRADING
PROPRIETARY
RETAINED PROPRIETARY STOCK OF
ADDITIONAL EARNINGS STOCK OF COMPANY BY TOTAL
COMMON PAID-IN (ACCUMULATED COMPANY HELD SUBSIDIARY STOCKHOLDERS'
STOCK CAPITAL DEFICIT) BY SUBSIDIARY OF COMPANY EQUITY
-------- ---------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997..... $2,000 $1,092,000 $ 155,000 $ -- $ -- $1,249,000
Net loss..................... -- -- (872,000) -- -- (872,000)
Accumulated deficit from
discontinued operations.... -- -- 134,000 -- -- 134,000
Net proceeds from issuance of
common stock............... 1,000 6,811,000 -- -- -- 6,812,000
Proprietary trading stock of
Company held by subsidiary,
at cost.................... -- -- -- (884,000) -- (884,000)
Realized loss on trading of
proprietary stock of
Company held by
subsidiary................. -- -- -- -- (70,000) (70,000)
------ ---------- ----------- --------- --------- ----------
BALANCE, December 31, 1998
(Restated)................... 3,000 7,903,000 (583,000) (884,000) (70,000) 6,369,000
Net loss..................... -- -- (442,000) -- -- (442,000)
Proprietary trading stock of
Company held by subsidiary,
at cost.................... -- -- -- 42,000 -- 42,000
Realized loss on trading of
proprietary stock of
Company held by
subsidiary................. -- -- -- -- (91,000) (91,000)
------ ---------- ----------- --------- --------- ----------
BALANCE, December 31, 1999..... $3,000 $7,903,000 $(1,025,000) $(842,000) $(161,000) $5,878,000
====== ========== =========== ========= ========= ==========
</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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (442,000) $ (872,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense................... 70,000 8,000
Unrealized (gain) loss on securities owned.............. (1,355,000) 264,000
Deferred taxes.......................................... (101,000) 63,000
Effect from changes in assets and liabilities-
Deposits with clearing organization................... (285,000) (2,349,000)
Receivables from brokers and dealers.................. (253,000) 54,000
Receivables from discontinued operations.............. -- 801,000
Receivables from affiliates........................... 47,000 (380,000)
Income tax receivable................................. (2,000) (294,000)
Prepaids and other assets............................. 177,000 (495,000)
Net assets from discontinued operations............... -- 6,000
Accounts payable and accrued expenses................. 233,000 193,000
Accrued compensation.................................. 136,000 174,000
Deferred rent......................................... (44,000) (11,000)
Payable to affiliated partnership..................... -- (10,000)
Income taxes payable.................................. -- (98,000)
----------- -----------
Net cash used in operating activities............... (1,819,000) (2,946,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment.............................. (83,000) (23,000)
Purchase of stock of Chapman On-Line...................... -- (220,000)
Purchase of investments................................... (35,000) (1,207,000)
Proceeds from sale of investments......................... 4,000 1,014,000
Advances to officer/employee.............................. (31,000) (481,000)
----------- -----------
Net cash used in investing activities............... (145,000) (917,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock................ -- 7,715,000
Issuance costs............................................ -- (903,000)
Net proceeds from sales of treasury stock................. (91,000) (70,000)
----------- -----------
Net cash (used in) provided by financing
activities........................................ (91,000) 6,742,000
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (2,055,000) 2,879,000
CASH AND CASH EQUIVALENTS, beginning of year................ 3,090,000 211,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 1,035,000 $ 3,090,000
=========== ===========
</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, 1999 AND 1998
1. 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. The Company
allocated approximately $599,000 and $852,000 in expenses related to the above
costs during the years ended December 31, 1999 and 1998.
On November 15, 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. (CCMH) and Chapman Insurance
Holdings, Inc., affiliates, 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. EChampan.com is owned by the major stockholder of the
Company.
The 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
website 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.
F-7
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements are presented on the
accrual basis of accounting in accordance with generally accepted accounting
principles and include the operations of the Company, Chapman, and Chapman
On-Line, Inc. (formerly Charles A. Bell Securities, Inc.). All significant
intercompany balances have been eliminated in consolidation. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
ACQUISITION
The Company acquired all of the outstanding stock of Chapman On-Line, Inc.
(formerly Charles A. Bell), a securities brokerage firm located in San
Francisco, California, on December 29, 1998, for approximately $391,000. The
acquisition resulted in recording approximately $145,000 of intangible assets
from the purchase price being in excess of the book value of Chapman
On-Line, Inc. 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, 1999, consist primarily of certificates of
deposit in which cost approximates market. As of December 31, 1999, the $239,000
of investments held were classified as available for sale in accordance with
Statement of Financial Accounting Standards 115.
SECURITIES OWNED
Securities owned consist of trading proprietary stock, which is carried at
market on the balance sheet. Any unrealized gain (loss) on trading of
proprietary stock is included in earnings on the income statement. The
proprietary stock as of December 31, 1999 is stock of CCMH, a company whose
majority stockholder is also
F-8
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the majority stockholder of the Company. Chapman is the market maker for CCMH
and, thus, holds their stock in inventory. As of December 31, 1999, Chapman held
138,000 shares of common stock of CCMH with a market value of approximately
$2,084,000. The Company recorded an unrealized gain of approximately $1,290,000
and an unrealized loss of approximately $105,000 related to the CCMH stock held
for the years ended December 31, 1999 and 1998, respectively, in the
consolidated statements of operations.
The unrealized gain recorded in 1999 was earned primarily during the fourth
quarter of 1999. In November 1999, a registration statement was filed for an
initial public offering of EChapman.com and the announcement was made that the
Company, CCMH and Chapman Insurance Holdings would merge into EChapman.com, as
discussed in Note 1. Following this announcement, CCMH's common stock price
increased in value leading to some of the $1,290,000 unrealized gain. This
unrealized gain may be significantly effected if the EChapman.com transaction is
not completed or if it is completed at a market price less than disclosed in the
preliminary offering document.
TREASURY STOCK
Chapman is also the market maker for the Company. However, as the Company is
the parent of Chapman, all purchases and sales of the Company's stock by Chapman
have been accounted for as treasury stock transactions in the accompanying
consolidated financial statements. As of December 31, 1999, Chapman held 126,000
shares of the Company's stock in inventory.
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
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 options, using the treasury stock method. The weighted average shares
outstanding for the years ended December 31, 1999 and 1998, are the weighted
average common
F-9
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
shares outstanding of 2,954,000 and 2,793,000, respectively. The options granted
are antidilutive for 1999 and 1998 and, thus, are not included 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 Chapman On-Line 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 and related expenses on a trade date
basis as the securities transactions occur. Management fees are recognized in
the period the services are provided, and underwriting fees are recognized when
the transactions close.
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
F-10
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
level of institutional and retail brokerage transactions, and expenses of
establishing new business units. The Company's revenues from an underwriting
transaction are recorded only when the underwritten security commences trading;
accordingly, the timing of the Company's recognition of revenue from a
significant transaction can materially affect the Company's operating results.
As a result, the Company could experience losses if demand for the above
transactions declines faster than the Company's ability to change its cost
structure.
OFFICE EQUIPMENT
Office equipment is depreciated using the straight-line method over the
estimated useful life of 3 to 5 years. As of December 31, 1999, accumulated
depreciation was $36,000.
TRANSACTIONS WITH CLEARING ORGANIZATION
The Company had a margin loan payable, due to its clearing organization,
Pershing, of $1,750,000 as of December 31, 1999, which was used to purchase the
proprietary stock. This margin loan bears interest at a variable rate. This rate
was 7.75% as of December 31, 1999. Interest expense on the margin loan for the
years ended December 31, 1999 and 1998, was approximately $191,000 and $111,000,
respectively, and is included in other operating expense in the accompanying
consolidated statements of operations. The Company also had cash on deposit with
the clearing agent of $2,674,000 as of December 31, 1999. The securities
purchased with the funds are held by the clearing agent as collateral. The
margin loan is due and repaid as the securities are sold.
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.
Proprietary accounts held at the clearing organization (PAIB Assets) are
considered allowable assets in the computation of net capital pursuant to an
agreement between the Company and the clearing organization which requires,
among other things, for the clearing organization to perform a computation of
PAIB assets similar to the customer reserve computation set forth in
Rule 15c3-3.
F-11
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
RECLASSIFICATIONS
Certain reclassifications have been made to 1998 financial statements to
conform to 1999 financial statement presentation.
RESTATEMENT OF 1998 FINANCIAL STATEMENTS
Prior to 1999, the Company treated Chapman's ownership of its shares as
trading securities with any unrealized gains and losses being accounted for in
the income statement. It was the company's understanding that this accounting
was consistent with industry practice. After discussion with the staff of the
Securities and Exchange Commission, the Company revised its accounting to now
treat such transactions as treasury stock transactions, with any realized gains
and losses being reflected in equity. Unrealized gains or losses are not
reflected in the financial statements. The impact of this change on the 1998
consolidated financial statements resulted in a decrease in the loss before
income tax benefit, income tax benefit, net loss and basic and diluted net loss
per share of $374,000, $115,000, $259,000 and $.09, respectively.
3. 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.
4. 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
F-12
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
4. CAPITAL STOCK: (CONTINUED)
data related to Chapman prior to the merger has been restated at the Company's
stock conversion amounts.
5. 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 1999 and 1998. The aggregate minimum future rental under this
lease which expires in 2000 is $200,000.
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, 1999, the Company recorded $34,000 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
$10,000 and contains one year renewable terms, at the option of the Company,
through September 2000, at which time the Company can purchase the furniture and
equipment at fair value. Rent expense under this lease agreement was $118,000 in
1999 and 1998.
The Company leases computer equipment through a non-cancellable operating
lease with a three-year lease term. The lease requires monthly rent payments of
$8,500 a month and expires in July 2002. Rent expense under this lease was
$87,000 and $5,000 in 1999, and 1998, respectively.
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, 1999 and 1998, the Company did not
incur such losses.
F-13
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
6. INCOME TAXES:
A reconciliation of the statutory income taxes to the recorded income tax
benefit for the years ended December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Statutory tax (at 35% rate)........................... $(190,000) $(435,000)
Effect of state income taxes.......................... (23,000) (49,000)
Effect of graduated tax rate.......................... -- 74,000
Effect of permanent book to tax differences........... 11,000 40,000
Valuation allowance................................... 101,000 --
--------- ---------
Income tax benefit.................................... $(101,000) $(370,000)
========= =========
</TABLE>
The components of the income tax benefit for the years ended December 31,
1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current............................................... $ -- $(363,000)
Deferred.............................................. (202,000) (7,000)
Valuation allowance................................... 101,000 --
--------- ---------
Income tax benefit.................................... $(101,000) $(370,000)
========= =========
</TABLE>
F-14
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
6. INCOME TAXES: (CONTINUED)
The Company's deferred income tax asset and liability as of December 31,
1999, consist of the following:
<TABLE>
<S> <C>
Deferred tax asset:
NOL carryforward.......................................... $ 530,000
---------
Deferred tax liability:
Cash to accrual........................................... (42,000)
Unrealized gain........................................... (430,000)
Other..................................................... 43,000
---------
Total................................................. (429,000)
---------
Valuation allowance......................................... (101,000)
---------
Net deferred tax liability recorded on the consolidated
balance sheet........................................... $ --
=========
</TABLE>
A valuation reserve was applied against the next deferred tax asset as of
December 31, 1999, as its realization was not more likely than not to be
realized.
7. 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 $250,000 and $100,000 as of
December 31, 1999 and 1998, respectively, and a ratio of aggregate indebtedness
to net capital, as defined, not to exceed 15 to 1. As of December 31, 1999, the
Company had excess net capital of $1,278,000 and a ratio of aggregate
indebtedness to net capital of .5 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.
8. STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosure for the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash paid-
Interest.............................................. $275,000 $121,000
Income taxes.......................................... 5,000 29,000
</TABLE>
F-15
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
8. STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURE: (CONTINUED)
The Company's realized loss of $91,000 during 1999 was related to
proprietary stock proceeds of the Company of approximately $500,000 and sales of
approximately $591,000. The proceeds and sales for 1998 are not disclosed as the
information is not readily available.
9. 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, 1999 and 1998.
10. OMNIBUS STOCK PLAN:
In March 1998, Chapman started an Omnibus Stock Plan (the Plan) to enable
selected management, employees, consultants and directors to acquire interest in
Chapman through ownership of common stock. The Plan has 150,000 shares of common
stock registered. On September 28, 1998, Chapman granted options for 43,900
shares of common stock at fair market value at the date of grant, which was
$9.50. The options vested on the grant date and have a three-year term. None of
those options had been exercised, expired or canceled as of December 31, 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 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 volatility......................................... 59.0%
</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 income and earnings
per
F-16
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
10. OMNIBUS STOCK PLAN: (CONTINUED)
share information reflected on the accompanying consolidated statements of
operations would have been decreased to the following "as adjusted" amount for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Net income (loss):
As reported........................................ $(442,000) $ (872,000)
As adjusted........................................ (442,000) (976,000)
Basic earnings:
Per share-
As reported........................................ (.15) (.31)
As adjusted........................................ (.15) (.35)
</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.
11. RELATED PARTY TRANSACTIONS:
The Company served as the underwriter for DEM, Inc. (DEM), a registered
non-diversified closed-ended management investment company. CCM provides
investment advisory and administrative services to DEM under an investment
advisory and administrative services agreement which sets forth the services to
be provided and the fees to be charged. The Company purchased 69,000 shares of
DEM stock during 1998. During the fourth quarter of 1998, DEM was dissolved. The
Company recognized a $159,000 loss on trading due to this dissolution.
The Company acted as the underwriter, on a best efforts basis, for the sale
of CCMH common stock. The Company was paid $297,000 in underwriting fees and
commissions in the year ended December 31, 1998.
As of October 31, 1997, CCM executed a 10-year note to the Company in the
amount of $772,000 accruing interest at 6.68% per annum. CCM repaid this note in
full during 1998.
As of December 31,1999, the Company had outstanding advances to its majority
stockholder of $666,000. The advances to the majority stockholder are reflected
in five notes. Four of the notes are three-year notes that accrue interest at a
range of 4.33% to 5.54% per annum. No interest or principal payments are due
until maturity, which is February through December, 2001. There is also a demand
note that accrues
F-17
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
11. RELATED PARTY TRANSACTIONS: (CONTINUED)
interest at 5.5% per annum. The interest rates on the notes are based on the IRS
applicable federal rate in effect from time to time. The Company also has
$22,000 of advances to employees as of December 31, 1999.
The Company shares office space, certain employees and other overhead with
certain other entities controlled by the majority stockholder including CCM and
CIA. The Company allocates compensation and benefits expense to CCM and CIA
based on actual compensation and benefits expense and the estimated percentage
of the employee's time spent performing services for each entity. The Company
allocates other expenses based on estimated usage.
Receivables from affiliates consist of receivables from CCM related to the
above agreement. As of December 31, 1999, the Company had receivables from CCM
of $97,000, related to the allocation agreement. The Company has been paying
expenses on behalf of EChapman.com. Included in receivables from affiliates as
of December 31, 1999 is $191,000 due from EChapman.com related to these
expenses. Also, included in receivables from affiliates is $45,000 as of
December 31, 1999, due from other affiliates for expenses paid on their behalf.
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. The Company paid $37,000 in interest expense on this note.
12. CHANGE IN QUARTERLY RESULTS (UNAUDITED):
As discussed in Note 2, as of December 31, 1999, the Company revised how it
accounts for Company stock held by Chapman in the consolidated financial
F-18
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
12. CHANGE IN QUARTERLY RESULTS (UNAUDITED): (CONTINUED)
statements. This change resulted in the Company restating the quarterly results
for each of the quarters listed below.
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER
----------------------- ----------------------- -----------------------
AS FILED AS REVISED AS FILED AS REVISED AS FILED AS REVISED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED STATEMENT OF
OPERATIONS:
Total revenue............... $1,723,000 $1,533,000 $1,418,000 $1,517,000 $1,065,000 $1,069,000
Total expenses.............. 1,717,000 1,717,000 1,865,000 1,865,000 1,765,000 1,765,000
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
tax provision (benefit)... 6,000 (184,000) (447,000) (348,000) (700,000) (696,000)
Income tax provision
(benefit)................. 2,000 (61,000) (97,000) (76,000) (236,000) (236,000)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)........... $ 4,000 $ (123,000) $ (350,000) $ (272,000) $ (464,000) $ (460,000)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER
----------------------- ----------------------- -----------------------
AS FILED AS REVISED AS FILED AS REVISED AS FILED AS REVISED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED BALANCE SHEET
INFORMATION:
Total assets................ $9,616,000 $8,878,000 $9,887,000 $9,213,000 $9,263,000 $8,579,000
Total liabilities........... 2,548,000 2,597,000 3,169,000 3,239,000 3,009,000 3,079,000
Total stockholders'
equity.................... 7,068,000 6,281,000 6,718,000 5,974,000 6,254,000 5,500,000
</TABLE>
F-19
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
12. CHANGE IN QUARTERLY RESULTS (UNAUDITED): (CONTINUED)
<TABLE>
<CAPTION>
1998
-----------------------
3RD QUARTER
-----------------------
AS FILED AS REVISED
---------- ----------
<S> <C> <C>
CONDENSED STATEMENT OF OPERATIONS:
Total revenue............................................... $ 888,935 $ 958,569
Total expenses.............................................. 1,181,988 1,181,988
---------- ----------
Loss before income tax benefit.............................. (293,053) (223,419)
Income tax benefit.......................................... (61,851) (67,026)
---------- ----------
Net loss.................................................... $ (231,202) $ (156,393)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------
3RD QUARTER
-----------------------
AS FILED AS REVISED
---------- ----------
<S> <C> <C>
CONDENSED BALANCE SHEET INFORMATION:
Total assets................................................ $9,988,517 $9,988,517
Total liabilities........................................... 2,392,867 2,387,692
Total stockholders' equity.................................. 7,595,650 7,600,825
</TABLE>
This restatement has no effect on the statement of cash flows as filed for
each of the four quarters listed above.
F-20
<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, 1999, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the two years ended
December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999, and
the results of their operations and their cash flows for the two years ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
March 29, 2000
F-21
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
ASSETS:
Cash and cash equivalents................................. $ 2,680,000
Investments, at market.................................... 356,000
Management fees receivable:
From proprietary funds.................................. 129,000
From individually managed accounts...................... 446,000
Receivables from affiliates............................... 278,000
Advances to officer....................................... 372,000
Fixed assets, net......................................... 52,000
Prepaids and other assets................................. 280,000
Intangible assets, net.................................... 245,000
-----------
Total assets............................................ $ 4,838,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses..................... $ 356,000
Due to affiliates......................................... 144,000
Noncompete agreement obligation........................... 150,000
-----------
Total liabilities....................................... 650,000
===========
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares
authorized, 3,351,334 issued and outstanding............ 3,000
Additional paid-in capital................................ 5,239,000
Accumulated deficit....................................... (1,054,000)
-----------
Total stockholders' equity.............................. 4,188,000
-----------
Total liabilities and stockholders' equity.............. $ 4,838,000
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-22
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUE:
Advisory and administrative fees.......................... $4,282,000 $3,136,000
Investment and other income............................... 340,000 82,000
---------- ----------
Total revenue......................................... 4,622,000 3,218,000
---------- ----------
EXPENSE:
Management fees........................................... 1,524,000 1,178,000
Compensation and benefits................................. 1,211,000 857,000
Professional fees......................................... 470,000 179,000
Administrative support.................................... 148,000 72,000
Interest expense.......................................... 6,000 26,000
Amortization and depreciation expense..................... 234,000 232,000
Advertising, promotion and publicity...................... 545,000 249,000
Other operating expenses.................................. 1,337,000 576,000
---------- ----------
Total expense......................................... 5,475,000 3,369,000
---------- ----------
Loss before income tax benefit........................ (853,000) (151,000)
INCOME TAX BENEFIT.......................................... -- 45,000
---------- ----------
Net loss.............................................. $ (853,000) $ (106,000)
========== ==========
BASIC AND DILUTIVE EARNINGS PER SHARE DATA:
Net loss.................................................. $ (.25) $ (.04)
========== ==========
Weighted Average Shares Outstanding....................... 3,351,000 2,811,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
-------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
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..................................... -- -- (853,000) (853,000)
------- ---------- ----------- ----------
BALANCE, December 31, 1999..................... $ 3,000 $5,239,000 $(1,054,000) $4,188,000
======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (853,000) $ (106,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 234,000 232,000
Deferred tax asset...................................... -- (45,000)
Unrealized gain......................................... (106,000) --
Effect of changes in assets and liabilities-
Management fees receivable............................ (211,000) (111,000)
Receivable from affiliates............................ (158,000) (84,000)
Prepaids and other assets............................. (112,000) (115,000)
Accounts payable and accrued expenses................. 184,000 21,000
Due to affiliates..................................... (141,000) (516,000)
Income taxes payable.................................. -- (48,000)
----------- ----------
Net cash used in operating activities............... (1,163,000) (772,000)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment.............................. (45,000) (19,000)
Sale of investments....................................... -- 9,000
Purchase of investments................................... (100,000) (150,000)
Advances to officer....................................... (254,000) (46,000)
----------- ----------
Net cash used in investing activities............... (399,000) (206,000)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering..................... -- 6,053,000
Issuance costs............................................ -- (814,000)
Proceeds from officer..................................... -- (28,000)
----------- ----------
Net cash provided by financing activities........... -- 5,211,000
----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (1,562,000) 4,233,000
CASH AND CASH EQUIVALENTS, beginning of year................ 4,242,000 9,000
----------- ----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 2,680,000 $4,242,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-25
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND BUSINESS:
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 Company shares office space, certain employees and other overhead with
The Chapman Co., an affiliated company. The Chapman Co. pays for routine
operating expenses and provides certain management, data processing, accounting
and administrative services to the Company, for which The Chapman Co. is
reimbursed. The Chapman Co. also pays 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. The
Chapman Co. allocated approximately $599,000 and $852,000 in expenses related to
the above sharing agreement during the years ended December 31, 1999 and 1998,
respectively. As of December 31, 1999, the Company owed The Chapman Co. $97,000
for the costs of these services. 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.
On November 15, 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., affiliates, becoming
wholly owned subsidiaries of eChapman.com. EChapman.com is a new 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.
The 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,
F-26
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND BUSINESS: (CONTINUED)
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles and
include the operations of the Company and Chapman Capital Management, Inc. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ACQUISITION
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, 1999 and 1998, the Company paid Deutsche
Bank custodian fees for acting as trustee and custodian for the trust. Those
fees are included in management fees in the accompanying statements of
operations for the years ended December 31, 1999 and 1998.
CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents as of December 31, 1999 is $2,430,000
of cash invested in the Chapman U.S. Treasury Money Fund, a fund managed by
Chapman Capital Management, Inc.
F-27
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVESTMENTS
Included in investments is an investment in DEM Index Fund, an affiliate,
which is carried at market value in accordance with SFAS 115. Investments also
include common stock ownership in an investment company carried at cost which
approximates market.
ASSETS UNDER MANAGEMENT
In the normal course of operations of an investment manager, clients add
investments to and withdraw investments from the asset portfolio. This activity
is done by clients as they continue to make investment decisions and diversify
their portfolio.
During 1999, the net change in assets under management increased
$180 million to $771 million as of December 31, 1999, from $591 million as of
December 31, 1998. The net increase in assets under management included growth
attributable to investment performance, additions of assets totaling
$25 million from two clients and a reduction of $86 million in assets by four
clients. The reduction included partial withdrawals in the accounts of two
clients of $49 million and $22 million, or 6.36% and 2.85%, respectively, of the
assets under management as of December 31, 1999. The reduction in assets also
included a withdrawal by one of the four participants in the Company's DEM-MET
Trust, which withdrew its total investment of approximately $13.7 million, in
June 1999 which represented approximately 2.1%, of the total assets under
management of the DEM-MET Trust as of June 30, 1999.
The loss of these assets under management has not had a material impact on
the operations of the Company during 1999.
Subsequent to year-end, one of the participants in the DEM-MET Trust
informed the Company that it intends to withdraw approximately $100 million of
its investment in the trust. This withdrawal represents approximately 13% of the
Company's assets under management as of December 31, 1999.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet for cash,
investments, receivables, accounts payable and accrued expenses approximate fair
value.
F-28
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period the calculation
is made. Common equivalent shares consist of shares issuable upon the exercise
of stock warrants, using the treasury stock method. The weighted average shares
outstanding as of December 31, 1999 and 1998, are the weighted average common
shares outstanding of 3,351,000 and 2,811,000, respectively. The options granted
are antidilutive for 1999 and 1998 and thus, are not required in the earnings
per share calculation.
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.
REVENUE RECOGNITION
The Company recognizes investment management fees in the period the services
are provided.
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.
F-29
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Prior to the Company being spun off from The Chapman Co., 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 1998 financial statements to
conform to 1999 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. As of December 31, 1999, the noncompete
agreement is fully amortized. The $640,000 in acquisition costs is being
amortized over 5 years. The noncompete liability as of December 31, 1999 is
payable on demand. Accumulated amortization as of December 31, 1999 is $695,000.
5. CAPITAL STOCK:
During 1998, the Company effected a 25% stock split through 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 expenses and to
the extent that any Funds' expenses exceed specified limitations. Included in
the
F-30
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
6. TRANSACTIONS WITH AFFILIATES: (CONTINUED)
accompanying statements of operations for the years ended December 31, 1999 and
1998, are advisory management fees related to The Chapman Funds totaling
$334,000 and $260,000, 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, 1999 and 1998, is an
advisory management fee related to DEM totaling $0 and $150,000, respectively.
The Company agreed to waive certain investment management fees with Treasury
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.
Included in management fees receivable as of December 31, 1999, is $129,000
due from proprietary funds for services provided under the above described
agreement.
The Company is the investment advisor and administrator of the DEM Equity
Fund, a portfolio of The Chapman Funds, Inc. The DEM Equity Fund became active
in April 1998 and the Company was paid $93,000 and $69,000 in advisory and
administrative fees for the years ended December 31, 1999 and 1998,
respectively.
Included in receivables from affiliates as of December 31, 1999, is $33,000
due from Chapman Insurance Agency ("CIA") for expenses paid on its behalf.
Included in receivables from affiliates as of December 31, 1999, is $219,000 due
from EChapman.com related to costs paid on their behalf. The Company also paid
costs on behalf of Chapman Limited Partnership during 1999. The $26,000 of these
costs is included in receivables from affiliates as of December 31, 1999.
Included in due to affiliated company are costs paid on the Company's behalf
based on the allocation agreement discussed in Note 1. The Company also pays
expenses on behalf of several affiliate funds for costs incurred in excess of a
certain percentage of the average daily net asset balance. Included in due to
affiliates as of December 31, 1999, is $47,000 related to these expense
limitations.
As of December 31, 1999, the Company had outstanding advances to the
majority stockholder of the Company of $372,000. These advances are reflected in
three notes. Two demand promissory notes which accrue interest at 5.4% per annum
and one
F-31
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
6. TRANSACTIONS WITH AFFILIATES: (CONTINUED)
three-year note that accrues interest at 5.5% per annum. No interest or
principal payments are due until maturity, which is August 21, 2001. The
interest rates on these notes are based on the IRS applicable federal rate in
effect from time to time.
On July 29, 1999, the Company made a loan of $3,220,000 to Chapman
Holdings, Inc. ("Chapman Holdings"), an affiliate of the Company. 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 on the
broker call rate. Chapman Holdings repaid this loan in full in September 1999.
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 $10,000 monthly payment to the Company based on the
space used by the Company. The Chapman Co. allocated $59,000 in lease expense
for the years ended December 31, 1999 and 1998. These amounts are included in
other operating expenses in the statements of operations for the years ended
December 31, 1999 and 1998, respectively.
7. INCOME TAXES:
A reconciliation of the statutory income taxes to the recorded income tax
benefit for the years ended December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Statutory tax (at 35% rate)............................ $(299,000) $(53,000)
Effect of state income taxes........................... (42,000) (7,500)
Effect of graduated tax rate........................... 10,000 5,500
Effect of permanent book to tax differences............ 28,000 10,000
Valuation reserve...................................... 303,000 --
--------- --------
Income tax benefit..................................... $ -- $(45,000)
========= ========
</TABLE>
F-32
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
7. INCOME TAXES: (CONTINUED)
The components of the income tax benefit for the years ended December 31,
1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Current................................................ $ -- $ --
Deferred............................................... (303,000) (45,000)
Valuation reserve...................................... 303,000 --
--------- --------
Income tax benefit..................................... $ -- $(45,000)
========= ========
</TABLE>
The Company's deferred income tax asset as of December 31, 1999, consists of
the following:
<TABLE>
<S> <C>
Deferred tax asset:
NOL carryforward.......................................... $ 400,000
Intangible assets......................................... 72,000
---------
Total................................................. 472,000
Deferred tax liability:
Cash to accrual........................................... (154,000)
Valuation reserve........................................... (303,000)
---------
Net deferred tax asset recorded on the consolidated
balance sheet........................................... $ 15,000
=========
</TABLE>
A valuation reserve was applied against the net deferred tax asset as of
December 31, 1999, as its realization was not more likely than not to be
realized.
8. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosures for the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash paid for:
Interest................................................ $6,000 $ 25,000
Income taxes............................................ -- 114,000
</TABLE>
9. CONCENTRATION OF CREDIT RISKS:
The DEM-MET Trust accounted for 75% and 62% of the Company's advisory and
administrative fees during the years ended December 31, 1999 and 1998. As of
December 31, 1999, receivables due from this client was $94,000.
F-33
<PAGE>
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
10. OMNIBUS STOCK PLAN:
In 1998, the Company established the Chapman Capital Management
Holdings, Inc. Omnibus Stock Plan (the Plan) to enable the Company to grant
equity compensation to the Company's directors, officers, employees and
consultants. Under the Plan, 150,000 shares of common stock have been reserved
for issuance upon exercise of stock options granted. On May 14, 1999, 24,000
stock options were granted at a stock price range of $8.38 to $9.22 per share.
These options expire over a three-year period and vest immediately. None of
these options had been exercised, expired or canceled as of December 31,1999.
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 1999, using the Black-Scholes option pricing model. The
following assumptions were used for grants for the year ended December 31, 1999.
<TABLE>
<S> <C>
Risk free interest rate..................................... 5.32%
Expected dividend yield..................................... 0.0%
Expected volatility......................................... 86%
</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 statement of
operations would have been increased to the following "as adjusted" amount for
the year ended December 31, 1999:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(853,000)
As adjusted............................................... (911,000)
Basic earnings:
Per share --
As reported............................................. (.25)
As adjusted............................................. (.27)
</TABLE>
Weighted average fair value of options granted for the year ended
December 31, 1999, was in the range of $3.86 to $4.07. The value was calculated
using the Black-Scholes option pricing model.
F-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Chapman Insurance Holdings, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Chapman
Insurance Holdings, Inc. (a Maryland corporation) and subsidiary as of
December 31, 1999, and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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
Insurance Holdings, Inc. and subsidiary as of December 31, 1999, and the results
of their operations and their cash flows for flows for each of the years in the
two-year period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
March 17, 2000
F-35
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
---------
<S> <C>
ASSETS
Total assets................................................ $ --
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Due to affiliates, net...................................... $ 52,000
Accounts payable and accrued expenses....................... 249,000
---------
Total liabilities......................................... 301,000
---------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 20,000,000 shares
authorized, 1,989,235 issued and outstanding............ 2,000
Accumulated deficit....................................... (303,000)
---------
Total stockholders' deficit........................... (301,000)
---------
Total liabilities and stockholders' deficit........... $ --
=========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-36
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
REVENUE $ 45,000 $21,000
--------- -------
OPERATING EXPENSE:
Commissions............................................... 16,000 8,000
General and administrative................................ 284,000 --
Administrative support allocation......................... 12,000 12,000
--------- -------
Total operating expense............................... 312,000 20,000
--------- -------
Income before income tax provision.................... (267,000) 1,000
INCOME TAX PROVISION........................................ -- --
--------- -------
Net (loss) income..................................... $(267,000) $ 1,000
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-37
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDER'S
STOCK DEFICIT DEFICIT
-------- ----------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1997.................................. $2,000 $ (37,000) $ (35,000)
Net income................................................ -- 1,000 1,000
------ --------- ---------
BALANCE, December 31, 1998.................................. 2,000 (36,000) (34,000)
====== ========= =========
Net loss.................................................. -- (267,000) (267,000)
------ --------- ---------
BALANCE, December 31, 1999.................................. $2,000 $(303,000) $(301,000)
====== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $(267,000) $ 1,000
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Effect of changes in assets and liabilities--
Prepaid expenses...................................... 45,000 (45,000)
Due to affiliates..................................... 22,000 (1,000)
Accounts payable and accrued expenses................. 200,000 45,000
--------- --------
Net cash provided by operating activities........... -- --
--------- --------
NET INCREASE IN CASH........................................ -- --
CASH, beginning of year..................................... -- --
--------- --------
CASH, end of year........................................... $ -- $ --
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-39
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
During January 1998, Chapman Insurance Holdings, Inc. (the "Company"), a
newly formed corporation, became the parent of Chapman Insurance Agency, Inc.
("CIA"). Prior to February 24, 1998, the Company was a wholly owned subsidiary
of Chapman Holdings, Inc. The Company was spun off from Chapman Holdings, Inc.
as of February 24, 1998, the effective date of the initial public offering (IPO)
of Chapman Holdings, Inc. CIA sells annuity products. The accompanying financial
statements include the activity of the Company and CIA.
In 1998, the Company planed an initial public offering ("IPO") of common
stock on a best efforts basis. Subsequent to December 31, 1998, the IPO was
canceled. Also, on May 4, 1999, the Company entered into a merger agreement to
acquire all of the outstanding stock of Universal Life Insurance Company. During
the third quarter of 1999 this agreement was retracted. Thus, all costs
capitalized related to these transactions were expensed during 1999.
The Chapman Co., Chapman Holdings, Inc.'s wholly owned subsidiary, and
Chapman Capital Management Holdings, Inc., a former subsidiary of the Chapman
Co., pays for routine operating expenses and provide certain management, data
processing, accounting and administrative services to the Company, for which The
Chapman Co. and Chapman Capital Management Holdings, Inc. are reimbursed. 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.
Significant intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at 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.
F-40
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments of cash, due to affiliates and
accounts payable are reported in the accompanying consolidated balance sheet at
cost, which approximates fair value.
SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", and has determined the Company has only one
segment. The Company came to this conclusion because the Company has one product
or service and the key decision-maker obtains information on the Company's
results as one segment for key decisions.
INCOME TAXES
The Company was included in the consolidated Federal income tax return of
The Chapman Co. on a cash basis through the date it was spun off. The Chapman
Co. allocated Federal tax expense to the Company based on its portion of
consolidated taxable income calculated on a stand-alone basis. After the spin
off, the Company files a separate Federal income tax return. The Company files a
separate state income tax return.
A reconciliation of the statutory income taxes to the recorded income tax
provision for the years ended December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Statutory tax (at 35% rate)................................ $(94,000) $ --
Effect of state income taxes............................... (11,000) --
Effect of graduated tax rate............................... 5,000 --
Valuation reserve.......................................... 100,000 --
-------- ----
$ -- $ --
======== ====
</TABLE>
The Company's deferred income tax asset as of December 31, 1999, is as
follows:
<TABLE>
<S> <C>
Deferred tax asset:
NOL carryforward........................................ $ 100,000
Valuation reserve....................................... (100,000)
---------
Net deferred tax asset...................................... $ --
=========
</TABLE>
A 100% valuation reserve was applied against the deferred tax asset as of
December 31, 1999, as its realization was not more likely than not to be
realized.
F-41
<PAGE>
CHAPMAN INSURANCE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES:
As of December 31, 1999, the Company owes The Chapman Co. for management
services and owes Chapman Capital Management Holdings, Inc. for expenses paid on
their behalf.
The administrative support expense included in the consolidated statements
of operations for the years ended December 31, 1999 and 1998, represent a $1,000
per month management fee charged by The Chapman Co. for administrative support
services provided for the Company.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
EChapman.com:
We have audited the accompanying balance sheet of EChapman.com (a Maryland
corporation) as of December 31, 1999, and the related statements of operations,
changes in stockholder's deficit, and cash flows for the period from May 14,
1999 (inception) to December 31, 1999. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EChapman.com as of
December 31, 1999, and the results of its operations and its cash flows for the
period from May 14, 1999 (inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/S/ARTHUR ANDERSEN LLP
Baltimore, Maryland
February 21, 2000
F-43
<PAGE>
ECHAPMAN.COM
BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Other assets.............................................. $ 934,000
---------
Total assets.......................................... $ 934,000
=========
LIABILITIES AND STOCKHOLDLER'S DEFICIT:
Accounts payable and accrued expenses..................... $ 805,000
Due to affiliates......................................... 410,000
---------
Total liabilities..................................... 1,215,000
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, $.001 par value, 50,000,000 shares
authorized, 1 share issued and outstanding.............. --
Accumulated deficit....................................... (281,000)
---------
Total stockholder's deficit........................... (281,000)
---------
Total liabilities and stockholder's deficit........... $ 934,000
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-44
<PAGE>
ECHAPMAN.COM
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 14, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUE: $ --
---------
EXPENSE:
Compensation and benefits................................. 62,000
Professional fees......................................... 219,000
---------
Total expense......................................... 281,000
---------
Loss before income taxes.............................. (281,000)
INCOME TAXES................................................ --
---------
Net loss.............................................. $(281,000)
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-45
<PAGE>
ECHAPMAN.COM
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE PERIOD FROM MAY 14, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDER'S
STOCK DEFICIT DEFICIT
--------- ----------- -------------
<S> <C> <C> <C>
BALANCE, May 14, 1999....................................... $ -- $ -- $ --
Net loss for the period................................... -- (281,000) (281,000)
--------- --------- ---------
BALANCE, December 31, 1999.................................. $ -- $(281,000) $(281,000)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-46
<PAGE>
ECHAPMAN.COM
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 14, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(281,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Effect of changes in assets and liabilities-
Other assets.......................................... (934,000)
Accounts payable and accrued expenses................. 805,000
Due to affiliates..................................... 410,000
---------
Net cash used in operating activities............... --
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... --
CASH beginning of period.................................... --
---------
CASH end of period.......................................... $ --
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-47
<PAGE>
ECHAPMAN.COM
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION:
EChapman.com (the Company) was formed on May 14, 1999, and is designed to
bring together the financial services capabilities of The Chapman Co., Chapman
Capital Management and Chapman Insurance Agency, while taking advantage of the
unique 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 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.
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. The
Company is in the preliminary stages of designing and developing its website.
These costs include conceptual formulation, evaluation, technology requirements
and vendor software and consultant selection. These costs have been expensed as
incurred in accordance with SOP 98-1. Once the Company enters the application
development stage, and enters into committments and contracts for services for
application security, installation of website, testing, etc., those costs will
be capitalized. Once the Company enters the operational stage, costs for
services will be evaluated, and expensed as incurred or expensed over the
contract period. The Company has a December 31 year-end.
F-48
<PAGE>
ECHAPMAN.COM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for other assets, and
accounts payable and accrued expenses approximate fair value.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of September 30, 1999, and has determined
that the Company has only one segment. The Company came to this conclusion
because the Company has had minimal operations 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.
INCOME TAXES
The Company accounts for income taxes under the 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.
F-49
<PAGE>
ECHAPMAN.COM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
A reconciliation of the statutory income taxes to the recorded income tax
provision for the period ended December 31, 1999, is as follows:
<TABLE>
<S> <C>
Statutory tax (at 35% rate)................................. $ 98,000
Effect of state income taxes................................ 14,000
Effect of graduated tax rate................................ (6,000)
Valuation reserve........................................... (106,000)
---------
$ --
=========
</TABLE>
The Company's deferred income tax asset as of December 31, 1999, is as
follows:
<TABLE>
<S> <C>
Deferred tax asset:
NOL carryforward.......................................... $106,000
Valuation reserve......................................... (106,000)
--------
Net deferred tax asset...................................... $ --
========
</TABLE>
A 100% valuation reserve was applied against the deferred tax asset as of
December 31, 1999, as its realization was not more likely than not to be
realized.
3. TRANSACTIONS WITH AFFILIATES:
On November 15, 1999, the Company signed a merger agreement to acquire
Chapman Holdings, Inc., Chapman Capital Management Holdings, Inc., and Chapman
Insurance Holdings, Inc.
As of December 31, 1999, the Company owes Chapman Holdings, Inc. $191,000
and Chapman Capital Management Holdings, Inc. $219,000 for expenses paid on its
behalf.
4. STOCK OPTIONS PLANS:
On November 12, 1999, the Company approved the EChapman.com, Inc. 1999
Omnibus Stock Plan (the Plan) to provide key people with incentives to improve
stockholder value and to grant equity compensation to the Company's directors,
officers, employees and consultants. Under the Plan, 850,000 shares of common
stock have been reserved for issuance upon exercise of stock options granted.
The price per share of each option exercised will be determined by the
Compensation Committee of the Board of Directors. No options have been issued
pursuant to this Plan as of December 31, 1999.
F-50
<PAGE>
ANNEX I
AGREEMENT AND PLAN
OF MERGER
BY AND AMONG
ECHAPMAN.COM, INC.,
CCMH MERGER SUBSIDIARY, INC.
AND
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
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TABLE OF CONTENTS
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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>
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<TABLE>
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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>
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<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
I-4
<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
(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
I-7
<PAGE>
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 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.
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(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 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").
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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 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
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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
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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").
(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
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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 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
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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
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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.
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,
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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 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
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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
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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
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
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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 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
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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. 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
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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
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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.
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
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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.
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;
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(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
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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 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
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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 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.
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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
(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.
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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.
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
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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.
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(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.
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
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(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 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.
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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;
(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;
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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 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 requested) or sent via facsimile to
the parties at the
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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
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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.
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
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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.
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>
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ANNEX II
March 29, 2000
Merger Committee of the Board of Directors
Chapman Capital Management Holdings, Inc.
401 East Pratt Street, 28(th) Floor
Baltimore, MD 21202
Members of the Board:
You have requested our opinion (the "Fairness Opinion") as to the fairness,
from a financial point of view, of the consideration to be received by the
independent public shareholders (excluding insiders and affiliates) of Chapman
Capital Management Holdings, Inc. ("Chapman" or the "Company") common stock, par
value $0.001 per share (the "Common Stock"), pursuant to the proposed Agreement
and Plan of Merger (the "CCMH Merger Agreement") by and among
EChapman.com, Inc. ("EChapman.com"), CCMH Merger Subsidiary, Inc. and Chapman
Capital Management Holdings, Inc. dated November 14, 1999. The consideration to
be issued to each holder of Chapman Common Stock in the Merger will be that
number of shares of EChapman.com Common Stock, par value $0.001 per share, which
is determined by multiplying the Exchange Ratio of 2.23363 by the number of
shares of Chapman Common Stock held by such holder of Chapman Common Stock on
the Closing Date.
Tucker Anthony Cleary Gull ("Tucker Anthony") as part of its investment
banking business is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. We have been retained to render the Fairness Opinion to the Merger
Committee of the Board of Directors (the "Merger Committee") of Chapman in
connection with the Merger and will receive a fee for our services, a
significant portion of which is payable at the time of delivery of the written
Fairness Opinion.
In arriving at our opinion, we have among other things:
(i) Reviewed the following merger agreements (the "Merger Agreements"):
Agreement and Plan of Merger by and among EChapman.com, Inc., CCMH Merger
Subsidiary, Inc. and Chapman Capital Management Holdings, Inc. dated
November 14, 1999; and
Agreement and Plan of Merger (the "CHI Merger Agreement") by and among
EChapman.com, Inc., CHI Merger Subsidiary, Inc. and Chapman Holdings, Inc.
("CHI") dated November 14, 1999;
(ii) Reviewed the EChapman.com Form SB-2 dated November 15, 1999;
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(iii) Reviewed certain historical financial and other information concerning the
Company and CHI for the nine month period ended September 30, 1999 and for
the fiscal years ended December 31, 1998 and December 31, 1997, as filed
with the SEC;
(iv) Reviewed certain estimated financial and other information concerning the
Company and CHI for the fiscal year ending December 31, 1999;
(v) Held discussions with the senior management of the Company, CHI and
EChapman.com with respect to their past and current financial performance,
financial condition and future prospects;
(vi) Reviewed certain internal financial data, projections and other information
of the Company, CHI and EChapman.com including financial projections
prepared by management;
(vii) Reviewed certain historical financial and other information concerning
Chapman Insurance Holdings ("CIH") for the nine month period ended
September 30, 1999 and for the fiscal years ended December 31, 1998 and
December 31, 1997;
(viii)Held discussions with the senior management of CIH with respect to their
past and current financial performance, financial condition and future
prospects and reviewed the proposed merger terms as presented in the
EChapman.com Form SB-2 dated November 15, 1999;
(ix) Analyzed certain publicly available information of other asset management
and investment banking firms deemed comparable or otherwise relevant to our
inquiry, and compared the Company and CHI from a financial point of view
with certain of these firms;
(x) Compared the consideration to be received by the stockholders of the Company
and CHI pursuant to the Merger Agreements with the consideration received by
stockholders in other acquisitions of asset management and investment
banking firms deemed comparable or otherwise relevant to our inquiry;
(xi) Reviewed historical trading activity and ownership data of the Company and
CHI common stock and considered the prospects for price movement in each;
(xii) Conducted such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable us to
render our opinion.
We note that the Merger is subject to the condition that EChapman.com
completes a public offering of its common stock in which (i) EChapman.com
receives gross proceeds of no less than $20.0 million and (ii) the price paid by
the public for shares of EChapman.com common stock reflects a post-merger,
pre-offering valuation of EChapman.com of no less than $80.0 million (which
would equate to a pre-merger, pre-offering valuation of the Company of
approximately $45.2 million, or $13.40 per
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share). We have assumed that this and all other conditions to the Merger will be
satisfied prior to completion of the Merger.
Our opinion assumes that the EChapman.com public offering is fairly priced
and that each of the constituent transactions is adequately disclosed in
EChapman.com's Form SB-2. We also note that Ferris, Baker Watts, Incorporated is
expected to act as qualified independent underwriter for the proposed offering
of shares of EChapman.com common stock and that we are not opining on the
fairness of that offering to any person.
We have assumed that the CHI Merger will be closed simultaneously with the
Merger, without waiver of any of CHI's terms and conditions.
In our review and analysis and in arriving at our opinion we have assumed
and relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by the Company, CHI and EChapman.com and
have not attempted to verify any of such information. We have assumed that
(i) financial projections provided to us with respect to the results of
operations likely to be achieved have been prepared on a basis reflecting the
best currently available estimates and judgments of management as to future
financial performance and results and (ii) that such forecasts and estimates
will be realized in the amounts and in the time periods currently estimated by
management. We are not addressing the likelihood that EChapman.com will succeed
in implementing its proposed business plan, and we note that the Company has not
reported net income as a public company. We are not opining on the CIH proposed
agreement to merge with EChapman.com. We did not make or obtain any independent
evaluations or appraisals of any assets or liabilities of the Company, CHI or
any of their respective subsidiaries or affiliates nor did we verify any of the
Company's or CHI's books or records. Our opinion is necessarily based upon
market, economic and other conditions as they exist and can be evaluated as of
the date of this letter. The opinion was delivered for the use and benefit of
the Merger Committee of the Board of Directors of the Company and is not a
recommendation to shareholders. Tucker Anthony and the Merger Committee have
agreed that they do not believe any party other than the Merger Committee has
the legal right to rely on the opinion and, absent any controlling precedent,
would resist any assertion otherwise. Since there is no state or federal law or
regulation which requires that a fairness opinion be issued or obtained in
connection with this transaction, it is the view of Tucker Anthony that the
determination as to who may rely on the Fairness Opinion and to whom Tucker
Anthony may be liable in connection with the opinion is determined by the
agreement to provide the Fairness Opinion between Tucker Anthony and the Merger
Committee (the "Agreement"). Tucker Anthony intends to assert this disclaimer
and the limitations in the Agreement pertaining to the use of, and the liability
arising in connection with, the fairness opinion as an affirmative defense to
any claim brought by any shareholder against Tucker Anthony under applicable
state law. Tucker Anthony believes that the law of the state of Maryland governs
this transaction. To
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the best of its knowledge, Tucker Anthony believes that Maryland law has not
addressed the availability of this affirmative defense and therefore a court of
competent jurisdiction in Maryland would have to resolve the availability of
this affirmative defense. In any event, such a defense, whether or not available
to Tucker Anthony, would not affect the rights and responsibilities of the board
of directors under governing state law or the federal securities law or the
rights and responsibilities of Tucker Anthony under the federal securities laws.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the consideration to be received by holders of the Common Stock
pursuant to the CCMHI Merger Agreement is fair to such holders from a financial
point of view.
Very truly yours,
TUCKER ANTHONY CLEARY GULL
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<PAGE>
ANNEX III
SECTION 3-201. "SUCCESSOR" DEFINED.
(a) CORPORATION AMENDING CHARTER.--In this subtitle, except as provided in
subsection (b) of this section, "successor" includes a corporation which amends
its charter in a way which alters the contract rights, as expressly set forth in
the charter, of any outstanding stock, unless the right to do so is reserved by
the charter of the corporation.
(b) CORPORATION WHOSE STOCK IS ACQUIRED.--When used with reference to a
share exchange, "successor" means the corporation the stock of which was
acquired in the share exchange. (An. Code 1957, art. 23, Section 73; 1975, ch.
311, Section 2; 1985, ch. 657.)
SECTION 3-202. RIGHT TO FAIR VALUE OF STOCK.
(a) GENERAL RULE.--Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and receive
payment of the fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action
under Section 3-105(e) of this title;
(4) The corporation amends its charter in a way which alters the
contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, unless
the right to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by Section 3-602 of this title or
exempted by Section 3-603(b) of this title.
(b) BASIS OF FAIR VALUE.--(1) Fair value is determined as of the close of
business:
(i) With respect to a merger under Section 3-106 of this title of a
90 percent or more owned subsidiary with or into its parent corporation,
on the day notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value
may not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its proposal.
(3) In any transaction governed by Section 3-602 of this title or
exempted by Section 3-603(b) of this title, fair value shall be value
determined in accordance with the requirements of Section 3-603(b) of this
title.
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(c) WHEN RIGHT TO FAIR VALUE DOES NOT APPLY.--Unless the transaction is
governed by Section 3-602 of this title or is exempted by Section 3-603(b) of
this title, a stockholder may not demand the fair value of his stock and is
bound by the terms of the transaction if:
(1) The stock is listed on a national securities exchange or is
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.:
(i) With respect to a merger under Section 3-106 of this title of a
90 percent or more owned subsidiary with or into its parent corporation,
on the date notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction objected to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly
set forth in the charter, and the charter does not reserve the right to
do so; or
(ii) The stock is to be changed or converted in whole or in part in
the merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of provisions for
the treatment of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company registered with
the Securities and Exchange Commission under the Investment Company Act of
1940 and the value placed on the stock in the transaction is its net asset
value. (An. Code 1957, art. 23, Section 73; 1975, ch. 311, Section 2; 1976,
ch. 567, Section 2; 1983, Sp. Sess., ch. 1; 1985, chs. 363, 657; 1990, ch.
6, Section 2; 1993, ch. 605; 1997, ch. 717; 1999, ch. 395; ch. 459, Section
1.)
SECTION 3-203. PROCEDURE BY STOCKHOLDER.
(a) SPECIFIC DUTIES.--A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction:
(i) With respect to a merger under Section 3-106 of this title of a
90 percent or more owned subsidiary with or into its parent corporation,
within 30 days after notice is given or waived under Section 3-106; or
(ii) With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered;
(2) May not vote in favor of the transaction; and
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(3) Within 20 days after the Department accepts the articles for record,
shall make a written demand on the successor for payment for his stock,
stating the number and class of shares for which he demands payment.
(b) FAILURE TO COMPLY WITH SECTION.--A stockholder who fails to comply with
this section is bound by the terms of the consolidation, merger, share exchange,
transfer of assets, or charter amendment. (An. Code 1957, art. 23, Section 73;
1975, ch. 311, Section 2; 1976, ch. 567, Section 2; 1999, ch. 395.)
SECTION 3-204. EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of business
on the day as at which fair value is to be determined under Section 3-202 of
this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that
stock, except the right to receive payment of its fair value. (An. Code
1957, art. 23, Section 73; 1975, ch. 311, Section 2; 1976, ch. 567,
Section 2.
SECTION 3-205. WITHDRAWAL OF DEMAND.
A demand for payment may be withdrawn only with the consent of the
successor. (An. Code 1957, art. 23, Section 73; 1975, ch. 311, Section 2.)
SECTION 3-206. RESTORATION OF DIVIDEND AND OTHER RIGHTS.
(a) WHEN RIGHTS RESTORED.--The rights of a stockholder who demands payment
are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by
this subtitle;
(3) A court determines that the stockholder is not entitled to relief;
or
(4) The transaction objected to is abandoned or rescinded.
(b) EFFECT OF RESTORATION.--The restoration of a stockholder's rights
entitles him to receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration. (An. Code 1957, art. 23, Section 73; 1975, ch. 311, Section 2.)
SECTION 3-207. NOTICE AND OFFER TO STOCKHOLDERS.
(a) DUTY OF SUCCESSOR.--(1) The successor promptly shall notify each
objecting stockholder in writing of the date the articles are accepted for
record by the Department.
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(2) The successor also may send a written offer to pay the objecting
stockholder what it considers to be the fair value of his stock. Each offer
shall be accompanied by the following information relating to the
corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before the
date of the offer;
(ii) A profit and loss statement for the 12 months ending on the date
of the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) MANNER OF SENDING NOTICE.--The successor shall deliver the notice and
offer to each objecting stockholder personally or mail them to him by certified
mail, return receipt requested, bearing a postmark from the United States Postal
Service, at the address he gives the successor in writing, or, if none, at his
address as it appears on the records of the corporation which issued the stock.
(An. Code 1957, art. 23, Section 73; 1975, ch. 311, Section 2; 1983, ch. 563;
1985, ch. 10, Section 3.)
SECTION 3-208. PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER
OF OBJECTORS.
(a) PETITION FOR APPRAISAL.--Within 50 days after the Department accepts the
articles for record, the successor or an objecting stockholder who has not
received payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does not have a
principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(b) CONSOLIDATION OF SUITS; JOINDER OF OBJECTORS.--(1) If more than one
appraisal proceeding is instituted, the court shall direct the consolidation of
all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an
appraisal proceeding. (An. Code 1957, art. 23, Section 73; 1975, ch. 311,
Section 2.)
SECTION 3-209. NOTATION ON STOCK CERTIFICATE.
(a) SUBMISSION OF CERTIFICATE.--At any time after a petition for appraisal
is filed, the court may require the objecting stockholders parties to the
proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) TRANSFER OF STOCK BEARING NOTATION.--If any stock represented by a
certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to
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<PAGE>
the stock other than the rights of the original objecting stockholder. (An. Code
1957, art. 23, Section 73; 1975, ch. 311, Section 2.)
SECTION 3-210. APPRAISAL OF FAIR VALUE.
(a) COURT TO APPOINT APPRAISERS.--If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) REPORT OF APPRAISERS--FILING.--Within 60 days after their appointment,
unless the court sets a longer time, the appraisers shall determine the fair
value of the stock as of the appropriate date and file a report stating the
conclusion of the majority as to the fair value of the stock.
(c) SAME--CONTENTS.--The report shall state the reasons for the conclusion
and shall include a transcript of all testimony and exhibits offered.
(d) SAME--SERVICE; OBJECTION.--(1) On the same day that the report is filed,
the appraisers shall mail a copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it
and request a hearing. (An. Code 1957, art. 23, Section 73; 1975, ch. 311,
Section 2.)
SECTION 3-211. ACTION BY COURT ON APPRAISERS' REPORT.
(a) ORDER OF COURT.--The court shall consider the report and, on motion of
any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) PROCEDURE AFTER ORDER.--(1) If the appraisers' report is confirmed or
modified by the order, judgment shall be entered against the successor and in
favor of each objecting stockholder party to the proceeding for the appraised
fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms
and conditions it considers proper.
(c) JUDGMENT INCLUDES INTEREST.--(1) Except as provided in paragraph (2) of
this subsection, a judgment for the stockholder shall award the value of the
stock and interest from the date as at which fair value is to be determined
under Section 3-202 of this subtitle.
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<PAGE>
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under Section 3-207 of
this subtitle was arbitrary and vexatious or not in good faith. In making
this finding, the court shall consider:
(i) the price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d) COSTS OF PROCEEDINGS.--(1) The costs of the proceedings, including
reasonable compensation and expenses of the appraisers, shall be set by the
court and assessed against the successor. However, the court may direct the
costs to be apportioned and assessed against any objecting stockholder if the
court finds that the failure of the stockholder to accept an offer for the stock
made under Section 3-207 of this subtitle was arbitrary and vexatious or not in
good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable
fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under Section
3-207 of this subtitle; or
(ii) the value of the stock determined in the proceeding materially
exceeds the amount offered by the successor.
(e) EFFECT OF JUDGMENT.--The judgment is final and conclusive on all parties
and has the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority over any
mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment. (An. Code 1957, art. 23,
Section 73; 1975, ch. 311, Section 2; 1976, ch. 567, Section 2.)
SECTION 3-212. SURRENDER OF STOCK.
The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it,
indorsed in blank, and in proper form for transfer; or
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<PAGE>
(2) Satisfactory evidence of the loss or destruction of the certificates
and sufficient indemnity bond are furnished. (An. Code 1957, art. 23,
Section 73; 1975, ch. 311, Section 2.)
SECTION 3-213. RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.
(a) GENERAL RULE.--A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under Section 3-202 of this subtitle.
(b) SUCCESSOR IN TRANSFER OF ASSETS.--After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all the
rights of an owner of the stock.
(c) SUCCESSOR IN CONSOLIDATION, MERGER, OR SHARE EXCHANGE.--Unless the
articles provide otherwise, stock in the successor of a consolidation, merger,
or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock. (An. Code 1957, art. 23 Section 73; 1975, ch. 311,
Section 2; 1976, ch. 567, Section 2.)
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<PAGE>
APPENDIX I
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Chapman Capital Management Holdings, Inc.
hereby appoints Nathan A. Chapman, Jr. and Earl U. Bravo, Sr., and either of
them, as lawful attorneys and proxies of the undersigned, with several powers of
substitution, to vote all shares of the common stock of Chapman Capital
Management Holdings which the undersigned is entitled to vote at the special
meeting of the stockholders of Chapman Capital Management Holdings to be held on
April 17, 2000 at 7:30 a.m. or at any adjournment thereof as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. To approve the Agreement and Plan of Merger by and among Chapman Capital
Management Holdings, EChapman.com, Inc., a Maryland corporation, and CCMHI
Merger Subsidiary, Inc., a Maryland corporation and wholly-owned subsidiary
of EChapman, pursuant to which (a) Chapman Capital Management Holdings shall
merge with and into CCMHI Merger Subsidiary and (b) each share of common
stock of Chapman Capital Management Holdings, par value $0.001 per share
(other than shares held by holders of Chapman Capital Management Holdings
common stock who perfect their dissenters' rights) automatically shall
become and be converted into 2.23363 shares of a share of the common stock
of EChapman, par value $0.001 per share.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, to vote upon such other business as may properly come
before the meeting.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED IN THIS
PROXY. IF NO SPECIFIC INSTRUCTIONS ARE GIVEN, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE
MERGER AND IN THE BEST DISCRETION OF THE PROXY HOLDERS AS TO OTHER MATTERS.
Dated: _____________________, 2000
__________________________________
Signature of Owner
__________________________________
Additional Signature of Joint
Owner
Please sign exactly as your name
appears hereon. If stock is
jointly held, each joint owner
should sign. When signing as
attorney, executor, administrator,
trustee or guardian please give
full title as such.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 2-418 of the Maryland General Corporation Law (the "MGCL") provides
that the Registrant may indemnify any director who was, is or is threatened to
be made a named defendant or respondent to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director of the
Registrant, or while a director, is or was serving at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, against reasonable expenses
(including attorneys' fees), judgments, penalties, fines and settlements,
actually incurred by the director in connection with such action, suit or
proceeding, unless it is established that: (i) the act or omission of the
director was material to the matter giving rise to such action, suit or
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the director actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the director had reasonable cause to believe that the act or
omission was unlawful. If the action, suit or proceeding was one by or in the
right of the Registrant, no indemnification shall be made with respect to any
action, suit or proceeding in which the director shall have been adjudged to be
liable to the Registrant. A director also may not be indemnified with respect to
any action, suit or proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director is adjudged to be liable on the basis that a personal
benefit was improperly received. Unless limited by the Registrant's Charter:
(i) a court of appropriate jurisdiction, upon application of a director, may
order such indemnification as the court shall deem proper if it determines that
the director is fairly and reasonably entitled to indemnification in view of all
of the relevant circumstances, regardless of whether the director has met the
standards of conduct required by MGCL Section 2-418; and (ii) the Registrant
shall indemnify a director if such director is successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above.
However, with respect to any action, suit or proceeding by or in the right of
the Registrant or in which the director was adjudged to be liable on the basis
that a personal benefit was improperly received, the Registrant may only
indemnify the director for any expenses (including attorneys' fees) incurred in
connection with such action, suit or proceeding.
MGCL Section 2-418 further provides that unless limited by the Registrant's
Charter, the Registrant: (i) shall (a) indemnify an officer of the Registrant if
such officer is successful on the merits or otherwise in defense of any action,
suit or proceeding referred to above, and (b) indemnify an officer of the
Registrant if a court of appropriate jurisdiction, upon application of an
officer, shall order indemnification; (ii) may indemnify and advance expenses to
an officer, employee or agent of the
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<PAGE>
Registrant to the same extent that it may indemnify directors; and (iii) may
indemnify and advance expenses to an officer, employee or agent who is not a
director to such further extent, consistent with law, as may be provided by the
Charter, Bylaws, general or specific action of the Registrant's Board of
Directors or contract.
The Charter of the Registrant, provides that the Registrant shall indemnify
its currently acting and its former directors and officers against any and all
liabilities and expenses incurred in connection with their services in such
capacities to the maximum extent permitted by the MGCL, as from time to time
amended. If approved by the Board of Directors, the Registrant may indemnify its
employees, agents and persons who serve and have served, at its request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture or other enterprise to the extent determined to be
appropriate by the Board of Directors. The Registrant shall advance expenses to
its directors and officers entitled to mandatory indemnification to the maximum
extent permitted by the MGCL and may in the discretion of the Board of Directors
advance expenses to employees, agents and others who may be granted
indemnification.
The Registrant's Charter provides that, to the fullest extent permitted by
the MGCL, as amended or interpreted, no director or officer of the Registrant
shall be personally liable to the Registrant or its stockholders for monetary
damages in connection with events occurring at the time such person served as a
director or officer.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
(a) Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
3.1 Articles of Amendment and Restatement of the Company (Filed
herewith).
3.2 Amended and Restated Bylaws of the Company (Filed herewith).
4 Form of common stock Certificate (Filed as Exhibit 4 to
Pre-effective Amendment No. 1 to EChapman.com, Inc.
Registration Statement on Form SB-2 (File No. 333-90987) as
filed with the Securities and Exchange Commission on
January 18, 2000 and hereby incorporated by reference)
5 Opinion of Venable, Baetjer and Howard, LLP regarding
legality (Filed herewith)
8 Form of opinion of Venable, Baetjer and Howard, LLP
regarding tax matters (Filed herewith)
10.1 EChapman.com, Inc. 1999 Omnibus Stock Plan (Filed as Exhibit
10.1 to EChapman.com, Inc. Registration Statement on
Form SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and hereby
incorporated by reference)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
10.2 Service Mark License Agreement between the Company and
Nathan A. Chapman, Jr. dated November 12, 1999 (Filed as
Exhibit 10.2 to EChapman.com, Inc. Registration Statement on
Form SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and hereby
incorporated by reference)
10.3 Agreement and Plan of Merger by and between the Company, and
Chapman Holdings, Inc. dated November 15, 1999 (Filed as
Exhibit 10.3 to Pre-effective Amendment No. 1 to
EChapman.com, Inc. Registration Statement on Form SB-2 (File
No. 333-90987) as filed with the Securities and Exchange
Commission on January 18, 2000 and hereby incorporated by
reference)
10.4 Agreement and Plan of Merger by and between the Company, and
Chapman Capital Management, Inc. dated November 15, 1999
(Filed as Exhibit 10.4 to Pre-effective Amendment No. 1 to
EChapman.com, Inc. Registration Statement on Form SB-2 (File
No. 333-90987) as filed with the Securities and Exchange
Commission on January 18, 2000 and hereby incorporated by
reference)
10.5 Agreement and Plan of Merger by and between the Company, and
Chapman Insurance Holdings, Inc. dated November 15, 1999
(Filed as Exhibit 10.5 to Pre-effective Amendment No. 1 to
EChapman.com, Inc. Registration Statement on Form SB-2 (File
No. 333-90987) as filed with the Securities and Exchange
Commission on January 18, 2000 and hereby incorporated by
reference)
10.6 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Holdings, Inc.) (Filed
as Exhibit 10.6 to EChapman.com, Inc. Registration Statement
on Form SB-2 (File No. 333-90987) as filed with the
Securities and Exchange Commission on November 15, 1999 and
hereby incorporated by reference)
10.7 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Capital Management
Holdings, Inc.) (Filed as Exhibit 10.7 to Pre-effective
Amendment No. 1 to EChapman.com, Inc. Registration Statement
on Form SB-2 (File No. 333-90987) as filed with the
Securities and Exchange Commission on January 18, 2000 and
hereby incorporated by reference)
10.8 Support Agreement between the Company and Nathan A. Chapman,
Jr. dated November 12, 1999 (Chapman Insurance Holdings)
(Filed as Exhibit 10.8 to Pre-effective Amendment No. 1 to
EChapman.com, Inc. Registration Statement on Form SB-2 (File
No. 333-90987) as filed with the Securities and Exchange
Commission on January 18, 2000 and hereby incorporated by
reference)
10.9 Fully Disclosed Clearing Agreement between the Pershing
Division, Donaldson, Lufkin & Jenrette Securities
Corporation and The Chapman Co. dated March 16, 1999 (Filed
as Exhibit 10.9 to EChapman.com, Inc. Registration Statement
on Form SB-2 (File No. 333-90987) as filed with the
Securities and Exchange Commission on November 15, 1999 and
hereby incorporated by reference)
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>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
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>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
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 Capital Management
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 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)
10.28 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 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)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
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)
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)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
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)
10.41 Lock-up Agreement between Nathan A. Chapman, Jr. and The
Chapman Co. dated March 14, 2000 (Filed herewith).
10.42 $32,836.53 Promissory Note to The Chapman Co. from Nathan A.
Chapman, Jr. dated December 31, 1999 (Filed herewith).
10.43 Amended and Restated Expense Limitation Agreement by and
among The Chapman Funds, Inc., on behalf of The Chapman U.S.
Treasury Money Fund, DEM Equity Fund, DEM Index Fund, DEM
Multi-Manager Equity Fund and DEM Multi-Manager Bond Fund,
and Chapman Capital Management, Inc. dated March 17, 2000
(Filed herewith).
21 Subsidiaries of the Company (Filed as Exhibit 21 to
Pre-effective Amendment No. 1 to EChapman.com, Inc.
Registration Statement on Form SB-2 (File No. 333-90987) as
filed with the Securities and Exchange Commission on
January 18, 2000 and hereby incorporated by reference)
23.1 Consent of Arthur Andersen LLP (Filed herewith)
23.2 Consent of Venable, Baetjer and Howard, LLP (included in
Exhibit 5) (Filed herewith)
23.3 Consent of Tucker Anthony Cleary Gull (Filed herewith)
24.1 Power of Attorney (Filed as Exhibit 24.1 to EChapman.com,
Inc. Registration Statement on Form S-4 (File No. 333-91329)
as filed with the Securities and Exchange Commission on
November 15, 1999 and hereby incorporated by reference.
24.2 Consent to serve as director (Raymond Haysbert) (Filed as
Exhibit to EChapman.com, Inc. Registration Statement on
Form SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and hereby
incorporated by reference)
24.3 Consent to serve as director (Kweisi Mfume) (Filed as
Exhibit to EChapman.com, Inc. Registration Statement on
Form SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and hereby
incorporated by reference)
24.4 Consent to serve as director (Mark Jefferson) (Filed as
Exhibit to EChapman.com, Inc. Registration Statement on
Form SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and hereby
incorporated by reference)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<S> <C>
24.5 Consent to serve as director (Adolph Washington) (Filed as
Exhibit to EChapman.com, Inc. Registration Statement on
Form SB-2 (File No. 333-90987) as filed with the Securities
and Exchange Commission on November 15, 1999 and hereby
incorporated by reference)
</TABLE>
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) of this Form.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to 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 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) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
II-8
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant 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 Registrant 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.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-9
<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 March
30, 2000.
<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 Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ NATHAN A. CHAPMAN, JR. President and Director
--------------------------------------- (Principal Executive March 30, 2000
Nathan A. Chapman, Jr. Officer)
Treasurer and Chief
/s/ DEMETRIS BROWN Financial Officer
--------------------------------------- (Principal Financial March 30, 2000
Demetris Brown Officer and Principal
Accounting Officer)
</TABLE>
The Entire Board of Directors:
Nathan A. Chapman, Jr.
Earl U. Bravo, Sr.
<TABLE>
<S> <C> <C>
By: /s/ NATHAN A. CHAPMAN, JR.
------------------------------------
Nathan A. Chapman, Jr. March 30, 2000
ATTORNEY-IN-FACT
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
3.1 Articles of Amendment and Restatement of EChapman.com, Inc.
3.2 Amended and Restated Bylaws of EChapman.com, Inc.
5 Opinion of Venable, Baetjer and Howard, LLP regarding
legality
8 Form of opinion of Venable, Baetjer and Howard, LLP
regarding tax matters.
10.41 Lock-up Agreement between Nathan A. Chapman, Jr. and The
Chapman Co. dated March 14, 2000
10.42 $32,836.53 Promissory Note to The Chapman Co. from Nathan A.
Chapman, Jr. dated December 31, 1999
10.43 Amended and Restated Expense Limitation Agreement by and
among The Chapman Funds, Inc., on behalf of The Chapman U.S.
Treasury Money Fund, DEM Equity Fund, DEM Index Fund, DEM
Multi-Manager Equity Fund and DEM Multi-Manager Bond Fund,
and Chapman Capital Management, Inc. dated March 17, 2000
23.1 Consent of Arthur Anderson, LLP
23.2 Consent of Venable, Baetjer and Howard, LLP (included in
Exhibit 5)
23.3 Consent of Tucker Anthony Cleary Gull
</TABLE>
<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 (hereinafter 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 11 East Chase Street, Suite 9-E, Baltimore, Maryland 21202. The
resident agent of the Corporation in this State is CSC-Lawyers Incorporating
Service Company, whose post office address is 11 East Chase Street, Suite 9-E,
Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.
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 par
value of all shares is $0.001. 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. Directors.
Nathan A. Chapman, Jr. and Earl U. Bravo, Sr. shall act as
directors of the Corporation until the first annual meeting and until their
successors are duly elected 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. Permissible Considerations by Board of Directors.
The Board of Directors, in considering a potential acquisition of
control of the Corporation, is permitted to consider the effect of the potential
acquisition on the stockholders, employees, suppliers, customers, and creditors
of the corporation and the communities in which offices or other establishments
of the Corporation are located.
ARTICLE VI
PROVISIONS CONCERNING CERTAIN RIGHTS
OF THE CORPORATION AND THE STOCKHOLDERS
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.
Section 4. Bylaws.
The Board of Directors, and not the stockholders, shall have the
exclusive power to make, alter, amend or repeal the Bylaws of the Corporation.
Any amendment to, repeal of or adoption of any provision inconsistent with this
Section 4 shall be effective only if it is approved by the affirmative vote of
the holders of at least 80% of the aggregate combined voting power of all
classes of capital stock entitled to vote thereon, voting as one class.
-3-
<PAGE>
Section 5. Business Combination Statute.
The provisions of Title 3, Subtitle 6 (Special Voting
Requirements) of the Maryland General Corporation Law (the "MGCL"), including
but not limited to Section 3-602, shall not apply to any business combination of
the Corporation or any subsidiary of the Corporation with (a) Nathan A. Chapman,
Jr.; (b) any person that becomes an interested stockholder as a result of a
transfer of securities of the Corporation, including the transfer of voting
rights or other interests in any such securities, to such person pursuant to a
written agreement that provides for such exemption to which Nathan A. Chapman,
Jr. or any affiliate or associate of Nathan A. Chapman, Jr. is a party; or (c)
any affiliate or associate of the persons named in (a) and/or (b). As used in
this Section 5, the terms "affiliate," "associate," "business combination,"
"interested stockholder" and "subsidiary" shall have the meanings ascribed to
them in Title 3, Subtitle 6 of the MGCL
Section 6. Control Share Law.
Any acquisition of any shares of stock of the Corporation,
including any acquisition of voting rights or other interests in any such stock,
shall be exempt from the provisions of Title 3, Subtitle 7 of the MGCL (Voting
Rights of Certain Control Shares). Accordingly, the provisions of Title 3,
Subtitle 7 of the MGCL shall not apply to this Corporation.
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 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.
-4-
<PAGE>
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.
THIRD: The amendment and restatement of the charter of the
Corporation herein made was recommended and advised by the board of directors of
the Corporation by a unanimous written consent dated December 15, 1999 and was
approved by the stockholders of the Corporation by a unanimous written consent
dated December 15, 1999.
FOURTH: The current address of the principal office of the
Corporation is 11 East Chase Street, Suite 9-E, Baltimore, Maryland 21202 and
the Corporation's current resident agent is CSC-Lawyers Incorporating Service
Company, whose post office address is 11 East Chase Street, Suite 9-E,
Baltimore, Maryland 21202.
FIFTH: The Corporation currently has two directors; the directors
currently in office are Nathan A. Chapman, Jr. and Earl U. Bravo, Sr.
SIXTH: These Articles of Amendment and Restatement do not increase
the authorized stock of the Corporation or the aggregate par value of such
authorized stock.
-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., as of the 21st day of
January, 2000.
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: /s/ NATHAN A. CHAPMAN, JR. (SEAL)
- ----------------------------- -------------------------------
Earl U. Bravo, Sr., Secretary Nathan A. Chapman, Jr., President
-6-
<PAGE>
Exhibit 3.2
BYLAWS
OF
ECHAPMAN.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 January 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 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,
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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
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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
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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.
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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. COMMITTEES.
The Board of Directors may constitute an Executive
Committee and other committees composed of one or more directors
from among its members. Such committees shall hold office at the pleasure of
the Board of Directors. If any position on a committee becomes vacant, or if
the number of members is increased, such vacancy may be filled by the Board
of Directors. Committees shall hold formal meetings and keep minutes of all
of their proceedings. Any action taken by a committee within the limits
permitted by law, the Board resolutions establishing such committee, the
Charter and the Bylaws 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 a 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. A 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. The members of a committee present at any meeting,
whether or not they constitute a quorum, shall have the power to appoint a
director to act in the place of an absent member unless the Board of
Directors shall have appointed a director to act in the place of an absent
member of such committee.
Between sessions of the Board of Directors, if appointed,
the Executive 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. 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. A copy of the
minutes of the proceedings of the Executive Committee shall, after approval
by the members of the Executive Committee, be sent to all directors as a
matter of information.
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
The Board of Directors, and not the stockholders, shall
have the exclusive power to make, alter, amend or repeal the Bylaws of the
Corporation.
I HEREBY CERTIFY that the foregoing is a full, true and
correct copy of the Bylaws of eCHAPMAN.COM, INC., a Maryland Corporation,
adopted as of January 21, 2000, and as in effect on the date hereof.
Dated: January 21, 2000 /s/ EARL U. BRAVO, SR.
--------------------------------
Name: Earl U. Bravo, Sr.
Title: Secretary
(SEAL)
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March 29, 2000
eChapman.com, Inc.
World Trade Center - Baltimore
40l E. Pratt Street
Suite 2800
Baltimore, MD 21202
Re: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have acted as counsel for eChapman.com, Inc., a Maryland corporation
(the "Company"), in connection with the organization of the Company and the
issuance of up to 3,533,333 shares of its common stock, par value $0.001 per
share (the "Common Stock").
As counsel for the Company, we are familiar with its Charter and
Bylaws. We have examined the prospectus included in its Registration Statement
on Form SB-2 (File No. 333-90987) (the "Registration Statement"), substantially
in the form in which it is to become effective (collectively, the "Prospectus").
We have further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation to the effect that the Company is duly
incorporated and existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of Maryland.
We have also examined and relied upon such corporate records of the
Company and other documents and certificates with respect to factual matters as
we have deemed necessary to render the opinion expressed herein. With respect to
the documents we have received, we have assumed, without independent
verification, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity with originals of all
documents submitted to us as copies.
Based on such examination, we are of the opinion and so advise you that
the 3,533,333 shares of Common Stock to be offered for sale pursuant to the
Prospectus are
<PAGE>
eChapman.com, Inc.
March 29, 2000
Page 2
duly authorized and, when sold, issued and paid for as contemplated by the
Prospectus, will be validly and legally issued and will be fully paid and
nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock. It does not extend to the securities or "blue sky" laws
of Maryland, to federal securities laws or to other laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Registration Statement
under the heading "Legal Matters."
Very truly yours,
/s/ VENABLE, BAETJER & HOWARD, LLP
<PAGE>
Exhibit 8
____________, 2000
Chapman Capital Management Holdings, Inc.
World Trade Center-Baltimore
401 East Pratt Street, 28th Floor
Baltimore, MD 21202
RE: ACQUISITION BY ECHAPMAN.COM, INC.
Ladies and Gentlemen:
We have acted as counsel for Chapman Capital Management
Holdings, Inc. ("CCMH"), a Maryland corporation, in connection with the
preparation and execution of the Agreement and Plan of Merger (the "Agreement"),
dated as of November 15, 1999, by and among CCMH, EChapman.com, Inc.
("EChapman"), a Maryland corporation, and CCMH Merger Subsidiary, Inc. ("Merger
Sub"), a Maryland corporation and wholly-owned subsidiary of EChapman. This
opinion is being delivered to you in accordance with Section 8.2(d) of Article
VIII of the Agreement. Pursuant to the Agreement, CCMH will merge with and into
Merger Sub (the "Merger"). All section references in this opinion, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code"). All capitalized terms used in this opinion and not otherwise defined in
this opinion shall have the meanings assigned to them in the Agreement.
In rendering this opinion, we have examined and, with your
consent, have relied upon (without any independent investigation or review
thereof) the following documents (including all exhibits and schedules thereto):
(i) the Agreement; (ii) the Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission in the form in which it was declared
effective (the "Registration Statement") and the Proxy Statement/Prospectus
included therein; (iii) representations and certifications made to us by CCMH
(attached hereto as EXHIBIT A); (iv) representations and certifications made to
us by EChapman (attached hereto as EXHIBIT B); and (v) such other instruments
and documents related to the formation, organization and operation of CCMH,
eChapman and Merger Sub or to the consummation of the Merger and the
transactions contemplated thereby as we have deemed necessary or appropriate.
<PAGE>
Chapman Capital Management Holdings, Inc.
________________, 2000
Page 2
THE PROPOSED TRANSACTION
Based solely upon our review of the documents set forth above
and the information contained therein (which information we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we understand that the proposed transaction and the relevant facts with respect
thereto are as follows:
CCMH is a holding company whose wholly-owned subsidiary,
Chapman Capital Management, Inc., a District of Columbia corporation, manages
mutual funds and a private investment trust, and advises investors on a separate
account basis. EChapman is a newly formed corporation designed to bring together
the financial services capabilities of Chapman Capital Management, Inc. and
certain other related corporations, while taking advantage of the unique
opportunities presented by the growth of the Internet. Merger Sub was organized
solely for the purpose of accomplishing the Merger.
For the reasons set forth in the Prospectus/Proxy Statement,
it is proposed that pursuant to the Agreement and the laws of the State of
Maryland, CCMH merge with and into Merger Sub. CCMH's separate corporate
existence will cease and Merger Sub will be the surviving corporation. As the
surviving corporation, Merger Sub will succeed to all of the assets and
liabilities of CCMH under Maryland corporate law.
By virtue of the Merger, each share of CCMH Common Stock,
excluding CCMH Common Stock owned by EChapman, Merger Sub or any Objecting
Stockholders, issued and outstanding at the Effective Time will be converted
into the right to receive 2.23363 EChapman Shares. Fractional EChapman Shares
will not be issued in the Merger. Instead, Fractional Share Payments shall be
made.
ASSUMPTIONS AND REPRESENTATIONS
In connection with rendering this opinion, we have assumed or
obtained representations (and, with your consent, are relying thereon, without
any independent investigation or review thereof, although we are not aware of
any material facts or circumstances contrary to or inconsistent therewith) that:
<PAGE>
Chapman Capital Management Holdings, Inc.
________________, 2000
Page 3
1. All information contained in each of the documents we have
examined and relied upon in connection with the preparation of this opinion is
accurate and completely describes all material facts relevant to our opinion.
With respect to such documents, we have also assumed the genuineness of all
signatures, the legal capacity of all individuals signing the documents, the
authenticity of the documents and the conformity with originals of all documents
submitted to us as copies. We have further assumed that there has been (or will
be by the Effective Time) due execution and delivery of all documents where due
execution and delivery are prerequisites to the effectiveness thereof.
2. The Merger will be consummated in accordance with Maryland
law and will qualify as a statutory merger under Maryland law.
3. All representations made in the exhibits hereto are true,
correct, and complete in all material respects.
4. The Merger will be consummated in accordance with the
Agreement and as described in the Proxy Statement/Prospectus (including
satisfaction of all covenants and conditions to the obligations of the parties
without amendment or waiver thereof); each of EChapman, Merger Sub and CCMH will
comply with all reporting obligations with respect to the Merger required under
the Code and the Treasury Regulations thereunder; and the Agreement and all
other documents and instruments referred to therein or in the Proxy
Statement/Prospectus are valid and binding in accordance with their terms.
OPINION - INCOME TAX CONSEQUENCES
Based upon and subject to the assumptions and qualifications
set forth herein, it is our opinion that for federal and state income tax
purposes: (i) the Merger should qualify as a reorganization within the meaning
of Section 368(a); and (ii) the discussion in the Registration Statement under
the heading "Certain federal income tax consequences," to the extent such
discussion describes applicable federal income tax law, is correct in all
material respects, as of the date hereof.
In addition to the assumptions set forth above, this opinion
is subject to the exceptions, limitations and qualifications set forth below:
<PAGE>
Chapman Capital Management Holdings, Inc.
________________, 2000
Page 4
1. This opinion represents and is based upon our best judgment
regarding the application of relevant current provisions of the Code and the
Maryland Code and interpretations of the foregoing as expressed in existing
court decisions, administrative determinations (including the practices and
procedures of the Internal Revenue Service (the "IRS") in issuing private letter
rulings, which are not binding on the IRS except with respect to the taxpayer
that receives such a ruling) and published rulings and procedures, all as of the
date hereof. An opinion of counsel merely represents counsel's best judgment
with respect to the probable outcome on the merits and is not binding on the
IRS, the Comptroller of the Treasury (the "Comptroller") or the courts. There
can be no assurance that positions contrary to our opinions will not be taken by
the IRS or the Comptroller, or that a court considering the issues would not
hold contrary to such opinions. CCMH has not requested a ruling from the IRS or
the Comptroller (and no ruling will be sought) as to any of the federal or state
income tax consequences addressed in this opinion. Furthermore, no assurance can
be given that future legislative, judicial or administrative changes, on either
a prospective or retroactive basis, would not adversely affect the accuracy of
the opinion expressed herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the law or in the application or
interpretation of the federal or state income tax laws.
2. This letter addresses only the specific tax opinions set
forth above. This letter does not address any other federal, state, local or
foreign tax consequences that may result from the Merger or any other
transaction (including any transaction undertaken in connection with the
Merger).
3. Our opinion is intended to address only the tax
consequences to CCMH and its shareholders generally and is not intended to
address (nor may it be relied upon for) the tax consequences to EChapman or any
other person. We express no opinion regarding, among other things, the tax
consequences of the Merger (including the opinion set forth above) as applied to
specific stockholders of CCMH, such as dealers in securities, corporate
shareholders subject to the alternative minimum tax, foreign persons, and
holders of shares acquired upon exercise of stock options or in other
compensatory transactions.
4. Our opinion set forth herein is based upon the description
of the contemplated transaction as set forth in (i) the section of this opinion
captioned "The
<PAGE>
Chapman Capital Management Holdings, Inc.
________________, 2000
Page 5
Proposed Transaction;" (ii) the Agreement; and (iii) the Proxy
Statement/Prospectus. If the actual facts relating to any aspect of the
transaction differ from this description in any material respect, our opinion
may become inapplicable. No opinion is expressed as to any transaction other
than the one set forth in the section captioned "The Proposed Transaction," the
Agreement and the Proxy Statement/Prospectus. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
5. In basing matters set forth herein on our knowledge or
awareness, the words "knowledge" and "awareness" (and any variations thereof)
signify that in the course of our representation as counsel to CCMH, no
information has come to our attention that would give us actual knowledge or
actual notice that any such matters are not accurate or that any of the
documents, certificates and information on which we have relied are not accurate
and complete. The words "knowledge" and "awareness" and similar language used
herein are intended to be limited to knowledge of the lawyers within our firm
who have been actively involved in specific matters for CCMH insofar as such
knowledge pertains to the area(s) of their involvement.
This opinion is provided only to CCMH and its stockholders,
and without our prior consent, may not be relied upon, used, circulated, quoted
or otherwise referred to in any manner by any person, firm, governmental
authority or entity whatsoever other than CCMH and a shareholder of CCMH.
Notwithstanding the prior sentence, we hereby consent to the use of the opinion
letter as an exhibit to the Registration Statement and to the use of our name in
the Registration Statement.
Sincerely yours,
<PAGE>
Exhibit 10.41
March 14, 2000
EChapman.com, Inc.
The Chapman Co.
World Trade Center - Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21201
Re: EChapman.com, Inc.
Registration Statement on Form SB-2
Registration No. 333-90987
-----------------------------------
Ladies and Gentlemen:
The undersigned has been advised that EChapman.com, Inc. (the
"Company"), is contemplating an underwritten public offering (the "Offering")
of up to 4,000,000 shares of its common stock, $.001 par value per share (the
"Common Stock"), pursuant to an Underwriting Agreement (the "Underwriting
Agreement") to be entered into with The Chapman Co. (the "Underwriter") in
connection with the Offering.
The Company has entered into merger agreements with each of Chapman
Holdings, Inc. ("CHI") and Chapman Capital Management Holdings, Inc. ("CCMHI")
pursuant to which CHI and CCMHI will merge with and into separate,
wholly-owned subsidiaries of the Company (each a "Surviving Company") and each
share of the Common Stock of CHI and CCHMI will convert into the right to
receive shares of the Common Stock (the "Mergers"). As a result of the
Mergers, the undersigned will have the right to receive shares of the Common
Stock.
In order to induce the Underwriter to enter into the Underwriting
Agreement with the Company, the undersigned, intending to be legally bound,
hereby agrees that the undersigned and any entities through which the
undersigned owns or will own any shares of Common Stock will not, without the
prior written consent of the Underwriter, directly or indirectly, sell, offer,
pledge, offer to sell, contract to sell, grant any option to purchase or
otherwise transfer or dispose of (or announce any offer, sale, pledge, offer
of sale, contract of sale, grant of an option to purchase or other transfer or
disposition), any shares of Common Stock or any securities convertible into,
exercisable or exchangeable for, shares of Common Stock for a period of 180
days from the effective date of the Registration Statement; PROVIDED, HOWEVER,
that the undersigned may sell up to 80,000 shares of the Common Stock to the
Underwriter pursuant to the over-allotment option granted to the Underwriter
in the Underwriting Agreement; and PROVIDED, FURTHER, that this limitation
shall not apply to shares of the Common Stock held by CHI or its subsidiaries,
CCMHI or its subsidiaries, or the Surviving Companies or their respective
subsidiaries.
<PAGE>
EChapman.com, Inc.
March 14, 2000
Page 2
The undersigned acknowledges that any sale, hypothecation or transfer
of any securities of the Company in violation of this letter will be null and
void. The undersigned acknowledges that it is impossible to measure the
damages that will accrue to the Company by reason of a failure of the
undersigned to comply with the provisions of this letter. Therefore, if the
Company shall institute any action or proceeding to enforce the provisions
hereof, the undersigned agrees that the Company shall be entitled to
injunctive relief, and the undersigned waives, and shall not allege, any claim
or defense to such action or proceeding, including, without limitation, any
claim or defense that the undersigned has an adequate remedy at law.
Notwithstanding the foregoing, the undersigned may transfer any
securities of the Company, either during the undersigned's lifetime or upon
death by will or intestacy, to immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of the undersigned's immediate family; PROVIDED, HOWEVER, that in any
such case it shall be a condition to the transfer that the transferee execute
an agreement stating that the transferee is receiving and holding the
securities subject to the provisions of this letter, and there shall be no
further transfer of such securities except in accordance with this letter. For
purposes of this paragraph, "immediate family" shall mean spouse, former
spouse, lineal descendant, father, mother, brother or sister of the
undersigned.
This letter shall have no further force or effect if the Underwriting
Agreement is not entered into or, if the Underwriting Agreement is entered
into, if the transactions set forth therein are not consummated.
Very truly yours,
/s/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman
<PAGE>
Exhibit 10.42
PROMISSORY NOTE
$32,836.53 BALTIMORE, MARYLAND
as of December 31, 1999
WITHIN THREE YEARS, the undersigned promises to pay to the order of The
Chapman Co., Thirty-two thousand eight hundred thirty-six dollars and
fifty-three cents ($32,836.53), at its offices in Baltimore, Maryland,
together with interest thereon from the date hereof until paid at the
rate of 4.33% per annum.
/s/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A.Chapman, Jr.
<PAGE>
THE CHAPMAN FUNDS, INC.
CHAPMAN CAPITAL MANAGEMENT, INC.
AMENDED AND RESTATED
EXPENSE LIMITATION AGREEMENT
THIS AMENDED AND RESTATED EXPENSE LIMITATION AGREEMENT (the
"Agreement") is executed as of March 17, 2000 by and among THE CHAPMAN FUNDS,
INC. on behalf of The Chapman U.S. Treasury Money Fund, DEM Equity Fund, DEM
Index Fund, DEM Multi-Manager Equity Fund, and DEM Multi-Manager Bond Fund, and
CHAPMAN CAPITAL MANAGEMENT, INC.
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
1. Chapman Capital Management, Inc. will reimburse The Chapman Funds, Inc., on
behalf of the following funds and classes, the annual expenses of such funds in
excess of the percentage of average daily net assets set forth in the following
table; provided however, that such expense limitations shall not include any
waiver of advisory fees, custody fees, income tax preparation fees or other
management fees:
<TABLE>
<CAPTION>
- ------------------------------------
Fund
- ------------------------------------
<S> <C>
The Chapman U.S. Treasury Money Fund 0.53%
------------------------------------
Institutional Investor
Shares Shares
----------------- ---------------
DEM Equity Fund 1.25% 2.00%
DEM Index Fund 2.00% 2.69%
DEM Multi-Manager Equity Fund 2.00% 3.00%
DEM Multi-Manager Bond Fund 2.00% 3.00%
</TABLE>
2. The expense limitations/reimbursements set forth above shall remain in effect
until December 31, 2009.
3. The expense limitations/reimbursements set forth above may be suspended or
terminated solely by The Chapman Funds, Inc. in its sole discretion immediately
upon notice to Chapman Capital Management, Inc.
4. This Agreement sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby. It shall not be amended or
modified except by a written instrument duly executed by each of the parties
hereto. Any and all previous agreements and understandings between or among the
parties and their affiliates, including but not limited to the Expense
Limitation Agreemend dated February 29, 2000,
<PAGE>
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement.
IN WITNESS WHEREOF, each of The Chapman Funds, Inc. and Chapman Capital
Management, Inc. has executed this Agreement as of the day and year first above
written.
THE CHAPMAN FUNDS, INC., on behalf
of The Chapman U.S. Treasury Money Fund
DEM Equity Fund, DEM Index Fund,
DEM Multi-Manager Equity Fund and DEM
Multi-Manager Bond Fund
By: /s/ NATHAN A. CHAPMAN, JR.
-------------------------------------
Name: Nathan A. Chapman, Jr.,
Title: President
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
----------------------------------
Name: Nathan A. Chapman, Jr.
Title: President
<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
March 29, 2000
<PAGE>
Exhibit 23.3
[LETTERHEAD]
Consent of Independent Financial Advisor to
the Merger Committee of the Board of Directors of
Chapman Capital Management Holdings, Inc.
As independent financial adviser to the Merger Committee of the Board of
Directors of Chapman Capital Management Holdings, Inc., we hereby consent to
the use of our report and to all references to our firm included in or made a
part of eChapman.com, Inc.'s registration statement on Form S-4, including
any amendments thereto.
Boston, Masachusetts /s/ Greg Benning
March 29, 2000 -------------------------------
Greg Benning
Managing Director, Investment Banking
Tucker Anthony Cleary Gull
