Chapman Capital Lowers Stake in eSpeed (ESPD) to 6%

In an amended 13D filing on eSpeed, Inc. (Nasdaq: ESPD), Chapman Capital disclosed a 6% stake in the company. This is down from the 8.1% stake the firm disclosed in a May 11th 13D/A filing.

Chapman has been pushing the company to sell. In April, the company's controlling stockholder, Cantor Fitzgerald, L.P., rejected a $12.00/share acquisition proposal from Tullett Prebon Plc.

Chapman Rips Into eSpeed (ESPD) CEO "Howie" Lutnick And Short Seller Hughes

In a 13D filing Thursday afternoon on eSpeed Inc. (Nasdaq: ESPD), 9.3% holder and activist investor Chapman Capital disclosed a letter to eSpeed Chairman/CEO Howard W. Lutnick. Chapman has been pushing for a sale of the company.

In the letter, Chapman Capital's Managing Member, Robert L. Chapman, Jr., suggested Lutnick unknowingly dedicated 50% of the caller period of yesterday's earnings conference call to short seller Justin Hughes of Philadelphia Financial. Chapman calls Hughes "linguistically confused", saying at no time did he inform Hughes that "both Nasdaq and GFI were preparing to make bids for 'your' Company imminently." Chapman said, "To the contrary, I advised Mr. Hughes (after hearing rumors of mounting losses in his large short position) that both GFI Group Inc. and Nasdaq Stock Market Inc., like eSpeed bidder Tullett Prebon Plc, had expressed explicitly their desires to find an economic means of acquiring eSpeed."

Chapman also responds to attacks from Lutnick who said his firm was carrying out a "pump and dump". Chapman said, "One thing that I do know is that our actions do not fit into the category of “pump and dump,” a description that might be ascribed to Mr. Lee Amaitis's December 12-15, 2003 sale of millions of dollars of Class A eSpeed shares at $23.14-24.10 apiece only weeks after you personally described eSpeed's 3Q2003 results as "incredibly strong" and expounded how "dramatic increases in volume and issuance positively impacting [eSpeed's] business from a very strong profitability standpoint."

Chapman said, "long-term holders" of eSpeed - those in the stock since the December 1999 IPO - have lost 60%.

A Copy of the Letter:

Dear Howie,

It was with continued awe and amazement that I listened to your command performance over today's conference call spinning eSpeed's 1Q2007 results. As this was a call under your favorite form of oversight (i.e., full and immediate control), I determined it futile to attempt to communicate with you via this forum. Instead, I viewed the hour as an opportunity to be entertained by you, particularly as you unknowingly dedicated 50% of the caller period to someone overseeing a large short position in eSpeed Class A shares, Mr. Justin Hughes of San Francisco's linguistically (and apparently geographically) confused Philadelphia Financial.

I label Mr. Hughes as “linguistically confused” out of compassion for a man whose high-turnover "career" includes a stint at now-defunct Robertson Stephens, less than a year at Jefferies & Co., a downtick to an analyst position at Hovde Capital LLC before finally landing at Philadelphia Partners. However, one cannot ignore Mr. Hughes' own "questionable" behavior today on the call. As he is well aware, at no time was he informed by me that "both Nasdaq and GFI were preparing to make bids for 'your' Company imminently." To the contrary, I advised Mr. Hughes (after hearing rumors of mounting losses in his large short position) that both GFI Group Inc. and Nasdaq Stock Market Inc., like eSpeed bidder Tullett Prebon Plc, had expressed explicitly their desires to find an economic means of acquiring eSpeed. If Mr. Hughes has not moved back into unemployment once again, he should contact you directly and ask, off-line, if either of those firms have an interest in buying "your Company." As I already possess the affirmative answer to this apparent conundrum, Mr. Hughes need not make such a call to Chapman Capital.

Regarding your own "improper and disingenuous" commentary, I think it is appropriate to make a few observations to supplement or correct the latest public record (at least the one according to Howard W. Lutnick). As did you, let's start with Chapman Capital. One thing that I do know is that our actions do not fit into the category of “pump and dump,” a description that might be ascribed to Mr. Lee Amaitis's December 12-15, 2003 sale of millions of dollars of Class A eSpeed shares at $23.14-24.10 apiece only weeks after you personally described eSpeed's 3Q2003 results as "incredibly strong" and expounded how "dramatic increases in volume and issuance positively impacting [eSpeed's] business from a very strong profitability standpoint." In reality, you leaned your weight into the core "pre-dump pump" when you forecasted 2004 net operating earnings to be in the range of 80-84c/share, only to miss that projection by some 35% by the time 2004's 55c/share "non-GAAP" net operating income was reported on March 1, 2005.

As your “questionable” and conveniently distracting “pump and dump” sideshow is worthy of precious little further ink, let me make this clear: you made that accusation this morning despite the facts that a) Chapman Capital (and its advised Funds) had made not a single share sale in the market in the weeks before or “in the 32-hour period beginning the morning of April 18th, the same day that Tullett announced its approach to us and Chapman Capital demanded the removal of all of eSpeed’s independent directors and again demanded the immediate auction of eSpeed; b) the entity whose actions caused the “inflation” (or pumping) of eSpeed’s common stock was Tullett Prebon Plc (via a $12/share acquisition proposal), and not Chapman Capital L.L.C.; c) Chapman Capital’s only Common Stock activity in the open market between our March 14, 2007 original Schedule 13D filing and this morning’s conference call was the April 24, 2007 purchase of eSpeed Class A shares (at $8.85/share) via Bank of America Securities; and d) the party most responsible for “dumping on” (vs. the “pumping” up of) eSpeed was Chapman Capital, which has issued not one nor two but three press releases highly critical of eSpeed’s management, runaway expense structure and resultant near un-profitability, corporate mis-governance and potential conflicts of interest with Cantor Fitzgerald L.P. I cannot imagine that anyone reading those three public testaments would come away feeling the author was “pumping up” the stock. Furthermore, any hedging transactions entered into by Chapman Capital were entirely appropriate applications of widely accepted risk management policies employed by managers obeying their fiduciary duties to their shareholders/partners (foreign concept?), and were prudent in light of Tullett Prebon’s April 18, 2007 announcement that Cantor had “informed Tullett Prebon that Cantor is not interested in selling its controlling interest on the terms proposed.”

This morning, you described Chapman Capital’s actions as not being those “of a serious long-term holder” of eSpeed. Well, Howard, let’s now discuss how the actions of the longest-term holders of eSpeed have fared en route to today’s forecast for “non-GAAP net operating income [of] $0.00 per diluted share” for the current fiscal quarter. By definition, the “longest-term” holder of eSpeed is one who paid $22.00 per share in eSpeed’s December 1999 IPO. This lucky, longest-term holder’s allegiance to “Emperor Howard” has driven him to hold his eSpeed shares for the longest term possible - never selling. This kind chap finds himself still sipping his Howard-flavored Kool-Aid that induces hallucinations of a future day “when and if BGC’s business goes electronic,” allowing eSpeed to “receive 65% of the revenues over time for new products.” This fortunate fellow should be careful not to look too closely at the growth trajectory of these “new products,” for if he does so he will realize that sequential growth in this expensive pipe-dream now finds itself at just over 7%. Sadly, it would appear that “the actions of a long-term holder” are to lose nearly 60% of his investment in “your Company.”

From the shallow bottom of my heart, I pray for your buddies at “long-term holder” Downtown Associates that short-term eSpeed short seller Justin Hughes, for once, is not right.

Robert L. Chapman, Jr.
Managing Member
Chapman Capital L.L.C.

eSpeed (ESPD) Comments on Tullett Proposal and Recent Shareholder Statements

eSpeed, Inc. (NASDAQ: ESPD) commented on recent statements and proposals made by one of eSpeed's competitors and by certain shareholders in Schedule 13D filings in recent weeks.

The Company said on April 19th they sent a letter to Terry Smith of Tullett Prebon plc stating that the Board of Directors has been informed by its controlling stockholder, Cantor Fitzgerald, L.P., that it is not interested in selling its controlling interest in the Company to Tullett, in terminating its arrangements with eSpeed on the terms proposed by Tullett in its recent letters, or in proposing alternative terms to Tullett. The Company is not in a position to pursue Tullett's acquisition proposal because such a proposal cannot be consummated without the consent of our controlling stockholder.

Yesterday, Tullett Prebon disclosed its $12 offer for eSpeed.

Activist shareholders, Chapman Capital and WC Capital have been pushing for a sale of the company. Chapman also wants members of eSpeed's board replaced, an independent auditor to review the Joint Services Agreement and the conversion of all Class B common shares into Class A common stock

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eSpeed (ESPD) Holder WC Capital Wants Evaluation of Tullet Bid, Encourages Cantor to Make Bid

In a press release on eSpeed Inc. (Nasdaq: ESPD), 6.4% holder WC Capital called for an independent evaluation of Tullet Prebon's $12 bid for the Company.

Aaron Braun, the manager of WC Capital, said, "We view the Tullet Prebon bid as extremely attractive and deserves to be considered by the independent directors of eSpeed. Should Cantor Fitzgerald L.P. decide to match this or any potential future offer, we would welcome that development."

WC Captial said the $12 bid is at the low end of the $12 to $16 valuation range for eSpeed.

Shares of eSpeed are up about 10% today to $10.58.

Tullett Bids $12 for eSpeed (ESPD), Chapman Recommends Kozlowski or Ebbers As Ethics Officer

Earlier, Tullett Prebon plc confirmed that it has made an approach to eSpeed, Inc. (Nasdaq: ESPD) in relation to a possible acquisition by Tullett Prebon of eSpeed at a price of $12 per eSpeed Class A Common Share in cash.

Tullett said eSpeed referred this proposal to Cantor and has informed them that Cantor is not interested in selling its controlling interest on the terms proposed.

eSpeed has been an activist target of Chapman Capital, which today demanded the replacement of eSpeed Directors Albert Weis, John Dalton, Barry Sloane & Barry Gosin. Chapman Capital also reiterated its demands that the Board immediately retain an independent auditor to review the Joint Services Agreement, compel the conversion of all Class B common shares into Class A common stock, and engage an investment bank to maximize shareholder value via an auction of the Company.

Robert L. Chapman, Jr., Managing Member of Chapman Capital, said, "Chief Executive Howard Lutnick's three-kingdom reign over Cantor Fitzgerald, eSpeed and BGC Partners appears so infested with potential conflicts of interest and incestuous inter-company transactions that a completely new set of corporate governors may be required to exterminate any vermin from eSpeed's board room."

Chapman also mockingly said, "Following eSpeed's April 12th arguably belated decision to hire a 'Chief Ethics Officer,' I propose that either Dennis Kozlowski or Bernie Ebbers be considered to fill the position once they have been discharged from their respective prison cells."

Chapman's Press Release

Chapman Capital Makes Quick Work of Embarcadero Techn (EMBT)

On Friday, Embarcadero Technologies, Inc. (NASDAQ: EMBT), an activist target of Chapman Capital, announced they entered a definitive agreement to be acquired by an affiliate of private equity firm Thoma Cressey Bravo in a transaction valued at approximately $200 million, or $7.20 per share in cash. Chapman Capital said they would support the agreement.

On March 7, 2007, Chapman Capital filed a Schedule 13D demanding that Embarcadero resume negotiations with TCB or other bidders regarding the sale of the Company.

Chapman Capital, on average, paid in the low $6 range for its EMBT stake (about $6.07 for one fund and $6.23 for the other).

Chapman Capital has also recently called for the sale of FSI Int'l (Nasdaq: FSII) and eSpeed Inc. (Nasdaq: ESPD). He is also actively targeting a spin-off/sale of Cypress Semiconductor (NYSE: CY).

Another Chapman target, Sunterra Corporation (OTC: SNRR), recently announced a sale, which Chapman supported.

Another Large eSpeed (ESPD) Holder Calls for a Sale or Other Measures to Increase Shareholder Value

In a 13D filing after the close on eSpeed Inc. (Nasdaq: ESPD), WC Capital disclosed a 6.4% stake (1.92 million shares) in the company. The firm also disclosed a letter send to ESPD Chiarman, Howard W. Lutnick.

In the letter the firm said the shares are currently very undervalued. The firm also requested the board review certain options. 1: Sale of the Company, 2. Convert Class B shares to Class A, 3. Return of Capital to Shareholders (one-time dividend, share repurchases ), 4. Initiate Procedures and Structures Increasing eSpeed Autonomy.

Commenting on eSpeed's valuation the firm said, "Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share."

NOTE: eSpeed is also an activist target of Chapman Capital. Link to ESPD/Chapman reports.

A Copy of the Letter:

Dear Mr. Lutnick:

Thank you for the recent opportunities to discuss eSpeed's current business strategy and longer term opportunities.

As long-term shareholders of eSpeed we have performed our own analysis of the value of the company and have concluded that the shares are currently very undervalued. Specifically, we believe that the current valuation does not accurately reflect: 1) the company's strong cash positions of $187 million ($3.72 per share) as of December 31, 2006; 2) the company's strong duopoly position in the electronic trading of debt securities and related instruments; 3) the potential cash flow from the "core" trading business, which has been and continues to be masked by the large continuing investments in unprofitable new business initiative, and 4) the intellectual property inherent in the company's proprietary trading technology.

While our tone and sentiments may differ from those of other shareholders, we do nonetheless agree with several issues they have raised. Given the company's dramatic undervaluation relative to other "exchanges", we believe that steps to ensure a fair return for eSpeed shareholders are appropriate. Specifically, we request that the Board of Directors reviews the following options (many of which we have inquired about on past conference calls):

1) Sale of the Company: We believe the value of eSpeed's existing core business and assets could be significantly higher than the current enterprise value of the company which is approximately $475 million, based on the recent trading of $9.40 per share. We request that management actively engage industry and/or "financial" buyers (i.e. private equity) to ascertain values at which a transaction for all outstanding eSpeed's shares may be feasible.

2) Convert Class B shares to Class A: As allowed by Delaware law, we believe that in the "post-Enron" era of corporate governance, the company should convert the "super voting" Class B shares to Class A shares. This would allow an equitable "one share, one vote" structure and also give Class A shareholders the opportunity to have a greater say in important corporate matters. At the same time, it would allow Cantor Fitzgerald to maintain a dominant position in matters requiring shareholder voting.

3) Return of Capital to Shareholders: Given the significant liquid resources (cash and equivalents) of the Company, which were $187 million on December 31, 2006, we request the Board of Directors strongly consider options for returning capital to equity shareholders. We believe that a special one-time dividend of a meaningful size, a "Dutch" tender for the Company's shares or an aggressive "open market" share repurchase would enhance the value of the shares for all remaining shareholders. While the Company is authorized to repurchase shares in the open market, the Company has not done so to a meaningful degree.

4) Initiate Procedures and Structures Increasing eSpeed Autonomy: Given the complex three-way relationship between Cantor Fitzgerald, BGC and the company, we believe that segregating various business practices and initiating independent controls would protect the company's shareholders and potentially enhance returns. Specifically, with the pending public offering of BGC shares, we believe that the two public entities should have different accountants and independent Board Members. This will lessen the likelihood that one party is treated inequitably and that appropriate allocation of resources and expenses occurs.

We believe eSpeed is a valuable business enterprise that is significantly undervalued based on its current equity valuation. Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share. This analysis is based on reasonable multiples of revenues and/or cash flows and the significant cash position of the company. We request that the Board of Directors aggressively and expediously explore all options that could result in this type of outcome for the benefit of all eSpeed shareholders.

Thank you for your attention to this matter.

Sincerely,

Aaron H. Braun

Manager of WC Capital Management LLC (also known as Willow Creek)

Chapman Demands Independent Audit of eSpeed (ESPD) - Cantor Fitzgerald Agreement

Large eSpeed, Inc. (Nasdaq: ESPD) holder, Chapman Capital LLC, demanded that the company's Board of Directors retain an independent auditor, distinct from eSpeed/BGC Partners/Cantor Fitzgerald's shared financial auditor Deloitte & Touche LLP, to review the Joint Services Agreement between eSpeed and Cantor Fitzgerald-related entities.

Chapman Capital said the goal of the audit would be to confirm or invalidate the related parties' claims that the Joint Services Agreement were negotiated and have been executed in an arms-length fashion.

Commenting on a recent patent ruling, Robert L. Chapman, Jr., Managing Member of Chapman Capital, siad, "This ruling fortifies Chapman Capital's apprehension that eSpeed itself may continue to incur significant licensing and other expenses, or may relinquish significant market data and other revenues, unnecessarily or improperly for the benefit of Cantor Fitzgerald."

Chapman Capital also reiterated its demand that the value of eSpeed's Class A shares be maximized via conversion of all Class B common shares into Class A common stock, followed by the full scale auction of the Company.

Chapman Capital Demands Sale of eSpeed (ESPD)

In a 13D filing on eSpeed, Inc. (Nasdaq: ESPD), Chapman Capital disclosed a 9.3% stake and announced its demand that eSpeed's Board of Directors maximize shareholder value via a change-of-control transaction.

Chapman said as a result of potential conflicts of interest that may exist due to cross-management roles between eSpeed, BGC Partners, L.P. and Cantor Fitzgerald, L.P., they believe that it is the fiduciary duty of eSpeed's Board of Directors to compel the conversion of all Class B common shares into Class A common stock.

Citing weak results and incongruous granting of free stock options to Howard W. Lutnick, Robert Chapman said, "the Company's ownership base has conveyed a nearly uniform desire for eSpeed's Class A shares to be maximized through a change-of-control transaction."