<PAGE>
As filed with the Securities and Exchange Commission on August 31, 1999
Registration No. 333-81981
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Pre-Effective Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
COPE, INC.
(Name of small business issuer in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7370 87-0427731
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or
organization) Classification Code Number) Identification No.)
</TABLE>
Grundstrasse 14
6343 Rotkreuz Switzerland
4141-798-3344
(Address and telephone number of principal executive offices and principal
place of business)
---------------
Adrian Knapp
Grundstrasse 14
6343 Rotkreuz, Switzerland
4141-798-3344
(Name, address and telephone number of agent for service)
Copies to:
<TABLE>
<S> <C>
Daniel K. Donahue, Esq. Thomas S. Ward, Esq.
Thomas C. Bacon, Esq. Wendell C. Taylor, Esq.
Oppenheimer Wolff & Donnelly LLP Hale and Dorr LLP
500 Newport Center Drive, Suite 700 60 State Street
Newport Beach, CA 92660 Boston, MA 02109
(949) 719-6000 (617) 526-6000
</TABLE>
---------------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each class of to be offering price offering registration
securities to be registered registered(1) per share(2) price(2) fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value............ 700,000 Shares $33 $23,100,000 $6421.80
- -------------------------------------------------------------------------------------------------
Total.................................... 700,000 Shares $33 $23,100,000 $6421.80
- -------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes shares the Underwriters will have the option to purchase solely
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
The shares registered hereby are being sold for Euros, the official
currency of the European Monetary Union. All financial information in this
table has been calculated based on a Euro-U.S. dollar exchange rate of .96
to one as of June 25, 1999.
---------------
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
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion September , 1999
PROSPECTUS
600,000 Shares
COPE, INC.
Common Stock
We are offering 400,000 shares of common stock and an existing stockholder is
offering 200,000 shares of common stock. We will not receive any of the
proceeds from the shares sold by the selling stockholder. All of the shares are
being offered to non-U.S. persons outside the United States. Our common stock
is traded on the OTC Bulletin Board under the symbol "COPE." Our common stock
is also traded on the regulated unofficial market (Freiverkehr) of the Berlin
Stock Exchange and Hamburg Stock Exchange under the security number [WKN] 876
954. We have applied to list our common stock on the NASDAQ National Market
System under the symbol "COPE" and on the Neuer Markt of the Frankfurt Stock
Exchange under the symbol "CVX."
We expect that the public offering price will be between (Euro) 30 and
(Euro) 34 per share.
Please see "Risk Factors" beginning on page 6 to read about certain factors
you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts And Proceeds to Proceeds to
Public Commissions COPE Selling Stockholder
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Per Share..... (Euro) (Euro) (Euro) (Euro)
Total(1)...... (Euro) (Euro) (Euro) (Euro)
</TABLE>
(1) Before deducting expenses we will pay, estimated to be approximately
$683,000.
Our Chairman of the Board, Adrian Knapp, and our Chief Executive Officer,
Stephan Isenschmid, have granted Norddeutsche Landesbank Girozentrale the right
to purchase up to an additional 100,000 shares to cover any over-allotments.
Norddeutsche Landesbank Girozentrale expects to deliver the shares to the
purchasers within 30 calendar days from the initial listing on the Neuer Markt.
Norddeutsche Landesbank Girozentrale may exercise the over allotment option
within 30 calendar days of the initial listing on the Neuer Markt.
Norddeutsche Landesbank
Girozentrale
HSBC Trinkaus & Burkhardt Bank Julius Bar & Co. AG
Kommanditgesellschaft auf Aktien
The date of this prospectus is , 1999
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Market for Common Stock and Related Stockholder Matters.................. 13
Dividend Policy.......................................................... 13
Use of Proceeds.......................................................... 14
Dilution................................................................. 15
Capitalization........................................................... 16
The Company.............................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business of COPE......................................................... 24
Management............................................................... 31
Principal Stockholders and Beneficial Ownership of Management............ 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of Securities................................................ 36
Anti-Takeover Provisions................................................. 37
Book-Entry-Only Issuance of Common Stock Trading on German Stock
Exchanges............................................................... 39
Taxation................................................................. 39
Underwriters............................................................. 44
Internet Subscriptions................................................... 45
The Neuer Markt.......................................................... 45
Shares Eligible for Future Sale.......................................... 47
Legal Matters............................................................ 47
Experts.................................................................. 47
Available Information.................................................... 48
Index to Financial Statements............................................ F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information and
financial statements and notes appearing elsewhere in this prospectus. Most
financial figures are denominated in U.S. dollars and are designated by the
symbol $, however some financial figures are denominated in Euros and are
designated by the symbol (Euro).
The sale of the offered shares will be settled in Euros and the estimated
offering price is (Euro)32 per share. However, to provide for a consistent
financial presentation, the disclosure concerning our application of the net
proceeds of this offering is set forth in U.S. dollars and assumes an offering
price of $33.92 per share based on a Euro-U.S. dollar exchange rate of .9433
Euros for one U.S. dollar as of August 18, 1999.
COPE
We are a provider of enterprise data storage and security consulting,
services and solutions to customers located primarily in Western Europe. Our
business consists of the analysis, design and implementation of storage and
security systems that integrate the software and hardware products that best
meet the identified objective. We generate revenue from three primary sources:
. providing consulting services in connection with the initial analysis of
a client's data storage and/or security needs and designing of a system
best suited to meet those needs;
. the sale and implementation of the desired system; and
. providing ongoing consulting and other services in connection with the
maintenance of the system, including improving and adding to the system
to keep pace with the clients' changing needs and improvements in
technology.
We generally provide our data storage and security systems on a turn-key
basis and purchase for resale the software and hardware components made part of
the systems solutions. We resell software and hardware products offered by the
major vendors in the data storage and security industry, including:
<TABLE>
<S> <C>
. Advanced Digital Information . Legato Systems
. Ascend Communications . Oracle
. Cisco Systems . Overland Data
. Compaq Computer . Sony
. Data General . Storage Technology
. EMC Corp . Sun Microsystems
. IBM . Veritas Software
</TABLE>
Following our acquisition of Hicomp Software Systems GmbH on April 19, 1999,
we also offer our own proprietary storage software products, Hiback and Hibars.
We provide our enterprise data storage and security systems and solutions to a
variety of companies in the financial, insurance, pharmaceutical and
telecommunication industries located primarily in Germany, Switzerland, and
Austria.
Our goal is to become the leading independent provider of enterprise data
storage and security services and solutions in Western Europe. The key elements
of our strategy are:
. Emphasize Consulting Services. By emphasizing the quality of our
consulting services, we believe that we can establish and foster a
reputation in Western Europe as a leading provider of enterprise data
storage and security services and solutions.
. Foster a Reputation for Independence. We intend to foster the reputation
and image of an independent organization firm dedicated exclusively to
providing storage and security services and solutions to the enterprise
data storage market only.
3
<PAGE>
. Expand Through Targeted Acquisitions. We intend to aggressively seek out
and acquire high quality independent consulting firms throughout Western
Europe.
Our executive offices are located at Grundstrasse 14, 6343 Rotkreuz,
Switzerland; telephone + 4141-798-3344.
The Offering
<TABLE>
<C> <S>
Common stock outstanding prior to
this offering................... 3,595,751 shares(1)
Common stock offered(2):
By COPE....................... 400,000 shares
By the selling stockholder.... 200,000 shares
Total..................... 600,000 shares
Common stock to be outstanding
after the offering.............. 3,995,751 shares
Use of proceeds.................. We intend to use the net proceeds from the
offering for acquisitions and working
capital, repayment of indebtedness, and
research and development.
Dividend policy.................. We have no immediate plans to pay
dividends. Because we are an emerging
enterprise, we will use all earnings to
fund our ongoing operation and the growth
of the business.
Proposed NASDAQ National Market
System symbol................... COPE
Proposed Neuer Markt symbol...... CVX
</TABLE>
- --------
(1) Does not include options and warrants outstanding as of the date of this
prospectus to purchase an aggregate of 304,803 shares of common stock.
(2) Does not include the right of Norddeutsche Landesbank Girozentrale to
purchase up to an additional 100,000 shares of common stock from our
Chairman and Chief Executive Officer, Adrian Knapp and Stephan Isenschmid,
respectively, to cover any over-allotments.
4
<PAGE>
Summary Financial Data
The income statement data set forth below for the years ended December 31,
1998, 1997 and 1996 are derived from the audited financial statements included
elsewhere in this prospectus. The balance sheet information as of June 30, 1999
and the income statement data as of June 30, 1999 and 1998 are derived from the
unaudited financial statements included elsewhere in this prospectus. Our
financial statements are presented in U.S. dollars and have been prepared in
accordance with U.S. generally accepted accounting principles.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------------------- ---------------------------
1998 1997 1996 1999 1998
----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue........... $29,059,150 $17,916,171 $12,515,123 $16,563,976 $ 9,784,089
Cost of sales........... 20,281,131 12,817,738 8,829,711 10,698,666 6,827,545
Operating expenses...... 7,685,600 4,557,179 3,275,185 5,903,375 2,760,282
Net income (loss)....... 1,011,571 632,897 315,823 (250,860) 260,617
Basic earnings (loss)
per share.............. 0.34 0.23 0.12 (0.08) 0.09
Weighted average shares
outstanding............ 2,936,589 2,740,833 2,700,000 3,327,979 2,862,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
---------------------------
Actual As Adjusted(1)
----------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit)........................... $ (76,188) 12,130,412
Total assets........................................ 26,788,087 35,494,687
Total liabilities................................... 9,110,981 5,610,981
Stockholders' equity................................ 17,677,106 29,883,706
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Earnings before
interest, taxes,
depreciation and
amortization (2)...... 1,463,467 800,063 759,711 838,336 312,496
</TABLE>
- --------
(1) As adjusted to reflect the sale of 400,000 shares of common stock sold by
us at an assumed public offering price of $33.92 per share, after deducting
underwriting discounts and estimated offering expenses, and our application
of the net proceeds towards the repayment of approximately $3,500,000 of
short-term borrowings as of August 27, 1999 as described under "Use of
Proceeds."
(2) Earnings before interest, taxes, depreciation and amortization is defined
as net income plus the following:
. extraordinary items and cumulative effect of accounting change;
. provision for income taxes;
. interest expense; and
. depreciation and amortization
Earnings before interest, taxes, depreciation and amortization is presented
not as an alternative measure of operating results or cash flow from operations
as determined in accordance with generally accepted accounting principles, but
because it is a widely accepted financial indicator of a company's ability to
incur and service debt.
Pro Forma Financial Data
The pro forma financial information set forth below is derived from the
historical financial statements of COPE and Hicomp and the unaudited pro forma
consolidated financial statements and related notes that are included elsewhere
in this prospectus. The information sets forth on an unaudited pro forma basis
for the periods presented the consolidated results of operations of COPE and
Hicomp as if COPE's acquisition of Hicomp had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
1998 1999
Pro Forma Consolidated COPE and Hicomp ------------ --------------
<S> <C> <C>
Total Revenue: $30,892,672 $17,014,883
Net loss: (1,872,579) (1,072,596)
</TABLE>
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose part or all of your investment.
We Are a Rapidly Growing Company and Our Failure to Properly Manage Growth May
Adversely Affect Our Financial Performance
We have grown significantly since 1996, with increases in revenues from
$12.5 million in 1996 to $17.9 million in 1997 and $29.1 million in 1998. We
also added substantial operations through our acquisition of Forum GmbH on June
25, 1998, and conducted a slight shift in strategic focus by adding a
proprietary line of software products through our Hicomp acquisition. In
addition, we intend to pursue an aggressive growth strategy. Our growth and our
acquisitions of Forum and Hicomp have strained our management team, our
consulting and services divisions, internal information systems and other
resources. We cannot assure you that we will succeed in effectively managing
our existing operations or our anticipated growth, which could hurt our growth
and increase the cost of our operations.
Our Business is Dependent on Our Ability to Resell Hardware and Software
Products Manufactured by Third Parties, but We Have No Long Term Agreements
with Any of Those Parties
We do not develop or manufacture most of the products we sell to our
customers. Instead, we contract to deliver our information systems, including
most of the software and hardware, on a turn-key basis pursuant to fixed price
contracts. Accordingly, we are substantially dependent on several third party
product suppliers, particularly the manufacturers and distributors of the
software and hardware products we sell to our customers. We do not have written
agreements with many of our suppliers and the written agreements we do have
tend to be short term in nature and are subject to termination by the supplier
on short notice. This risk is further enhanced by the fact that we also compete
with some of these third party product suppliers in the provision of data
storage and security services and solutions to the European market. In the
event a key supplier terminates its relationship with us, or should we be
compelled to do the same, we would be forced to find new suppliers, which could
increase our operating costs and reduce our gross sales.
Our Acquisitions of Forum and Hicomp Will Have an Adverse Effect on Our Future
Net Income.
Our acquisitions of Forum and Hicomp have been accounted for under the
purchase method of accounting, which means that we must report at our cost the
assets of Forum and Hicomp, less their liabilities. The difference between the
purchase price we paid for Forum and Hicomp and the difference between their
assets and liabilities must be recorded by us as goodwill. As a result of these
acquisitions, we have incurred goodwill totalling $16.4 million. We are
required to amortize the goodwill as part of our operational expenses over the
next seven years in the case of the Forum acquisition, and over the next five
years in the case of the Hicomp acquisition. Although the amortization of
goodwill is a non-cash expense, and does not negatively effect our cash flow
from operations, it will result in a significant reduction of our net income
over the next seven years and may even cause us to experience net losses in
some or all of those years. This may have a negative effect on the price of our
common stock.
Future Acquisitions May Result in Disruptions to Our Business and Diversion of
Management Attention
As part of our business strategy, we intend to review acquisition prospects
that would complement our current product and service offerings, augment our
market coverage or enhance our technical capabilities, or that may otherwise
offer growth opportunities. Pursuant to this strategy, we acquired Forum in
June 1998 and Hicomp in April 1999. While we have no current agreements or
negotiations underway with respect to any
6
<PAGE>
specific acquisitions, we may acquire businesses, products or technologies in
the future. These acquisitions also entail numerous risks, including:
. difficulties in assimilating acquired operations, technologies or
products;
. unanticipated costs associated with the acquisition;
. unanticipated assumption of unknown liabilities, unpaid or deferred
taxes, and other claims;
. diversion of management's attention from other business concerns;
. adverse effects on existing business relationships with suppliers and
customers;
. risks of entering markets in which we have no or limited prior
experience; and
. potential loss of key employees of acquired organizations.
Any of these factors could materially adversely effect the price of our
common stock. We expect to finance any future acquisitions with cash, debt or
stock, or a combination thereof. If we issue shares of stock or rights to
purchase shares of stock in connection with any future acquisition, the
holdings of current stockholders may be diluted.
Our Markets Are Highly Competitive and We May Not Have the Resources to Compete
Effectively
The data storage and security market is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. Competitors vary in size and in the scope and breadth of the
products and services offered. Our major competitors are vendors of information
management software and hardware products, including Compaq Computer Corp, EMC
Corp, Hewlett Packard, Storage Technology and Unisys Corp, some of which are
significant suppliers to us. We also experience significant competition from
other independent consulting and engineering firms.
Many of our current and potential competitors have significantly greater
financial, technical, marketing and other resources than us. As a result, they
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements, or, in the case of vendors, to devote greater
resources to the development, promotion, sale and support of their products
than us. We also expect that competition will increase as a result of future
software industry consolidations, which have occurred in the information
technology market in the past. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties. Accordingly, it is possible that such competitors or
alliances may emerge and rapidly acquire significant market shares. There can
be no assurance that we will be able to compete successfully against current or
future competitors or that competitive pressures faced by us will not affect
our ability to increase or even maintain our present level of operations.
The Loss of Our Key Personnel or Our Inability to Attract and Retain Qualified
Personnel May Cause Our Business to Suffer
Competition for personnel with experience in the data storage industry,
particularly qualified engineers, is intense. If we do not succeed in
attracting new employees or retaining and motivating our current and future
employees, our business could suffer significantly. We are greatly dependent on
the services of Adrian Knapp, our Chairman of the Board and Executive Vice
President, and Stephan Isenschmid, our Chief Executive Officer and President.
The loss of the services of these individuals could disrupt our operations.
In addition we believe our performance is substantially dependent on:
. our ability to retain and motivate our senior management and other key
employees; and
. our ability to identify, attract, hire, train, retain and motivate other
highly skilled technical, managerial and marketing personnel.
7
<PAGE>
We Have No Immediate Plans to Pay Cash Dividends
We have never declared nor paid cash dividends on our capital stock and we
have no immediate plans to declare or pay any cash dividends. Earnings, if any,
will be retained to fund development and expansion. Any future determination to
pay cash dividends will be at the discretion of the board of directors and will
depend upon our financial condition, results of operations, capital
requirements, general business condition and other factors our board of
directors considers relevant.
Our Operating Results May Fluctuate Significantly, Which Could Have an Adverse
Effect on the Price of Our Common Stock
Our operating results may fluctuate significantly in the future which could
cause volatility in the price of our common stock. Many factors may cause these
fluctuations, including:
. The timing of introductions or enhancements of data storage and security
products and services by us or our competitors;
. Employee hiring and retention, particularly with respect to sales and
consulting personnel and the key personnel of operations acquired by us;
. The pace of development of the technology underlying the data storage and
security industry and our continued access to this technology;
. Lengthy sales and implementation cycles of our data storage and security
solutions;
. Our expansion into additional international markets and market segments;
. Our ability to successfully integrate operations acquired by us;
. Changes in pricing policies by us or our competitors;
. Changes in strategy;
. Changes in the level of operating expenses to support projected growth;
and
. General economic conditions.
We tend to experience greater revenues and earnings in the fourth quarter of
the calendar year and the least amount of revenue and earnings in the first
quarter. In addition, our sales and implementation cycles vary substantially
from customer to customer and can extend over two or more quarters. This adds
to the unpredictability of our revenues. However, our expense levels, other
than for costs of goods sold, are relatively fixed. Because of this, our net
income may be lower than expected if we experience an unanticipated decline in
revenue for a particular quarter. As a result of these factors, revenues and
earnings for any quarter may vary significantly and we do not believe that
period-to-period comparisons of our financial performance are necessarily
meaningful. Fluctuations in our operating results may also result in volatility
in the price of our common stock. It is likely that in some future quarters our
revenue or operating results will be below the expectations of the public
market analysts or investors. If that happens, the price of our stock may
decline.
We May Be Subject to Liability Claims for Product Defects
We may be subject to product liability claims for computer software and
hardware products and systems that contain undetected errors. Despite extensive
testing prior to sale, our data storage and security solutions have in the past
contained errors that were discovered only after they were sold. Errors or
performance problems may also be discovered in the future. If a customer
detects a defect after implementation in the future, the customer could
experience loss of sales and damage to its brand or reputation, which in turn
may lead to damages claims against us.
Although our sales agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability
claims, we do not know if these limitations of liability are enforceable or
8
<PAGE>
would otherwise protect us from liability for damages to a customer resulting
from a defect in one of our solutions. Although we maintain liability insurance
covering damages arising from implementation and use of our solutions and
products, we do not know if this insurance would cover any claims brought
against us for lost profits or any other economic damage suffered by our
customers. Any product liability or other claims brought against us, if
successful and of sufficient magnitude, could materially adversely affect our
cash flows and our reputation in the industry.
We Have Few Proprietary Rights
We hold no patents. We believe that with the exception of our Hiback and
Hibars software, most of the technology used by us in the design and
implementation of our storage and security solutions is generally known and
available to others. Consequently, apart from the advantages afforded by our
Hiback and Hibars software, others can design and implement storage and
security solutions substantially equivalent to ours. With regard to our Hiback
and Hibars software, we rely on a combination of confidentiality agreements and
trade secret law to protect the confidentiality of this information. In
addition, we restrict access to confidential information on a "need to know"
basis. However, there can be no assurance that we will be able to maintain the
confidentiality of our proprietary information.
While we have registered or applied for the registration of the mark "COPE"
and other marks in Switzerland and elsewhere, we have not applied for the
registration of the "COPE" mark in the United States. If we applied to register
the "COPE" mark in the United States, there can be no assurance that we would
be able to obtain trademark protection for the COPE name in the U.S. Moreover,
there are several third parties that hold trademark registrations for the mark
"COPE" in the United States. While we do not believe that we infringe on any of
these trademark registrations, it is possible that one or more of the holders
of these trademarks may claim that we are violating their trademark rights.
If our trademark or other proprietary rights are violated, or if a third
party claims that we violate their trademark or other proprietary rights, we
may be required to engage in litigation. Proprietary rights litigation tends to
be costly and time consuming. Bringing or defending claims related to our
proprietary rights may require us to redirect our human and monetary resources
to address those claims. There can be no assurance that any litigation will not
have a material adverse impact on our business, operating results or financial
condition or the price of our stock. In addition, in the event someone claims
that we are infringing on their U.S. trademark rights to the mark "COPE," we
may be required, or we may choose, to change our corporate name.
We Have No Specific Plans for a Large Portion of the Proceeds
Approximately 71% of the net proceeds from the offering are allocated toward
unspecified acquisitions and working capital. As a result, our management will
have the discretion to allocate a large portion of the net proceeds of this
offering to uses the stockholders may not deem desirable. Further, we may not
be able to invest these proceeds to yield a significant return.
We May Be Subject to a Claim in Arbitration
On August 24, 1995, American Diagnostica, Inc., a private company located in
Greenwich, Connecticut, filed a civil action against us in Connecticut for
money damages alleging our wrongful termination of an agreement entered into
with American Diagnostica in May 1993. The circumstances underlying the
complaint occurred prior to our acquisition of COPE Holding AG and were
undertaken by our prior management at a time when we were engaged in the
business of research and development of certain health and medical products. In
its complaint, American Diagnostica alleged that we were indebted to American
Diagnostica for damages in an unspecified amount, plus punitive damages,
attorneys' fees and interest. In December 1995, we moved the court for an order
compelling American Diagnostica to submit the dispute to arbitration in
California. In September 1996, the court granted our motion and stayed all
proceedings pending the conclusion of mandatory arbitration in California. As
of the date of this prospectus, no arbitration proceeding has been
9
<PAGE>
commenced by either party. However, American Diagnostica may attempt to
initiate arbitration proceedings in the future. No assurance can be made as to
the ultimate outcome of any arbitration and it is possible that American
Diagnostica might be successful in obtaining a significant judgment against us.
We May Incur Additional Costs in Connection with the Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro, and adopted the Euro as their common legal currency on that date.
We currently denominate many of our transactions in Euros. Euro conversion is
expected to generally increase cross-border price transparency among the
participating countries and result in a more competitive European market. We
are uncertain as to the effect, if any, that Euro conversion will have on our
ability to sell our products and services in the European market. Euro
conversion could potentially impact our pricing strategies and the demand for
our services and products in the European market, lead to increased competition
within the European market for the services and products sold by us, or impact
our relationships with vendors and licensors. As a result of competitive
pressures, we could also potentially be required to denominate future
transactions in Euros and incur currency risk and conversion costs as a result.
Our International Operations May be Adversely Affected by Factors Outside of
Our Control
A component of our long-term strategy is to expand into a number of European
markets. However, we may not be able to market, sell and deliver successfully
our services outside Germany, Switzerland, Austria and the other areas we
presently serve. In addition, we will be subject to certain risks inherent in
conducting business internationally, including:
. unexpected changes in regulatory requirements;
. export restrictions, tariffs and other trade barriers;
. problems in collecting accounts receivable;
. currency fluctuations;
. seasonal reductions in business activity; and
. potentially adverse tax consequences.
In addition, our international sales are denominated in either Swiss Francs
or Euros, while our cost of sales are denominated predominantly in U.S.
dollars. Consequently, we are subject to the risk of foreign currency
translation gains and losses that could harm our financial results. To the
extent that we generate profits in foreign countries, our marginal income tax
rate in those countries could be higher than the marginal income tax rate in
the countries in which we operate.
Potential Year 2000 Risks May Adversely Affect Our Business
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with these "Year 2000"
requirements. Although we believe that our systems are Year 2000 compliant, we
do utilize third-party equipment and software that may not be Year 2000
compliant. Failure of this third-party equipment or software to operate
properly with regard to the Year 2000 and thereafter could require us to incur
unanticipated expenses to remedy any problems.
Control By Existing Stockholders May Limit Your Ability to Influence the
Outcome of Director Elections and Other Transactions Requiring Stockholder
Approval
Upon the completion of this offering, COPE's present directors and executive
officers and their respective affiliates will beneficially own approximately
65.6% of the outstanding common stock, 63.1% if the overallotment option is
exercised in full. As a result, these stockholders, if they act together, will
be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors
10
<PAGE>
and approval of significant corporate transactions, and will have veto power
with respect to any stockholder action or approval requiring a majority vote.
Provisions in Our Corporate Charter and Bylaws, As Well As Applicable
Regulations May Effect the Rights of Common Stockholders
Our certificate of incorporation, bylaws, and Delaware law contain
provisions which may effect the rights of the common stockholders and may be
deemed to have an anti-takeover effect. These provisions may delay, deter or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in that stockholder's best interests. For example, our certificate of
incorporation allows our board of directors to issue up to an additional
5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by our stockholders. No shares of preferred stock are currently outstanding,
however, any shares of preferred stock issued by our board of directors may
contain rights and preferences adverse to the voting power and other rights of
the holders of common stock.
In addition, we are subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law which prohibits a publicly-held
Delaware corporation from engaging in business combinations with interested
stockholders for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Finally, in connection with our
listing on the Neuer Markt of the Frankfurt Stock Exchange, we are required to
comply with the German Takeover Code, which regulates mergers, consolidations
and tender offers. Compliance with both Delaware and German law could have the
effect of delaying, deterring or preventing a tender offer or takeover attempt
that a stockholder might consider to be in that stockholder's best interests,
including attempts that might result in a premium over the market price for the
shares held by stockholders.
We Do Not Have an Active Market for Our Common Stock
Our common stock is traded on the OTC Bulletin Board under the symbol "COPE"
and on the regulated unofficial market (Freiverkehr) of the Berlin Stock
Exchange and Hamburg Stock Exchange under the security number [WKN] 876 954. On
August 27, 1999, the last reported sale price of the common stock on the OTC
Bulletin Board was $35.00 per share. As of August 27, 1999, the last reported
sales of our common stock on the Berlin and Hamburg Stock Exchanges were at a
price of (Euro)29.00 ($30.35). However, we consider our common stock to be
"thinly traded" and any last reported sale prices may not be a true market-
based valuation of the common stock. Although we intend to list our common
stock on the NASDAQ National Market System and the Neuer Markt, an active
market for our common stock may not develop. In addition, the stock market in
general, and the stocks of technology companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of these companies.
The Underwriters Are Not NASD Member Firms and Will Not Trade Our Common Shares
on the NASDAQ National Market System
Following the completion of this offering, our common shares will trade on
the Frankfurt Stock Exchange, "Neuer Markt" and the NASDAQ National Market
System. However, none of the underwriters are members of the NASD and,
consequently, are not allowed to act as market makers on NASDAQ. As a result,
the underwriters will not be expected to engage in the purchase and sale of our
common shares for their own account for purposes of providing a stabilizing
effect in the event of a volatile market. We expect that those NASD member
firms that presently make a market in our common shares on the OTC Bulletin
Board will continue to serve as market makers for our common shares on NASDAQ.
However, there can be no assurance that these market makers will engage in
stabilizing activities or otherwise support the market for our common stock. In
addition, the trading in our common shares on NASDAQ may have an adverse effect
on the trading in our common shares on the Frankfurt Stock Exchange, "Neuer
Markt".
11
<PAGE>
Shareholders Will Experience Immediate Dilution
Because our common stock has in the past been sold at prices substantially
less than the public offering price that you will pay, you will suffer
immediate dilution of $ 30.43 per share in pro forma net tangible book value.
The exercise of outstanding options and warrants may result in further
dilution.
The Sale of Shares That Are Eligible for Future Sale Could Depress the Market
Price of Our Stock
Sales in the market of a substantial number of shares of common stock after
the offering could adversely affect the market price of our common stock and
could impair our ability to raise capital through the sale of additional equity
securities. Based on the shares of common stock outstanding as of June 30,
1999, without giving effect to the exercise of the overallotment option, on
completion of this offering we will have 3,995,751 shares of common stock
outstanding. The 600,000 shares sold in this offering, which would be 700,000
shares if the underwriters' option to purchase additional shares is exercised
in full, will be freely tradable without restriction or further registration
under the Federal securities laws unless purchased by our "affiliates" as that
term is defined in Rule 144. The remaining approximately 2,840,870 shares of
common stock outstanding on completion of this offering will be "restricted
securities" as that term is defined in Rule 144.
Our stock and the stock of our major shareholders are subject to agreements
with Deutsche Borse AG and NORD/LB that limit their ability to sell common
stock. These holders cannot sell or otherwise dispose of any shares of common
stock for a period of at least one year after the date of the admission of the
common stock on the Frankfurt Stock Exchange, "Neuer Markt" without the prior
written approval of NORD/LB. When these agreements expire, these shares and the
shares will become eligible for sale, in some cases only pursuant to the
volume, manner of sale and notice requirements of Rule 144.
Special Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risks Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We are under no duty
to update any of the forward-looking statements after the date the shares are
first listed on the Frankfurt Stock Exchange, "Neuer Markt" to conform these
statements to actual results or to changes in our expectations.
12
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the OTC Bulletin Board under the symbol "COPE."
Our common stock also trades on the regulated unofficial market (Freiverkehr)
of the Berlin and Hamburg Stock Exchanges under the security number [WKN] 876
954. The following table shows the high and low bid prices of our common stock
for the periods indicated as reported by the OTC Bulletin Board. These
quotations reflect inter-dealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions. All share
prices are adjusted to reflect the one for 58 reverse split of the common stock
effected in August 1998.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1997:
First quarter................................................. $10.88 $ 3.63
Second quarter................................................ $ 9.28 $ 3.63
Third quarter................................................. $10.88 $ 3.48
Fourth quarter................................................ $11.02 $ 4.06
1998:
First quarter................................................. $10.88 $ 4.64
Second quarter................................................ $11.60 $ 6.38
Third quarter................................................. $12.63 $ 7.25
Fourth quarter................................................ $20.25 $10.37
1999
First quarter................................................. $41.00 $18.00
Second quarter ............................................... $35.00 $24.25
Third quarter (through August 27, 1999)....................... $35.00 $23.50
</TABLE>
As of August 27, 1999, COPE had approximately 337 record holders of its
common stock.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore we have no immediate plans to pay
cash dividends. Any future determination to pay cash dividends will be at the
discretion of the board of directors and will be dependent upon our financial
condition, results of operations, capital requirements, general business
condition and other factors our board of directors considers relevant.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 400,000 shares of common stock in
this offering are estimated to be approximately $12,206,600, at an assumed
public offering price of $33.92 and after deducting underwriting discounts and
commissions of approximately $678,400 and estimated offering expenses of
$683,000 payable by us.
We expect to use the net proceeds for yet unidentified acquisitions and
working capital ($8,406,600) and repayment of bank debt ($2,500,000) and the
loan from NORD/LB ($1,000,000). The bank debt bears interest at an average rate
of 3% per annum, is due on demand, and is collateralized by the accounts
receivable of COPE and life insurance policies on the major shareholders, Mr.
Adrian Knapp and Mr. Stephan Isenschmid. The loan from NORD/LB bears interest
at a rate of 6% per annum and all principal and interest is due and payable no
later than December 31, 1999. We also intend to apply $300,000 towards research
and development.
The amounts actually expended for working capital and other expenses may
vary significantly and will depend on a number of factors, including the amount
of our future revenues and other factors described under "Risk Factors."
Accordingly, our management will retain broad discretion in the allocation of
the net proceeds of this offering. We have no current plans, agreements, or
commitments with respect to any specific acquisition, and are not currently
engaged in any negotiations with respect to any of these transactions. Pending
these uses, the net proceeds from this offering will be invested in short-term,
interest-bearing, investment-grade securities.
14
<PAGE>
DILUTION
Our net tangible book value per share was $0.48 based upon our consolidated
balance sheet as of June 30, 1999, without giving any effect to any changes
after June 30, 1999. "Net tangible book value" per share represents the amount
of our tangible assets, less the amount of liabilities, divided by the number
of shares of common stock outstanding. After deducting underwriting discounts
and commissions and the estimated offering expenses payable by us, the pro
forma net tangible book value per share at June 30, 1999, will be approximately
$3.49. The current stockholders will thus benefit from an immediate increase in
net tangible book value per share of $3.01. There will be an immediate dilution
to new investors of approximately $30.43 per share.
The following table illustrates the dilution to investors in this offering
on a per share basis as of June 30, 1999 assuming the sale of offered shares at
$33.92 per share:
<TABLE>
<S> <C> <C>
Offering price per share..................................... $33.92
Net tangible pro forma book value per share before
offering.................................................. $0.48
Increase per share attributable to payments made by new
investors................................................. $3.01
Pro forma net tangible book value per share after offering... $ 3.49
------
Dilution in net tangible book value per share to new
investors................................................... $30.43
</TABLE>
The calculations set for the above assume no exercise of presently
outstanding options or warrants. To the extent that these options or warrants
are exercised, there may be further dilution to new investors.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis and as adjusted to give effect to the sale of 400,000 shares of
common stock offered by us at an assumed public offering price of $33.92 per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses. This table should be read in conjunction with
COPE's consolidated financial statements and the notes relating to those
statements included elsewhere in the prospectus. This information is based on
the number of shares outstanding on June 30, 1999. It excludes:
. 297,400 shares of common stock issuable upon the exercise of options
outstanding with a weighted exercise price of $18.01 per share;
. 29,793 shares of common stock issuable upon the exercise of outstanding
warrants with an exercise price of $7.54 per share; and
. an aggregate of 102,600 shares of common stock reserved for future
issuance under our 1998 Stock Option Plan
<TABLE>
<CAPTION>
June 30, 1999
-----------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Shareholders' equity:
Common stock, $.001 par value:
30,000,000 shares authorized, actual and as adjusted;
3,595,751 shares issued and outstanding actual; and
3,995,751 shares issued and outstanding, as
adjusted............................................ 3,596 3,996
Additional paid in capital............................. 15,276,065 27,482,265
----------- -----------
Cumulative translation adjustment...................... 725 725
----------- -----------
Retained earnings...................................... 2,396,720 2,396,720
----------- -----------
Total shareholders' equity........................... 17,677,106 29,883,706
----------- -----------
Total capitalization............................... $17,677,106 $29,883,706
=========== ===========
</TABLE>
16
<PAGE>
THE COMPANY
COPE is a Swiss-based provider of enterprise data storage and security
consulting, services and solutions. COPE was formed under the laws of the State
of Utah on October 7, 1985 under the name "Harrier, Inc." From October 1985 to
September 1998, COPE operated under the name "Harrier, Inc." On June 6, 1990,
COPE reorganized as a Delaware corporation and from 1990 until September 1998
was operated by predecessor management as a developer and marketer of health,
fitness and medical products.
In September 1998, the predecessor management of COPE completed a series of
transactions by which COPE discontinued all operations and divested itself of
substantially all of its assets and liabilities relating to the development and
marketing of health, fitness and medical products. At the same time, COPE
acquired all of the outstanding capital shares of COPE Holding AG, a Swiss
stock corporation engaged in the business of enterprise data storage. It was at
this time that the company changed its name to "COPE, Inc."
These transactions were carried out pursuant to an Amended and Restated
Securities Purchase Agreement and Plan of Reorganization dated July 24, 1998
between COPE and the shareholders of COPE Holding AG, including Messrs. Knapp
and Isenschmid. As a result of this agreement, COPE:
. amended its certificate of incorporation to change its name from Harrier,
Inc. to COPE, Inc. and to reverse split its outstanding common stock on a
one for 58 basis;
. sold a controlling interest in its only subsidiary, Glycosyn
Pharmaceuticals, Inc., a Delaware corporation;
. divested itself of substantially all of its operations, assets and
liabilities on hand immediately prior to the reorganization; and
. issued 2,862,000 post-split shares of common stock to the shareholders of
COPE Holding AG in exchange for all of the issued and outstanding capital
shares of COPE Holding AG.
The shares issued to the shareholders of COPE Holding AG at the time of the
reorganization represented 91.4% of COPE's issued and outstanding capital
stock. Following the reorganization, the stockholders of COPE Holding AG became
the controlling stockholders of COPE's and COPE Holding AG became its wholly-
owned subsidiary. Kevin DeVito, one of COPE's current directors, was the
President and a director of COPE prior to its reorganization with COPE Holding
AG.
COPE Holding AG was formed as a Swiss stock corporation in 1991 by Adrian
Knapp and Stephan Isenschmid under the name of COPE AG. On March 25, 1998, COPE
AG changed its name to COPE Holding AG. COPE Holding AG then founded a wholly-
owned subsidiary under the name of COPE AG and transferred substantially all of
its assets and liabilities to the newly-formed subsidiary as of the same date.
Unless the context otherwise requires, the term "COPE" refers to the
Delaware corporation known as COPE, Inc., its wholly-owned subsidiary, COPE
Holding AG and the wholly-owned subsidiaries of COPE Holding AG: COPE AG, a
Swiss stock corporation, COPE GmbH, a German stock corporation, COPE GesmbH, an
Austrian stock corporation, and Hicomp Software Systems GmbH, a German stock
corporation.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with COPE's financial
statements, the notes to those statements and the other financial data included
elsewhere in this prospectus. Some of the information in this section contains
forward-looking statements which involve risks and uncertainties. COPE's actual
results may differ materially from the results predicted by such forward-
looking statements due to various factors, including but not limited to those
which are discussed below and elsewhere in this prospectus.
Overview
General. COPE is a Swiss-based provider of data storage and security
services and solutions. COPE presently conducts business throughout Germany,
Switzerland and Austria.
COPE Reorganization. As more fully described in the section "The Company" on
page 17, in September 1998 the predecessor management of COPE completed a
series of transactions by which COPE discontinued prior operations and at the
same time acquired COPE Holding AG. Following the reorganization of COPE with
COPE Holding AG, the former stockholders of COPE Holding AG owned approximately
91.4% of the outstanding shares of the common stock of COPE. As a result, COPE
Holding AG was the accounting acquiror and COPE's acquisition of COPE Holding
AG has been accounted for as a reverse merger under the purchase method.
Accordingly, from an accounting standpoint, COPE Holding AG's equity is carried
forward as the equity of the combined entity and COPE Holding AG is assumed to
have acquired COPE. The assets and liabilities of COPE as they existed
immediately prior to the reorganization have been recorded at fair value as
required by the purchase method.
Forum Acquisition. On June 25, 1998, COPE GmbH, a wholly-owned subsidiary of
COPE Holding AG, acquired all of the capital shares of Forum GmbH, a German
data storage company, for $962,977. The acquisition of Forum has been accounted
for by the purchase method of accounting, which means that COPE has reported at
its cost the assets of Forum, less its liabilities. The difference between the
purchase price COPE paid for Forum and the difference between Forum's assets
and liabilities has been recorded by COPE as goodwill. Accordingly, the
operating results of Forum have been included in the consolidated operating
results from the date of acquisition. On March 30, 1999, Forum was merged into
COPE GmbH.
Hicomp Acquisition. On April 19, 1999, COPE acquired Hicomp Software Systems
GmbH, a German software company. Based on the Sale and Assignment of Business
Shares entered into on December 21, 1998 between COPE and Mr. Uwe Hinrichs, the
president and sole shareholder of Hicomp, COPE issued 420,000 shares of common
stock in exchange for all of the outstanding capital shares of Hicomp. The
Hicomp acquisition will be accounted for under the purchase method of
accounting, which means that COPE has reported at its cost the assets of
Hicomp, less its liabilities. The difference between the purchase price COPE
paid for Hicomp and the difference between Hicomp's assets and liabilities has
been recorded by COPE as goodwill. Hicomp, headquartered in Hamburg, Germany,
develops back-up and retrieval software products. Its leading products, Hiback
and Hibars, are multi-platform back-up solutions recognized for performance and
flexibility. COPE also granted Mr. Hinrichs securities registration rights
which allow him to sell up to 200,000 shares of his common stock alongside COPE
within the framework of a secondary public offering on the Frankfurt Stock
Exchange, "Neuer Markt", at the earliest 90 days after the date of COPE's
acquisition of Hicomp. Mr. Hinrichs granted COPE a purchase option, expiring
June 30, 2000, to acquire all of the capital shares of two U.S. corporations
owned by Mr. Hinrichs which are engaged in the business of distributing the
Hiback and Hibars software in the U.S.
Currency Exchange Rates. COPE regularly enters into contracts payable in
Swiss Francs, German Marks and Austrian Schillings.
18
<PAGE>
Although COPE reports its results in US dollars, virtually all of its sales
are denominated in other currencies, primarily, Swiss Francs and German Marks
and, to a lesser extent, Austrian Schillings, and Euros. A significant amount
of COPE's cost of sales (i.e., hardware and software purchases) on the other
hand, are denominated in US Dollars. Consequently, COPE's cost of doing
business is directly affected by any changes in the exchange rate between the
US Dollar, on the one hand, and the Swiss Franc or German Mark, on the other
hand. The financial position and results of operations of COPE and its foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of COPE and its subsidiaries are translated at the
exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the cumulative translation adjustment account in
stockholders' equity.
COPE typically enters into forward exchange contracts covering fifty percent
(50%) of its hardware and software purchases for its client contracts in order
to mitigate the adverse effects of currency exchange fluctuations. However,
these actions generally provide only a partial mitigation of the adverse
effects of changes in currency rates and there can be no assurance that changes
in currency rates in the future will not have a material adverse affect on
COPE's business, operating results or financial condition and results of
operations.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Revenue. During the six months ended June 30, 1999, COPE had net revenue
of $16,563,976, which amounts to an increase of 69.3% over the net revenue of
$9,784,089 during the prior year period. The increase in net revenue is due in
part to the COPE's acquisition of Forum and Hicomp. COPE acquired Forum on June
25, 1998 and Forum has been included in the consolidated operating results for
periods subsequent to June 25, 1998. COPE acquired Hicomp on April 19, 1999 and
Hicomp has been included in the consolidated operating results for periods
subsequent to April 19, 1999. COPE believes that approximately $5,500,000 of
the increase in revenue over the prior year period is attributable to the
COPE's acquisition of Forum. COPE believes that approximately $560,000 of the
increase in revenue over the prior period is attributable to the COPE's
acquisition of Hicomp.
Sales of solutions increased 64.8% during the six months ended June 30, 1999
over the prior year period reaching $14,351,383 as compared to $8,707,773.
Sales of solutions consists of revenue from the resale of hardware and software
components along with associated consulting services. The reason for the
increase in revenue from the sales of solutions is the integration of Forum.
Sales of services increased 105.6% during the six months ended June 30, 1999
reaching $2,212,593 as compared to $1,076,316 for the prior year period. Sales
of services consists of revenue from stand-alone consulting and integration
services. The increase in revenue from the sale of services is the result of
the COPE's decision to emphasize sales of services because of its potential
higher profit margin.
Cost of Sales. During the six months ended June 30, 1999, cost of sales
increased by 56.7% to $10,698,666 compared to $6,827,545 for the prior year
period, representing 74.5% and 78.4%, respectively, of the total revenue from
the sale of solutions. Cost of sales consists exclusively of the cost of
software and hardware acquired for resale. The decrease in cost of sales as a
percentage of revenue from the sale of solutions is the result COPE's ability
to negotiate with its suppliers for lower prices for the products purchased by
COPE for resale. At the same time COPE elected to discontinue the pursuit of
low margin product sales. During 1997, COPE had chosen to pursue low margin
product sales as part of its plan to establish itself in the German market.
COPE no longer believes it is necessary or in its best interest to pursue these
sales.
Gross Profit. COPE's gross profit margin for the six months ended June 30,
1999 was 35.4% compared to 30.2% for the prior year period. The increase is
primarily attributable to the large internal growth in sales of services as a
percentage of total revenue and the increase in the profit margin for products
sold in Germany.
19
<PAGE>
Selling, General, Administrative and Consulting Expenses. COPE's selling,
general, administrative and consulting expenses as a percentage of net sales
increased between the six months ended June 30, 1999 (28.8%) compared to the
prior year period (25.2%). The increase is primarily attributable to the hiring
of additional personnel necessary to support the growth in sales of services.
In the first quarter of fiscal 1998, COPE reported an impairment loss of
$63,004 related to the write-down of an exclusive option for the rights to
purchase, develop and market a new technique for the automatic storage of data.
Net Income (Loss). During the six months ended June 30, 1999, COPE had a net
loss of $250,860 as compared to net income of $260,617 during the prior year
period. The decrease in income is due to the amortization of goodwill involved
with COPE's acquisition of Hicomp in April 1999 and Forum in June 1998.
Earnings before interest, taxes, depreciation and amortization for the six
months ended June 30, 1999 was $838,535, which amounts to an increase of 172.9
% over earnings before interest, taxes, depreciation and amortization of
$307,253 for the prior year period.
Fiscal 1998 Compared to Fiscal 1997
Net Revenue. During the year ended December 31, 1998, COPE had net revenue
of $29,059,150, which amounts to an increase of 62.2% over the net revenue of
$17,916,171 during the prior year period. The increase in net revenue is due in
part to the consolidation of Forum, which was acquired on June 25, 1998 and has
been included in the consolidated operating results for the periods subsequent
to June 25, 1998. Forum had net revenue of $9,040,477 for the period June 25,
1998 through December 31, 1998. Without giving effect to the consolidation of
Forum, COPE had a 12% increase in net revenue during the year ended
December 31, 1998 over the prior year period.
Sales of solutions increased 53% during the year ended December 31, 1998
over the prior year period reaching $25,411,976 as compared to $16,605,175 in
1997. Sales of solutions consists of revenue from the resale of hardware and
software components along with associated consulting services. The principal
reason for the increase in sales of solutions is the acquisition of Forum.
Without giving effect to the consolidation of Forum, COPE had 3% increase in
sales of solutions during the year ended December 31, 1998 over the prior year
period.
Sales of services increased 178.2% during the year ended December 31, 1998
reaching $3,647,174 as compared to $1,310,996 for the prior year period. Sales
of services consists of revenue from stand-alone consulting and integration
services. Without giving effect to the consolidation of Forum, COPE had a 123%
increase in sales of services during the year ended December 31, 1998 over the
prior year period. This increase is the result of COPE's decision to emphasize
sales of services because of its potential for higher profit margins.
Cost of Sales. During the year ended December 31, 1998, cost of sales
increased by 58.2% to $20,281,131 compared to $12,817,738 for the prior period,
representing 79.8% and 77.2% of the total revenues from the sale of solutions,
respectively. The cost of sales as a percentage of sale of solutions increased
during the year ended December 31, 1998 due to COPE's aggressive pursuit of
increased sales in the German market in 1998. In an effort to establish itself
in the German market, during 1998 COPE pursued low margin product sales. In
addition, because COPE was not then well established in the German market it
was not able to negotiate for the lowest prices from German suppliers. As noted
above, in the first half of 1999 COPE discontinued the aggressive pursuit of
low margin product sales in Germany and, at the same time, has been able to
negotiate for better prices from its suppliers. Cost of sales consists
exclusively of COPE's cost for the software and hardware acquired for resale as
part of its information systems solutions.
Gross Profit. COPE's gross profit margin for the year ended December 31,
1998 was 30.2% compared to 28.5% for the prior year period. The increase in
gross margin is due to COPE's strategy of emphasizing the sale of higher margin
stand alone consulting and integration services.
Selling, General, Administrative and Consulting Expenses. COPE's selling,
general, administrative and consulting expenses as a percentage of net sales
increased between the year ended December 31, 1998 (25.1%)
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<PAGE>
and the prior year period (24.2%). This trend is the consequence of COPE's
strategy to increase sales of services which required that COPE hire additional
service and consulting personnel.
Fiscal 1997 Compared to Fiscal 1996
Net Revenue. During the year ended December 31, 1997, COPE had net revenue
of $17,916,171, which amounts to an increase of 43.2% over the net revenue of
$12,515,123 during the prior year period as a result of the expansion of COPE's
customer base. This increase was due primarily to COPE's commencement of
meaningful operations in the German market in 1997. Net revenue in Germany
increased from $937,026 in 1996 to $4,759,643 in 1997.
Sales of solutions increased 40.3% during the year ended December 31, 1997
over the prior year period reaching $16,605,175 as compared to $11,834,701 in
1996. This increase is primarily due to a significant increase in COPE's
customer base in Germany and Austria. Net revenue in these markets grew by
approximately 160.7% in 1997 as compared to 1996.
Sales of services increased 92% during the year ended December 31, 1997
reaching $1,310,996 as compared to $680,422 for the prior year period. This
increase is due to increased demand for consulting services as a result of an
expanded customer base.
Cost of Sales. During the year ended December 31, 1997, cost of sales
increased by 45.2% to $12,817,738 compared to $8,829,711 for the prior year
period, representing 71.5% and 70.6% of the total revenues, respectively. Cost
of sales consists exclusively of COPE's cost for the software and hardware
acquired for resale as part of its information systems solutions.
Gross Profit. COPE's gross profit margin for the year ended December 31,
1997 was 28.5% compared to 29.4% for the prior year. The slight decrease in
gross margin is due in part to an increase in hardware costs. A portion of the
increase in hardware costs is due to a stronger U.S. dollar during 1997 as
compared to the Swiss franc as almost all of the purchases of hardware are U.S.
dollar denominated. Gross margins in Switzerland and Austria increased in 1997
over those of 1996 as a result of the increase in the sale of services as a
percentage of overall revenues.
Selling, General, Administrative And Consulting Expenses. COPE's selling,
general, administrative and consulting expenses as a percentage of net revenues
was substantially unchanged between fiscal 1997 (24.2%) and fiscal 1996
(23.5%).
Liquidity and Financial Condition
COPE's historical working capital requirements include the financing of all
costs involved in the design, implementation and sale of information systems.
COPE generally contracts to deliver information systems, including all hardware
and software, on a turn-key basis based on fixed price contracts. Consistent
with industry practice, COPE generally is not able to obtain significant up-
front or progress payments on its contracts providing for the design,
implementation and sale of information systems. Accordingly, COPE is generally
required to finance its clients' contracts, including the purchase of the
hardware and software components of the information systems. As of June 30,
1999, COPE had established short-term overdraft facilities under which COPE and
its subsidiaries could borrow up to $2,498,218. Amounts drawn down under these
facilities are due on demand and collateralized by accounts receivable of COPE
and life insurance policies on the major shareholders, Mr. Adrian Knapp and
Mr. Stephan Isenschmid, for $342,700 each. COPE has been successful to date in
securing extensions on its lines for purposes of financing certain client
contracts as needed, however there can be no assurance that COPE will continue
to do so in the future.
In July 1999, COPE entered into a borrowing agreement with the lead
underwriter for this offering, Nord/LB, to borrow up to DEM 1,825,000. The note
bears interest at the rate of 6% per annum and
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<PAGE>
all interest is due and payable no later than December 15, 1999. COPE intends
to repay this note from the proceeds of this offering.
As of June 30, 1999, COPE had a working capital deficit of approximately
$76,188, compared to a working capital position of $155,663 as of December 31,
1998. As of June 30, 1999, COPE had approximately $200,000 available for
borrowing under existing lines of credit under a weighted average interest rate
of approximately 3%.
COPE believes that it will require significant additional working capital in
order to finance continued growth. COPE believes that the proceeds from this
offering, together with its existing capital resources, will be sufficient to
meet its capital requirements and finance its continued growth for at least the
next twelve months. However, if its capital requirements vary materially from
those currently planned, COPE may require additional financing sooner than
anticipated. Additional financing may not be available when needed on terms
favorable to COPE or at all.
Year 2000 Issue
The Year 2000 issue is the result of computer programs, microprocessors, and
embedded date reliant systems using two digits rather than four to define the
applicable year. If these programs are not corrected, date data concerning the
Year 2000 could cause many systems to fail, lock up or generate erroneous
results. COPE considers a product to be "Year 2000 compliant" if the product's
performance and functionality are unaffected by processing of dates prior to,
during and after the Year 2000, but only if all hardware, software and firmware
used with the product properly exchange accurate date data with it.
COPE believes that it may be possible that litigation may be brought against
vendors, including COPE, of all component products of systems that are unable
to properly manage data related to the Year 2000. COPE's agreements with
customers and end users typically contain provisions designed to limit COPE's
liability for these claims. It is possible, however, that these measures will
not provide protection from liability claims, as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Any of these claims, with or without merit, could have a material adverse
effect on COPE's business, operating results or financial condition, and could
result in customer satisfaction issues and potential lawsuits.
COPE is identifying Year 2000 dependencies in its accounting software in
Germany and other systems, equipment, and processes and is implementing changes
to these systems, updating or replacing its equipment, and modifying its
processes to make them Year 2000 compliant. COPE is continuing to assess its
internal Year 2000 issues and is in the process of remediation of the critical
systems. While management believes COPE's current accounting software systems
in the other countries of operations are Year 2000 compliant, COPE intends to
upgrade all those systems during fiscal 1999, and will insure that Year 2000
compliance is a major factor in the selection of the appropriate accounting
software package. COPE has communicated with all of its significant suppliers
and financial institutions to evaluate their Year 2000 compliance plans and
state of readiness and to determine whether any Year 2000 issues will impede
the ability of these suppliers to continue to provide goods and services to
COPE. Each of these suppliers has assured COPE that their goods and services
are Year 2000 compliant.
As a general matter, COPE is vulnerable to any failure by its key suppliers
to remedy their own Year 2000 issues, which could delay shipments of essential
components, thereby disrupting or halting COPE's operations. Further, COPE also
relies, both domestically and internationally, upon governmental agencies,
utility companies, telecommunication service companies and other service
providers outside of COPE's control. There is no assurance that these
suppliers, governmental agencies, financial institutions, or other third
parties will not suffer business disruption caused by a Year 2000 issue, and
there is little practical opportunity for COPE to test or require Year 2000
compliance from many of those large agencies, companies or providers. These
failures could have a material adverse effect on COPE's business, financial
condition and results of operations. In the worst case scenario, a storage or
security system installed by COPE could completely collapse and the client
could
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<PAGE>
lose forever important data. If this were to happen and the client incurred
substantial economic loss, COPE might be held liable for the loss.
Additionally, COPE is communicating with its large customers to determine the
extent to which COPE is vulnerable to those third parties' failure to remedy
their own Year 2000 issues.
COPE anticipates that its internal systems, equipment and processes will be
substantially Year 2000 compliant by the end of October 1999. A formal budget
has not been established, and the cost to COPE of achieving Year 2000
compliance is evolving; however, it is not currently expected to have a
material effect on COPE's financial condition or results of operations. COPE
has to date spent approximately $30,000 to upgrade computer software and
hardware to insure Year 2000 compliance. COPE anticipates that the cost of Year
2000 compliant software, including the upgraded accounting software noted
above, is not likely to exceed $50,000. This amount does not include the costs
of the Year 2000 compliance problems associated with COPE's vendors, customers,
financial institutions and government agencies noted above. In addition, COPE
believes that a significant amount of the total expenditures would be
capitalized and depreciated over the useful life of the applicable asset, such
as computer hardware or software replaced to keep pace with technological
advances. COPE estimates that Year 2000 compliance charges will be paid from
existing working capital, and that the total Year 2000 compliance budget is
approximately 50% of COPE's total expenditures on information technology. While
COPE currently expects that the Year 2000 issue will not pose significant
internal operational problems, delays in COPE's remediation efforts, or a
failure to fully identify all Year 2000 dependencies in the systems, equipment
or processes of COPE or its vendors, customers or financial institutions could
have material adverse consequences, including delays in the manufacture,
delivery or sale of products. Therefore, COPE is considering the development of
contingency plans along with its remediation efforts for continuing operations
in the event these problems arise.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro, and adopted the Euro as their common legal currency. A
significant portion of COPE's transactions will be denominated in Euros. COPE
has successfully adapted its information systems and practices to accommodate
the Euro in those European Union member countries in which it offers its
services. Moreover, the content within the financial information distributed by
COPE (notably security quotations) has successfully begun to be denominated in
Euro, commencing on January 1, 1999.
Euro conversion is expected to generally increase cross-border price
transparency among the participating countries and result in a more competitive
European market. COPE is uncertain as to the effect, if any, that Euro
conversion will have on its ability to sell its products and services in the
European market. Euro conversion could potentially impact pricing strategies
and demand for COPE's services in the European market, lead to increased
competition within the European market for the specific types of services sold
by COPE, or impact COPE's relationships with vendors and licensors. As a result
of competitive pressures, COPE could also potentially be required to denominate
future transactions in Euros and incur currency risk and conversion costs as a
result. There can be no assurance that Euro conversion will not have a
material, adverse effect on COPE's business, operating results or financial
condition.
Forward Looking Statements
This prospectus contains forward-looking statements that are based on COPE's
beliefs as well as assumptions made by and information currently available to
COPE. When used in this prospectus, the words "believe," "expect,"
"anticipate," "estimate" and similar expressions are intended to identify
forward-looking statements. These statements are subject to those risks,
uncertainties and assumptions included in the section "Risk Factors. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, or projected. COPE cautions its stockholders and
potential investors not to place undue reliance on any forward-looking
statements, all of which speak only as of the date made.
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<PAGE>
BUSINESS OF COPE
General
COPE is a provider of enterprise data storage and security consulting,
services and solutions to customers located primarily in Western Europe. COPE's
business consists of the analysis, design and implementation of storage and
security systems that integrate the hardware and software products that best
meet the identified objective. COPE generates revenue from three primary
sources:
. providing consulting services in connection with the initial analysis of
a client's data storage or security needs and the designing of a system
best suited to meet those needs;
. the sale and implementation of the desired solution; and
. providing installation, integration and maintenance of the system,
including improvements and additions to the system to keep pace with the
clients' changing needs and improvements in technology.
COPE generally provides its data storage and security systems on a turn-key
basis and purchases for resale the hardware and software components made part
of its systems solutions. COPE resells software and hardware products offered
by the major vendors in the data storage and security industry, including:
<TABLE>
<S> <C>
. Advanced Digital Information .Legato Systems
. Ascend Communications .Oracle
. Cisco Systems .Overland Data
. Data General .Sony
. Compaq Computer .Storage Technology
. EMC Corp. .Sun Microsystems
. IBM .Veritas Software
</TABLE>
Following its acquisition of Hicomp Software Systems GmbH on April 19, 1999,
COPE also offers its own proprietary storage software products, Hiback and
Hibars. COPE provides most of its information consulting, services and
solutions to companies in the financial, insurance, pharmaceutical and
telecommunication industries located in Germany, Switzerland, and Austria.
Development of COPE
COPE commenced operations in 1991 as a provider of data storage subsystems
to the Swiss market. In the European market at that time, computer
manufacturers were not directing significant corporate resources into data
storage. This opportunity allowed COPE to immediately enter the market with a
competitive mix of quality products suitable for customized internal and
external data storage applications. In early 1993, COPE began to study the
redundant array of inexpensive disk-drives storage technologies and began
designing corresponding solutions for its clients. In the Fall of 1993, the
first family of redundant array of inexpensive disk-drives systems was
introduced by COPE to the Swiss market. In 1994, COPE signed a distribution
agreement with Data General providing for COPE's distribution of Data General's
Open CLARiiON systems. This represented COPE's first reseller agreement. In the
following years, COPE entered into distribution agreements with additional
vendors of storage and security products. In December 1998, COPE entered into a
distributor agreement with EMC Corp, the recognized world leader in the
development of software for the enterprise data storage and security industry.
In 1994, COPE began to market its services and systems in Austria. In late
1995, COPE commenced operations in Germany. In the same year, COPE became one
of the first information technology companies in Europe to obtain an ISO9001
certification. In June 1998, COPE expanded its operations in Germany through
its acquisition of Forum GmbH, a provider of data storage and security services
and solutions to the German market. In April 1999, COPE acquired its first
proprietary product through its acquisition of Hicomp Software Systems GmbH, a
Hamburg, Germany based developer of back-up software, marketed under the
trademarks Hiback and Hibars.
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<PAGE>
Industry Overview
High availability of stored enterprise data is a critical factor in today's
business environment. To reduce costs, improve productivity and improve
customer service, large organizations are streamlining their processes by
implementing strategic software applications, such as databases, financial
applications and electronic mail systems, to manage their data. To be
competitive, an organization needs immediate access to necessary data,
regardless of where it is stored. Without this access, productivity suffers and
the cost of doing business escalates. Providing reliable access to this data on
an enterprise-wide basis presents a significant challenge to large
organizations.
The difficulty of this challenge is compounded by a number of recent trends
in enterprise computing. In recent years, there has been a significant
migration to client/server and network computing. Today's networks are much
larger and more complex than early networks, often consisting of multiple
servers, including application servers, file servers, database servers and
communications servers, and hundreds or even thousands of personal computers
manufactured by a number of different vendors. These servers and personal
computers may utilize a number of different operating systems, including Unix,
Novell NetWare, IBM OS/2 Warp, Windows NT, Windows 98, Windows 95, Windows 3.1
and Macintosh OS. The distributed and heterogeneous nature of these networks,
together with the increased use of computers throughout organizations to create
and store files, has resulted in an increase in the amount and dispersion of
critical data across the servers and personal computers.
The increase in the size of networks has been accompanied by concurrent
increases in the size and complexity of computer data and files. Application
software developers continue to introduce software packages that increasingly
incorporate features which require large amounts of storage, such as graphics,
video and sound. For example, a minute of uncompressed full motion video and
sound could require approximately 1,100 megabytes of storage as compared to 300
kilobytes for the average 10 page document. Similarly, the size and complexity
of images stored and manipulated using document imaging systems have
intensified network storage requirements. Further, the increasing popularity of
the internet as a means of communication and a medium by which to access and
distribute information has contributed to the demand for increased storage, as
users download a wide variety of complex data from the internet.
To meet the challenges of managing the storage of increasing volumes of
enterprise data in increasingly heterogeneous systems with fewer resources, a
storage management system must incorporate a number of critical features
including:
. full automated backup and restore capability;
. ready data in the event of system failure in order to avoid interruptions
of day-to-day operations;
. scalability to accommodate rapid growth in the volume of on-line data and
the complexity of the network;
. centralized and automated management to enable the administrator to
manage the entire system, including local and remote storage systems,
from a single central console; and
. support for heterogeneous environments.
In response to the increased demand for cost-effective storage of different
types of information, a variety of storage media have been developed, including
magnetic tape, hard disk, redundant array of inexpensive disk-drives, CD-ROM
and others.
Magnetic tape is the least expensive storage medium, but has the slowest
access times. Magnetic tape is ideal for backing up large amounts of
information that is only expected to be accessed infrequently. This cost
effective technique is widely used in commercial entities and government
organizations in cases where it is desirable to archive large amounts of data
in a secure offsite location as a safeguard against on-site disasters. Often
times, the magnetic tapes are arranged in automated tape libraries for purposes
of providing for multiple operating drives capable of conducting simultaneous
functions, including backup, data management and access.
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<PAGE>
Hard disk storage is a popular means of storing and accessing large amounts
of information that is continually changing. It also provides rapid access
times but is a relatively expensive storage medium and is easily erased.
Redundant array of inexpensive disk-drives storage systems have developed in
response to demand for increased data storage, performance, security,
reliability, fault tolerance and availability, as well as for constant access.
Redundant array of inexpensive disk-drives is a method for allocating data
across several hard disk drives and allowing a server microprocessor to access
those drives simultaneously, thus increasing system storage and input/output
performance. In addition, lost data on any drive can be recreated using special
redundant array of inexpensive disk-drives algorithms, thus ensuring the
immediate availability of redundant array of inexpensive disk-drives protected
data even in the event of a disk drive failure.
CD-ROM and DVD-ROM technology emerged in the early 1980's and 1990's,
respectively, as a cost-effective method by which to store and distribute large
amounts of information. Since CD-ROMs or DVD-ROMs cannot be erased or written
over for mass data storage, however, they are not suitable for storage
situations in which information must be continually updated and altered.
However, for organizations that require periodic distribution of written
material, such as reference books, parts lists, catalogues or manuals, CD-ROMs
and DVD-ROMs are much more cost-effective and practical than paper-based
documents. The proliferation of network computing and the rapid increase in
CD-ROMs as a means of information distribution and storage have fueled demand
for CD-ROM systems that provide network-wide access.
The increase in the importance and volume of stored, complex data has
increased demand for secure and reliable methods of storage that allow for
efficient and cost-effective protection and management of this data. These
factors have also increased demand for total storage solutions that can quickly
and efficiently provide access to large volumes of data resident on a variety
of client computers and servers running different operating environments, as
well as data generated by a wide range of applications. In addition, users are
increasingly demanding solutions comprised of not only hardware for cost-
effective storage of and access to large amounts of secure and reliable
information, but also software that manages information flow and reduces the
high costs of network storage administration.
The COPE Solution
In today's business environment, the best storage or security solution most
often requires a combination of storage media and a mixture of hardware and
software products from multiple vendors. The challenge to a system designer is
the ability to identify and then integrate the specific software and hardware
products best suited to meet the clients' needs.
COPE believes that the major product vendors in the data storage industry
are naturally predisposed to selling the client a solution that is based on the
vendor's own product line. On the other hand, COPE endeavors to operate as an
independent provider of enterprise data storage and security systems and
solutions. Although COPE now offers a limited line of proprietary storage
software following its acquisition of Hicomp, COPE is committed to offering its
clients a storage solution based on a mix of the software and hardware products
that best meet the identified objectives regardless of manufacturer. COPE
believes that its willingness and ability to provide an integrated approach to
its clients' storage problems provides its clients with a better solution and
COPE with a competitive advantage over the vendors with whom it competes for
the design and sale of storage solutions.
In order to provide its customers with the best available solution, COPE has
divided its operations between consulting, solution sales and integration
services. A client engagement begins with the appointment of a team from COPE's
consulting division. As of August 27, 1999, COPE employed 11 professionals in
its consulting division, each of whom is a trained engineer with a complete
understanding of the products and technologies offered in the data storage
industry. COPE initially analyzes the client's storage needs and arrives at
certain conceptual solutions. The engineers then work with the client to
develop performance-cost comparisons, feasibility studies and capital budgeting
for each conceptual solution. Through this process a recommendation is made to
the client for the implementation of a storage and security solution.
Typically, the recommendation will involve a storage system sold and installed
by COPE. However, COPE's consultants are encouraged to offer the client the
best solution, even if it does not include the sale of a system by COPE.
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If the consulting division recommends a COPE storage or security system,
COPE will bring to the client a team from the solution sales department. As of
August 27, 1999, COPE's solution sales division consisted of 43 professionals,
including 23 sales representatives and 20 engineers, and a 5 person
administration and support staff. A team typically consists of one or more
sales representatives and engineers. A project manager will act as the liaison
between the client and COPE's production departments.
Once the optimal solution is selected, COPE's integration services
department provides on-site integration. The integration services department
also offers the client operations and maintenance support on an interim and
long-term basis. As of August 27, 1999, this department consisted of 18
employees.
COPE's Strategy
COPE's goal is to become the leading independent provider of enterprise data
storage and security services and solutions in Western Europe. The key elements
of COPE's strategy are:
. Emphasize Consulting Services. COPE intends to emphasize the provision of
its consulting services. COPE believes that in the enterprise data
storage market the key is oftentimes the "solution" and not the product.
COPE believes that a significant amount of the client's cost in a storage
solution is spent on consulting services associated with the design and
implementation of the system, the remainder representing the costs of the
associated software and hardware products. The consulting services often
involve higher margins than the sale of the products, even in the case of
direct sales to the client by the manufacturer/vendor. By emphasizing the
quality of its consulting services, COPE believes that it can establish
and foster a reputation in Western Europe as a leading provider of
enterprise data storage and security services and solutions.
. Foster a Reputation for Independence. COPE's major competitors are either
manufacturers or developers of hardware and software products or large
consulting firms that offer a wide array of consulting and advisory
services to business. COPE intends to foster the reputation and image of
an independent organization firm dedicated exclusively to providing
storage and security services and solutions to the enterprise data
storage market only. Most of the customers for storage and security
systems are large corporations and institutions with sophisticated
information technology operations. COPE believes that most information
technology officers appreciate and value COPE's expertise and ability to
offer solutions and consulting services unhindered by any bias to a
particular product or vendor.
. Expand Through Targeted Acquisitions. COPE believes that the enterprise
data storage market consists of the manufacturers/developers of the
storage products and the international consulting firms, on the one hand,
and a number of smaller independent providers of consulting services and
solutions, including COPE, on the other hand. In addition to the pursuit
of organic growth, COPE intends to aggressively seek out and acquire high
quality independent consulting firms throughout Western Europe. COPE
believes that there are a number of smaller independent firms in
strategic European markets that share COPE's commitment to providing high
quality consulting and services to the enterprise data storage market.
Through the pursuit of strategic acquisitions, COPE hopes to acquire
existing sale and engineering staffs with established contacts and client
bases in key markets.
Products and Services
COPE's principal operations consist of the design, implementation and
management of storage and security systems that provide flexible and cost
effective data storage and security solutions on a turn-key basis. In addition
to providing turn-key data storage systems, COPE also provides its clients
consulting, training and integration services. In 1998, approximately
$3,647,174 (or 12.6%) of COPE's $29,059,150 in revenue represented consulting
fees unrelated to sales of storage data systems. COPE intends to increase its
marketing efforts in the area of stand-alone consulting services and expects
that consulting revenues will in the future increase as a percentage of overall
revenue.
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<PAGE>
COPE is a reseller of a number of software and hardware products to its
customers, including back-up and system management software, tape libraries,
data storage disk arrays, servers, and numerous other products related to the
installation and utilization of data storage and security technology. In
keeping with industry practice, the agreements between COPE and its product
vendors are nonexclusive and short-term in nature. The following table sets
forth the major vendors with which COPE works in various selling partnerships,
the vendor's products resold by COPE and the amount of COPE's revenue from the
sale of hardware and software products during fiscal 1998 represented by each
vendor:
<TABLE>
<CAPTION>
% of Product
Company Product Revenue
------- ------- ------------
<C> <S> <C>
Compaq Computer/Digital Equipment Servers and Storage 15%
Products
Storage Technology Corp. Tape Libraries 12%
Data General--CLARiiON Business Unit CLARiiON Disk Arrays 10%
Advanced Digital Information Corp. Tape Libraries 8%
IBM Servers 8%
Sun Microsystems Servers 7%
Legato Systems Back-up and Archiving 6%
Software
Hewlett Packard Media Libraries 3%
Overland Data Tape Libraries 3%
Veritas Software Data Management, 2%
Failure, Backup and
Archiving Software
</TABLE>
In addition to the above, in December 1998 COPE was named by EMC Corp. as a
distributor of its line of enterprise data storage products.
Consulting and Services Division. COPE's consulting division offers services
such as analyses, conceptual solutions, target-performance comparisons,
quantity structures, feasibility studies, capital budgeting and return on
investment calculations, as well as project management and user training. In
addition to training and education, the COPE service division implements and
maintains data management plans recommended by the consulting division. COPE
system engineers are certified experts by strategic partners such as IBM, SUN,
Microsoft and others. This division contracts directly with the end-user to
maintain systems and manage the plan.
Hiback and Hibars. In April 1999, COPE acquired Hicomp Software Systems
GmbH, a developer of enterprise data storage software. Through its acquisition
of Hicomp, COPE is now able to offer its own proprietary line of software
products designed to provide storage capabilities to multi-platform
enterprises. The products are Hiback, backup software which is installed on
desktop clients, and Hibars, automated data management software which is
installed on the backup server. COPE believes that the Hiback and Hibars
products offer a superior storage solution to multi-platform enterprises which
require superior speed in performing backup storage.
Sales and Marketing
COPE markets its data storage and security consulting, services and
solutions primarily through its field sales organization complemented by other
sales channels, including systems integrators, product vendors, and
international distributors.
As of August 27, 1999, COPE's field sales force consisted of 23 sales
representatives and 18 engineers that provide technical assistance for systems
sales. COPE currently has five sales offices, most of which are staffed with
both sales and technical personnel. COPE uses a consultative sales approach for
selling to major accounts. This model entails the collaboration of technical
and sales personnel, typically in a one-to-one ratio, to formulate proposals
that address the specific requirements of the customer. COPE focuses its
initial sales efforts on senior information technology department personnel,
and works closely with system and network
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<PAGE>
administrators for evaluation and deployment. COPE also maintains comprehensive
after-sales and customer care activities covering all aspects of support,
systems tuning and follow-up.
Competition
The data storage and security market is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. Competitors vary in size and in the scope and breadth of the
products and services offered. COPE's major competitors are vendors of
information management software and hardware products, including Hewlett
Packard, EMC Corp., Storage Technology, Unisys Corp. and Compaq Computer Corp.,
some of whom are also significant suppliers of COPE. In addition, COPE
experiences significant competition from other independent consulting and
engineering firms.
Many of COPE's current and potential competitors have significantly greater
financial, technical, marketing and other resources than COPE. As a result,
they may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or, in the case of vendors, to devote greater
resources to the development, promotion, sale and support of their products
than COPE. COPE also expects that competition will increase as a result of
future software industry consolidations, which have occurred in the information
technology market in the past. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. There can be no assurance that COPE will be able to compete successfully
against current or future competitors or that competitive pressures faced by
COPE will not materially adversely affect its business, operating results or
financial condition.
In addition to competition for client contracts, COPE also competes for
qualified technical engineers and consultants. COPE's future success depends in
significant part upon the continued service of its key technical personnel and
its continuing ability to attract and retain highly qualified technical
engineers and consultants. Competition for this personnel is intense, and there
can be no assurance that COPE can retain its key technical and managerial
employees or that it can attract and retain other highly qualified technical
personnel in the future.
Litigation
Except as set forth below, there have been no legal proceedings to which
COPE or any of its officers or directors have been a party or to which the
property of COPE has been subject over the last two years.
On August 24, 1995, American Diagnostica, Inc., a private company located in
Greenwich, Connecticut, filed a civil action against COPE for money damages
alleging COPE's wrongful termination of an R&D Joint Venture Agreement entered
into by the parties in May 1993. The circumstances underlying the complaint
occurred prior to the COPE Reorganization and were undertaken by prior
management of COPE at a time when COPE was engaged in the business of research
and development of various health and medical products.
In its complaint, American Diagnostica alleged that COPE was indebted to
them for damages in an unspecified amount, plus punitive damages, attorney's
fees and interest. In December 1995, COPE moved the court for an order
compelling American Diagnostica to submit the dispute to arbitration. In
September 1996, the court granted COPE's motion, staying all proceedings
pending the conclusion of mandatory arbitration in California, as the parties
had provided in the research and development agreement. As of the date of this
prospectus, no arbitration proceeding has been commenced by either party. The
prior management of COPE has publicly announced its belief that COPE has
meritorious defenses to all of American Diagnostica's claims and that the
claims are substantially without merit. However, under current circumstances no
determination can be made as to the ultimate outcome of the litigation or as to
the necessity for any provision in the accompanying consolidated financial
statements for any liability that may result from an unfavorable outcome.
29
<PAGE>
In connection with its reorganization with COPE Holding AG, COPE received
from the New Capital Investment Fund and New Capital AG an agreement to
indemnify COPE against any claims outstanding as of the close of the
reorganization, including attorneys' fees and costs of arbitration or
litigation relating to the American Diagnostica matter. Kevin DeVito is a
director of New Capital Investment Fund and New Capital AG. Mr. DeVito was the
Chief Executive Officer of COPE, Inc. prior to its acquisition of COPE Holding
AG in September 1998 the COPE Reorganization and is currently a member of the
board of directors of COPE.
Employees
As of August 27, 1999, COPE had a total of 107 employees. Of the total, 11
were in consulting, 43 were in solution sales, 18 in integration services, and
35 were in back-office operations such as general management, finance, human
resources and administration. None of COPE's employees are represented by a
labor union or subject to a collective bargaining agreement. COPE has not
experienced any work stoppages and considers its relations with its employees
to be good.
Properties
COPE's executive and sales offices are located in Rotkreuz, Switzerland and
consist of approximately 10,800 square feet of leased space. COPE leases this
space based on a written agreement expiring in March 2001, with an option to
extend for another five years, at the rate of $11,000 per month. COPE also
maintains the following sales offices:
<TABLE>
<CAPTION>
Location Size Monthly Rental Rate
-------- ---- -------------------
<S> <C> <C>
Munich, Germany.......................... 9,800 sq. ft. $7,300
Hamburg, Germany......................... 6,600 sq. ft. $9,000
Dresden, Germany......................... 1,600 sq. ft. $2,700
Vienna, Austria.......................... 2,000 sq. ft. $2,000
</TABLE>
30
<PAGE>
MANAGEMENT
The executive officers and directors of COPE, the positions held by them and
their ages as of August 27, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chairman of the Board and Executive Vice
Adrian Knapp........................ 36 President
Stephan Isenschmid.................. 37 President, Chief Executive Officer and Director
Markus Bernhard..................... 35 Chief Financial Officer
Peter Koch.......................... 73 Director
Markus Stalder...................... 46 Director
Kevin DeVito........................ 38 Director
</TABLE>
Mr. Knapp has served as Chairman of the Board and Executive Vice President
of COPE, Inc. since September 25, 1998. Mr. Knapp co-founded COPE Holding AG in
1991 and has served as Chairman of the Board of that company since its
inception.
Mr. Isenschmid has served as President, Chief Executive Officer and a
director of COPE, Inc. since September 25, 1998. Mr. Isenschmid co-founded COPE
Holding AG in 1991 and has served as President, Chief Executive Officer and a
director of that company since its inception.
Mr. Bernhard has served as Chief Financial Officer of COPE, Inc. since
September 25, 1998. Mr. Bernhard has also served as Chief Financial Officer of
COPE Holding AG since September 1997. From 1991 to September 1997, Mr. Bernhard
was employed as a Swiss certified accountant at Revisuisse Price Waterhouse.
Mr. Koch has served as a director of COPE, Inc. since September 25, 1998.
Mr. Koch has served as General Manager of acp GmbH, a German-based distributor
of computer products and peripherals since 1991.
Mr. Stalder has served as a director of COPE, Inc. since September 25, 1998.
Mr. Stalder has been a partner in the law firm, Stalder & Murer, located in
Sihlbrugg, Switzerland, since 1991. Stalder & Murer has acted as general
counsel to COPE Holding AG since 1991.
Mr. DeVito has served as a director of COPE, Inc. since June 1992. From 1992
to September 25, 1998, Mr. DeVito served as President of COPE, Inc., which
during that period was known as Harrier, Inc. Since 1996, Mr. DeVito has served
as a principal of New Capital AG, a Zurich based financial and management
consulting firm.
Members of the board of directors are typically elected by the shareholders
of COPE. However, vacancies in the board may be filled by a majority of the
remaining directors. Each director holds office until his successor is elected
by the stockholders and his successor is qualified or until the director
resigns. The board of directors has established an Audit Committee consisting
of Markus Stalder, Adrian Knapp and Kevin DeVito, with Mr. Stalder to serve as
Chairman. The Audit Committee reviews COPE's independent auditors, the scope
and timing of their audit services and other services they are asked to
perform, the auditor's report on COPE's financial statements following
completion of their audit, and COPE's policies and procedures with respect to
internal accounting and financial controls. In addition, the Audit Committee
makes annual recommendations to the board of directors for the appointment of
independent auditors for the ensuing year. The board of directors has also
established a Compensation Committee consisting of Kevin DeVito, Markus Stalder
and Adrian Knapp, with Mr. DeVito to serve as Chairman. The Compensation
Committee reviews and recommends to the board of directors the compensation and
benefits of all officers of COPE and reviews general policy matters relating to
compensation benefits of employees of COPE.
31
<PAGE>
Executive Compensation
Cash Compensation of Executive Officers. The following table sets forth the
cash compensation paid to the executive officers of COPE for services rendered
during the fiscal years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------------
Common Shares
Other Underlying
Annual Restricted Stock Options Granted All Other
Name and Position Year Salary Bonus Compensation Awards($) (# Shares) Compensation(1)
----------------- ---- -------- ----- ------------ ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephan Isenschmid, 1998 $135,983 -0- -0- -0- 56,000 $12,000
President and CEO 1997 106,922(2) -0- -0- -0- -0- -0-
1996 166,589(2) -0- -0- -0- -0- -0-
Adrian Knapp, 1998 $108,787 -0- -0- -0- 56,000 $12,000
Chairman and 1997 106,922(2) -0- -0- -0- -0- -0-
Executive Vice 1996 168,067(2) -0- -0- -0- -0- -0-
President
</TABLE>
- --------
(1) Represents a car allowance of $1,000 per month.
(2) Compensation in 1996 and one-half of 1997 compensation represent fees paid
to consulting firms controlled by Messrs. Isenschmid and Knapp for the
services rendered by them to COPE.
32
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------
Number of Securities
Underlying % of Total Options/SARs Exercise or
Options/SARs Granted Granted to Employees in Base Price
Name (#) Fiscal Year ($/Sh) Expiration Date
---- -------------------- ----------------------- ----------- ---------------
<S> <C> <C> <C> <C>
Stephan Isenschmid, 3,000 (2) 1.8% 8.40 4/30/99
President and CEO, and 4,000 (3) 2.4% 8.40 3/31/00
Adrian Knapp, Chairman
and 1,000 (4) (5) 8.40 3/31/01
Executive Vice
President(1) 1,000 (6) (5) 8.40 3/31/05
3,000 (7) 1.8% 13.00 12/31/00
7,000 (8) 4.2% 13.00 12/31/01
6,000 (9) 3.6% 13.00 12/31/03
8,000(10) 4.8% 13.00 12/31/05
4,000(11) 2.4% 13.00 12/31/08
1,000(12) (5) 13.00 12/31/99
1,000 (7) (5) 13.00 12/31/00
1,000 (8) (5) 13.00 12/31/01
2,000 (9) 1.2% 13.00 12/31/03
5,000(10) 3.6% 13.00 12/31/05
1,000(12) (5) 15.00 12/31/99
1,000 (7) (5) 15.00 12/31/00
2,000 (8) 1.2% 15.00 12/31/01
5,000 (9) 3.6% 15.00 12/31/03
</TABLE>
- --------
(1) Mr. Isenschmid and Mr. Knapp each received options in the amounts and on
the terms and conditions as set forth in table presented.
(2) Options first became exercisable on March 1, 1999 and were exercised in
full on April 30, 1999.
(3) Options vest and first become exercisable on March 1, 2000.
(4) Options vest and first become exercisable on March 1, 2001.
(5) Less than one percent.
(6) Options vest and first become exercisable on March 1, 2005.
(7) Options vest and first become exercisable on March 1, 2000.
(8) Options vest and first become exercisable on March 1, 2001.
(9) Options vest and first become exercisable on March 1, 2003.
(10) Options vest and first become exercisable on March 1, 2005.
(11) Options vest and first become exercisable on March 1, 2008.
(12) Options first became exercisable on March 1, 1999.
33
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable(1)
---- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Stephan Isenschmid,
President and CEO -0- -0- 0/56,000 $0/$338,120
Adrian Knapp, Chairman
and Executive
Vice President -0- -0- 0/56,000 $0/$338,120
</TABLE>
- --------
(1) Calculated based upon a last reported sale price of $18.62 per share of our
common stock, as reported on the OTC Bulletin Board on December 31, 1998.
Director Compensation
All directors receive reimbursement for out-of-pocket expenses in attending
Board of Directors meetings. From time to time COPE may engage certain members
of the board of directors to perform services on its behalf. In these cases,
COPE compensates the members for their services at rates no more favorable than
could be obtained from unaffiliated parties.
Certain Relationships and Related Transactions
Markus Stalder, a member of COPE's board of directors, is also a member of
the law firm of Stalder & Murer, COPE's general counsel since 1991. In 1998,
1997 and 1996, COPE paid legal fees to Stalder & Murer in the amount of
approximately $50,000, $30,000 and $20,000, respectively.
Indemnification of Directors
As permitted by Section 145 of the Delaware General Corporation Law, COPE's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duty as directors. In addition, as permitted by Section 145 of
the Delaware General Corporation Law, COPE's bylaws provide that it may, in its
discretion, indemnify its directors, officers, employees and agents and persons
serving in these capacities in other business enterprises at its request, to
the fullest extent permitted by Delaware law. COPE's bylaws also allow it
to advance expenses, as incurred, to its directors and officers in connection
with defending a proceeding.
COPE's policy is to enter into indemnification agreements with each of its
directors and officers that provide the maximum indemnity allowed to directors
and officers by Section 145 of the Delaware General Corporation Law and the
bylaws as well as additional procedural protections.
The indemnification provisions in the bylaws and the indemnification
agreements COPE enters into with its directors and officers may be sufficiently
broad to permit indemnification of its directors and officers for liabilities
arising under the U.S. federal securities laws. However, COPE is aware that in
the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed under the U.S. federal securities laws and
is therefore unenforceable.
34
<PAGE>
PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of August 27, 1999, and as adjusted to reflect
the sale of shares of common stock offered in this offering by:
. each person known by COPE to the beneficial owner of five percent (5%) or
more of the common stock;
. each of COPE's directors and executive officers; and
. all directors and executive officers as a group.
The table assumes that there are 3,595,751 shares of common stock issued and
outstanding prior to the offering and that there will be 3,995,751 shares of
common stock issued and outstanding after the offering. Unless otherwise
indicated, the persons named in the table have sole voting and sole investment
power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to this After this
Offering Offering(10)
-------------------- Shares -----------------
Name and Address Number Percent Offered Number Percent
---------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Adrian Knapp(1)(2)....... 1,301,000(2) 36.2% 1,301,000 32.5%
Stephan
Isenschmid(1)(2)........ 1,301,000(2) 36.2% 1,301,000 32.5%
Markus Bernhard(1)(3).... 6,500(3) (4) 6,500 (4)
Markus Stalder(1)(5)..... -- -- -- --
Peter Koch(1)(5)......... 16,000 (4) 16,000 (4)
Kevin DeVito(6)(7)....... 870 (4) 870 (4)
Uwe Hinrichs(8)(9)....... 420,000 11.7% 200,000 220,000 5.5%
All officers and
directors as a group.... 2,625,370 72.9% 2,625,370 65.6%
</TABLE>
- --------
(1)Address is Grundstrasse 14, 6343 Rotkreuz, Switzerland.
(2) Includes 2,000 shares of common stock underlying options which first
become exercisable within 60 days of August 27, 1999. Does not include
51,000 shares of common stock underlying options that are subject to
vesting.
(3) Includes 500 shares of common stock underlying options which first become
exercisable within 60 days of August 27, 1999. Does not include
12,000 shares of common stock underlying options that are subject to
vesting.
(4) Less than one percent.
(5) Does not include 1,000 shares of common stock underlying options that are
subject to vesting.
(6) Address is 2200 Pacific Coast Highway, Suite 301, Hermosa Beach,
California 90254.
(7) Does not include 3,000 shares of common stock underlying options that are
subject to vesting.
(8) Address is Gruendgenstrasse 16D-22309 Hamburg, Germany.
(9) Does not include 60,000 shares of common stock underlying options subject
to vesting.
(10) Gives no effect to the exercise of the overallotment option. In the event
the over-allotment option is exercised in full, Adrian Knapp and Stephan
Isenschmid will each own 1,251,000 shares (31.3%) and all officers and
directors as a group will own 2,525,370 shares (63.1%).
35
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
COPE is authorized to issue 30,000,000 shares of common stock ($.001 par
value per share), of which, as of August 27, 1999, 3,595,751 shares were issued
and outstanding and held by 337 recordholders. As of the date of this
Prospectus, there are no outstanding options, warrants or other securities
which upon exercise or conversion entitle their holder to acquire shares of
common stock, except as set forth below.
Holders of shares of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election of
directors requires the favorable vote of a majority of the shares voting,
except in the case of fundamental matters, including amendments to the
Certificate of Incorporation, and mergers and reorganizations, in which cases
Delaware law and COPE's bylaws require the favorable vote of at least a
majority of all outstanding shares. Stockholders are entitled to receive
dividends that may be declared from time to time by the board of directors out
of funds legally available for the payment of dividends, and in the event of
liquidation, dissolution or winding up, to share proportionally in all assets
remaining after payment of liabilities. The holders of shares of common stock
have no preemptive, conversion, subscription or cumulative voting rights.
Stock Option Plan
COPE has adopted a 1998 Stock Option Plan, which permits COPE to grant
options to its employees, officers, directors, consultants and independent
contractors. COPE may issue an aggregate of 400,000 shares of common stock
under the 1998 Stock Option Plan. The 1998 Stock Option Plan is governed by the
board of directors, which has the power to determine the terms of any options
granted, including the exercise price, the number of shares subject to the
option, and the exercisability of the options. Options under the 1998 Stock
Option Plan generally are not transferrable, and each option is exercisable
during the lifetime of the optionee only by the optionee. Stock options can be
exercised at any time before expiration after they are vested.
As of the date of this prospectus, COPE has granted under the 1998 Stock
Option Plan options to purchase an aggregate of 297,400 shares of common stock,
at exercise prices ranging from $8.40 to $50.00 per share, to its employees,
officers, directors and consultants, of which 22,390 were exercised on April
30, 1999 at an exercise price of $8.40 per share.
Warrants
As of August 27, 1999, COPE had issued warrants to purchase an aggregate of
29,793 shares of common stock at an exercise price of $7.54 per share.
Dividends
COPE has no immediate plans to pay cash dividends on its common stock. See,
"Dividend Policy."
Transfer Agent and Registrar
The Transfer Agent and Registrar for COPE's common stock is Interwest
Transfer Co., Inc., 1981 E. Murray Holladay Road, Salt Lake City, Utah 84114.
36
<PAGE>
ANTI-TAKEOVER PROVISIONS
General
The Delaware General Corporation Law and COPE's certificate of incorporation
and bylaws contain provisions which could have the effect of delaying,
deterring or preventing a future takeover or change in control of COPE, unless
such takeover or change in control is approved by COPE's board of directors.
These provisions also may render the removal of directors and management more
difficult. As a result, these provisions could limit the price that investors
might be willing to pay in the future for shares of the common stock. These
provisions of Delaware law and COPE's certificate of incorporation and bylaws
also may have the effect of discouraging or preventing transactions that
involve an actual or threatened change of control of COPE, even though such a
transaction may offer COPE's stockholders the opportunity to sell their stock
at a price above the prevailing market price.
Certificate Of Incorporation And Bylaws
COPE's certificate of incorporation and bylaws contain provisions that could
have the effect of discouraging potential acquisition proposals or delaying or
preventing a change of control of COPE. In particular, the certificate of
incorporation does not include a provision for cumulative voting in the
election of directors. Under cumulative voting, a minority stockholder holding
a sufficient number of shares may be able to ensure the election of one or more
directors. The absence of cumulative voting may have the effect of limiting the
ability of minority stockholders to effect changes in the board of directors
and, as a result, may have the effect of deterring a hostile takeover or
delaying or preventing changes in control or management of COPE.
COPE's certificate of incorporation also provides that newly created
directorships resulting from any increase in the number of directors and any
vacancies on the board of directors will be filled by the affirmative vote of a
majority of the remaining directors then in office, although less than a quorum
and not by the stockholders unless authorized by the board of directors at a
special meeting of the stockholders.
The certificate of incorporation allows COPE to issue up to 5,000,000 shares
of undesignated preferred stock with rights senior to those of the common stock
and that otherwise could adversely affect the interests of holders of common
stock. COPE has not issued any shares of preferred stock as of this date.
However, the issuance of shares of preferred stock could decrease the amount of
earnings or assets available for distribution to the holders of common stock or
could adversely affect the rights and powers, including voting rights, of the
holders of common stock. The preferred stock can also be convertible into
common stock at a discount to the market price, which would have the effect of
decreasing the market price of the common stock, as well as having the anti-
takeover effect discussed above.
COPE's certificate of incorporation allows the bylaws of COPE to be altered
or repealed and new bylaws to be adopted either:
. at any annual or special meeting of stockholders, by the affirmative vote
of a majority of the voting stock, provided that in the case of any such
stockholder action at a special meeting of stockholders, notice of the
proposed alteration, repeal or adoption of any bylaws must be contained
in the notice of such special meeting; or
. by the vote of a majority of the total number of directors which the
board of directors of COPE would have if there were no vacancies.
These provisions are designed to reduce the vulnerability of COPE to an
unsolicited acquisition proposal and to discourage tactics that may be used in
proxy fights designed to effect a hostile change in control. These provisions
could have the effect of discouraging others from making tender offers for
COPE's shares and may inhibit fluctuations in the market price of COPE's shares
that could otherwise result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in the management of
COPE.
37
<PAGE>
Delaware Takeover Statute
Section 203 of the Delaware Code prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. The exceptions to that rule are as follows:
. prior to the date of the business combination, the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combinations to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder, subject to the five exceptions enumerated in that section;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
German Takeover Code
In connection with its listing on the Neuer Markt of the Frankfurt Stock
Exchange, COPE is required to comply with the German Takeover Code. The German
takeover code regulates merger and acquisitions by public companies, and
requires that companies making an offer to a target company: notify the German
regulatory authorities and the public of the offer, provide disclosures to the
target company's stockholders, treat stockholders equally in an offer, and
comply with other regulatory requirements. In addition, the rights of COPE's
stockholders under the German law differ in certain respects from rights
afforded to stockholders under the United States federal and state laws
governing tender offers and takeovers. German regulatory authorities are given
broad authority to interpret German law and to review and regulate specific
merger and acquisitions. Compliance with German law could have the effect of
delaying, deferring or preventing a tender offer or takeover, notwithstanding
that the tender offer or takeover might result in stockholders receiving a
premium over the market price for their shares.
38
<PAGE>
BOOK-ENTRY-ONLY ISSUANCE OF COMMON STOCK TRADING
ON GERMAN STOCK EXCHANGES
The shares of common stock offered by this prospectus will trade on the
Neuer Markt of the Frankfurt Stock Exchange (when approved for listing) and on
the Freiverkehr of the Berlin and Hamburg Stock Exchanges only through book
entry transfers of interests therein held through Deutsche Borse Clearing AG.
Any investor who has an actual certificate representing shares of common stock
who desires to sell shares of common stock on a German Exchange will be
required to deposit the certificate with the Depository Trust Company for
credit to Deutsche Borse Clearing's account as described below, which transfer
will be reflected on the books and records of Deutsche Borse Clearing.
Certificates representing shares of common stock held through Deutsche Borse
Clearing will not be issued unless the shares are withdrawn from Deutsche Borse
Clearing in which case the shares will not be eligible to trade on a German
Exchange unless redeposited as described above. Deutsche Borse Clearing will
hold shares of common stock through its account with Depository Trust Company.
Depository Trust, or its nominee, will be the registered owner of all shares of
common stock that are held by investors through Deutsche Borse Clearing.
Beneficial owners of common stock held through Deutsche Borse Clearing will
receive confirmations and statements of their holdings from Deutsche Borse
Clearing through their brokers or other financial institutions that are
Deutsche Borse Clearing participants. Deutsche Borse Clearing will register all
transfers of the common stock between Deutsche Borse Clearing participants on
its books and records through its book-entry system. Shares of common stock
held by Depository Trust will be registered in the name of its nominee, Cede &
Co.
Any dividend or other payments on common stock held through Deutsche Borse
Clearing will be made by COPE to Cede & Co., as nominee of Depository Trust.
Depository Trust, upon receipt of these payments, will credit Deutsche Borse
Clearing's account at Depository Trust for the amount of these payments.
Payments by Deutsche Borse Clearing to the beneficial owners of common stock
will be governed by standing instructions and Deutsche Borse Clearing's
customary practices, subject to any statutory or regulatory requirements as may
be in effect from time to time. If requested, the dividends will be converted
into German Marks or Euros, if applicable, and distributed by Deutsche Borse
Clearing. The underwriters will act as paying and depository agents in this
case.
TAXATION
Material Tax Consequences Under German Laws
The following discussion is a summary of the material anticipated tax
consequences of an investment in the common stock under German tax laws. The
discussion does not deal with all possible tax consequences relating to an
investment in the common stock. In particular, the discussion does not address
the tax consequences under state, local, and other (e.g. non-German) tax laws,
nor does it address special circumstances of any individual investor. The
discussion is limited to the taxation of dividends, capital gains, income,
gifts and inheritance under German law, and does not address all aspects of
German taxation. The discussion does not consider any specific facts or
circumstances that may apply to a particular purchaser. In particular, this
discussion does not comprehensively treat the tax considerations that will be
relevant to prospective investors who reside outside Germany. Accordingly, each
prospective investor should consult its tax advisor regarding the tax
consequences of an investment in the common stock. The discussion is based on
the tax laws of the Federal Republic of Germany as in effect on the date of
this prospectus, which are subject to change, possibly with retroactive effect,
in particular with respect to proposed or anticipated changes which may result
from action by the German government. Thus, the following summary is for
illustrative purposes only and not to be relied upon. In addition, COPE has
undertaken no obligation to update this discussion for changes in facts or laws
occurring subsequent to the date of this prospectus. Further, any variation or
differences from the facts or representations recited in this prospectus, for
any reason, might affect the following discussion, perhaps in an adverse
manner, and render this discussion inapplicable.
39
<PAGE>
Taxation of Dividends. The following dividends on the common stock are
subject to German income or corporate taxes at regular German tax rates:
. dividends paid to stockholders that are natural persons having a
residence or his or her habitual abode in Germany;
. to corporations that maintain their statutory seat or principal place of
management in Germany; or
. dividends attributable to a permanent establishment maintained by, or a
fixed base regularly available to, a stockholder who is otherwise not
deemed to be a German resident.
These dividend payments also are subject to a surcharge equal to 5.5% of the
otherwise applicable German income or corporate income tax liability.
German residents who are natural persons may claim a tax allowance for
income derived from capital investments of DM 6,000 (DM 12,000 in the case of
married couples filing joint returns). This allowance will be reduced to DM
3,000/DM 6,000 beginning in the year 2000.
German residents who are natural persons may deduct from dividend income the
expenses associated with the acquisition, safeguarding, or maintaining of the
common stock, including fees for custodian and re-financing costs. Without
supporting documents, expenses in the amount of DM 100, or DM 200 in the case
of married couples filing joint returns, are deductible for tax purposes from
this dividend income.
In general, the United States imposes a withholding tax of 15% of the gross
amount of dividends paid to a German investor. The double taxation treaty
between the United States and Germany reduces this withholding tax to 5% of the
gross amount of the dividends if the beneficial owner is a company that holds
directly at least 10% of the voting shares of the company paying the dividends.
The withholding tax can be credited against the part of the German income tax
attributable to the dividend income. If, however, the German income tax
attributable to the dividends is lower than the withholding tax because of a
deduction of expenses (including, but not limited to refinancing costs) from
the dividends, withholding taxes can only be credited against German income
taxes up to an amount of German income tax attributable to the dividend income.
Instead of taking a credit for the withholding tax, the German holder can apply
for a deduction of the withholding tax from his or her taxable income.
Dividend income is tax-exempt in Germany if a German holder that is a
corporation owns at least 10% of the voting share capital of the company paying
the dividend. For tax exempt dividends paid beginning in 1999, an amount equal
to 15% of the tax free gross dividend is considered for the corporate income
tax purposes of the German corporate holder to be non-deductible expenses in
connection with the tax-free dividend. If, however, the tax-exempt dividend
derived by a corporate German holder is distributed to a German holder who is a
natural person, the distribution is taxable on the personal level of this
holder.
Capital Gains. Capital gains from the sale of the common stock are not
subject to taxes in Germany, unless:
. the gains are attributable to a permanent establishment maintained by, or
a fixed base regularly available to, a stockholder who is otherwise not
deemed to be a German resident;
. the stockholder is a corporate entity that is a German resident or the
common stock was held by the German resident as a business asset,
. the stockholder is a natural person and a German resident that holds or
has held at any time during a period of five years before the disposal
directly or indirectly 10% or more of the share capital in his private
property; or
. the stockholder is a natural person and a German resident and the time
period between the acquisition and the disposal of the common stock does
not exceed one year and the common stock does not qualify as a business
asset.
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Inheritance and Gift Tax. Under German law, a German gift or inheritance tax
is imposed on transfers of common stock by gift or at death if the donor or
transferor, or the heir, donee, or other beneficiaries, are German residents
within the meaning of Section 2 of the German Inheritance Tax Act.
Other German Taxes. There does not appear to be German transfer, stamp, or
other similar taxes that apply on the sale or transfer of shares of common
stock.
Material United States Federal Income Tax Consequences To Non-United States
Holders
The following is a general discussion of all expected material United States
federal income and estate tax consequences of the ownership and disposition of
common stock by a non-U.S. holder. As used in this prospectus, the term "non-
U.S. holder" is defined as any person or entity that is, for United States
federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign partnership, or a non-resident fiduciary of a foreign
estate or trust. This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended, existing, final, temporary, and
proposed treasury regulations based on the U.S. tax code, and administrative
and judicial interpretations of these regulations. This discussion is based on
the U.S. tax code, the regulations and the interpretations in effect or
proposed on the date of this prospectus all of which are subject to change,
possibly with retroactive effect, or different interpretations. This discussion
is limited to non-U.S. holders who hold shares of common stock as capital
assets within the meaning of Section 1221 of the U.S. tax code. Moreover, this
discussion is for general information only and does not address all of the tax
consequences that may be relevant to particular non-U.S. holders in light of
their personal circumstances, nor does it discuss certain tax provisions which
may apply to individuals who relinquish their U.S. citizenship or residence.
An alien individual may be deemed to be a resident alien by virtue of being
present in the United States for at least 31 days in the current calendar year
and for an aggregate of at least 183 days during a three-year period ending in
the current calendar year. In calculating an alien's presence in the United
States during a three-year period, all of the days present in the current year
are counted, one-third of the days present in the immediately preceding year
are counted, and one-sixth of the days present in the second preceding year are
counted. An alien who holds a "green card" is a U.S. resident for income tax
purposes for the entire part of the year that he holds the card. Resident
aliens are subject to U.S. federal income taxes as if they were U.S. citizens.
Each prospective purchaser of common stock should consult with a tax advisor
with respect to current and possible future tax consequences of acquiring,
holding, and disposing of common stock, as well as any tax consequences that
may arise under the laws of any U.S. federal, state, municipality, or other
taxing jurisdiction.
Dividends. If dividends are paid on shares of common stock to a non-U.S.
holder, they will be subject to withholding of United States federal income
taxes at a rate of 30%, unless a treaty between the United States and the
country of residence of the stockholder specifies a lower rate. Under certain
circumstances, however, the dividends are not subject to withholding tax, but
instead are subject to United States federal income taxes on a net basis at the
applicable individual or corporate rate. Specifically, dividends are not
subject to withholding tax if:
. the dividends are effectively connected with the conduct of a trade or
business by the non-U.S. holder within the United States and, where a tax
treaty applies, are attributable to a United States permanent
establishment of the non-U.S. holder, and;
. an Internal Revenue Service Form 4224 or successor form is filed with the
payor.
However, any of these dividends that are received by a foreign corporation
may be subject to an additional "branch profits tax" at a rate 30%, unless an
applicable treaty provides for a lower rate.
Dividends paid to an address in a country outside the United States are
presumed to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability
of the tax treaty rate. However, recently finalized Treasury regulations
pertaining to United States federal withholding tax, scheduled to take effect
for payments made after December 31, 2000, provide that a
41
<PAGE>
non-U.S. holder must comply with certification procedures, directly or through
an intermediary, to obtain the benefits of a reduced rate under a treaty that
provides for a lower tax rate. In addition, a non-U.S. holder who is an
offshore account must provide documentary evidence that they are not a U.S.
resident to obtain the benefits of a treaty that provides for a lower tax rate.
In addition, the withholding tax regulations will require a non-U.S. holder who
provides an IRS form 4224 or successor form (as discussed above) also to
provide its U.S. taxpayer identification number.
A non-U.S. holder of common stock eligible for a reduced rate of United
States withholding taxes based on an income tax treaty may obtain a refund of
any excess amount withheld by filing an appropriate claim for refund with the
IRS.
Gain on Disposition of Common Stock. A non-U.S. holder generally will not be
subject to United States federal income taxes with respect to any gain
recognized on the sale or other disposition of common stock unless:
. the gain is effectively connected with the conduct of a trade or business
of the non-U.S. holder in the United States and, where a tax treaty
applies, is attributable to a United States permanent establishment of
the non-U.S. holder; or
. the company is or has been a U.S. Real Property Holding Corporation for
United States federal income tax purposes, as described below.
An individual non-U.S. holder who falls within the first clause above will,
unless an applicable treaty provides otherwise, be taxed on his or her net gain
derived from the sale under regular United States federal income tax rates. An
individual non-U.S. holder who falls under clause the second above will be
subject to taxation in accordance with the special rules regarding the sale or
other disposition of a U.S. Real Property Interest.
A non-U.S. holder that is a foreign corporation engaged in a trade or
business in the United States may be taxed on its gain under regular United
States federal income tax rates and may be subject to an additional branch
profits tax equal to 30% of its effectively connected earnings and profits
within the meaning of the tax code for the taxable year unless it qualifies for
a lower rate under an applicable income tax treaty.
A corporation is a real property holding company if the fair market value of
the U.S. real property interests held by the corporation is 50% or more of the
aggregate fair market value of its U.S. and foreign real property interests and
any other assets used or held for use by the corporation in a trade or
business. Based on its current and anticipated assets, COPE believes that it
currently is not and is not likely to become a real property holding company.
However, since the determination of real property holding company status is
based upon the composition of the assets of COPE from time to time, and because
there are uncertainties in the application of the relevant rules, there can be
no assurance that COPE will not become a real property holding company. If COPE
were to become a real property holding company, then gains on the sale or other
disposition of common stock by a non-U.S. holder generally would be subject to
U.S. federal income taxes unless both the common stock was "regularly traded"
on an established securities market, and the non-U.S. holder actually or
constructively owned 5% or less of the common stock. Non-U.S. holders should
consult their tax advisors concerning any U.S. tax consequences that may arise
if COPE were to become a real property holding company.
Federal Estate Tax. Common stock held by an individual non-U.S. holder at
the time of death will be included in such holder's gross estate for United
States federal and state tax purposes, unless an applicable estate tax treaty
provides otherwise.
Information Reporting and Back Up Withholding Tax. Under treasury
regulations, COPE must report annually to the IRS and to each non-U.S. holder
the amount of dividends paid to such holder and the amount of any tax withheld
with respect to such dividends, regardless of whether withholding was required.
Copies of the
42
<PAGE>
information returns reporting such dividends and withholding also may be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A back-up withholding tax is imposed at the rate of 31% on payments to
persons that fail to furnish identifying information to the payor. Back-up
withholding generally will not apply to dividends paid to a non-U.S. holder at
an address outside the United States unless the payor has knowledge that the
payee is a U.S. person. However, in the case of dividends paid after December
31, 2000, the non-U.S. holder must comply with certification procedures,
directly or though an intermediary, to obtain the benefits of a reduced rate
under a treaty that provides for a lower tax rate. In addition, a non-U.S.
holder who is an offshore account must provide documentary evidence that they
are not a U.S. resident to obtain the benefits of a treaty that provides for a
lower tax rate. Back-up withholding and information reporting generally will
also apply to dividends paid on common stock at addresses inside the United
States to non-U.S. holders that fail to provide identifying information in the
manner required. The withholding regulations provide presumptions under which a
non-U.S. holder would be subject to back-up withholding and information
reporting unless COPE receives certification from the holder of its non-U.S.
status.
Payment of the proceeds of the sale of common stock by or through a United
States office of a broker is subject to both back-up withholding and
information reporting unless the beneficial owner provides the payor with its
name and address and certifies under penalties of perjury that it is a non-U.S.
holder, or otherwise establishes an exemption. In general, back-up withholding
and information reporting will not apply to a payment of the proceeds of a sale
of common stock by or through a foreign office of a broker. If, however, such
broker is, for United States federal income tax purposes, a U.S. person, a
controlled foreign corporation, or a foreign person that derives 50% or more of
its gross income from the conduct of a trade or business in the United States,
these payments will be subject to information reporting, but no back-up
withholding, unless the broker has documentary evidence in its records that the
beneficial owner is a non-U.S. holder and other conditions are met, or the
beneficial owner otherwise establishes an exemption. After December 31, 2000,
the same rules shall apply to a foreign partnership that at any time during its
fiscal year either is engaged in the conduct of a trade or business in the
United States, or has as partners one or more U.S. persons that, in the
aggregate, hold more than 50% of the income or capital interest in the
partnership.
A holder generally will be allowed a refund or a credit against such
holder's U.S. federal income tax liability for any amounts withheld under the
back-up withholding rules, provided the required information is furnished in a
timely manner to the IRS.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement, NORD/LB, acting as representative and in the name and for the
account of the underwriters as specified below, has agreed to purchase an
aggregate of 400,000 shares of common stock from COPE and 200,000 shares from
the selling stockholder at the offering price set forth on the cover page of
this prospectus, less underwriting commissions and fees. The bookbuilding
period is intended to be conducted for a period of four days ( to
1999), but may be reduced by the representative in its reasonable
discretion in agreement with COPE. The subscription period for 25,000 shares of
common stock which shall be allocated by NORD/LB by means of the internet
through its selling agent Virtuelles Emissionshaus, Munich, shall be conducted
on the th and th of (until . . . p.m.). The number of shares of
common stock that each underwriter has agreed to purchase and acquire is set
forth opposite its name below:
<TABLE>
<CAPTION>
Number
Name of shares
---- ---------
<S> <C>
NORD/LB (Lead Manager)...........................................
HSBC Trinkaus & Burkhardt KGaA (Co-Manager)......................
BANK JULIUS BAR & CO. AG (Co-Manager)............................
</TABLE>
In the underwriting agreement, two major existing stockholders granted to
NORD/LB an overallotment option exercisable for thirty (30) calendar days from
the first day of listing of the shares at the Frankfurt Stock Exchange, "Neuer
Markt" up to an aggregate amount of 100,000 additional shares of common stock
at the offering price set forth on the cover page of this prospectus, less
underwriting commissions. NORD/LB may exercise this option for the purpose of
covering over-allotments, if any, made in connection with this secondary public
offering of shares of common stock. If this option is exercised, NORD/LB will
become obligated, subject to the terms of the underwriting agreement, to
acquire and purchase the number of shares of common stock as specified by the
representative.
Of the 400,000 shares of common stock issued by COPE, up to 5% of these
shares of common stock shall be allocated on a preferential basis by the
underwriters to persons designated by COPE. COPE intends to make these shares
available to its employees, vendors and shareholders. As a result, the number
of shares of common stock available for sale to the public will be reduced
accordingly.
COPE, its directors and officers, the selling stockholder and each of the
major existing stockholders have agreed with Deutsche Borse AG not to, during
the six month period commencing on the date of admission of the shares of
common stock to the Frankfurt Stock Exchange, "Neuer Markt:"
. offer, pledge, sell, offer to sell, or otherwise transfer or dispose of
any shares of common stock or any securities convertible into, or
exercisable or exchangable for any shares of common stock;
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
shares of common stock or taking any other measures economically
equivalent to a sale.
The restrictions described in this paragraph do not apply to:
. the sale of the shares to the underwriters in this offering;
. issuances of shares of common stock or options to purchase shares of
common stock under COPE's 1998 Stock Option Plan;
. any acquisitions by COPE in consideration of its issuance of shares of
common stock; or
. sales or transfers approved by Deutsche Borse AG and NORO/LB during the
six month period commencing on the date of admission of the shares of
common stock to the Frankfurt Stock Exchange, "Neuer Markt" or without
the approval of NORO/LB during the subsequent six months.
With regard to the major existing stockholders, the restrictions described in
the previous paragraph do not apply to the sale of the Greenshoe Shares.
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<PAGE>
COPE has submitted an application to have its shares of common stock
approved for quotation on the Nasdaq National Market System under the symbol
"COPE" and has submitted an application to have its shares of common stock
admitted to the Regulated Market ("Geregelter Markt"), with listing of these
shares at the "Neuer Markt". Additionally, COPE has filed a Registration
Statement (SB-2) for declaration of effectiveness with the Securities and
Exchange Commission.
In order to facilitate the secondary public offering, the representative
will take the stabilising measures, in agreement with COPE, that are deemed to
be necessary in order to stabilise, maintain or otherwise affect the price of
the common stock. Additionally, NORD/LB and HSBC Trinkaus & Burkhardt KGaA will
be available as designated sponsors for the Frankfurt Stock Exchange, "Neuer
Markt" for the period of at least one year.
COPE, the selling stockholder and the major existing stockholders have
agreed to indemnify the underwriters and each other against certain
liabilities, as specified in the underwriting agreement including liabilities
under the U.S. federal securities laws and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
INTERNET SUBSCRIPTIONS
NORD/LB, through its selling agent Virtuelles Emissionshaus, intends to
offer up to 25,000 shares of common stock over the internet in Germany. The
internet subscription is limited to German citizens only. Any subscription
offer submitted by a non-German citizen will not be eligible for the internet
subscription. The internet subscription period shall be between and
(until p.m.). However, this subscription period may be curtailed.
Depending on the number of subscription offers received by NORD/LB, the
applicable allocation ratio may be more or less favourable than that for the
remaining portion of the shares of common stock allocated by NORD/LB. The other
conditions and terms applicable to the internet subscription shall be identical
to the conditions and terms of the offering of the remaining portion of the
shares of common stock. This, in particular, shall apply to the offering price.
THE NEUER MARKT
The Neuer Markt is a trading segment of Deutsche Borse AG which has been
operating alongside the existing trading segments "Amtlicher Handel",
"Geregelter Markt" (Second Trading Segment) and regulated unofficial market at
the Frankfurter Wertpapierborse (Frankfurt Stock Exchange) since March 10,
1997.
This new segment is designed in particular to provide access to an
efficient, liquid capital market in the German financial market for young,
innovative companies with a high growth potential. The Neuer Markt is targeted
at private and institutional investors who are willing to take risks. In line
with its claim to be a quality-driven segment of the stock market, issuers must
meet the following admission criteria and requirements in addition to
satisfying the admission requirements for the "Geregelter Markt" (Second
Trading Segment):
. Acceptance of the "Ubernahmekodex" (German Takeover Code) drawn up by the
Stock Exchange Expert Committee of the Federal Ministry of Finance;
. Acceptance of the prohibition of the disposal of shares by the issuer and
existing shareholders for at least six months after the admission of
shares to the Neuer Markt;
. Recruitment of at least two sponsors to promote liquidity;
. The issuer should have been in existence as an enterprise for at least
three years;
. Equity should amount to no less than (Euro)1.5 million;
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<PAGE>
. Only ordinary shares eligible for collective custody may be issued when
the company is initially admitted;
. The volume of shares to be issued should amount to no less than (Euro)5.0
million;
. At least 50 % of the issuing total to be placed must derive from a
capital increase against cash contributions;
. Minimum free float after listing 25%.
To enhance transparency, German issuers are required to prepare their annual
financial statements in both German and English in compliance with
international accounting standards or U.S. generally accepted accounting
principles. Reconciliation accounts between national accounting standards and
international accounting standards or U.S. generally accepted accounting
principles are acceptable. An exemption from this admission requirement may be
granted by Deutsche Borse AG on request for the fiscal year in which the
issuer's shares are admitted to the Neuer Markt. The issuer must also satisfy
the following additional requirements:
. Preparation of quarterly reports;
. Publication of annual financial statements no later than three months
(non-recurrent exception possible), and publication of quarterly reports
no later than two months after the relevant closing date;
. The interim report on the fourth quarter is replaced by the annual
report;
. Presentations to analysts at least once a year;
. Publication of an annual corporate calendar specifying all important
dates for that fiscal year.
Trading on the Neuer Markt takes place at the Frankfurt Stock Exchange every
working day between 8:30 a.m. and 5:00 p.m., Central European Time. The Neuer
Markt trading model combines a central order book with sponsors, who provide
liquidity. These designated sponsors act as market makers during trading hours.
Their duties include:
. Continuous provision of firm bid and ask prices;
. Limitation of the bid/ask spread to a maximum of 5%;
. Continuous absorption of excess market positions not reflected in price
fixing;
. Immediate execution of customer orders;
. Regular analysis of the issuer from a capital market viewpoint;
. Advice to the issuer to ensure ad hoc disclosures and provide continuous
information coverage for investors.
As a rule, the shares listed on the Frankfurt Stock Exchange are traded at
general auctions, but trading is also permitted on the dealers' inter-Bank
market. Prices are fixed through open outcry by independent brokers, who
themselves are members of the Stock Exchange but may not trade with the public.
The prices of actively traded shares are continuously quoted during trading
hours. From April 1, 1998, the minimum number of shares for continuous trading
on the Neuer Markt is 1 share. A single cash price is established for all
shares around the middle of each trading day. Transactions are settled on the
second working day after the trade day. A number of Neuer Markt shares were
also traded in XETRA ("Exchange Electronic Trading") from the start of the
switchover to the XETRA trading system at the end of November 1997. All trading
on the Neuer Markt was moved to the new XETRA Release 3 on October 12, 1998.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Based on the shares of common stock outstanding as of June 30, 1999, without
giving effect to the exercise of the overallotment option, on completion of
this offering we will have 3,995,751 shares of common stock outstanding. The
600,000 shares sold in this offering, which would be 700,000 shares if
NORD/LB's option to purchase additional shares is exercised in full, will be
freely tradable without restriction or further registration under the U.S.
federal securities laws unless purchased by our "affiliates" as that term is
defined in Rule 144. The remaining approximately 2,840,870 shares of common
stock outstanding on completion of this offering will be "restricted
securities" as that term is defined in Rule 144.
Our stock and substantially all of our major shareholders are subject to
agreements with Deutsche Borse AG and NORD/LB that limit their ability to sell
common stock. These holders cannot sell or otherwise dispose of any shares of
common stock for a period of at least one year after the date of admission of
the common stock on the Frankfurt Stock Exchange, "Neuer Markt" without the
prior written approval of the underwriters. When these agreements expire, these
shares and the shares will become eligible for sale, in some cases only
pursuant to the volume, manner of sale and notice requirements of Rule 144.
Prior to the offering, there has only been a limited market for the common
stock in the United States and Germany and no predictions can be made about the
effect, if any, that market sales of common stock or the availability of the
shares for sale will have on the market price prevailing from time to time.
Nevertheless, the actual sale of, or the perceived potential for the sale of,
common stock in the public market may have an adverse effect on the price of
the common stock.
LEGAL MATTERS
Our counsel, Oppenheimer Wolff & Donnelly LLP, Newport Beach, California,
will give an opinion that the shares of common stock covered by this prospectus
are valid. Hale & Dorr LLP, Boston, Massachusetts, has acted as counsel to the
underwriters in connection with this offering.
EXPERTS
ATAG Ernst & Young Ltd., Badenerstrasse 47, CH-8004, Zurich, Switzerland,
independent auditors, have audited our consolidated financial statements at
December 31, 1998, 1997 and 1996 and for each of the three years ended December
31, 1998 as set forth in their report. We have included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on ATAG Ernst & Young Ltd.'s report, given on their authority as
experts in accounting and auditing.
Prior to the COPE Reorganization in August 1998, COPE's independent auditors
for the fiscal years ended June 30, 1998 and 1997 were Raimondo Pettit Group
(formerly Raimondo Pettit & Glassman) 21515 Hawthorne Boulevard, Suite 1250,
Torrance, California 90503. On March 18, 1999, the Board of Directors approved
the appointment of ATAG Ernst & Young Ltd., who had been the independent
auditors for COPE Holding AG for the fiscal years ended December 31, 1997, 1996
and 1995.
Raimondo Pettit Group's report on COPE, financial statements for the past
two years did not contain any adverse opinion or disclaimer of opinion, nor was
it qualified as to uncertainty, audit scope or accounting principles, except
that the firm's report for the fiscal year ended June 30, 1997 financial
statements included an explanatory paragraph relating to substantial doubt
existing about COPE's ability to continue as a going concern. COPE has had no
disagreements with Raimondo Pettit Group during the past two years and the
subsequent interim period preceding this dismissal on any matter of accounting
principles or practices, financial statement disclosure, or audit scope or
procedure, which disagreement(s), if not resolved to the satisfaction of
Raimondo Pettit Group, would have caused it to make a reference to the subject
matter of the disagreement(s) in connection with its reports.
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<PAGE>
Schitag Ernst & Young, Herrengraben 3, 20431 Hamburg, Germany, independent
auditors, have audited the financial statements of Hicomp Software Systems GmbH
at December 31, 1998 and 1997 and for each of the two years ended December 31,
1998 as set forth in their report. We have included Hicomp's financial
statement in the prospectus and elsewhere in the registration statement in
reliance on Schitag Ernst & Young's report, given on their authority as experts
in accounting and auditing.
AVAILABLE INFORMATION
COPE is subject to the informational requirements of the U.S. federal
securities laws and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission. COPE's
reports, proxy statements and other information filed under the U.S. federal
securities laws may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the material can also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's Web site is
http://www.sec.gov. Moreover, all the documents relating to COPE that are
referred to in this prospectus may be inspected during normal business hours at
the registered offices of Norddeutsche Landesbank Girozendrale, Georgsplatz 1,
30159 Hannover, Germany.
COPE has filed with the Commission a Registration Statement on Form SB-2
under the U.S. federal securities laws relating to the common stock offered in
this prospectus. The registration statement, including the attached exhibits
and schedules, contains additional relevant information about COPE and its
capital stock. The rules and regulations of the Commission allow COPE to omit
certain information, exhibits, schedules and undertakings included in the
registration statement, from this document. Copies of the registration
statement and the exhibits are on file with the Commission and may be obtained
from the Commission's Web site or upon payment of the fee prescribed by the
Commission, or may be examined, without charge, at the offices of the
Commission set forth above. For further information, reference is made to the
registration statement and its exhibits.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditors' Report thereon
are included in this prospectus on the pages indicated:
COPE, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................ F-2
Audited Financial Statements
Consolidated Balance Sheets as of December 31, 1998, 1997 and 1996...... F-3
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996.......................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996................................. F-6
Notes to the Consolidated Financial Statements.......................... F-7
Unaudited Interim Condensed Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999............... F-19
Condensed Consolidated Statements of Income for the six month periods
ended June 30, 1999 and 1998........................................... F-20
Condensed Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1999 and 1998................................... F-21
Notes to Condensed Consolidated Financial Statements.................... F-22
HICOMP SOFTWARE SYSTEMS GMBH
Report of Independent Auditors............................................ F-26
Audited Financial Statements
Balance Sheets as of December 31, 1998 and 1997......................... F-27
Statements of Income for the years ended December 31, 1998 and 1997..... F-28
Statements of Cash Flows for the Years Ended December 31, 1998 and
1997................................................................... F-29
Statements of Shareholders' Equity for the years ended December 31, 1998
and 1997............................................................... F-30
Notes to Financial Statements........................................... F-31
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Notes to Unaudited Pro Forma Consolidated Statements of Operations...... F-36
Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1998................................................ F-37
Unaudited Pro Forma Consolidated Statement of Operations for the six
months ended June 30, 1998............................................. F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of COPE, Inc.
We have audited the accompanying consolidated balance sheets of COPE, Inc.
as of December 31, 1998, 1997 and 1996, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of COPE, Inc. at December 31, 1998, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles in the U.S.
ATAG Ernst & Young Ltd.
Kevin McCabe Yves Vontobel
Chartered Accountant Certified Accountant
Zurich, Switzerland
March 26, 1999 except as to Note 18 for which the date is August 27, 1999
F-2
<PAGE>
COPE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents.......... $ 1,303,114 $ 678,936 $ 262,047
Trade accounts receivable (net of
provision of $0, $0, and
$38,519).......................... 5,418,777 3,622,485 2,226,227
Inventories (net of provision of
$89,445, $0 and $0)............... 2,433,790 1,383,191 981,941
Other current assets............... Note 5 450,013 318,182 171,647
----------- ---------- ----------
Total current assets........... 9,605,694 6,002,794 3,641,862
----------- ---------- ----------
Property, plant and equipment,
net............................... Note 6 751,235 570,475 267,627
Loans receivable................... 662,050 394,406 0
Goodwill (net of amortization of
$69,578, $1,757 and $1,217)....... Note 4 938,788 0 9,736
Intangible assets.................. 88,385 125,631 51,064
Deferred income taxes.............. Note 11 592,495 309,652 131,110
----------- ---------- ----------
3,032,953 1,400,164 459,537
----------- ---------- ----------
Total assets................... $12,638,647 $7,402,958 $4,101,399
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
-----------------------------
Current liabilities
Short-term borrowings.............. Note 8 $ 2,385,303 $ 661,982 $ 172,066
Trade accounts payable............. 5,650,422 3,027,118 2,116,029
Amounts due to related parties..... 0 97,984 190,048
Customer advances.................. 216,558 704,915 0
Other current liabilities.......... Note 10 802,384 389,639 395,029
Current income taxes payable....... 179,012 49,349 36,989
Deferred income taxes.............. Note 11 216,352 211,046 186,032
----------- ---------- ----------
Total current liabilities...... 9,450,031 5,142,033 3,096,193
----------- ---------- ----------
Commitments and contingent
liabilities....................... Note 15
Minority interest.................. 0 0 178
Shareholders' equity
Share capital:
Common stock, $0.001 par value
Authorized shares 30,000,000
(2,862,000 in 1997, 2,700,000 in
1996)
Issued and outstanding shares
3,152,861 (2,862,000 in 1997,
2,700,000 in 1996)............... 3,153 2,862 2,700
Additional paid in capital......... 506,031 767,785 73,636
Accumulated other comprehensive
income............................
Cumulative translation
adjustment...................... 31,852 (145,731) (74,420)
Retained earnings.................. 2,647,580 1,636,009 1,003,112
----------- ---------- ----------
Total shareholders' equity..... 3,188,616 2,260,925 1,005,028
----------- ---------- ----------
Total liabilities and
shareholders' equity.......... $12,638,647 $7,402,958 $4,101,399
=========== ========== ==========
</TABLE>
See notes to the consolidated financials statements
F-3
<PAGE>
COPE, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years December 31, 1998, 1997 and 1996
(Amounts in U.S. Dollars, except share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net Revenue
Sales of solutions.................... $ 25,411,976 $ 16,605,175 $11,834,701
Sales of services..................... 3,647,174 1,310,996 680,422
------------ ------------ -----------
Total revenue......................... 29,059,150 17,916,171 12,515,123
Cost of sales......................... (20,281,131) (12,817,738) (8,829,711)
------------ ------------ -----------
Gross profit.......................... 8,778,019 5,098,433 3,685,412
------------ ------------ -----------
Operating expenses
Selling, general and administrative
expenses........................... (6,992,971) (4,205,093) (2,394,693)
Consultancy expenses................ (292,689) (131,723) (540,347)
Depreciation and amortization....... (336,936) (220,363) (340,145)
Impairment of intangible assets..... (63,004) 0 0
------------ ------------ -----------
Total operating expenses.............. (7,685,600) (4,557,179) (3,275,185)
------------ ------------ -----------
Operating income...................... 1,092,419 541,254 410,227
Other income (expense):
Interest expense.................... (127,028) (76,197) (63,940)
Interest income..................... 26,698 704 2,791
Other............................... 30,786 (270) (3,069)
Foreign exchange gain............... 3,326 38,716 12,408
------------ ------------ -----------
(66,218) (37,047) (51,810)
------------ ------------ -----------
Earnings before minority interests and
taxes................................ 1,026,201 504,207 358,417
Minority interests.................... 0 0 696
Current income taxes.................. (158,141) (34,076) (42,775)
Deferred income taxes................. 143,511 162,766 (515)
------------ ------------ -----------
Net income............................ $ 1,011,571 $ 632,897 $ 315,823
============ ============ ===========
Basic earnings per share.............. $ 0.34 $ 0.23 $ 0.12
Diluted earnings per share............ $ 0.34 $ 0.23 $ 0.12
Weighted average shares outstanding... 2,936,589 2,740,833 2,700,000
Dilutive effect of stock options...... 12,120 0 0
------------ ------------ -----------
Diluted average shares outstanding.... 2,948,709 2,740,833 2,700,000
------------ ------------ -----------
</TABLE>
See notes to the consolidated financials statements
F-4
<PAGE>
COPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Cash flow provided by operating
activities
Net income............................... $ 1,011,571 $ 632,897 $ 315,823
Adjustment to reconcile net income to net
cash provided by operating activities
Depreciation........................... 224,375 219,823 260,938
Amortization........................... 175,565 540 1,217
Deferred income taxes.................. (143,511) (162,766) 515
Gain on disposal of fixed assets....... (2,284) 0 2,697
Minority interest share in negative
equity absorbed by parent............. 0 0 (696)
Effects of changes in operating assets
and liabilities excluding effects of
business acquired
Accounts receivable.................... 1,050,835 (1,530,889) (872,870)
Inventories............................ 144,251 (488,492) (176,839)
Other current assets................... 160,857 (226,326) (73,195)
Accounts payable....................... (2,009,336) 736,413 1,269,952
Customer advances...................... 0 704,915 0
Other current liabilities.............. 112,986 404,820 (68,910)
----------- ----------- ----------
Net cash flow provided by operating
activities.............................. 725,309 290,935 658,632
Cash flow used in investing activities
Purchase of property, plant and
equipment............................. (370,208) (585,881) (229,210)
Loans receivables...................... (38,216) (394,406) 0
Purchase of intangible assets.......... 0 (80,138) (6,998)
Proceeds from sale of property, plant
and equipment......................... 5,249 4,653 9,778
Acquisition of businesses/net of cash
acquired.............................. 437,002 0 (3,865)
----------- ----------- ----------
Net cash flow used by investing
activities.............................. 33,827 (1,055,772) (230,295)
Cash flow provided by financing
activities
Issuance of capital stock.............. 152,320 694,311 0
Increase (decrease) of short term
borrowings............................ 24,191 502,770 (293,085)
COPE reorganization.................... (371,112) 0 0
----------- ----------- ----------
Net cash flow provided (used) by
financing activities.................... (194,601) 1,197,081 (293,085)
Effect of exchange rate changes on cash.. 59,643 (15,355) (34,477)
Net increase of cash and cash
equivalents............................. 624,178 416,889 100,775
Cash and cash equivalents at beginning of
the period.............................. 678,936 262,047 161,272
----------- ----------- ----------
Cash and cash equivalents at end of the
period.................................. $ 1,303,114 $ 678,936 $ 262,047
=========== =========== ==========
Supplemental cash flow disclosure
Interest paid.......................... $ 127,028 $ 76,197 $ 63,940
Income taxes paid...................... 32,478 22,643 13,525
Noncash investing and financing
activities
Short-term borrowings, assumed in
acquisition of business............. 956,543 0 0
Short-term borrowings, incurred to
effect acquisition of business...... 624,324 0 0
Cash acquired in acquisition........... 939,002 0 0
</TABLE>
F-5
<PAGE>
COPE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
As of December 31, 1998, 1997 and 1996
(Amounts in U.S. Dollars, except share amounts)
<TABLE>
<CAPTION>
Accumulated other Total
Number Share Additional Retained comprehensive shareholders'
of shares capital paid in capital earnings income equity
--------- ------- --------------- ---------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996, as restated (1).. 2,700,000 $2,700 $ 73,636 $ 687,289 $ 94,652 $ 858,277
Net income.............. 315,823 315,823
Foreign currency
translation
adjustments............ (169,072) (169,072)
----------
Total other
comprehensive income... 146,751
--------- ------ --------- ---------- --------- ----------
Balance at December 31,
1996................... 2,700,000 2,700 73,636 1,003,112 (74,420) 1,005,028
--------- ------ --------- ---------- --------- ----------
Net income.............. 632,897 632,897
Foreign currency
translation
adjustments............ (71,311) (71,311)
----------
Total other
comprehensive income... 561,586
----------
Issuance of share
capital................ 162,000 162 694,149 694,311
--------- ------ --------- ---------- --------- ----------
Balance at December 31,
1997................... 2,862,000 2,862 767,785 1,636,009 (145,731) 2,260,925
--------- ------ --------- ---------- --------- ----------
Net income.............. 1,011,571 1,011,571
Foreign currency
translation
adjustments............ 177,583 177,583
----------
Total other
comprehensive income... 1,189,154
----------
COPE Reorganization..... 270,654 271 (414,054) (413,783)
Issuance of share
capital................ 20,207 20 152,300 152,320
--------- ------ --------- ---------- --------- ----------
Balance at December 31,
1998................... 3,152,861 $3,153 $ 506,031 $2,647,580 $ 31,852 $3,188,616
--------- ------ --------- ---------- --------- ----------
</TABLE>
- --------
(1) Share capital and additional paid in capital have been retroactively
restated to give effect to the COPE Reorganization (see Note 2 to the
consolidated financial statements)
F-6
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
Note 1--Basis of Presentation
The accompanying consolidated financial statements present the consolidated
operations of COPE, Inc., a Delaware corporation formerly known as Harrier,
Inc., and its wholly-owned subsidiaries (collectively hereinafter referred to
as the "Company"). The accompanying consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP").
Nature of Operations
COPE Inc. is a Swiss-based provider of data storage consulting, services and
solutions. With its main corporate offices located in Rotkreuz, Switzerland,
this Delaware corporation also conducts business in Germany and Austria.
Note 2--Reorganization
On September 11, 1998, the shareholders of the Company approved a series of
transactions (referred to as the "COPE Reorganization") undertaken pursuant to
an Amended and Restated Securities Purchase Agreement and Plan of
Reorganization dated July 24, 1998 ("Reorganization Agreement") by and among
the Company, COPE Holding AG, a Swiss corporation and the shareholders of COPE
Holding AG ("COPE Shareholders"), as described below.
On September 11, 1998, the Company filed a Certificate of Amendment to its
Certificate of Incorporation in order to change its name from Harrier, Inc. to
COPE, Inc. and to affect a 1 for 58 reverse split of its outstanding common
stock. As a result of the reverse split, the shares of common stock of the
Company outstanding immediately prior to the COPE Reorganization were reduced
to approximately 270,654 shares.
Pursuant to the Reorganization Agreement, on September 25, 1998, the Company
issued 2,862,000 shares (post-split) of its common stock in exchange for all of
the outstanding capital shares of COPE Holding AG. At the completion of the
COPE Reorganization, the Company had approximately 3,132,634 shares (post-
split) of its common stock outstanding, approximately 91.4% of which were held
by the former COPE shareholders.
Also on September 25, 1998, and immediately prior to the Company's issuance
of 2,862,000 shares (post-split) of its common stock in exchange for all of the
outstanding capital shares of COPE Holding AG, the Company consummated the
transactions under that certain Common Stock Purchase Agreement dated September
11, 1998 between the Company and New Capital Investment Fund, a Cayman Islands
Investment Fund ("NCIF"), and that a certain Assignment and Assumption
Agreement dated September 11, 1998 between the Company and Glycosyn
Pharmaceuticals, Inc., a Delaware corporation ("Glycosyn") (collectively, the
"Glycosyn Agreements"). Pursuant to the terms of the Glycosyn Agreements, NCIF
purchased from the Company 2,850,000 shares of the common stock of the
Company's subsidiary, Glycosyn, in consideration of NCIF's cancellation of all
of the indebtedness owed to it by the Company ($610,167 as of March 31, 1998),
and Glycosyn acquired all of the assets and assumed all of the liabilities of
the Company as they existed immediately prior to the consummation of the COPE
Reorganization on September 25, 1998.
Since the COPE Shareholders owned approximately 91.4% of the outstanding
shares of the common stock of the Company after giving effect to the COPE
Reorganization, COPE Holding AG was deemed the accounting acquirer and the
Company's acquisition of COPE Holding AG has been accounted for as a reverse
merger under the purchase method. Accordingly, from an accounting standpoint,
COPE's equity is carried forward as the equity of the combined entity. COPE
Holding AG is assumed to have acquired the Company and therefore the assets and
liabilities of the Company as they existed immediately prior to the
consummation
F-7
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the COPE Reorganization, after giving effect to the consummation of the
transactions under the Glycosyn Agreements, have been recorded at fair value as
required by the purchase method. This adjustment reflects the elimination of
the Company's equity and accumulated deficit.
Prior to the COPE Reorganization, COPE Holding AG had 1,060 shares of
capital stock issued and outstanding. As a result of the COPE Reorganization,
the COPE Shareholders were issued 2,862,000 shares of the Company's common
stock in exchange for all of the outstanding capital shares of COPE Holding AG.
In effect, for accounting purposes, the COPE Shareholders received a 2,700 to 1
split of their shares since COPE Holding AG was deemed to be the accounting
acquirer. Shareholders' equity and earnings per share amounts have been
retroactively restated for the equivalent number of shares received by COPE
Holding AG as a result of the COPE Reorganization. Differences between the par
value of capital stock of COPE Holding AG outstanding prior to the COPE
Reorganization and the par value of the Company's common stock subsequent to
completion of the COPE Reorganization have been recorded against paid-in
capital.
On October 1, 1998, the Company determined that it would change its fiscal
year end from June 30 to December 31, the fiscal year end of COPE Holding AG.
Note 3--Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
COPE, Inc. and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Significant Estimates
The preparation of financial statements in conformity with U.S. GAAP
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
revenue and expenses during the periods. Actual results could differ from these
estimates.
Revenue Recognition
Consulting revenue is recognized at the time of delivery of the service.
Revenue from the sale of hardware and related software is recognized at the
time of acceptance by the customer, generally after installation at a
customer's site. Revenue from certain customer-installable products is
recognized at the time of shipment.
End users of equipment sold by the Company generally contract with the
Company for equipment service and software support, which includes normal
maintenance and repair or replacement of product components. Revenue from these
service and support contracts is recognized ratably over the term of the
contract and the cost associated with these activities is expensed as incurred.
Warranty
Product warranty is provided by the original equipment manufacturer. The
Company only warrants the services provided. Costs associated with post-
installation warranty obligations are estimated and accrued at the time of
revenue recognition, if significant.
F-8
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Customer Advances
Customer advances include advance payments on contracts in progress at year
end. These amounts will be recognized as income after acceptance by the
customers.
Cash and Cash Equivalents
Cash and cash equivalents include cash deposited in demand deposits at banks
and highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method. Inventories consist of finished
products held for resale.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and are generally
depreciated using the straight-line method over the estimated useful lives of
the assets. The useful lives utilized for this purpose are:
<TABLE>
<S> <C>
Machinery and equipment................... 3-5 years
Leasehold improvements.................... 10 years or shorter lease term
</TABLE>
Goodwill
Goodwill represents the cost in excess of net assets acquired on business
acquisitions and is amortized on a straight-line basis over seven years. The
Company periodically evaluates the realizability of the carrying value of
goodwill by assessing current conditions and estimates of future cash flows.
Impairment of Long-lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
to be held and used or disposed of for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Where the undiscounted cash flows is less than the carrying amount
of the asset, the asset is written down to its net realizable value measured on
the basis of discounted expected cash flows.
Intangible Assets
Intangible assets are carried at cost and are generally depreciated using
the straight-line method over the estimated useful lives of the assets. The
useful lives utilized for this purpose are:
<TABLE>
<S> <C>
Licenses....................................................... 3-5 years
Startup costs for business operations.......................... 5 years
Trademarks..................................................... 5 years
</TABLE>
In the first quarter of fiscal 1998, the Company reported an impairment loss
of $63,004 related to the write-down of an exclusive option for the rights to
purchase, develop and market a new technique for the automatic storage of data.
Foreign Currencies
The financial statements of each of the Company's subsidiaries are measured
in the currency in which that entity primarily conducts its business (the
functional currency). The functional currency of all the Company's non-United
States subsidiaries is the applicable local currency.
F-9
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Assets and liabilities denominated in foreign functional currencies are
translated into United States dollars ("USD" or "$") at the exchange rate as of
the balance sheet date. Income statement accounts denominated in foreign
functional currencies are translated using the average exchange rate for the
period. Translation adjustments resulting from this process are recorded as a
component of other comprehensive income and are accumulated in a separate
component of shareholders' equity.
Foreign currency transaction gains and losses resulting from the settlement
of amounts receivable or payable denominated in a currency other than the
functional currency are credited or charged to income.
A certain amount of the Company's purchases are settled in USD and the
Company enters into forward exchange contracts for the purchase of USD. Since
there are no firm purchase commitments, such exchange contracts do not qualify
as a hedge under FAS 52 and, accordingly, the gains or losses are included in
the income statement in the period in which the exchange rates change occurred.
Income Taxes
The Company accounts for certain income and expense items differently for
financial reporting purposes than for tax purposes. Provisions for deferred
taxes are made in recognition of such temporary differences, following the
requirements of Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes".
Other Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
which requires presentation of comprehensive income and its components in the
financial statements. Comprehensive income consists of net income and foreign
currency translation adjustments and is presented in the Consolidated
Statements of Shareholders' Equity. The adoption of SFAS No. 130 had no impact
on net income or total shareholders' equity. Prior year financial statements
have been reclassified to conform to the SFAS No. 130 requirements.
Earnings per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income by the weighted
average shares outstanding. The computation of diluted earnings per share is
similar to basic earnings per share except that it assumes that the weighted
average shares outstanding is increased by shares issuable upon exercise of
those stock options for which market price exceeds exercise price. Weighted
average shares have been retroactively restated for the equivalent number of
shares received by COPE Holding AG as a result of the COPE Reorganization (See
Note 2).
Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
F-10
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain prior year amounts have been reclassified in order to conform to the
current year presentation.
Note 4--Business Acquisition
On June 25, 1998, COPE GmbH acquired all of the capital shares of Forum GmbH
("Forum"), a German data storage company, for $962,977. The acquisition of
Forum has been accounted for by the purchase method of accounting. Accordingly,
the operating results of Forum have been included in the consolidated operating
results from the date of acquisition. The excess of the purchase price over the
fair value of net assets acquired was $837,569 and has been recorded as
goodwill, which is being amortized on a straight line basis over seven years.
The acquisition was financed through available cash on hand and short term
borrowings.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisition had
taken place at the beginning of the period presented.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues........................................... $36,744,704 $28,321,655
Net income......................................... 1,023,002 422,595
Basic earnings per share........................... 0.35 0.15
Diluted earnings per share......................... 0.35 0.15
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments such as additional amortization
expense as a result of goodwill. They do not purport to be indicative of the
results of operations which actually would have resulted had the acquisition
occurred on January 1, 1997, or which may result in the future.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their fair values at the date of the Forum acquisition as
follows:
<TABLE>
<S> <C>
Cash............................................................ $ 939,002
Accounts receivable............................................. 2,549,374
Inventories..................................................... 1,059,078
Accounts payable................................................ (3,424,274)
Short-term borrowings........................................... (956,543)
Other, net...................................................... ( 41,229)
-----------
Net assets acquired............................................. $ 125,408
</TABLE>
Note 5--Other Current Assets
Other current assets consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Deferred costs................................. $ 0 $138,821 $ 0
Prepaid expenses............................... 358,170 108,398 95,392
Value Added Taxes.............................. 37,977 43,485 55,799
Other.......................................... 53,866 27,478 20,456
-------- -------- --------
Total other current assets................... $450,013 $318,182 $171,647
======== ======== ========
</TABLE>
F-11
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Leasehold improvements................ $ 210,529 $ 35,347 $ 35,347
Machinery and equipment............... 1,402,887 1,138,946 715,735
Accumulated depreciation.............. (862,181) (603,818) (483,455)
---------- ---------- ---------
Total property, plant and equipment,
net................................ $ 751,235 $ 570,475 $ 267,627
========== ========== =========
</TABLE>
Note 7--Loans Receivable
Loans receivable bear interest at market rates ranging from 5.0% to 6.5%.
Approximately $ 26,000 and $39,000 of the balance is due from employees as of
December 31, 1998 and 1997, respectively. No amounts were due from employees as
of December 31, 1996.
Note 8--Short-term Borrowings
As of December 31, 1998, the Company had established short-term overdraft
facilities under which the Company and its subsidiaries could borrow up to
$2,812,083. Amounts drawn down under these facilities are due on demand and
collateralized by accounts receivable of the Company and life insurance
policies on the major shareholders, Mr. A. Knapp and Mr. S. Isenschmid, for
$342,700 each.
Amounts outstanding at December 31, 1998, 1997 and 1996 total $2,385,303,
$661,982 and $172,066, respectively. As of December 31, 1998, the Company had
approximately $426,780 available under these facilities. The weighted average
interest rate on amounts outstanding was 5.0%, 7.0% and 7.4% at December 31,
1998, 1997 and 1996, respectively. Interest paid for the years ending December
31, 1998, 1997 and 1996, amounted to $127,028, $76,197 and $63,940,
respectively.
Note 9--Pension Plans
Substantially all of the Company's employees are covered by government
pension plans administered by the respective countries' governmental
authorities. The employees' contributions are based on a percentage of gross
salary. The Company generally contributes an amount equal to that contributed
by the employees. The cost of these plans, charged to operations, for the years
ended December 31, 1998, 1997 and 1996 was $446,528, $226,904 and $148,257,
respectively. The Company provides no additional pension or post-retirement
benefits.
Note 10--Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Value Added Taxes................................ $363,297 $ 87,691 $171,396
Legal, professional and other fees............... 61,140 67,190 48,148
Personnel and social security expenses........... 314,138 176,170 125,897
Other............................................ 63,809 58,588 49,588
-------- -------- --------
$802,384 $389,639 $395,029
======== ======== ========
</TABLE>
F-12
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11--Income Taxes
Pretax income for the years ended December 31, 1998, 1997 and 1996 was
taxed in the following jurisdictions:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Switzerland................................. $1,242,682 $ 994,782 $401,093
Other....................................... (216,481) (490,575) (42,676)
---------- --------- --------
$1,026,201 $ 504,207 $358,417
========== ========= ========
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Current:
Switzerland.................................. $ 154,113 $ 34,688 $36,453
Other........................................ 4,028 (612) 6,322
--------- --------- -------
Total current.................................. 158,141 34,076 42,775
--------- --------- -------
Deferred:
Switzerland.................................. (6,973) 39,074 515
Other........................................ (136,538) (201,840) 0
--------- --------- -------
Total deferred................................. (143,511) (162,766) 515
--------- --------- -------
$ 14,630 $(128,690) $43,290
========= ========= =======
</TABLE>
The Company has net deferred tax assets (liabilities) as of December 31,
1998, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Non-current deferred tax assets:
Net operating losses.................... $ 592,495 $ 309,652 $ 131,110
--------- --------- ---------
592,495 309,652 131,110
--------- --------- ---------
Deferred tax liabilities:
Inventories............................. (100,265) (94,629) (102,270)
Trade accounts receivable............... (23,529) (22,207) (12,800)
Deductible provisions eliminated on
consolidation.......................... (69,029) (65,150) (67,486)
Warranty accrual........................ (23,529) (18,814) 0
Other................................... 0 (10,246) (3,476)
--------- --------- ---------
(216,352) (211,046) (186,032)
--------- --------- ---------
Net deferred tax assets................... $ 376,143 $ 98,606 $ (54,922)
========= ========= =========
</TABLE>
Management believes it is more likely than not that all deferred tax assets
are realizable.
F-13
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of income taxes determined using the applicable rate to
actual income taxes provided, is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
-------- --------- -------
<S> <C> <C> <C>
Income tax expense at the applicable rate of
5.59% (-5.23% in 1997; 9.23% in 1996)....... $ 57,391 $ (26,374) $33,083
Tax rate change on opening deferred taxes.... (18,021) (65,400) 0
Release of overprovision in prior year....... 0 (13,833) 0
Permanent differences........................ (34,684) (25,091) 6,997
Losses with no tax benefit................... 9,326 0 0
Other........................................ 618 2,008 3,210
-------- --------- -------
$ 14,630 $(128,690) $43,290
======== ========= =======
</TABLE>
The applicable tax rate is obtained by aggregating the separate
reconciliations prepared using the domestic rate in each individual
jurisdiction in which the Company operates. The negative applicable rate
obtained in 1997 results from losses incurred in jurisdictions with high
domestic tax rates. In 1998, fewer net losses were incurred in such
jurisdictions.
At December 31, 1998, the Company had German and Austrian net loss
carryforwards for tax purposes of approximately $ 955,441 and $ 237,160
respectively. Under applicable German and Austrian tax laws, the net operating
losses can be carried forward for an indefinite period of time.
Note 12--Stock Options and Stock Purchase Warrants
During 1998, the Company adopted the 1998 Stock Option Plan ("1998 Plan")
provides for the granting of either incentive stock options or non-qualified
stock options to employees, officers, directors, consultants and independent
contractors of the Company. Under the 1998 Plan, the Company is authorized to
grant a maximum of 400,000 stock options for terms of up to ten years (five
years in the case of incentive stock options granted to greater than 10%
stockholders). Options are subject to forfeiture upon termination of employment
or other relationship with the Company and the 1998 Plan terminates in August
2008. During 1998, options to purchase 167,500 shares of the Company's common
stock were issued to employees and non-employee directors of the Company, all
of which remain outstanding as of December 31, 1998.
Summary information about the Company's stock options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Options Remaining Life Exercise Options Exercise
Range of exercise prices Outstanding in Years Price Exercisable Price
------------------------ ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.40-$ 8.50.......... 59,500 1.44 $ 8.40 -- --
$13.00-$15.00.......... 108,000 5.01 13.46 -- --
------- ---- ------ --- ---
$ 8.40-$15.00.......... 167,500 3.74 $11.66 -- --
------- ---- ------ --- ---
</TABLE>
F-14
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock options. All options outstanding were granted at prices which
were above market price as of the date of grant and, accordingly, no
compensation expense has been recognized. Had compensation expense for the
Company's stock-based compensation plans been determined consistent with SFAS
123 "Accounting for Stock-Based Compensation", the impact on the Company's net
earnings and earnings per share would have been as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
1998
------------
<S> <C>
Net income as reported........................................ $1,011,571
Pro forma net income.......................................... 948,934
Basic earnings per share:
As reported................................................. $ 0.34
Pro forma................................................... 0.32
Diluted earnings per share:
As reported................................................. $ 0.34
Pro forma................................................... 0.32
</TABLE>
The pro forma results reflect amortization of the fair value of stock
options over the vesting period. The weighted average fair value of options
granted in 1998 was $5.44. The fair value of each option grant was estimated on
the date of grant using a Black-Scholes option pricing model, assuming a
dividend yield of 0% for all years, a weighted average risk free interest rate
of 4.7% and a volatility factor of 60% to 75%.
Additionally, as of December 31, 1998, there were 29,793 stock purchase
warrants outstanding which were exercisable at $7.54 per share. The warrants
expire from April 1 to October 14, 2000.
Note 13--Related Party Transactions
Adrian Knapp, Chairman of the Board of Directors, has been an employee of
the Company since July 1, 1997. For the year ended December 31, 1998 and the
six months from July to December 31, 1997, he earned a salary of $ 108,787 and
$53,461, respectively. Prior to July 1, 1997, his services were charged to the
Company by Adrian Knapp Consulting, a sole proprietorship owned by Mr. Knapp.
Mr. Knapp is a major shareholder, holding approximately 41.1% of the issued
share capital.
Mr. Isenschmid, Chief Executive Officer of the Company, has been an employee
of the Company since July 1, 1997. For the year ended December 31, 1998 and the
six months from July to December 31 1997, he earned a salary of $ 135,983 and
$53,461, respectively. Prior to July 1, 1997, his services were charged to the
Company by STI Marketing- und Organisationsberatung, a sole proprietorship
owned by Mr. Isenschmid. Mr. Isenschmid is a major shareholder, holding
approximately 41.1% of the issued share capital.
As of December 31, 1998, 1997 and 1996, the financial statements included
the following balances due from (to) related parties:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997 1996
---- --------- ---------
<S> <C> <C> <C>
A. Knapp....................................... $ 0 $(118,874) $(148,635)
S. Isenschmid.................................. 0 20,890 (41,413)
--- --------- ---------
Net amount due to related parties.............. $ 0 $ (97,984) $(190,048)
=== ========= =========
</TABLE>
F-15
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14--Leases
The Company has operating leases primarily for office space and equipment
which expire at various dates through the year 2002 with, in some instances,
renewal privileges. Certain leases provide for escalation of the rentals based
on the increase in the consumer price index and base mortgage rates. Operating
lease costs are charged to income as incurred.
The minimum annual rental commitments under long-term non-cancelable
operating leases as of December 31, 1998, were as follows:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
1999............................................................. $188,648
2000............................................................. 159,038
2001............................................................. 144,983
2002............................................................. 86,202
--------
Total future minimum lease payments.............................. $578,871
========
</TABLE>
Total rent expense for operating leases was approximately $168,970, $120,484
and $133,333 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Note 15--Commitments and Contingent Liabilities
Management is not aware of any matters that could give rise to any liability
to the Company that would have a material adverse effect on the Company's
business, financial condition or results of operations.
Note 16--Segment and Geographic Data
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which superceded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS No. 131 established
standards for the way that public business enterprises report information about
operating segments in annual financial statements. SFAS No. 131 also
established standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not effect
results of operations or financial position, but did effect the disclosure of
segment information.
Management, via country managing directors, controls operations on a
geographic basis with subsidiaries located in Switzerland, Germany and Austria
and uses earnings before interest and taxes as its measure of segment profit or
loss. Each geographic area's operations comprise the following products and
services: (1) Solutions which consist of the design, implementation and
management of storage and security solutions including the sale of related
software and hardware; and (2) Services which consist of consulting, training
and integration services including operations and maintenance support. The
enterprise-wide disclosures regarding products and services are contained in
the income statement.
F-16
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information concerning the Company's reportable segments is summarized as
follows by location of operations (Intercompany sales are generally at purchase
cost):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total revenue:
Switzerland..................... $15,391,521 $12,133,274 $10,635,512
Germany......................... 11,997,975 4,759,643 937,026
Austria......................... 1,768,674 1,182,198 1,342,177
Other........................... 0 692,076 1,394,105
----------- ----------- -----------
29,158,170 18,767,191 14,308,820
----------- ----------- -----------
Sales between geographic areas:
Switzerland..................... (37,743) (182,757) (448,179)
Germany......................... (31,974) (76,220) (12,120)
Austria......................... (29,303) (49,789) (23,779)
Other........................... 0 (542,254) (1,309,619)
----------- ----------- -----------
(99,020) (851,020) (1,793,697)
----------- ----------- -----------
Total revenue from external
customers:
Switzerland..................... 15,353,778 11,950,517 10,187,333
Germany......................... 11,966,001 4,683,423 924,906
Austria......................... 1,739,371 1,132,409 1,318,398
Other........................... 0 149,822 84,486
----------- ----------- -----------
$29,059,150 $17,916,171 $12,515,123
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Depreciation and amortization
Switzerland......................... $ 289,685 $ 182,937 $ 232,906
Germany............................. 91,124 31,579 97,802
Austria............................. 19,131 5,847 9,437
Other............................... 0 0 0
----------- ---------- ----------
$ 399,940 $ 220,363 $ 340,145
=========== ========== ==========
Earnings before interest and taxes
Switzerland......................... $ 1,290,792 $1,036,864 $ 506,198
Germany............................. (184,280) (346,364) (14,675)
Austria............................. 47,447 (117,797) (67,216)
Other............................... (27,428) 6,997 (4,741)
----------- ---------- ----------
$ 1,126,531 $ 579,700 $ 419,566
=========== ========== ==========
Total Assets:
Switzerland......................... $ 5,681,247 $5,493,536 $3,219,598
Germany............................. 5,722,295 1,544,735 332,213
Austria............................. 1,125,184 364,687 447,053
Other............................... 109,921 0 102,535
----------- ---------- ----------
$12,638,647 $7,402,958 $4,101,399
=========== ========== ==========
</TABLE>
F-17
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 17--Financial Instruments
Fair Value
The carrying value of financial instruments such as cash and cash
equivalents, accounts receivable, accounts payable approximate their fair value
due to the short-term maturities of these instruments.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and accounts receivable. The Company's
cash is principally denominated in Swiss Francs and is maintained principally
with one financial institution in Switzerland. The Company provides credit in
its normal course of business to a wide variety of customers and, generally,
requires no collateral from its customers. The allowance for non-collection of
accounts receivable ($0 in 1998, 1997 and $38,519 in 1996) is based upon
management's expectations of collectibility. In the years ended December 31,
1998, 1997 and 1996, sales to the five biggest customers of the Company
amounted to 36%, 29% and 29% of consolidated net sales, respectively. Sales to
one customer accounted for 14%, 11% and 11% of consolidated sales in the years
ended December 31, 1998, 1997 and 1996, respectively. The Company performs
ongoing credit evaluations of its customers.
The Company enters into forward exchange contracts for significant U.S.
Dollar purchase transactions. At December 31, 1998, no such contracts were
open. At December 31, 1997, seven forward exchange contracts were open with
settlement dates from January to June 1998. At December 31, 1996, one forward
exchange contract was open which had a March 1997 settlement date.
Note 18--Subsequent Event
On April 19, 1999, COPE acquired Hicomp Software Systems GmbH ("Hicomp"), a
German software company, in a stock transaction accounted for as an acquisition
under the purchase method of accounting. COPE issued 420,000 new shares valued
at $14,582,400 in exchange for all outstanding Hicomp shares. Hicomp,
headquartered in Hamburg, Germany, develops back-up and retrieval software
products. Its leading products, Hiback and Hibars, are multi-platform back-up
solutions recognized for performance and flexibility.
F-18
<PAGE>
COPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Amounts in U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1999
-----------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $ 185,433
Trade accounts receivable......................................... 6,310,773
Inventories (net of provision of $79,471)......................... 1,911,960
Other current assets.............................................. 626,627
-----------
Total current assets............................................... 9,034,793
Property, plant and equipment, net................................. 891,555
Loans receivable................................................... 654,268
Goodwill (net of amortization of $755,861)......................... 15,687,996
Intangible assets.................................................. 55,194
Deferred income taxes.............................................. 464,281
-----------
TOTAL ASSETS....................................................... $26,788,087
===========
LIABILITIES
Current liabilities:
Short-term borrowings............................................. $ 2,304,356
Trade accounts payable............................................ 4,567,244
Customer advances................................................. 419,000
Other current liabilities......................................... 1,398,161
Current income taxes payable...................................... 152,906
Deferred income taxes............................................. 269,314
-----------
Total current liabilities.......................................... 9,110,981
-----------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Shareholders' equity:
Share capital:
Common stock $0.001 par value
Authorized shares 30,000,000
Issued and outstanding shares 3,595,751.......................... 3,596
Additional paid in capital........................................ 15,276,065
Accumulated other comprehensive income............................ 725
Retained earnings................................................. 2,396,720
-----------
Total Shareholders' equity......................................... 17,677,106
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $26,788,087
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-19
<PAGE>
COPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in U.S. Dollars except share amounts)
For the three month periods and six month periods ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three month periods Six month periods ended
ended June 30, June 30,
------------------------ -------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Revenue
Sales of solution........ $ 7,096,076 $ 4,562,246 $ 14,351,383 $ 8,707,773
Sales of services........ 929,986 580,968 2,212,593 1,076,316
----------- ----------- ------------ -----------
Total revenue............. 8,026,062 5,143,214 16,563,976 9,784,089
Cost of sales............. (5,024,910) (3,660,021) (10,698,666) (6,827,545)
----------- ----------- ------------ -----------
Gross profit.............. 3,001,152 1,483,193 5,865,310 2,956,544
----------- ----------- ------------ -----------
Operating expenses:
Selling, general and
administrative
expenses................ (2,336,695) (1,253,328) (4,774,214) (2,466,570)
Consultancy expenses..... (193,271) (47,158) (252,561) (113,660)
Depreciation............. (106,448) (62,448) (190,317) (101,535)
Impairment of intangible
assets.................. 0 0 0 (63,004)
Amortization of goodwill
and other intangibles
assets.................. (637,608) (1,548) (686,283) (15,513)
----------- ----------- ------------ -----------
Total operating expenses.. (3,274,022) (1,364,482) (5,903,375) (2,760,282)
Operating income.......... (272,870) 118,711 (38,065) 196,262
Other income (expense):
Interest expense......... (18,462) (19,644) (83,129) (32,702)
Interest income.......... 12,909 1,178 51,185 1,178
Other.................... 3,314 (674) (199) (814)
----------- ----------- ------------ -----------
(2,239) (19,140) (32,143) (32,338)
----------- ----------- ------------ -----------
Earnings before taxes..... (275,109) 99,571 (70,208) 163,924
Current income taxes...... (16,491) 303 (37,454) (46,994)
Deferred income taxes..... (107,263) 58,938 (143,198) 143,687
----------- ----------- ------------ -----------
(123,754) 59,241 (180,652) 96,693
----------- ----------- ------------ -----------
Net income/(loss)......... (398,863) 158,812 (250,860) 260,617
=========== =========== ============ ===========
Weighted average shares
outstanding.............. 3,500,677 2,862,000 3,327,979 2,862,000
=========== =========== ============ ===========
</TABLE>
Basic earnings/(loss) per
share.................... $ (0.11) $ 0.06 $ (0.08) $ 0.09
See accompanying notes to condensed consolidated financial statements
F-20
<PAGE>
COPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in U.S. Dollars)
For the six month periods ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Six month periods ended
------------------------
June 30, June 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flow provided by operating activities
Net income/(loss).................................... $ (250,860) $ 260,617
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation........................................ 190,317 101,535
Impairment of intangibles assets.................... 0 63,004
Amortization of goodwill and other intangible
assets............................................. 686,283 15,513
Deferred income taxes............................... 143,198 (143,687)
Effects of changes in operating assets and
liabilities
Accounts receivable................................. (1,472,394) (1,438,311)
Inventories......................................... 263,087 (1,004,986)
Other current assets................................ (89,937) (325,584)
Accounts payable.................................... (590,459) 2,183,307
Customer advances................................... 238,297 (674,563)
Other current liabilities........................... 19,586 494,506
----------- -----------
Net cash flow used by operating activities........... (862,882) (468,649)
----------- -----------
Cash flow used in investing activities
Purchase of property, plant and equipment........... (365,425) (198,676)
Loans receivables................................... (69,520) (81,763)
Acquisition of businesses/net of cash acquired...... 0 437,002
----------- -----------
Net cash flow provided/used by investing activities.. (434,945) 156,563
Cash flow provided by financing activities
Issuance of common stock............................ 188,076 0
Increase of short term borrowings................... 62,185 (69,539)
----------- -----------
Net cash flow provided/used by financing activities.. 250,261 (69,539)
Effect of exchange rate changes on cash.............. (70,115) (45,555)
Net decrease of cash and cash equivalents............ (1,117,681) (427,180)
Cash and cash equivalents at beginning of the
period.............................................. 1,303,114 678,936
----------- -----------
Cash and cash equivalents at end of the period....... $ 185,433 $ 251,756
=========== ===========
Supplemental cash flow disclosure
Interest paid....................................... $ 83,129 $ 32,702
Income taxes paid................................... 53,725 18,457
Noncash investing and financing activities
Short-term borrowings, assumed in acquisition of
business.......................................... 132,652 956,543
Short-term borrowings, incurred to effect
acquisition of business........................... 0 624,324
Cash acquired in acquisition........................ 0 939,002
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-21
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of June 30, 1999 and for the six month
periods ended June 30, 1999 and 1998
Note 1--Basis of Presentation
These condensed consolidated financial statements of COPE, Inc., a Delaware
corporation (the "Company"), do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998. In the opinion of management, the
financial information set forth in the accompanying condensed consolidated
financial statements reflect all adjustments necessary for a fair statement of
the periods reported, and all such adjustments were of a normal and recurring
nature. Interim results are not necessarily indicative of results for a full
year.
Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities", which
requires that costs related to start-up activities be expensed as incurred.
Prior to 1999, the Company capitalized its start-up costs and amortized them
over four years. The Company adopted the provisions of the SOP as of January 1.
1999. There was no material impact on net income or financial position as a
result of the adoption of SOP 98-5.
Note 2--Earnings Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income by the weighted
average shares outstanding. The computation of diluted earnings per share is
similar to basic earnings per share except that it assumes that the weighted
average shares outstanding is increased by shares issuable upon exercise of
those stock options for which market price exceeds exercise price. Shares
issuable upon exercise of stock options have not been included in the
computation of diluted earnings (loss) per share in 1999 since their effect
thereon would be anti-dilutive. Weighted average shares have been retroactively
restated for the equivalent number of shares received by COPE shareholders as a
result of the COPE Reorganization.
Note 3--Business Acquisition
On June 25, 1998, COPE GmbH, a wholly-owned subsidiary of COPE Holding AG,
acquired all of the capital shares of Forum GmbH ("Forum"), a German data
storage company, for $962,977. The acquisition of Forum has been accounted for
by the purchase method of accounting. Accordingly, the operating results of
Forum have been included in the consolidated operating results from the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired was $837,569 and has been recorded as goodwill, which is being
amortized on a straight line basis over seven years. The acquisition was
financed through available cash on hand and short term borrowings. On March 30,
1999 Forum was merged into COPE GmbH.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their fair values at the date of the Forum acquisition as
follows:
<TABLE>
<S> <C>
Cash............................................................ $ 939,002
Accounts receivable............................................. 2,549,374
Inventories..................................................... 1,059,078
Accounts payable................................................ (3,424,274)
Short-term borrowings........................................... (956,543)
Other, net...................................................... ( 41,229)
-----------
Net assets acquired............................................. $ 125,408
</TABLE>
F-22
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On April 19, 1999, the Company acquired Hicomp Software Systems GmbH
("Hicomp"), a German software company, in a stock transaction accounted for by
the purchase method of accounting. COPE issued 420,000 new shares in exchange
for all outstanding Hicomp shares. Accordingly, the operating results of Hicomp
have been included in the consolidated operating results from the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired was $15,417,264 and has been recorded as goodwill, which is being
amortized on a straight line basis over five years. Hicomp, headquartered in
Hamburg, Germany, develops back-up and retrieval software products. Its leading
products, Hiback and Hibars, are multi-platform back-up solutions recognized
for performance and flexibility.
Assets acquired and liabilities assumed have been recorded at their
estimated fair values at the date of the Hicomp acquisition, and are subject to
adjustment pending completion of final valuations. A summary of the assets
acquired, liabilities assumed and consideration paid follows:
<TABLE>
<S> <C>
Accounts receivable........................................... $ 102,005
Other current assets.......................................... 22,544
Property, plant and equipment................................. 146,399
Other assets.................................................. 215,614
Short-term borrowings......................................... (132,652)
Accounts payable.............................................. (240,262)
Other current liabilities..................................... (444,353)
Noncurrent liabilities........................................ (264,159)
-----------
Net fair value of assets acquired and liabilities assumed..... (594,864)
Goodwill...................................................... 15,417,264
-----------
Purchase price................................................ 14,822,400
===========
Value of the securities issued................................ $14,582,400
Estimated acquisition costs................................... 240,000
-----------
Purchase price................................................ 14,822,400
Estimated annual amortization (based on amortization period of
five years) $ 3,083,453
</TABLE>
The pro forma unaudited results of operations for the six months ended June
30, 1999 and June 30, 1998, assuming consummation of the purchases as of the
beginning of the periods presented, are as follows:
<TABLE>
<CAPTION>
Six month periods
ended
June 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net revenue.......................................... 17,014,883 18,728,239
Net loss............................................. (1,072,596) (1,058,939)
Per share data:
Basic earnings (loss)................................ (0.30) (0.32)
</TABLE>
F-23
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Impairment of Intangibles Assets
In the first quarter of fiscal 1998, the Company reported an impairment loss
of $63,004 related to the write-down of an exclusive option for the rights to
purchase, develop and market a new technique for the automatic storage of data.
Note 5--Common Stock and Stock Option Plan
During 1998, the Company adopted the 1998 Stock Option Plan ("1998 Plan")
which provides for the granting of either incentive stock options or non-
qualified stock options to employees, officers, directors, consultants and
independent contractors of the Company. Under the 1998 Plan, the Company is
authorized to grant a maximum of 400,000 stock options for terms of up to ten
years (five years in the case of incentive stock options granted to greater
than 10% stockholders). Options are subject to forfeiture upon termination of
employment or other relationship with the Company and the 1998 Plan terminates
in August 2008. In January 1999, the Company granted to employees options to
purchase 129,900 shares of the Company's common stock at exercise prices
ranging from $20.00 to $50.00 per share. The options vest in installments
commencing in 2000. All options outstanding were granted at prices which were
above market price as of the date of grant and, accordingly, no compensation
expense has been recognized. On April 30, 1999, the Company issued 22,390
shares of common stock upon exercise of outstanding common stock purchase
options.
Note 6--Other Comprehensive Income
<TABLE>
<CAPTION>
Three month
periods ended June Six month periods
30, ended June 30,
------------------- --------------------
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss)............... $(398,863) $158,812 $(250,860) $ 260,617
Translation adjustment, net of
tax........................... 135,618 (16,859) (31,126) (110,162)
--------- -------- --------- ---------
Total comprehensive income
(loss)......................... $263,245 $141,953 $(281,986) $ 150,455
========= ======== ========= =========
</TABLE>
Note 7--Segment and Geographic Data
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which superceded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 established
standards for the way that public business enterprises report information about
operating segments in annual financial statements. SFAS No. 131 also
established standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not effect
results of operations or financial position, but did effect the disclosure of
segment information.
Management, via country managing directors, controls operations on a
geographic basis with subsidiaries located in Switzerland, Germany and Austria
and uses earnings before interest, taxes, depreciation and amortization
(EBITDA) as its measure of segment profit or loss. Management decided to change
the measurement from EBIT (Earnings before interest and taxes) to EBITDA after
the Hicomp acquisition because of the high goodwill amortization the Company
will have in the next five years. Each geographic area's operations comprise
the following products and services: (1) Solutions which consist of the design,
implementation and management of storage and security solutions including the
sale of related software and hardware; and (2) Services which consist of
consulting, training and integration services including operations and
maintenance support. The enterprise-wide disclosures regarding products and
services are contained in the income statement.
F-24
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information concerning the Company's reportable segments is summarized as
follows by location of operations (Switzerland: COPE Holding AG, COPE AG;
Germany: COPE GmbH and Hicomp Software Systems GmbH, Austria: COPE
Handelsges.mbH; Other: COPE, Inc.; intercompany sales are generally at purchase
cost):
<TABLE>
<CAPTION>
Six month period ended
June 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Total revenue:
Switzerland....................................... $ 6,496,864 $ 7,102,254
Germany........................................... 8,786,815 2,112,835
Austria........................................... 1,327,112 617,781
----------- -----------
$16,610,791 $ 9,832,870
=========== ===========
Sales between geographic areas:
Switzerland....................................... $ 36,598 $ 28,942
Germany........................................... 10,217 11,085
Austria........................................... 0 8,754
----------- -----------
$ 46,815 $ 48,781
=========== ===========
Total revenue from external customers:
Switzerland....................................... $ 6,460,266 $ 7,073,312
Germany........................................... 8,776,598 2,101,750
Austria........................................... 1,327,112 609,027
----------- -----------
$16,563,976 $ 9,784,089
=========== ===========
Depreciation and amortization:
Switzerland....................................... $ 137,117 $ 69,061
Germany........................................... 714,390 24,167
Austria........................................... 25,093 7,763
----------- -----------
$ 876,600 $ 100,991
=========== ===========
Earnings before interest, taxes, depreciation and
amortization (EBITDA):
Switzerland....................................... $ 277,556 $ 473,012
Germany........................................... 520,800 (111,904)
Austria........................................... 109,719 (48,612)
Other............................................. (69,739) 0
----------- -----------
$ 838,336 $ 312,496
=========== ===========
<CAPTION>
December
June 30, 31,
----------- -----------
1999 1998
----------- -----------
<S> <C> <C>
Total Assets:
Switzerland....................................... $ 6,105,056 $ 6,458,662
Germany........................................... 19,032,008 5,722,373
Austria........................................... 1,275,048 457,612
Other............................................. 375,975 0
----------- -----------
$26,788,087 $12,638,647
=========== ===========
</TABLE>
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of COPE, Inc.
We have audited the accompanying balance sheets of Hicomp Software Systems
GmbH (formerly Hinrichs & Hinrichs GmbH) as of December 31, 1998 and December
31, 1997, and the related statements of income, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hicomp Software Systems
GmbH at December 31, 1998 and December 31, 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Hamburg, July 9, 1999
Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
Wirtschaftsprufungsgesellschaft
R. Law P. Marshall
Chartered Accountant Certified Public Accountant
F-26
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
BALANCE SHEETS
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents........................... 542 1,508
Trade accounts receivable, net...................... 145,341 250,585
Other current assets................................ 32,895 30,716
--------- ---------
Total current assets.................................. 178,778 282,809
--------- ---------
Property and equipment, net........................... 174,145 111,213
Deferred income taxes................................. 138,780 258,698
--------- ---------
312,925 369,911
--------- ---------
Total assets...................................... 491,703 652,720
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Short-term borrowings............................... 185,412 4,043
Trade accounts payable.............................. 56,723 36,320
Deferred revenue on sales contracts................. 202,141 221,593
Accrued professional fees........................... 62,941 9,842
Accrued marketing fees.............................. 47,710 0
Other current liabilities........................... 210,887 143,734
--------- ---------
Total current liabilities............................. 765,814 415,532
--------- ---------
Long term debt........................................ 302,717 589,377
Other noncurrent liabilities.......................... 0 81,768
--------- ---------
Total liabilities................................. 1,068,531 1,086,677
--------- ---------
Shareholders' equity
Share capital......................................... 29,515 29,515
Retained deficit.................................... (659,203) (569,636)
Accumulated other comprehensive income.............. 52,860 106,164
--------- ---------
Total shareholders' equity........................ (576,828) (433,957)
--------- ---------
Total liabilities and shareholders' equity........ 491,703 652,720
========= =========
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
STATEMENTS OF INCOME
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net revenue
User license fees................................... 1,182,295 1,093,783
Maintenance contract fees........................... 578,766 391,954
Consulting fees..................................... 159,946 517
---------- ----------
Total revenue......................................... 1,921,007 1,486,254
---------- ----------
Cost of sales......................................... (22,012) (45,468)
---------- ----------
Gross profit.......................................... 1,898,995 1,440,786
---------- ----------
Operating expenses
Selling, general and administrative expenses........ (1,579,302) (1,505,097)
Consultancy expenses................................ (96,401) (44,705)
Depreciation and amortization....................... (80,860) (57,502)
---------- ----------
Total operating expenses.............................. (1,756,563) (1,607,304)
---------- ----------
Operating income (loss)............................... 142,432 (166,518)
Other income (expenses)
Interest expense.................................... (11,498) (22,236)
Interest income..................................... 11,862 673
Other income........................................ 76,175 41,032
---------- ----------
Income (loss) before taxes............................ 218,971 (147,049)
---------- ----------
Deferred income taxes................................. (120,434) 80,877
---------- ----------
Net income (loss)..................................... 98,537 (66,172)
========== ==========
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
STATEMENTS OF CASH FLOWS
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income(loss)..................................... 98,537 (66,172)
Adjustments to reconcile net income to net cash
provided
by (used in) operating activities:
Depreciation and amortization...................... 80,860 57,502
Gain on sale of fixed assets....................... (1,915) 0
Deferred income taxes.............................. 120,434 (80,877)
Changes in operating assets & liabilities:
Accounts receivable.............................. 105,244 (72,079)
Other current assets............................. (2,179) (26,422)
Accounts payable & other current liabilities..... 148,510 (82,075)
Other long-term liabilities...................... (81,768) (13,712)
-------- --------
Total Adjustments................................ 369,186 (217,663)
-------- --------
Net cash provided by (used in) operating
activities.................................... 467,723 (283,835)
-------- --------
Cash flow from investing activities:
Proceeds from sale of fixed assets................. 13,881 0
Capital expenditures............................... (138,858) (109,555)
Other.............................................. (6,528) (328)
-------- --------
Net cash used in investing activities.......... (131,505) (109,883)
-------- --------
Cash flow from financing activities:
Increase in short term borrowings.................. 181,369 4,180
Change in note receivable/payable due from/to
shareholder....................................... (199,564) 13,653
Change in long term debt........................... (286,660) 357,418
-------- --------
Net cash (used in) provided by financing activities.. (304,855) 375,251
-------- --------
Effect of exchange rate changes on cash flows........ (32,329) (2,573)
Net decrease in cash................................. (966) (21,040)
Cash at beginning of year............................ 1,508 22,548
-------- --------
Cash at end of year.................................. 542 1,508
======== ========
</TABLE>
See accompanying notes to financial statements
F-29
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in U.S. Dollars, except share amounts)
<TABLE>
<CAPTION>
Accumulated other Total
Number Share Retained comprehensive shareholders'
of shares capital deficit income equity
--------- ------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 50,000 29,515 (514,924) (485,409)
Comprehensive income
Net loss............... (66,172) (66,172)
Foreign currency
translation
adjustments........... 106,164 106,164
--------
Comprehensive income 39,992
Note receivable/payable
to shareholder......... 11,460 11,460
------ ------ -------- ------- --------
Balance at December 31,
1997................... 50,000 29,515 (569,636) 106,164 (433,957)
------ ------ -------- ------- --------
Comprehensive income
Net income............. 98,537 98,537
Foreign currency
translation
adjustments........... (53,304) (53,304)
--------
Comprehensive income.... 45,233
Note receivable/payable
to shareholder......... (188,104) (188,104)
------ ------ -------- ------- --------
Balance at December 31,
1998................... 50,000 29,515 (659,203) 52,860 (576,828)
====== ====== ======== ======= ========
</TABLE>
See accompanying notes to financial statements
F-30
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
NOTES TO THE DECEMBER 31, 1998 AND 1997 FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The accompanying financial statements present the operations of Hicomp
Software Systems GmbH formerly known as Hinrichs and Hinrichs GmbH -- the
"Company" or "Hicomp") and have been prepared in accordance with United States
generally accepted accounting principles ("U.S. GAAP").
Nature of operations
Hicomp, headquartered in Hamburg, Germany, develops back-up and retrieval
software products. Its leading products, Hiback and Hibars, are multi-platform
back-up solutions recognized for performance and flexibility. The Company
conducts business principally in western Europe and the United States.
Note 2--Summary of Significant Accounting Policies
Significant Estimates
The preparation of financial statements in conformity with U.S. GAAP
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
revenue and expenses during the period. Actual results could differ from these
estimates.
Revenue Recognition
Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with American Institute of Certified Public
Accountants Statements of Position 97-2 and 98-4, Software Revenue Recognition.
Revenue from license programs is recorded when the software has been delivered
and the customer is invoiced. Revenue from product sales to distributors and
resellers is recorded when related products are shipped. Consulting revenue is
recognized as services are provided. End users of products sold by the Company
generally contract with the Company for service and support, which includes
normal product maintenance. Revenue from these service and support contracts is
recognized in earnings pro rata temporis over the terms of the contracts and
the cost associated with these activities is expensed as incurred.
Cash
Cash includes cash deposited in demand deposits at banks.
Property and Equipment
Property and equipment is stated at cost and depreciated principally on a
straight-line basis over the estimated useful lives of the assets which
generally range from 2 to 5 years.
Impairment of Long-lived Assets
The Company reviews long-lived assets to be held and used or disposed of for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Where the undiscounted cash
flows is less than the carrying amount of the asset, the asset is written down
to its net realizable value measured on the basis of discounted expected cash
flows.
F-31
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
NOTES TO THE DECEMBER 31, 1998 AND 1997 FINANCIAL STATEMENTS--(Continued)
Foreign Currencies
The Company principally conducts its business and maintains the financial
records in German Marks ("DM," the functional currency).
Assets and liabilities denominated in the functional currency are translated
into United States Dollars ("USD" or "$") at the exchange rate as of the
balance sheet date. Income statement accounts denominated in the functional
currency are translated using the average exchange rate for the period.
Translation adjustments resulting from this process are recorded as a component
of other comprehensive income and are accumulated in a separate component of
shareholder's equity.
Foreign currency transaction gains and losses resulting from the settlement
of amounts receivable or payable denominated in a currency other than the
functional currency are credited or charged to income.
Income taxes
As a result of prior years operating losses the Company has net operating
loss carryforwards for income tax purposes. These loss carryforwards have been
capitalized following the requirements of Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes".
Other Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
which requires presentation of comprehensive income and its components in the
financial statements. Comprehensive income consists of net income and foreign
currency translation adjustments and is presented in the Consolidated
Statements of Shareholder's Equity.
Fair Value
The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value due to the short-
term maturities of these instruments.
Note 3--Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
USD USD
<S> <C> <C>
Computer software............................... 78,002 63,756
Office equipment................................ 313,950 196,373
Accumulated depreciation........................ (217,807) (148,916)
-------- --------
Total property and equipment, net............. 174,145 111,213
======== ========
</TABLE>
Note 4--Short-term Borrowings
As of December 31, 1998, the Company had short-term overdraft facilities.
Amounts drawn down under these facilities are due on demand. Amounts
outstanding at December 31, 1998 and 1997 total $185,412 and $4,043,
respectively. The interest rate on the amount outstanding was 11.25% at
December 31, 1998 and 1997. Interest paid in respect of short-term borrowings
for the years ending December 31, 1998 and 1997 amounted to $2,437 and $2,061,
respectively.
F-32
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
NOTES TO THE DECEMBER 31, 1998 AND 1997 FINANCIAL STATEMENTS--(Continued)
Note 5--Other Liabilities
Other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
USD USD
<S> <C> <C>
Payroll and employee benefits................... 48,900 35,085
Sales tax payable (VAT)......................... 24.959 20,516
Accrued liability-Borsu......................... 101,388 55,600
Accrued liability-Deutsche Bank................. 0 69,662
Other........................................... 35,640 44,639
------- -------
Total other liabilities....................... 210,887 225,502
Portion classified as non-current............. 0 (81,768)
------- -------
Total other current liabilities............... 210,887 143,734
------- -------
</TABLE>
Note 6--Income Taxes
The Company accounts for income taxes using the liability method required
by FASB Statement No. 109, Accounting for Income Taxes.
At December 31, 1998 and 1997, the Company has net operating loss
carryforwards (NOL's) of approximately DM 449,000 and DM 764,000,
respectively, for corporate income tax purposes and approximately, DM 365,000
and DM 680,000, respectively, for local trade tax purposes. These NOL's
resulted from losses incurred during the first years of the Company's
operations. Under German tax law the NOL's are not currently subject to any
expiration limitations. For financial reporting purposes, no valuation
allowance has been recorded as the Company's management expects existing
service and support contracts and licensing programs to produce sufficient
taxable income to realize the deferred tax asset.
The deferred tax asset comprised solely the above net operating loss
carryforward calculated as follows: the local trade tax rate of 19% is first
applied to the NOL for trade tax purposes with the result reducing the NOL for
corporate income tax purposes; the remaining NOL for corporate income tax
purposes is multiplied by the German corporate tax rate of 40%, and the
solidarity tax rate of 5.5%.
Note 7--Long-term Debt
On May 22, 1998 the Company paid a long-term debt obligation in the amount
of $278,102. The original amount borrowed was $201,740 which was entered into
in February 1994. The related annual interest rate was 8%. The amount of
related interest paid in 1998 totaled $9,061.
At December 31, 1997 the outstanding balance totaled $263,116 including
accrued interest of $20,149.
In October 1997, the Company entered into an agreement with Commerzbank AG
(the "Commerz Agreement") in the amount of $341,520. The amount is not
interest bearing. The Commerz Agreement settles defaulted loans in the amounts
of $2,028,236 and $251,615 relating to companies previously owned by the
shareholder of Hicomp, Mr. Hinrichs. Under terms of the Commerz Agreement, the
Company is to make monthly payments in the amount of $3,757 beginning in
November 1997 through October 2004 followed by 12 monthly payments of $2.161
ending in October 2005. According to the Commerz Agreement, should monthly
payments become greater than 21 days overdue then Commerzbank AG has the right
to nullify the agreement and seek further restitution.
At December 31, 1998 and 1997 the outstanding balance under the Commerz
Agreement totaled $302,717 and $326,261, respectively.
F-33
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
NOTES TO THE DECEMBER 31, 1998 AND 1997 FINANCIAL STATEMENTS--(Continued)
Note 8--Related Party Transactions
At December 31, 1998 and 1997, the Company held notes receivable in the
amounts of $450,810 and $155,714, respectively, from the Hicomp shareholder,
Mr. Hinrichs. The notes accrue interest at a rate of 5% annually. The note as
of December 31, 1998, will be paid immediately upon the sole shareholder's sale
of COPE, Inc. (COPE) shares during COPE's secondary offering. (See Note 13
Subsequent Events)
In 1995, Hicomp entered into a licensing agreement (the Agreement) with
Hicomp USA, Inc., an entity wholly owned by the Company's shareholder, Mr.
Hinrichs. Under terms of the Agreement, the Company is to pay fees equal to
7.5% of license program revenues to Hicomp USA. As of December 31, 1998 and
1997 amounts totaling $262,706 and $167,174 had been accrued for license fees
payable to Hicomp USA. These amounts have been netted against the shareholder
receivable discussed above on the accompanying balance sheets as of December
31, 1998 and 1997.
Attorney fees totaling $89,455 and $23,735 as of December 31, 1998 and 1997,
respectively, were incurred by the Company. The fees were charged by an
attorney who is also a member of board of directors of Hicomp USA. Hicomp USA
is wholly owned by the Company's shareholder, Mr. Hinrichs.
See Note 7 "Long-term Debt" for disclosure relating to the Commerzbank
Agreement.
As of December 31, 1998 and 1997, the Company incurred expenses of $81,200
and $70,451, respectively, relating to companies previously owned by the
Company's shareholder, Mr. Hinrichs. $71,968 and $36,413 of these expenses
relate to a former line of credit entered into with Deutsche Bank AG and Hicomp
Storage, an entity which was wholly owned by the shareholder of the Company,
Mr. Hinrichs.
During 1998 and 1997, the Company made payments in the amount of $17,428 and
$5,173 for rent on the principal residence of Hicomp's shareholder, Mr.
Hinrichs. The payments were made in accordance with the terms of the
shareholder's former employment contract, but not in accordance with the
subsequent employment contract.
Note 9--Leases
The Company has operating leases primarily for office space, office
equipment and automobiles which expire at various dates through the year 2003
with, in some instances, renewal privileges. Operating lease costs are charged
to income as incurred.
The minimum annual rental commitments under long-term non-cancelable
operating leases were as follows:
<TABLE>
<CAPTION>
December 31, 1998
------------------
USD
<S> <C>
1999................................................... 162,575
2000................................................... 143,928
2001................................................... 140,985
2002................................................... 124,614
2003................................................... 104,579
-------
Total future minimum lease payments.................. 676,681
=======
</TABLE>
Total rent expense for operating leases was $169,525 and $159,497 for the
years ended December 31, 1998 and 1997, respectively.
F-34
<PAGE>
HICOMP SOFTWARE SYSTEMS GMBH
NOTES TO THE DECEMBER 31, 1998 AND 1997 FINANCIAL STATEMENTS--(Continued)
Note 10--Commitments and Contingent Liabilities
In 1995 the Company entered into a joint venture with Borsu Systema (Borsu)
to form Hicomp Borsu, to develop certain data technology. Subsequently, due to
a change of shareholders at Borsu, the joint venture was dissolved. As a
result, disagreements arose about amounts owed between the companies.
Subsequent to the balance sheet date, Hicomp received correspondence from
attorneys representing Aecis B.V. (formerly Borsu) notifying Hicomp of claims
approximating $119,000. As of the date of the opinion of these financial
statements no payment has been made nor have terms of settlement been formally
agreed upon. As of December 31, 1998, the Company has accrued $101,000 relating
to this issue and management believes the accrual to be adequate.
Management is not aware of any other matters that could give rise to any
liability to the Company that would have a material adverse effect on the
Company's business, financial condition or results of operations.
Note 11--Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and accounts receivable. The Company's
cash is principally denominated in DM and is maintained principally with one
financial institution in Germany.
The Company provides credit in its normal course of business to a wide
variety of customers and, generally, requires no collateral from its customers.
There was no allowance for doubtful accounts in 1998 based on management's
expectations of collectibility. The Company performs ongoing credit evaluations
of its customers.
Note 12--Subsequent Event
On April 19, 1999, COPE, Inc., a U.S. holding corporation with principal
operations in Switzerland and Germany, and a provider of data storage,
consulting services and solutions, acquired Hicomp in a stock transaction
accounted for using the purchase method of accounting. COPE issued 420,000 new
shares in exchange for all outstanding Hicomp shares. Under terms of the
purchase agreement, any tax liabilities which arise in the future for Hicomp
but relate to the period before the purchase by COPE, are to be born wholly by
the seller.
F-35
<PAGE>
COPE, INC. AND HICOMP SOFTWARE SYSTEMS GMBH
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
FOR THE YEAR ENDED DECEMBER 31, 1998
(Unaudited)
To reflect COPE's acquisition of Hicomp
The following tables present summary historical information for COPE and
Hicomp derived from their financial statements. The acquisition of Hicomp will
be accounted for using the purchase method of accounting and, accordingly, the
assets acquired and the liabilities assumed will be recorded at their fair
values as of the date of the acquisition, which are not expected to differ
significantly from historical costs. The excess of the purchase price over the
fair value of the assets and the liabilities assumed will be recorded as
goodwill.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1998 and for the six months ended June 30, 1999 present the
results for COPE and Hicomp as if the acquisition of Hicomp had occurred on
January 1, 1998.
The unaudited pro forma financial information presented is based on the
assumptions and adjustments described in the accompanying notes. The unaudited
pro forma statement of operations does not purport to represent what our
results of operations would have been if the events described above had
occurred as of the dates indicated or what our results of operations would be
for any future periods. The unaudited pro forma statements of operations are
based on assumptions and adjustments that we believe are reasonable. The
unaudited pro forma statements of operations, and the accompanying notes,
should be read in conjunction with the historical financial statements and
related notes included elsewhere in this document.
This information is based on the historical financial statements of both
COPE and Hicomp as well as the unaudited interim condensed consolidated
financial statements and the related notes that are included elsewhere in this
prospectus. This financial data should be read in conjunction with the
Financial Statements and with Management's Discussion and Analysis of Financial
Condition or Plan of Operations for COPE included elsewhere herein.
F-36
<PAGE>
COPE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in U.S. Dollars, except share amounts)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Cope, Inc. Hicomp GmbH Pro Forma
------------ ----------- -----------------------------
Historical Adjustments Consolidated
------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Revenue
Total revenue......... $ 29,059,150 $ 1,921,007 (39,775) (1) $ 30,892,672
(47,710) (2)
Cost of sales......... (20,281,131) (22,012) -- (20,303,143)
------------ ----------- ----------- ------------
Gross profit.......... 8,778,019 1,898,995 (87,485) 10,589,529
------------ ----------- ----------- ------------
Operating expenses
Selling, general and
administrative
expenses............. (6,992,971) (1,579,302) 47,710 (2) (8,524,563)
Consultancy expenses.. (292,689) (96,401) (389,090)
Depreciation and
amortization......... (336,936) (80,860) (3,042,912) (3) (3,460,708)
Impairment of
intangible assets.... (63,004) 0 0 (63,004)
------------ ----------- ----------- ------------
Total operating
expenses........... (7,685,600) (1,756,563) (2,995,202) (12,437,365)
------------ ----------- ----------- ------------
Operating income
(loss)................. 1,092,419 142,432 (3,082,687) (1,847,836)
Other income (expense):
Interest expense...... (127,028) (11,498) 100,000 (4) (38,526)
Interest income....... 26,698 11,862 38,560
Other................. 34,112 76,175 110,287
------------ ----------- ----------- ------------
(66,218) 76,539 100,000 110,321
------------ ----------- ----------- ------------
Earnings (loss) before
taxes.................. 1,026,201 218,971 (2,982,687) (1,737,515)
Current income taxes.... (158,141) 0 -- (158,141)
Deferred income taxes... 143,511 (120,434) -- 23,077
------------ ----------- ----------- ------------
Net income (loss)....... $ 1,011,571 $ 98,537 $(2,982,687) $ (1,872,579)
============ =========== =========== ============
Earnings (loss) per
share.................. $ 0.34 0 $ (0.56)
Weighted average shares
outstanding............ 2,936,589 3,356,589
</TABLE>
- --------
(1) Elimination of intercompany sales
(2) Elimination of intercompany management fees
(3) Amortization of goodwill
(4) Decrease in interest expense attributable to the assumed repayment of $2.5
million in borrowings from the proceeds of the offering.
F-37
<PAGE>
COPE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in U.S. Dollars, except share amounts)
For the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
COPE, Inc. Hicomp GmbH Pro Forma
------------ ----------- ---------------------------
Historical Adjustments Consolidated
------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Revenue
Total revenue......... $ 16,563,976 $ 450,907 $ 17,014,883
Cost of sales......... (10,698,666) (915) (10,699,581)
------------ --------- ------------
Gross profit.......... 5,865,310 449,992 6,315,302
------------ --------- ------------
Operating expenses
Selling, general and
administrative
expenses............. (4,774,214) (349,775) (5,123,989)
Consultancy expenses.. (252,561) (14,402) (266,963)
Depreciation and
amortization......... (876,600) (40,075) (891,013)(1) (1,807,688)
------------ --------- --------- ------------
Total operating
expenses........... (5,903,375) (404,252) (891,013) (7,198,640)
------------ --------- --------- ------------
Operating income
(loss)................. (38,065) 45,740 (891,013) (883,338)
Other income (expense):
Interest expense...... (83,129) (30,562) 50,000 (2) (63,691)
Interest income....... 51,185 0 51,185
Other................. (199) 27,659 27,460
------------ --------- --------- ------------
(32,143) (2,903) 50,000 14,954
------------ --------- --------- ------------
Earnings (loss) before
taxes.................. (70,208) 42,837 (841,013) (868,384)
Current income taxes.... (37,454) 0 (37,454)
Deferred income taxes... (143,198) (23,560) (166,758)
------------ --------- --------- ------------
Net income (loss)....... $ (250,860) $ 19,277 $(841,013) $ (1,072,596)
============ ========= ========= ============
Earnings (loss) per
share.................. $ (0.08) 0 $ (0.30)
Weighted average shares
outstanding............ 3,327,979 3,580,907
</TABLE>
- --------
(1) Amortization of goodwill
(2) Decrease in interest expense attributable to the assumed repayment of $2.5
million in borrowings related of the net proceeds from the Offering
F-38
<PAGE>
Until , 1999 all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
600,000 Shares
COPE, INC.
Common Stock
---------------
OFFERING PROSPECTUS / COMPANY REPORT
---------------
Norddeutsche Landesbank Girozentrale
HSBC Trinkaus & Burkhardt KGaA
Bank Julius Bar & Co. AG
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Offering Prospectus
for
400,000 par value shares of common stock
with a par value per share of USD 0.001
- deliverable through book-entry transfer of the Certificates
deposited with Depository Trust Company for credit to Deutsche Borse Clearing
AG's account -
from the capital increase for cash resolved by the meeting of the Board of
Directors on June 28th 1999
and
200,000 par value shares of common stock
with a par value per share of USD 0.001
- deliverable through book-entry transfer of the Certificates
deposited with Depository Trust Company for credit to Deutsche Borse Clearing
AG's account -
taken from the shareholdings of existing shareholders
and
up to
100,000 par value shares of common stock
with a par value per share of USD 0.001
- deliverable through book-entry transfer of the Certificates
deposited with Depository Trust Company for credit to Deutsche Borse Clearing
AG's account -
taken from the shareholdings of existing shareholders
in view of the Greenshoe option granted to Norddeutsche Landesbank -
Girozentrale
each carrying full dividend rights as from the fiscal year
from January 1st 1999 through December 31st 1999
Securities Code Number 876 954 -
- Common Code 100 94 313 -
- ISIN Code US 217 208 107 5 -
- Valor Number CH 952517 -
of
COPE, Inc.
Delaware, USA
<PAGE>
and
Company Report
for admission to the Geregelter Markt
and to trading on the
Neuer Markt
of the Frankfurt Stock Exchange
of
3,595,751 par value shares of common stock
with a par value per share of USD 0.001
USD 3,596.-
and
400,000 par value shares of common stock
with a par value per share of USD 0.001
USD 400.-
from the capital increase for cash resolved by the meeting of the Board of
Directors on June 28th 1999
each carrying full dividend rights as from the fiscal year
from January 1st 1999 through December 31st 1999
- Securities Code Number 876 954 -
- Common Code 100 94 313 -
- ISIN Code US 217 208 107 5 -
- Valor Number CH 952517 -
and
up to
377,610 par value shares of common stock
with a par value per share of USD 0.001
USD 378.-
in view of the option rights granted or to be granted in connection with the
Stock Option Plan
into par value shares of common stock
carrying full dividend rights for the fiscal year in which the option is
exercised
and
up to
29,793 par value shares of common stock
with a par value per share of USD 0.001
USD 30.-
in view of the warrant rights granted by COPE, Inc.
into par value shares of common stock
carrying full dividend rights for the fiscal year in which the warrant is
exercised
of
COPE, Inc.
Delaware, USA
<PAGE>
GENERAL INFORMATION
Liability for the contents of this Prospectus
COPE, Inc. and the underwriters (NORD/LB acting as a representative and in
the name and for account of the underwriters NORD/LB, HSBC Trinkaus & Burkhardt
KGaA and Bank Julius Bar & Co. AG; see also Caption "Underwriters" of the
Prospectus) assume liability for the contents of this Prospectus pursuant to
section 13 of the Wertpapier-Verkaufsprospektgesetz (German Offering Prospectus
Act) and section 77 of the Borsengesetz (German Stock Exchange Act), each in
conjunction with sections 45ff. of the Borsengesetz, and herewith state that to
the best of their knowledge the information contained in this Prospectus is
accurate and that no material circumstances have been omitted.
Subject of the Offering Prospectus / Company Report
The subject of the Prospectus as an Offering Prospectus is
. 400,000 par value shares of common stock with a par value per share of
USD 0.001 from the capital increase for cash resolved by the meeting of
the Board of Directors on June 28th 1999.
. 200,000 par value shares of common stock with a par value per share of
USD 0.001 from the shareholdings of existing shareholders
. up to 100,000 par value shares of common stock with a par value per share
of USD 0.001 taken from the shareholdings of existing shareholders in
view of the Greenshoe option granted to NORD/LB
each carrying full dividend rights as from the fiscal year from January 1st
1999 through December 31st 1999.
The subject of the Prospectus as a Company Report is
. 3,595,751 par value shares of common stock with a par value per share of
USD 0.001
. 400,000 par value shares of common stock with a par value per share of
USD 0.001 from the capital increase for cash resolved by the meeting of
the Board of Directors on June 28th 1999
each carrying full dividend rights as from the fiscal year from January 1st
1999 through December 31st 1999,
. up to 377,610 par value shares of common stock with a par value per share
of USD 0.001 in view of the option rights granted or to be granted in
connection with the Stock Option Plan into par value shares of common
stock
. up to 29,793 par value shares of common stock with a par value per share
of USD 0.001 in view of the warrant rights granted by COPE, Inc. into par
value shares of common stock each carrying full dividend rights for the
fiscal year in which the warrant is exercised.
each carrying full dividend rights for the fiscal year in which the option is
exercised.
THE OFFERING
General Information
A total of 600,000 par value shares of common stock of COPE, Inc. with a par
value per share of USD 0.001 are being offered for sale in this Prospectus.
Additionally, a total of up to 100,000 par value shares of common stock of
COPE, Inc. with a par value per share of USD 0.001 may be offered in case that
NORD/LB exercises its Greenshoe option granted by two major existing
stockholders.
The 600,000 shares have been acquired by NORD/LB on behalf of the
underwriters, consisting of NORD/LB, HSBC Trinkaus & Burkhardt KGaA and Bank
Julius Bar & Co. AG, which have undertaken to offer the shares for sale under
the terms of a public offering, scheduled for the period between . and .
(with the right to curtail the offering period), for the account of COPE, Inc.
and in the case of the shares currently belonging to existing shareholders, for
the account of those shareholders as part of the bookbuilding procedure.
NORD/LB intends to offer up to 10,000 shares of common stock over the Internet
through its selling agent (see also caption "Internet Subscription").
3
<PAGE>
The total volume of the shares on offer is composed of:
. 400,000 par value shares of common stock with a par value per share of
USD 0.001 from the capital increase for cash resolved by the meeting of
the Board of Directors on June 28th 1999
. 200,000 par value shares of common stock with a par value per share of
USD 0.001 from the shareholdings of existing shareholders
. up to 100,000 par value shares of common stock with a par value per share
of USD 0.001 taken from the shareholdings of existing stockholders in
view of the Greenshoe option granted to NORD/LB
each carrying full dividend rights as from the fiscal year from January 1st
1999 through December 31st 1999, while the holders of shares of common stock
have no subscription rights (see also captions "Description of Securities" and
"Dividend Policy").
The price range from EURO . to EURO . per share within which bids may be
submitted, was laid down on September 16, 1999. The price range was announced
at a press conference on September 21, 1999, and is scheduled to be published
together with the public offer for sale in the Handelsblatt on September 22,
1999. The announcement will also be published in the Bundesanzeiger (Federal
Gazette).
The shares may be subscribed at NORD/LB, at HSBC Trinkaus & Burkhardt KGaA
and at Bank Julius Bar & Co. AG or through the investor's own principal bank,
as appropriate.
The final selling price will probably be determined by NORD/LB, with the
consent of Cope, Inc. on September 27, 1999 on the basis of the order book
drawn up during the bookbuilding process. It is scheduled to be published in
the Handelsblatt on September 28, 1999. The announcement will also be published
in the Bundesanzeiger.
Investors can obtain information regarding the number of shares allotted to
them from their custodian bank as of September 28, 1999. It is anticipated that
purchasers will be required to pay the purchase price for the shares plus the
standard securities commission on September 30, 1999.
In connection with the allocation of the up to 100,000 par value shares of
common stock to be placed, NORD/LB is entitled to make additional allocations
or to take other measures in order to stabilize the market price or to maintain
this price at a level which it would not otherwise attain. Such stabilization
measures may be discontinued at any time.
Stock exchange admission and listing on Frankfurt Stock Exchange
The total share capital of COPE, Inc., which amounts to a nominal value of
USD 3,995.75 is expected to be admitted to the Geregelter Markt (Second Trading
Segment) of the Frankfurt Stock Exchange with trading on the "Neuer Markt" on
September 17, 1999. Admission to trading on the Neuer Markt is envisaged for
September 29, 1999.
In the event that NORD/LB exercises its Greenshoe option, it will apply for
admission to trading of up to 100,000 Greenshoe shares together with COPE, Inc.
on the Neuer Markt.
Availability of the shares
In general, the shares of common stock offered in this Prospectus will trade
on the Neuer Markt of the Frankfurt Stock Exchange only through book entry
transfers of interests therein held through Deutsche Borse Clearing AG (see
also caption: "book-entry-only issuance of common stock trading on German stock
exchanges"). NORD/LB, HSBC Trinkaus & Burkhardt KGaA and Bank Julius Bar & Co.
AG will act as paying and depository agents (see also caption: "book-entry-only
issuance of common stock trading on German stock exchanges").
4
<PAGE>
Common stock of a Delaware Corporation
The currently outstanding common stock of COPE, Inc. amounts to 3,595,751
shares with a par value per share of USD 0.001. Hence, the total aggregate par
value is USD 3,596.- (diluted). In the event of liquidation, dissolution or
winding up the stockholders are entitled to proportionately share in all assets
remaining after payment of liabilities in accordance with (for a more
comprehensive overview of the rights of the stockholders see caption
"Description of Securities") COPE, Inc.'s Delaware state identification number
is 2178897 8100.
Major existing stockholders of COPE's common stock:
<TABLE>
<CAPTION>
Interest
after the placement
Interest -------------------------------------
before the not incl.
placement Greenshoe incl. Greenshoe
------------------ ------------------ ------------------
Number of Interest Number of Interest Number of Interest
shares in % shares in % shares in %
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Adrian Knapp............ 1,299,000 36.1% 1,299,000 32.5% 1,249,000 31.3%
Stephan Isenschmid...... 1,299,000 36.1% 1,299,000 32.5% 1,249,000 31.3%
further Directors and
Officers............... 23,320 0.7% 23,320 0.6% 23,320 0.6%
Uwe Hinrichs............ 420,000 11.7% 220,000 5.5% 220,000 5.5%
Free Float.............. 554,431 15.4% 1,154,431 28.9% 1,254,431 31.3%
--------- ---- --------- ---- --------- ----
Total................. 3,595,751 100% 3,995,751 100% 3,995,751 100%
========= ==== ========= ==== ========= ====
</TABLE>
5
<PAGE>
The structure of the COPE, Inc. Group
[LOGO APPERARS HERE]
Corporate structure of COPE, Inc.
According to the Delaware General Corporation law and the applicable bylaws
of COPE, Inc., COPE, Inc. is governed exclusively by its Board of Directors,
except in the case of fundamental matters, including amendments to the
Certificate of Incorporation, and mergers and reorganizations, in which cases
Delaware law and the bylaws of COPE, Inc. require the favorable vote of the
holders of at least a majority of all outstanding voting shares.
A supervisory board ("Aufsichtsrat") as required for German stock
corporations under the German stock corporation act ("Aktiengesetz") or a
similar body is non-existing and is also not required under Delaware law.
Substantial equity interests
COPE, Inc. holds the total share capital of COPE Holding AG, Rotkreuz,
Switzerland, which was founded at the stockholders meeting on August 2nd 1991
and entered in the Commercial Register of the Canton Luzern, originally under
the name of Cope AG with a total share capital of CHF 100,000.-. Pursuant to
its relocation the corporation was entered in the Commercial Register of the
Canton Zug (No. CH-170.3.018.595-1) on September 15th 1993. Its currently
registered total share capital is CHF 146,000.-, which is fully paid. The
purpose of COPE Holding AG is the acquisition, holding and disposal of equity
investments, administration of intangible rights and acquisition, sale and rent
of real estate.
COPE Holding AG holds the total share capital of COPE AG, Rotkreuz,
Switzerland, which was founded at the stockholders meeting on March 25th 1998
and entered in the Commercial Register of the Canton Zug (No. CH-170.3.022.016-
2) on April 1st 1998 with a total share capital of CHF 600,000.-, which is
fully paid. Its purpose is the import, export and trade with computer-hardware
and software as well as services in the IT-industry.
COPE Holding AG holds the total share capital of COPE GmbH, Olching,
Germany, which was founded at the partners meeting on March 6th 1995 with the
amendment on May 2nd 1995 and entered in the Commercial Register of the Munich
District Court (No. HRB 109763) on June 8th 1995 with a total share capital of
DEM 100,000.-. Its currently registered total share capital is EURO 300,000.-,
which is fully paid. The purpose of COPE GmbH is the distribution of computer
systems, computer parts and peripherals and development of computer-software as
well as business, product and personnel consulting in the area of IT.
6
<PAGE>
COPE Holding AG holds the total share capital of COPE HandelsgmbH, Vienna,
Austria, which was founded at the partners meeting on April 6th 1994 and
entered in the corporations book of the Vienna District Court (No. FN 97305) on
May 20th 1994 with a total share capital of ATS 1.000.000,-, which is fully
paid. The purpose of COPE HandelsgmbH is the trade with computer peripherals.
COPE Holding AG holds the total share capital of HICOMP Software Systems
GmbH, Hamburg, Germany, which was founded at the partners meeting on August
11th 1993 and entered in the Commercial Register of the Hamburg District Court
(No. HRB 53850) on September 22nd 1993, originally under the name of Hinrichs &
Hinrichs GmbH, with a total share capital of DEM 50,000.-, which is fully paid.
Its purpose are activities in all areas of business consulting and information
processing and the execution of the corresponding actions and the entering into
the legal transactions in connection herewith as well as activities in similar
industries. These include consulting and planning activities, organization and
technical rationalization activities, delivery of expert opinions and studies,
programming, development and exploitation of software systems and products,
including granting and obtaining licences and training activities in all
aforementioned areas, distribution and trade with machinery, electrical
equipment and peripherals of electronic data processing.
Each of the COPE, Inc. subsidiaries obtain annual audits of their financial
statements pursuant to the financial reporting laws of their jurisdiction,
except for COPE GmbH and Forum GmbH each of which obtain limited reviews of
their financial statements. Each of the COPE, Inc. subsidiaries, other than
COPE GmbH and Forum GmbH, have received audit reports on their 1998 financial
statements that do not include any disclaimers or qualifications. Set forth
below are the public accountants for COPE, Inc. and each of its subsidiaries:
<TABLE>
<C> <S>
COPE, Inc. ATAG Ernst & Young Ltd.,
Zurich, Switzerland
COPE Holding AG ATAG Ernst & Young Ltd.,
Zurich, Switzerland
COPE AG ATAG Ernst & Young Ltd.,
Zurich, Switzerland
Hicomp Software Schitag Ernst & Young,
Systems GmbH Hamburg, Germany
COPE GmbH Schitag Ernst & Young,
Munich, Germany
Forum GmbH Schitag Ernst & Young,
Munich, Germany
COPE Europa Treuhand (Member of
HandelsgmbH Ernst & Young International)
</TABLE>
7
<PAGE>
INVESTMENTS
COPE's ability to conceive and to expeditiously introduce to the market
practice-oriented and innovative data storage and data security solutions is
the most important precondition for the implementation of the goals of the
company. The success and the rapid development of the company over the last
few years is largely attributable to its employees. Their motivation,
commitment and their readiness to adapt to and master new technologies on an
ongoing basis will also be a comparative advantage of COPE in the future. In
order to achieve this objective, highly qualified employees will be recruited
on a continuous basis. Predominantly, COPE will invest in new employees in the
fields of research, technical customer service, distribution and project
oriented business.
COPE has identified investments in the field of further development of its
own backup-software HIBACK and HIBARS, and the training and further
qualification of their employees as major factors for the success of the
company which-simultaneously-shall afford to the customers the necessary
protection of their investments.
With the acquisition of all business shares of Forum GmbH, Olching, which
was completely merged in the first quarter 1999 into COPE GmbH, Olching, and
HICOMP Software Systems GmbH, Hamburg being executed in the previous months,
the first acquisitions in the history of the company are now being integrated
into the group. Further acquisitions will be made in the future following the
capital increase and the listing of COPE, Inc. at the Frankfurt Stock
Exchange, "Neuer Markt".
According to its current planning, the company envisages to invest
approximately $ 4.9 million in the business year 1999 ( in the business year
2000: approximately $ 5.5 million). Of those investments $ 0.3 million (in the
business year 2000: approximately $ 0.8 million) will be allocated to
additional personnel expenses and $ 4.6 million (in the business year 2000:
approximately $ 4.7 million) to the planned expansion of COPE's international
business activities and additional acquisitions. Within the context of
investment planning for purposes of the current business year the purchase of
Miracle V, software equipment for thirty additional working places and
additional software have already been considered.
The introduction of Miracle V is planned for the fourth quarter of 1999
with its ultimate launch on January 1st 2000. Miracle V is a standard software
package. Its standard modules and its modifications, among others, will meet
the following requirements: administration of orders, accounting, stock
keeping, marketing/distribution, calculation of commissions, maintenance
contracts; rental agreements; maintenance of software and management
information systems.
At present, COPE's software systems already meet the aforementioned
requirements. Aside from serving as an integration tool for the comprehensive
package offered by COPE, Miracle V will-as a standard package with open
interfaces-produce substantial improvements in the field of distributive
evaluation, serving as a basis for targeted marketing measures.
The emphasis of investments over the past three years has been related to
the purchase of Forum GmbH with an amount of $ 962,977.-. Moreover,
investments for plant and equipment purposes have been effected on a customary
level (for the business year 1996: $ 229,210.-, for the business year 1997: $
585,881.- and for the business year 1998: $ 370,208.-). The purchase of Hicomp
Software Systems GmbH on April 1999 was a non cash transaction (share
exchange).
The investments-to a large extent-have been financed by cash-flow payments.
Sales and Marketing
For the market in German-speaking countries, investments for marketing
activities are currently undertaken for the business segment of sales of
solutions. For the marketing of COPE's products in other countries,
investments are undertaken in Europe and the United States. Key distribution
measures are uniformly implemented throughout the COPE group.
Consulting
The expansion of consulting services will be furthered by the employment of
eight additional employees.
8
<PAGE>
RESEARCH AND DEVELOPMENT
Both research and development play a crucial role to our business.
Subsequent to COPE's acquisition of HICOMP Software Systems GmbH the
development of software products became very important for its business. COPE
is planning on increasing the capacities to further develop its proprietary
Back-up Software HIBACK & HIBARS.
Additionally, COPE is focusing on extending its business development team,
which is researching the market for innovative technologies and products. In
case of positive results from due evaluation and testing procedures of a
specific technology or product the business development team then proposes such
technology or product to the management for the use of COPE.
COPE's management believes, that a strong market position can only be
granted by continuing technological development.
PATENTS AND LICENSES
COPE currently does not hold any patents or licenses.
Although the agreements between COPE and its product vendors are
nonexclusive and short-term in nature, there are no specific dependencies (see
also caption: "Products and Services").
QUALITY MANAGEMENT (ISO 9001)
COPE has its own quality management team. The quality of the services and
products sold by COPE is being tested on a standardized basis. Statistical
data, which is being generated, helps to sort out poor quality services and
products, revolving mistakes, etc.
COPE has been ISO 9001-certified since 1995.
RECENT DEVELOPMENTS AND OUTLOOK
Recent Business Development
Fiscal year 1999 has successfully developed during the first 6 months. Sales
grew in this period $16,563,976 (+ 69.3%) compared to $9,784,049 of the same
period in 1998. This growth is based on all business segments. Strongest growth
with 105.6% was achieved by the services segment.
The results of EBITDA (Earnings before interest, taxes, depreciation and
amortization) grew with 122.8% to $838,535.
Outlook
Based on the business development of the current fiscal year, COPE expects
further growth of sales and results of operations compared to fiscal year 1998.
The positive development of the structure of expenses and revenues is already
displayed by the financial statements as of June 30th 1999.
COPE has positioned itself in a niche of the IT industry, which is expected
to considerably grow further. Enterprises have become more and more aware of
the problems arising from storing and securing mass data. Being an independent
provider COPE is able to offer optimal and individually tailored storage and
security solutions to its customers.
Support of Consulting Services
Crucial to COPE's business is the solution as opposed to the product. A
significant portion of the customer's expenses for data storage and security
solutions is being dedicated nowadays to consulting in
9
<PAGE>
respect of system design and implementation. Consulting services tend to
achieve higher margins than direct reselling of products from the manufacturer
to the customer. Sales in the business segments consulting and integration
services is scheduled to be supported by further marketing activities.
Growth based on specific acquisitions
Aside from its inherent growth COPE will significantly grow based on further
acquisitions. COPE focuses on enterprises, which share COPE's dedication to
high standard consulting and services. Through those acquisitions COPE intends
to among others gain additional experienced staff.
While COPE did not yet enter into any agreements with such enterprises there
may be the possibility of short-term acquisitions after the offering.
Proprietary software-technology as an accelerator to COPE's future business
Subsequent to the acquisition of HICOMP Software Systems GmbH in April 1999
COPE prospered to a full system provider with its own proprietary software-
solutions. In order to convey the potential of this software to the market COPE
engaged in significant marketing activities for the brand names HIBACK &
HIBARS.
The strong support of this high margin business segment is crucial to COPE's
growth strategy.
COPE expects to significantly enlarge its degree of publicity through its
dual listing on NASDAQ National Market System and Neuer Markt Frankfurt as well
as through its concurrent marketing activities.
The Year 2000 Issue brings both chances and risks to the IT industry. Hence,
it is hardly foreseeable for COPE whether IT investments will be intensified or
postponed for the current year ending. However, COPE believes to have stronger
sales opportunities in the field of data storage from the beginning of next
year.
10
<PAGE>
[translation of the admission clause:]
On the basis of the above
Company Report
the
3,595,751 par value shares of common stock
with a par value per share of USD 0.001
and
400,000 par value shares of common stock
with a par value per share of USD 0.001
each carrying full dividend rights as from the fiscal year
from January 1st 1999 through December 1st 1999
- Securities Code Number 876 954 -
- Common Code 100 94 313 -
- ISIN Code US 217 208 107 5 -
- Valor Number CH 952517 -
and
up to
377,610 par value shares of common stock
with a par value per share of USD 0.001
in view of the option rights granted or to be granted in connection with the
Stock Option Plan
into par value shares of common stock
carrying full dividend rights for the fiscal year in which the option is
exercised
and
up to
29,793 par value shares of common stock
with a par value per share of USD 0.001
in view of the warrant rights granted by COPE, Inc.
into par value shares of common stock
carrying full dividend rights for the fiscal year in which the option is
exercised
of
COPE, Inc.
Delaware, USA
have been admitted to the Geregelten Markt
with trading on the
Neuer Markt
of the Frankfurt Stock Exchange
Frankfurt am Main, Hannover, Dusseldorf and Zurich, August 1999
Norddeutsche Landesbank
Girozentrale
HSBC Trinkaus & Burkhardt Bank Julius Bar & Co. AG
Kommanditgesellschaft auf Aktien
<PAGE>
Aufgrund des vorstehenden
Unternehmensberichtes
sind
Stuck 3.595.751 auf den Namen lautende Stammaktien
im Nennbetrag von je USD 0,001 je Aktie
sowie
Stuck 400.000 auf den Namen lautende Stammaktien
im Nennbetrag von je USD 0,001 je Aktie
mit jeweils voller Gewinnanteilberechtigung ab dem Geschaftsjahr
vom 1. Januar 1999 bis zum 31. Dezember 1999
- Wertpapier-Kenn-Nummer 876 954 -
- Common Code 100 94 313 -
- ISIN Code US 217 208 107 5 -
- Valorennummer CH 952517 -
sowie
bis zu
Stuck 377.610 auf den Namen lautende Stammaktien
im Nennbetrag von je USD 0,001 je Aktie
im Hinblick auf die im Zusammenhang mit dem Stock Option Plan gewahrten oder zu
gewahrenden Optionsrechte zum Bezug von auf den Namen lautenden Stammaktien mit
voller
Gewinnanteilberechtigung fur das Geschaftsjahr, in dem das Optionsrecht
ausgeubt wird
sowie
bis zu
Stuck 29.793 auf den Namen lautende Stammaktien
im Nennbetrag von je USD 0,001 je Aktie
im Hinblick auf die von der COPE, Inc. gewahrten Wandlungsrechte
zur Wandlung in auf den Namen lautende Stammaktien mit voller
Gewinnanteilberechtigung fur das Geschaftsjahr, in dem das Wandlungsrecht
ausgeubt wird
der
COPE, Inc.
Delaware, USA
zum Geregelten Markt
mit Aufnahme des Handels im
Neuen Markt
an der Frankfurter Wertpapierborse
zugelassen werden.
Frankfurt am Main und Hannover, im August 1999
Norddeutsche Landesbank
Girozentrale
HSBC Trinkaus & Burkhardt Bank Julius Bar & Co. AG
Kommanditgesellschaft auf Aktien
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Delaware Statutes
Section 145 of the Delaware General Corporation Law, as amended, provides
for the indemnification of the Company's officers, directors, employees and
agents under certain circumstances as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final
II-1
<PAGE>
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees). (Last amended by Ch.261,L.'94,eff.7-1-94.)"
Certificate of Incorporation
The Company's Certificate of Incorporation provides that the directors of
the Company shall be protected from personal liability to the fullest extent
permitted by law. The Company's Bylaws also contain a provision for the
indemnification of the Company's directors (see "Indemnification of Directors
and Officers--Bylaws" below).
II-2
<PAGE>
Bylaws
The Company's Bylaws provide for the indemnification of the Company's
directors, officers, employees, or agents under certain circumstances as
follows:
"7.1 Authorization For Indemnification. The Corporation may indemnify, in
the manner and to the full extent permitted by law, any person (or the estate,
heirs, executors, or administrators of any person) who was or is a party to, or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and
with respect to any criminal action or proceeding, that he had reasonable cause
to believe that his conduct was unlawful.
7.2 Advance of Expenses. Costs and expenses (including attorneys' fees)
incurred by or on behalf of a director or officer in defending or investigating
any action, suit, proceeding or investigation may be paid by the Corporation in
advance of the final disposition of such matter, if such director or officer
shall undertake in writing to repay any such advances in the event that it is
ultimately determined that he is not entitled to indemnification. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, or by the stockholders, that, based upon
the facts known to the Board or counsel at the time such determination is made,
(a) the director, officer, employee or agent acted in bad faith or deliberately
breached his duty to the Corporation or its stockholders, and (b) as a result
of such actions by the director, officer, employee or agent, it is more likely
than not that it will ultimately be determined that such director, officer,
employee or agent is not entitled to indemnification.
7.3 Insurance. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or applicable law.
7.4 Non-exclusivity. The right of indemnity and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. Any agreement for
indemnification of or advancement of expenses to any director, officer,
employee or other person may provide rights of indemnification or advancement
of expenses which are broader or otherwise different from those set forth
herein."
II-3
<PAGE>
Indemnity Agreements
The Company's Bylaws provide that the Company may indemnify directors,
officers, employees or agents to the fullest extent permitted by law and the
Company has agreed to provide such indemnification to its directors pursuant to
written indemnity agreements.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth estimated expenses to be incurred by COPE and
the selling shareholder in connection with the issuance and distribution of the
Shares being registered. All such expenses are estimated except for the SEC
registration fee. COPE will pay two-thirds of the estimated expenses and the
selling shareholder will pay the other third.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 6,422
NASDAQ National Market System Listing Fee....................... $ 20,000
Neuer Markt Listing Fee......................................... $ 3,000
Printing expenses............................................... $ 130,000
Fees and expenses of counsel for the Company.................... $ 300,000
Fees and expenses of accountants for Company.................... $ 250,000
Listing Fee to NORD/LB.......................................... $ 90,000
Marketing....................................................... $ 130,000
Underwriting expenses........................................... $ 50,000
Mandatory publication expenses in Germany....................... $ 15,000
Expense allowance............................................... $ 30,000
Total......................................................... $ 1,024,422
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
A. From March 1996 to May 1996, the Company conducted a private placement of
shares of its common stock. In the private placement, the Company sold a total
of 3,643 shares of common stock to three individuals for the gross proceeds of
$147,000. The issuance was conducted pursuant to Regulation S under the 1933
Act. There was no underwriter involved in this issuance.
B. In April 1996, the Company issued 604 shares of common stock to one
individual in consideration of consulting services valued at $12,250 rendered
on behalf of the Company. The issuance was conducted pursuant to Section 4(2)
of the 1933 Act. There was no underwriter involved in this issuance.
C. From April 1997 to May 1997, the Company conducted a private placement of
shares of its common stock. In the private placement, the Company sold a total
of 34,500 shares of common stock for the gross proceeds of $10,000. The
issuance was conducted pursuant to Regulation S under the 1933 Act. There was
no underwriter involved in this issuance.
D. In September 1997, the Company issued a total of 2,242 shares of common
stock to two individuals in consideration of consulting services valued at
$19,500 rendered on behalf of the Company. The issuance was conducted pursuant
to Section 4(2) of the 1933 Act. There was no underwriter involved in this
issuance.
E. From October 1997 to November 1997, the Company conducted a private
placement of shares of its common stock. In the private placement, the Company
sold a total of 20,701 shares of common stock to seven individuals for the
gross proceeds of $120,000. The issuance was conducted pursuant to Regulation S
under the 1933 Act. There was no underwriter involved in this issuance.
F. From February 1998 to March 1998, the Company conducted a private
placement of shares of its common stock. In the private placement, the Company
sold a total of 6,900 shares of common stock for the gross proceeds of $40,000.
The issuance was conducted pursuant to Regulation S under the 1933 Act. There
was no underwriter involved in this issuance.
II-4
<PAGE>
G. In August 1998, the Company granted to 39 of its employees options to
purchase an aggregate of 59,300 shares of common stock at an exercise price of
$8.40 per share. The options vest in four installments commencing on March 1,
1999, March 1, 2000, March 1, 2001 and March 1, 2005. The options were issued
pursuant to Section 4(2) of the 1933 Act. There was no underwriter involved in
this issuance.
H. In September 1998, pursuant to an Amended and Restated Securities
Purchase Agreement and Plan of Reorganization dated July 24, 1998, the holders
of all of the issued and outstanding capital stock of COPE Holding AG
transferred those shares to the Company in exchange for the Company's issuance
of 2,862,000 shares of its common stock. Of these shares, 270,000 shares were
issued pursuant to a Registration Statement on Form S-4 and the balance of
2,592,000 shares were issued to the two co-founders of COPE Holding AG pursuant
to Section 4(2) of the 1933 Act. There was no underwriter involved in this
issuance.
I. In the fourth quarter of 1998, the Company issued 20,207 shares of common
stock upon the exercise of outstanding common stock purchase warrants. The
issuance was conducted pursuant to Regulation S under the 1933 Act. There was
no underwriter involved in this issuance.
J. In November 1998, the Company granted to its officers and directors
options to purchase a total of 108,200 shares of common stock at exercise
prices ranging from $8.50 to $15.00 per share. The options were issued pursuant
to Section 4(2) of the 1933 Act. There was no underwriter involved in this
issuance.
K. In January 1999, the Company granted to its employees options to purchase
an aggregate of 129,900 shares of common stock at exercise prices ranging from
$20.00 to $50.00 per share. The options were issued pursuant to Section 4(2) of
the 1933 Act. There was no underwriter involved in this issuance.
L. In April, 1999, the Company issued 420,000 shares of common stock to Uwe
Hinrichs in exchange for all of the issued and outstanding shares of Hicomp
GmbH. The issuance was conducted pursuant to Section 4(2) of the 1933 Act.
There was no underwriter involved in this issuance.
M. In April 1999, the Company issued 22,390 shares of common stock to its
employees upon the exercise of outstanding common stock options. The issuance
was conducted pursuant to Section 4(2) of the 1933 Act. There was no
underwriter involved in this issuance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Amended and Restated Securities Purchase Agreement and Plan of
Reorganization dated July 24, 1998 between the Registrant and COPE
AG(14)
2.2 Common Stock Purchase Agreement dated September 11, 1998 between the
registrant and New Capital Investment Fund.(15)
3.1 Articles of Incorporation(1)
3.2 Certificate of Amendment dated September 11, 1998 to Certificate of
Incorporation(15)
3.3 Certificate of Correction dated September 15, 1998 to Certificate of
Amendment of Certificate of Incorporation(15)
3(ii) Bylaws(1)
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP regarding legality of the
securities being issued(18)
10.1 Agreement with Licensia Export Trading Co. dated December 12, 1986(2)
10.2 Agreement with Erich Klemke dated June 6, 1988(3)
10.3 Amendment to agreement with European Investment and Equity Trading
dated March 30, 1989(5)
10.4 Distribution agreement with Mobal AG, dated January 17, 1989(4)
10.5 1989 Stock Option and Stock Award Plan(1)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.6 Warrant Agreement dated as of November 13, 1989 among Harrier, Inc.
ASFAG AG and Martin S. Wohnlich(5)
10.7 Agreement dated November 10, 1989 between Tibech AG and Bioptron AG(5)
10.8 Agreement dated February 7, 1990 between Tibech AG and Bioptron AG(5)
10.9 Sales Agreement for HDC AG stock between Dr. Carl Odermatt and the
Company(5)
10.10 Distribution Agreement with Planeta, dated September 1, 1991 (with
accompanying unofficial translation).(6)
10.11 Univ. of Michigan Agreement dated October 17, 1992.(10)
10.12 Univ. of Michigan Agreement dated March 18, 1992.(10)
10.13 Sale of Assets Agreement by and between the Registrant and a German
Investor(8)
10.14 Agreement to Dissolve Joint Research and Development Project by and
between the Registrant and Tecno-Bio CO., Ltd.(9)
10.15 Purchase and License Agreement of HDC AG by and between the Registrant
and Tecno-Bio CO., Ltd. T(9)
10.16 Harrier, Inc./American Diagnostica Inc. R&D Joint Venture
Agreement(11)
10.17 Loan Agreement between New Capital Investment Fund and Harrier,
Inc.(12)
10.18 Asset Transfer and Plan of Liquidation and Dissolution dated June 30,
1997 between the Registrant, Naturade, Inc. and DermaRay, LLC.(13)
10.19 Securities Purchase Agreement and Plan of Reorganization dated October
30, 1997 between Registrant and COPE AG.(13)
10.20 Agreement dated October 30, 1997 between Registrant and New Concept
Therapeutics, Inc.(13)
10.21 Agreement dated September 25, 1998 between Registrant, COPE Holding
AG, and New Capital Investment Fund.(17)
10.22 Common Stock Purchase Agreement dated September 11, 1998 between
Registrant and New Capital Investment Fund.(17)
10.23 Assumption and Assignment Agreement dated September 11, 1998 between
Registrant and Glycosyn Pharmaceuticals, Inc.(17)
10.24 Indemnification Agreement dated September 28, 1998 by New Capital
AG(17)
10.25 Sale and Transfer of Business Shares (Forum GmbH) dated July 25, 1998
between COPE GmbH and Peter Doelling(17)
10.26 Sale and Transfer of Business Shares (HICOMP Software Systems GmbH)
dated December 21, 1998 between Registrant and Uwe Hinrichs(17)
10.27 Loan Agreement between Registrant and NORD/LB dated July 19, 1999.
16.1 Letter dated March 19, 1999 from Raimondo Pettit Group.(16)
21.1 Subsidiaries of the Company(6)
23.1 Consent of ATAG Ernst & Young Ltd., Independent Auditors.
23.2 Consent of Oppenheimer Wolff & Donnelly LLP (included in Exhibit
5.1).(18)
23.3 Consent of Schitag Ernst & Young, Independent Auditors.
</TABLE>
- --------
(1) Filed as an exhibit to Proxy Statement dated May 14, 1990, filed on May
16, 1990 (File No 1-9925), incorporated herein by reference.
(2) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1987, filed on March 18, 1988 (File No 1-9925), incorporated by reference.
(3) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1988, filed on November 3, 1988 (File No 1-9925), incorporated herein by
reference.
II-6
<PAGE>
(4) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1989, filed on October 13, 1989 (File No 1-9925), incorporated herein by
reference.
(5) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1990, filed on October 13, 1990 (File No 1-9925), incorporated herein by
reference.
(6) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1991, filed on October 13, 1991 (File No 1-9925), incorporated herein by
reference.
(7) Filed as an exhibit to Report on Form 8-K dated July 27, 1990,, filed on
September 6, 1990 (File No 1-9925), incorporated herein by reference.
(8) Filed as an exhibit to Report on Form 8-K dated July 10, 1992, filed on
July 31, 1992 (File No 1-9925), incorporated herein by reference.
(9) Filed as an exhibit to Report on Form 8-K dated August 1, 1992, filed on
August 26, 1992 (File No 1-9925), incorporated herein by reference.
(10) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1992, filed on October 24, 1992 (File No. 1-9925), incorporated herein by
reference.
(11) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1993, filed on November 25, 1993 (File No. 1-9925), incorporated herein by
reference.
(12) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1996, filed on December 3, 1996 (File No. 1-9925), incorporated herein by
reference.
(13) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1997, filed on December 10, 1997 (File No. 1-9925), incorporated herein by
reference.
(14) Filed as an exhibit to Registrant's Proxy Statement/Prospectus dated
August 20, 1998 made part of the Registrant's Form S-4 Registration
Statement (File No. 33-53223), incorporated herein by reference.
(15) Filed as an exhibit to Report on Form 8-K dated September 25, 1998, filed
on October 13, 1998 (File No 1-9925), incorporated herein by reference.
(16) Filed as an exhibit to Report on Form 8-K dated March 18, 1999, filed on
March 24, 1999 (File No 1-9925), incorporated herein by reference.
(17) Filed as an exhibit to Report on Form 10-KSB for the year ended December
31, 1998, filed on May 7, 1999 (File No. 1-9925) incorporated herein by
reference.
(18) Filed as an exhibit to Registrant's Form SB-2 Registration Statement dated
June 30, 1999 (File No. 1-9925) incorporated herein by reference.
Item 28. Undertakings.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
II-7
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such 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 of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described herein, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
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 Act and
will be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Pre-Effective
Amendment No. 1 to Registration Statement on Form SB-2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Rotkreuz, Switzerland,
on August 31, 1999.
COPE, INC.
/s/ Adrian Knapp
By: _________________________________
Adrian Knapp
Chairman of the Board and Vice
President
(principal executive officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Adrian Knapp Chairman of the Board and August 31, 1999
____________________________________ Vice President (principal
Adrian Knapp executive officer)
/s/ Stephan Isenschmid President and Chief August 31, 1999
____________________________________ Executive Officer and
Stephan Isenschmid Director
/s/ Markus Bernhard Chief Financial Officer August 31, 1999
____________________________________ (principal financial and
Markus Bernhard accounting officer)
/s/ Markus Stalder Director August 31, 1999
____________________________________
Markus Stalder
/s/ Peter Koch Director August 31, 1999
____________________________________
Peter Koch
/s/ Kevin DeVito Director August 31, 1999
____________________________________
Kevin DeVito
</TABLE>
II-9
<PAGE>
EXHIBIT 1.1
UNDERWRITING AGREEMENT
among
(1) COPE, Inc. (the "Company")
and
(2) Mr Uwe Hinrichs (the "Selling Stockholder")
and
(3) Mr Stephan Isenschmid
and
(4) Mr Adrian Knapp
((3) and (4), collectively referred to as the "Major Existing Stockholders")
and
(5) Norddeutsche Landesbank Girozentrale, Hannover
("NORD/LB", "Lead Manager" or "Representative")
and
(6) HSBC Trinkaus & Burkhardt Kommanditgesellschaft auf Aktein, Dusseldorf
and
(7) Bank Julius Bar & Co. AG, Zurich
((5), (6) and (7), collectively referred to as the "Underwriters")
(A) COPE, Inc. is a stock corporation incorporated under the laws of the State
of Delaware.
(B) As of the date hereof, the authorised stock of the Company as defined in
the Certificate of Incorporation as amended to date consists of 30,000,000
shares of common stock, par value USD 0.001 per share and 5,000,000 shares
of preferred stock, USD 0.001 par value per share of which ........ shares
of common stock and no shares of preferred stock are outstanding as of the
date hereof (hereinafter referred to as the " Common Stock" or the "Share
Capital").
(C) The Company has engaged the Lead Manager to manage the Secondary Public
Offering of the "Offered Shares" (as hereinafter defined) by the
Underwriters (the "Offering").
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<PAGE>
(D) The Selling Stockholder desires, subject to the conditions stated in the
Underwriting Agreement (hereinafter the "Agreement"), to sell to NORD/LB,
acting in the name and for account of the Underwriters and NORD/LB, acting
in the name and for account of the Underwriters, desires to acquire and
purchase, an aggregate of 200,000 shares of Common Stock (the "Selling
Stockholder Shares").
(E) For purposes of the Offering, the Company desires to issue and sell to
NORD/LB, acting in the name and for account of the Underwriters, and
NORD/LB, in the name and for account of the Underwriters, desires to
acquire and purchase, subject to the terms and conditions set forth herein,
400,000 shares of common stock ("New Shares") ("New Shares" and the
"Selling Stockholder Shares" collectively referred to as the "Firm
Shares").
(F) The Major Existing Stockholders propose to sell, subject to the terms and
conditions as set forth herein, up to a maximum of 100,000 shares of Common
Stock (the "Greenshoe Shares"; the Greenshoe Shares and the Firm Shares,
collectively referred to as the "Offered Shares"; the New Shares and the
Common Stock hereinafter referred to as the "Shares" ). If requested by the
Lead Manager in accordance with Article 1 (b) hereof, the Major Existing
Stockholders shall subject to the terms and conditions set forth therein
sell and the Lead Manager shall acquire and purchase the Greenshoe Shares.
(H) For purposes of the Offering, the Company has prepared a German securities
sales prospectus/company report (Verkaufsprospekt/ Unternehmensbericht) (the
"German Listing Prospectus") and a U.S. Prospectus (as defined herein and
hereinafter referred to as the "US Prospectus") (the "German Listing
Prospectus" and the "U.S. Prospectus", collectively referred to as the
"Offering Documents".
(I) As of the date hereof, application has been made to have the Shares of the
Company (i) admitted to the Regulated Market (Geregelter Markt) with trading
on the "Neuer Markt", a market segment of the Frankfurt Stock Exchange ;
(ii) listed on the NASDAQ National Market ("NASDAQ") (such stock exchanges,
collectively, the "Stock Exchanges") and (iii) a Registration Statement on
Form SB-2 ("Registration Statement") (File No. 333______) filed by the
Company under the U.S. Securities Act of 1933, as amended ("Securities
Act"), with respect to the Offered Shares declared effective by the
Securities and Exchange Commission ("Commission").
(J) The Company and the Underwriters have agreed that 25,000 of the New Shares
shall be allocated on a preferential basis by the Lead Manager to persons
designated by the Company in writing (the "Friends and Family Shares"). The
Company ensures the full and timely fulfillment of all obligations incurred
by the individuals to whom shares are allocated on a preferential basis.
(K) As of the date hereof , the Underwriters have entered into an agreement
dated 5 May, 1999 which sets forth certain understandings and agreements
among the Underwriters in connection with the Secondary Public Offering of
COPE, Inc. (the "Agreement among Underwriters").
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<PAGE>
Article 1
Purchase and Delivery of Offered Shares - First and Second Closing
(a) (i) Subject to the terms and conditions herein set forth, the Company agrees
to issue and sell and the Selling Stockholder agrees to sell to the
Underwriters, for this purpose represented by NORD/LB, acting in the name
and for account of the Underwriters, the Firm Shares and NORD/LB, in the
name and for account of the Underwriters agrees to acquire and purchase from
the Company and the Selling Stockholder the New Shares and the Selling
Stockholder Shares, respectively, and pay to the Company and the Selling
Stockholder the Offer Price (.... EURO/Firm Share) -- the Offer Price shall
not fall short of the minimum of the bookbuilding range -- for the aggregate
number of New Shares and Selling Stockholder Shares, respectively, less a
deduction of the expenses and commissions, as specified in Articles 4 and 5
of which 2/3 shall be borne by the Company and of which 1/3 shall be borne
by the Selling Stockholder and, in the case of the New Shares, less a
deduction of the initial payment pursuant to Subsection (iii)(A) below.
The Offer Price shall be determined in a separate Pricing Agreement which
shall be concluded between the Company, the Selling Stockholder and the Lead
Manager and shall be substantially in the form set forth in Annex I. The
bookbuilding period is intended to be four days, but it may be reduced by
the Representative in its reasonable discretion in agreement with the
Company.
(ii) The number of Selling Stockholder Shares and New Shares which any
particular Underwriter shall be required to purchase pursuant to this
Agreement shall not exceed the maximum set forth, collectively, opposite
such Underwriter's name in Schedule I hereto.
(iii)
(A) Delivery of the Offered Shares shall be on 3 September 1999 and an
initial payment for the New Shares, i.e. the transfer of the nominal value
of USD 0.001/New Share for the aggregate number of New Shares, shall also be
on 3 September 1999 or at such other time or date as the Lead Manager, the
Company, the Selling Stockholder and the Major Existing Stockholders may
agree upon. Such time and date of delivery and payment will hereinafter be
referred to as the "First Closing Date".
(B) On the first day after listing of the Firm Shares at the Frankfurt Stock
Exchange, Neuer Markt on 8 September 1999 (the "Second Closing Date"), the
Offer Price for the aggregate number of New Shares and the Selling
Stockholder Shares, respectively, shall be transferred to the Company and
the Selling Stockholder, respectively, less, in accordance with Article 1
(a)(i), a deduction of the expenses and commissions, as specified in
Articles 4 and 5 and the initial amount, in the case of the New Shares, paid
following Article 1 (iii)(A).
Any such payments shall be made to the accounts - designated by the relevant
parties to this Agreement and as specified in Article 17 (e) - of the
Company and the Selling Stockholder by wire transfer in immediately
available funds.
-3-
<PAGE>
(all actions described in this Article 1 (iii)(B) shall hereinafter be
referred to as the "Second Closing")
(b) Subject to the terms and conditions of this Agreement and for the purpose of
covering any over-allotments in connection with the distribution and sale of
the Shares, each of the Major Existing Stockholders , hereby grants to
NORD/LB an option to acquire and purchase up to 50,000 shares from each of
the Major Existing Stockholders. The Offer Price to be paid for any
Greenshoe Share shall be the same as the price paid for a Firm Share set
forth above in Article 1 (a)(i) and as agreed on in the Pricing Agreement.
The option granted hereby may be exercised as to all or any part of the
Greenshoe Shares from time to time within thirty (30) calendar days after
the first day of listing of the Shares at the Frankfurt Stock Exchange,
"Neuer Markt" ( the "Exercise Period ") by giving an exercise notice (the
"Exercise Notice"); provided, however, that NORD/LB shall not exercise a
Greenshoe option with respect to one of the Major Existing Stockholders and
not the other and that any exercise of the Greenshoe options shall be made
pro rata between both of the Major Existing Stockholders. The Exercise
Notice shall be given, in accordance with Article 11, to the Major Existing
Stockholders on a day when the Stock Exchanges are open for trading
("Business Day") and shall state the aggregate number of Greenshoe Shares to
be acquired and purchased from each of the Major Existing Shareholders .
NORD/LB shall not be under any obligation to purchase any of the Greenshoe
Shares.
The Lead Manager agrees, following the delivery of the Exercise Notice, to
acquire and purchase the number of Greenshoe Shares as specified in the
Exercise Notice, and pay to the Major Existing Stockholders the aggregate
Offer Price for such number of Greenshoe Shares by wire transfer in
immediately available funds to the accounts as specified by the Major
Existing Stockholders in Article 17 (d), less a deduction of the
Underwriters' selling and underwriting commission, as specified in Article
5; such payment shall be initiated no later than the third Business Day
following the receipt of the Exercise Notice. Provided that the Lead Manager
does not exercise the Greenshoe Option or determines to exercise only a part
thereof, such Greenshoe Shares as delivered on the First Closing Date shall
be transferred to the Major Existing Stockholders to the extent that such
Greenshoe Option were not exercised within the Exercise Period. Such
transfer shall be initiated within three Business Days following the
expiration of the Exercise Period to the accounts designated by the Major
Existing Stockholders in Article 17 (d).
(c) On the First Closing Date, the Global Share Certificates (representing the
Offered Shares ) shall be deposited by the Company, the Selling Stockholder
and by each of the Major Existing Stockholders, respectively, with
Depositary Trust Company ("DTC") or its subsidiary. The Offered Shares shall
be delivered by book-entry transfer in DTC for credit to Deutsche Borse
Clearing's ("DBC") account No. 2000 at DTC or its subsidiary with the
purpose of further book-entry transfer to NORD/LB's account number 8019 at
DBC. Such delivery shall be effected on the First Closing Date.
The Firm Shares to be delivered to HSBC Trinkaus & Burkhardt KGaA and Bank
Julius Bar & Co. AG, Zurich shall be transferred by the Lead Manager by
book-
-4-
<PAGE>
entry transfer to the respective accounts as designated by each
Underwriter, in such amount as the Lead Manager may designate. Such
delivery shall be effected on the first day of listing of the Shares at the
Frankfurt Stock Exchange, "Neuer Markt".
(d) 10,000 of the Firm Shares will be offered by means of the Internet
("Internet Subscription") by NORD/LB through its selling agent under terms
as agreed on between the Company and the Lead Manager. The Internet
Subscription will be conducted for a period of three days (from ..... until
.....).
(e) Each of the Underwriters shall acquire sole title to the Firm Shares
purchased by it pursuant to this Agreement. The Underwriters shall be
neither joint debtors nor joint creditors; there shall be no joint or
fractional co-ownership in respect of the Firm Shares among the several
Underwriters.
(f) It is agreed that the Company, the Selling Stockholder and the Major
Existing Stockholders shall deliver the Offered Shares free and clear of
liens, encumbrances, equities or claims.
Article 2 Warranties
(a) Warranties of the Company
As a condition of the obligation of the Underwriters to purchase the Firm
Shares, the Company warrants to, regardless of fault, in the form of an
independent guarantee and to each of the Underwriters that:
Offering Documents
(i) Each Offering Document as of the date hereof does not, and each
Offering Document at the Second Closing Date will not (and any amendment or
supplement thereto as of the date thereof and at the Second Closing Date
will not), contain any inaccurate, untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no warranty as to
statements or omissions made in any Offering Document or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the Lead
Manager specifically for use therein.
Without limitation to the foregoing, the statements set forth under the
captions "Risikofaktoren/Risk factors", "Kapitalverhaltnisse"/"Description
of Securities" "Geschaftstatigkeit"/"Business of COPE", "Angaben uber den
jungsten Geschaftsgang und die Geschaftsaussichten des Emittenten" /
"Recent Developments and Business Prospects" or the facts relating to
Intellectual Property (as defined herein) of the Company or any of its
Subsidiaries and the HICOMP acquisition are accurate, complete and correct
in all material respects.
-5-
<PAGE>
(ii) Except as permitted by the Securities Act, the Company and none of its
Subsidiaries as defined in Article 17 (b) of this Agreement have
distributed or have caused to distribute and, prior to the later of the
Second Closing Date and the completion of the distribution of the Firm
Shares, will distribute or cause to distribute any offering material in
connection with the Offering other than the Offering Documents and any
amendment or supplement thereto.
(iii) Subsequent to the respective dates as of which information is given
in the Offering Documents, the Company and its Subsidiaries, taken as a
whole, have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction which is not in the
ordinary course of business; the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and there has
not been any change in the capital stock of the Company, or in the short-
term or long-term debt of the Company and its Subsidiaries, taken as a
whole, except in each case as described in or contemplated by the Offering
Documents.
(iv) Each Offering Document and any amendment or supplement thereto and the
corresponding filing thereof complies and will comply with all legal
requirements applicable in the Federal Republic and the United States and
all applicable rules and regulations of any competent governmental or
regulatory authority or the relevant Stock Exchanges in the Federal
Republic of Germany and the United States of America.
(v) The Company has filed the Registration Statement in respect of the
Offered Shares with the Commission ; the Registration Statement, along with
all pre-effective amendment with respect thereto filed with the Commission
as of the date hereof, each in the form heretofore delivered to the Lead
Manager, and excluding exhibits, to the Lead Manager for each of the other
Underwriters, have been declared effective by the Commission in such form;
no other document with respect to the Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Registration Statement and any post-effective
amendment thereto has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission ( any preliminary prospectus
included in the Registration Statement or filed with the Commission
pursuant to Rule 424 (a) of the rules and regulations of the Act is
hereinafter called a "U.S. Preliminary Prospectus"); the various parts of
the Registration Statement, including all exhibits thereto and including
the information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424 (b) under the Securities Act are deemed by
virtue of Rule 430A under the Securities Act to be part of the Registration
Statement at the time it was declared effective, as amended at the time
such part to the Registration Statement became effective, are hereinafter
collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424 (b) under the Act,
is hereinafter called the "U.S. Prospectus".
-6-
<PAGE>
(vi) No order preventing or suspending the use of any Preliminary U.S.
Prospectus has been issued by the Commission, and the Registration
Statement and the U.S. Prospectus and any further amendments or supplements
thereto when they become effective or are filed with the Commission, as the
case may be, conformed in all material aspects to the requirements of the
Securities Act and the rules and regulations of the Commission.
-7-
<PAGE>
Capital Stock
(vii) The Company has an authorised, issued and outstanding capitalisation
as set forth in the Offering Documents. All of the issued shares of capital
stock of the Company have been duly authorised and validly issued and are
fully paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws and were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase such securities. The Offered Shares have been
duly authorised by all necessary corporate action of the Company, and
subject only to the delivery of the consideration required hereunder by the
Underwriters have been validly issued, are fully paid and nonassessable and
good and marketable title of the Shares will be delivered which are free
and clear of any security interests, liens, encumbrances, equities, claims
or other defects. Except as set forth in the Offering Document , no holders
of outstanding shares of capital stock of the Company are entitled as such
to any pre-emptive or other rights to subscribe for any of the shares of
capital stock of the Company.
(viii) Except as disclosed in the Offering Documents, there are no
outstanding securities or obligations of the Company or any of its
Subsidiaries convertible into or exchangeable for any capital stock of the
Company or any such Subsidiary, warrants, rights or options to subscribe
for or purchase from the Company or any such Subsidiary any such capital
stock or any such convertible or exchangeable securities or obligations, or
obligations of the Company or any such Subsidiary to issue and any such
convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(ix) Except as disclosed in the Offering Documents , neither the Company
nor any such Subsidiary owns any shares of stock or any other equity of any
corporation or has any equity interest in any firm, partnership,
association or other entity, except as described in or contemplated by the
Offering Documents.
Corporate power and authority
(x) The Company and its Subsidiaries have been duly incorporated and are
validly existing as a corporation in good standing under the laws of the
jurisdiction of incorporation with full power and authority to own, lease
and operate its properties and assets and conduct its respective business
as described in the Offering Documents, are duly qualified to transact
business and are in good standing in each jurisdiction in which its
ownership, leasing or operation of its properties or assets or the conduct
of its business requires such qualification, except where the failure to be
so qualified does not amount to a material liability or disability to the
Company and its Subsidiaries, taken as a whole, and has sufficient
authority to execute and perform its obligations under this Agreement; The
Company and its Subsidiaries each have full power and authority to own,
lease and operate its properties and assets and conduct its business as
described in the Offering Documents; all of the issued and outstanding
shares of capital stock of the Company and each of the Company's
Subsidiaries have been duly authorised and are fully paid and nonassessable
-8-
<PAGE>
and, except for directors' qualifying shares and as otherwise set forth in
the Offering Documents, are owned beneficially by the Company free and
clear of any security interests, liens, encumbrances, equities or claims.
(xi) The execution and delivery of this Agreement have been duly authorised
by all necessary corporate action of the Company, and this Agreement has
been duly executed and delivered by the Company and when duly executed and
delivered by the other parties hereto will be the valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms.
(xii) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement, the issuance and sale
of the New Shares to the Underwriters, for such purpose represented by
NORD/LB, acting in the name and for account of the Underwriters by the
Company pursuant to this Agreement, the compliance by the Company with the
other provisions of this Agreement and the consummation of the other
transactions herein contemplated do not require the consent, approval,
authorisation, registration, filing or qualification of or with any
governmental authority, except such as have been obtained or conflict with
or result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
or any of their respective properties are bound, or the charter documents
or by-laws of the Company or any of its Subsidiaries, or any statute or any
judgement, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or any
of its Subsidiaries.
(xiii) Neither the Company nor any of its Subsidiaries are in violation of
any term or provision of its charter documents or by-laws, or in breach of
or in default under any statute or any judgement, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator
applicable to the Company or any of its Subsidiaries, the consequence of
which violation, breach or default would have a materially adverse effect
on or constitute a materially adverse change in, or constitute a
development involving a prospective materially adverse effect on or change
in, the condition (financial or otherwise), earnings, properties, business
affairs or business prospects, net worth or results of operations of the
Company and its Subsidiaries, taken as a whole.
(xiv) The Company and each of its Subsidiaries have valid title to all
properties and assets owned by each of them, in each case free and clear of
any security interests, liens, encumbrances, equities, claims and other
defects, with such exceptions that do not materially and adversely affect
the value of such property and do not interfere in any material respect
with the use made or proposed to be made of such property by the Company or
such Subsidiary, and any real property and buildings held under lease by
the Company or any such Subsidiary are held under valid, subsisting and
enforceable leases, with such exceptions that are not material and do not
interfere in any material respect with the use made or proposed to be made
of such property and buildings by the Company or
-9-
<PAGE>
such subsidiary, in each case except as described in or contemplated by the
Offering Documents
(xv) The Company and its Subsidiaries have sufficient interests in all
patents, trademarks, servicemarks, trade names, copyrights, trade secrets,
information, proprietary rights and processes ("Intellectual Property")
material for their business as described in the Offering Documents
("Business") and, to the Company's knowledge, necessary in connection with
the products and services under development, in each case, to the knowledge
of the Company after due inquiry without any conflict with or infringement
of the interest of others, and have taken all steps necessary to secure
interests in such Intellectual Property from their contractors except as
set forth in the Offering Documents, and the Company is not aware of
outstanding options, licenses or agreements of any kind relating to the
Intellectual Property of the Company which are required to be set forth in
the Offering Documents and, except as set forth in the Offering Documents,
neither the Company nor any of its Subsidiaries is a party to or bound by
any options, licenses or agreements with respect to the Intellectual
Property of any other person or entity which are required to be set forth
in the Offering Documents. None of the technology employed by the Company
has been obtained or is being used by the Company or its Subsidiaries in
violation of any contractual or fiduciary obligation binding on the Company
or any of its Subsidiaries or any of its directors or executive officers
or, to the Company's knowledge, any of its employees or otherwise in
violation of the rights of any persons, except as disclosed in the Offering
Documents. Neither the Company nor any of its Subsidiaries has received any
written or, to the Company's knowledge, oral communications alleging that
the Company or any of its Subsidiaries has violated, infringed or
conflicted with, or, by conducting its Business as set forth in the
Offering Documents, would violate, infringe or conflict with any of the
Intellectual Property of any other person or entity other than any such
violation, infringement or conflict which would not have a materially
adverse effect on the Business, the then current consolidated financial
position, stockholders' equity or results of operations of the Company and
its Subsidiaries taken as a whole; neither the execution nor the delivery
of this Agreement, nor the operation of the Business by the employees of
the Company and its Subsidiaries, nor the conduct of the Business as
described in the Offering Documents will result in any breach or violation
of the terms, conditions or provisions of, or constitute a default under
any material contract covenant or instrument known to the Company under
which any of such employees is now obligated, and the Company and its
Subsidiaries have taken and will maintain reasonable measures to prevent
the unauthorised dissemination or publication of their confidential
information and, to the extent contractually required to do so, the
confidential information of third parties in their possession.
(xvi) The execution and delivery by the Company of this Agreement, the
issue and sale of the Firm Shares, and the compliance by the Company with
the provisions of this Agreement and the consummation of the transactions
herein and therein contemplated do not require any consent, authorisation,
order,
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<PAGE>
registration or qualification (each a "Governmental Authorisation") of or
with any court or governmental, regulatory or stock exchange authority
having jurisdiction over the Company or any Subsidiary or any of their
respective assets, or over the Offering or any portion thereof, (each a
"Governmental Authority"), except the registration of the Shares under the
securities or similar laws of the United States, the admission to the
Regulated Market (Geregelter Markt) with trading on the "Neuer Markt" and
such Governmental Authorisations that have been duly obtained and which are
in full force and effect and copies of which have been furnished to the
Lead Manager.
Dividends and Distributions
(xvii) Under applicable law and regulations, no authorisations, approvals,
consents or licenses of any governmental authority or regulatory body or
agency are required with respect to, and the Company is not currently
prohibited, and no Subsidiary of the Company is currently prohibited, in
each case directly or indirectly, from paying any dividends or from making
any other distribution on the Company's or such Subsidiary's capital stock,
respectively, out of positive retained earnings or from repaying to the
Company or its stockholders, respectively, any loans or advances to such
Subsidiary from the Company or to the Company from such stockholders, as
the case may be.
Taxes
(xviii) The Company and its Subsidiaries have filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a materially adverse effect on the Company and its
Subsidiaries, taken as a whole) and have paid all taxes required to be paid
by it and any other assessment, fine or penalty levied against it to the
extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith
or as described in or contemplated by the Offering Documents.
(xix) No issue or transfer taxes and no other similar taxes or duties are
payable by or on behalf of the Underwriters to the Federal Republic of
Germany and the United States of America or any political subdivision or
taking authority thereof or therein in connection with:
(i) the sale and delivery by the Company of the New Shares or for the
respective accounts of the Underwriters' and
(ii) the sale and delivery outside the Federal Republic of Germany or the
United States of America by the Underwriters of the New Shares to the
Underwriters thereof.
Insurance
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<PAGE>
(xx) The Company and each of its Subsidiaries are insured by insurers of
recognised financial responsibility against such losses and risks and in
such amounts as it believes are prudent and customary in the business in
which they are engaged; neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for; and neither the
Company nor any such Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings
properties, business affairs or business prospects, net worth or results of
operations of the Company and its Subsidiaries, taken as a whole, except as
described in or contemplated by the Offering Documents.
Legal or Arbitration Proceedings
(xxi) Except as disclosed in the Offering Documents, there has been no
action, suit or legal, arbitration or governmental proceeding by or against
the Company or any of its Subsidiaries prior to the signing hereof and
there is no such proceeding pending that has had, and the Company does not
believe that there are any threatened legal, arbitration or governmental
proceedings by or against it or any of its Subsidiaries which would have a
materially adverse effect on the Business, the current consolidated
financial position, stockholders' equity or results of operations of the
Company and its Subsidiaries taken as a whole.
Other Agreements
(xxii) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a default in the due performance
and observance of any term, covenant or condition of any mortgage, deed of
trust, lease or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties is bound that would,
individually and in the aggregate, have a materially adverse effect on or
constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the
condition (financial or otherwise), earnings, properties, business affairs
or business prospects, net worth or results of operations of the Company
and its Subsidiaries, taken as a whole, except as described in the Offering
Documents.
Absence of Materially Adverse Change
(xxiii) Subsequent to the date of the latest audited financial statements
contained in the Offering Documents, neither the Company nor any of its
Subsidiaries have sustained any material loss or interference with their
respective Business or properties from fire, explosion or flood or any
other calamity, whether or not covered by insurance, or from any labour
dispute or any legal or governmental proceeding, and there has been no
materially adverse change (including, without limitation, a change in
management or control), or development involving a prospective materially
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adverse change, in the condition (financial or otherwise), management,
earnings, property, business affairs, debt structure, stockholders' equity
or business prospects, net worth or results of operations of the Company
and its Subsidiaries, taken as a whole, other than as described in or
contemplated by the Offering Documents.
Description of Shares
(xxiv) The Shares of common stock conform in all material respects to the
descriptions therefore contained in the Offering Documents.
Financial Statements
(xxv) The consolidated financial statements included in the Offering
Documents present fairly the financial position and results of operations
of the Company and its Subsidiaries on a consolidated basis . present
fairly the financial position and results of operations of COPE, Inc. at
the respective dates or for the respective periods to which they apply and
such consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States ("U.S.
GAAP") applied on a consistent basis throughout the respective periods
involved, except as stated in the Offering Documents.
Approval of the Offering Documents
(xxvi) The (i) German Prospectus, as filed with the Admission Office of the
Frankfurt Stock Exchange and (ii) the Registration Statement / U.S.
Prospectus as filed with the Securities and Exchange Commission - have
been, as of the date hereof, declared approved or effective, as the case
may be, or are expected to be declared approved or effective by .......,
1999, as the case may be.
Others
(xxvii) Neither the Company nor any of its Subsidiaries have taken,
directly or indirectly, any action which was designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilisation or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Firm Shares.
(xxviii) The Company and each of its Subsidiaries have all licenses,
franchises, permits, authorisations, approvals and orders and other
concession, including those of and from all Governmental Authorities, that
are necessary to own or lease their properties and conduct their respective
Businesses and that are material to the Company and its Subsidiaries taken
as a whole.
(xxix) The Company has taken and will take all necessary steps which the
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Company itself, its advisors or other external sources deem to be necessary
to comply with the requirements of the Year 2000 Problem.
(b) Warranties of the Selling Stockholder and the Major Existing
Stockholders
As a further condition of the obligation of the Underwriters to purchase
the Firm Shares, the Selling Stockholder, regardless of fault, warrants to
each of the Underwriters and the Major Existing Stockholders, severally and
not jointly, regardless of fault, warrant to the Lead Manager for purposes
of the Greenshoe Option that:
(i) Such Selling Stockholder and such Major Existing Stockholder have full
power to enter into this Agreement and to sell, assign, transfer and
deliver to the Underwriters or the Lead Manager, the Selling Stockholder
Shares or the Greenshoe Shares in accordance with the terms of this
Agreement; if applicable, the execution and delivery of this Agreement have
been duly authorised; and this Agreement has been duly executed and
delivered by such Selling Stockholder and such Major Existing Stockholder.
(ii) Such Selling Stockholder and such Major Existing Stockholders are the
lawful owners of the Selling Stockholder Shares or the Greenshoe Shares to
be sold by such Selling Stockholder or such Major Existing Stockholders
hereunder and upon sale and delivery of, and payment for, such Selling
Stockholder Shares or Greenshoe Shares, as provided herein, will convey
good and marketable title to the respective shares, free and clear of any
security interests, liens, encumbrances, equities, claims or other defects.
(iii) To the extent that any statements or omissions are made in any
Offering Documents or any amendment or supplement thereto in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder or such Major Existing Stockholders specifically for
use therein, such Offering Document or amendment or supplement thereto did
not or will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. The Selling Stockholder and the Major Existing Stockholders, in
particular, warrant that the Offering Documents are accurate as to Hicomp
(in the case of the Selling Stockholder) or COPE, Inc. and its Subsidiaries
(in the case of the Major Existing Stockholders), being duly incorporated,
having a good standing under the law of its jurisdiction and having validly
issued and fully paid all Shares.
(iv) The execution and delivery by the Selling Stockholder or such Major
Existing Stockholder of, and the performance by such Selling Stockholder or
such Major Existing Stockholder of its obligations under, this Agreement,
the sale of the Selling Stockholder Shares and the Greenshoe Shares to the
Underwriters or the Lead Manager by the Selling Stockholder or such Major
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<PAGE>
Existing Stockholder pursuant to this Agreement, the compliance by
such Selling Stockholder or such Major Existing Stockholder with the
other provisions of this Agreement and the consummation of the other
transactions herein contemplated do not require the consent,
approval, authorisation, registration or qualification of or with any
governmental authority, except such as have been obtained or made or
conflict with or result in a breach or violation of any of the terms
and provisions of or constitute a default under any indenture,
mortgage, deed of trust, lease or other agreement or instrument to
which the Selling Stockholder or such Major Existing Stockholder is a
party or by which the Selling Stockholder or such Major Existing
Stockholder or any of such Selling Stockholder's or any such Major
Existing Stockholder's properties are bound or any statute or any
judgement, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to such Selling
Stockholder or such Major Existing Stockholder.
(v) Except as permitted by the Act, the Selling Stockholder and such
Major Existing Stockholder have not distributed and, prior to the
later of the Second Closing Date and the completion of the
distribution of the Firm Shares, will not distribute any offering
material in connection with the Offering other than Offering
Documents and any amendment or supplement thereto.
(vi) The Selling Stockholder and the Major Existing Stockholder have
not taken and will not take, directly or indirectly, any action which
is designed to or which is constituted or which might reasonably be
expected to cause or result in stabilisation and manipulation of the
price of the Offered Shares to facilitate the sale or resale of such
Offered Shares.
(c) The above warranties as specified in Article 2 (a) and (b) shall be
deemed to be repeated at the Second Closing Date.
Article 3 Undertakings
(a) Undertakings of the Company
The Company undertakes to each Underwriter that:
(i) The Company will furnish to the Underwriters, without charge as
many of the Offering Documents and any supplements or amendments
thereto, which are deemed to be necessary in order to comply with all
legal requirements applicable in the Federal Republic of Germany and
the United States of America and all applicable rules and/or
regulations of any competent Governmental Authority and the Stock
Exchanges, as they may reasonably request, and if, at any time until
six months from the completion of the Offering ( as determined by the
Lead Manager), any event shall have occurred or condition shall exist
as a result of which it is necessary, in the reasonable opinion of the
Lead Manager, to amend or supplement any Offering Document.
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<PAGE>
(ii) Any Offering Documents and any supplements or amendments thereto
shall be in a form approved by the Lead Manager on behalf of the
Underwriters and no amendment or supplement to any Offering Document
shall be effected (i) without prior written notice thereof to the Lead
Manager and (ii) which has been reasonably disapproved by the Lead
Manager promptly after such notice thereof.
(iii) If, at any time prior to the date on which all of the Firm Shares
shall have been sold by the Underwriters, any event occurs as a result
of which either Offering Document, as amended or supplemented, would
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or if for any other reason it shall be necessary at any time to amend or
supplement either Offering Document to comply with applicable law or
stock exchange regulations, the Company will promptly notify the Lead
Manager and will promptly, at its own expense, prepare an amendment or
supplement of the Offering Documents which will correct such statement
or omission or effect such compliance and supply any amended Offering
Document to the Lead Manager as the Lead Manager may reasonably request.
(iv) The Company has filed a registration statement on Form SB-2 (File
No. 333____) for purposes of being declared effective by the Securities
and Exchange Commission and has made application for the Shares of
common stock to be admitted to the Regulated Market (Geregelter Markt)
with admission to trading on the Neuer Markt of the Frankfurt Stock
Exchange and to the NASDAQ National Market and, if such declarations of
approval have not been become effective as of the date hereof, will use
its best efforts to obtain such an approval by the Securities and
Exchange Commission and the Admission Office of the Frankfurt Stock
Exchange as soon as possible and will furnish to the Securities and
Exchange Commission, and the Admission Office of the Frankfurt Stock
Exchange any and all documents, instruments, information and warranties
that may be necessary or advisable in order to obtain such declarations
of approval as soon as possible.
(v) Promptly after receipt thereof, the Company will notify the Lead
Manager of any communication received by it from any governmental or
other authority or regulatory body, agency or organisation that may have
a material and adverse effect on the offer and sale of the Offered
Shares or relating to the form, content or use of any Offering Document,
and, to the extent permitted by applicable law, the Company will
promptly provide the Lead Manager with copies of any such communication
that it received in writing.
(vi) Prior to the date hereof and between the date hereof and the Second
Closing Date the Company has not issued and shall not issue any public
announcement in Germany, Switzerland or elsewhere, specifically in the
United States of America, without prior notification and consultation
and prior consent of the Lead Manager regarding such announcement. This
shall, in particular, refer to the applicable SEC rules.
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<PAGE>
(vii) The Company undertakes that it shall not publicly announce any
intention to offer, pledge, sell, offer to sell, or otherwise transfer
or dispose of, directly or indirectly any Shares of common Stock or any
securities convertible into, or exercisable or exchangeable for any
shares of Common Stock, or enter into any swap other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of ownership of the Shares of common stock or taking other
measures economically equivalent to a sale for a period beginning as of
the date of admission of the Shares of common stock to the Neuer Markt
and continuing to and including six months after the date thereof and
for another six months without the prior written consent of the Lead
Manager, acting on behalf of the Underwriters and Deutsche Borse AG,
unless this is required by binding law. NORD/LB may refuse its consent
only if it establishes a justified interest. The restrictions described
in the previous paragraph do not apply to the sale to the Underwriters
of the New Shares under the Underwriting Agreement, issuances of common
shares upon the exercise of common stock purchase warrants outstanding
as of the date hereof and certain shares of common stock or options to
purchase shares of common stock pursuant to the Company's employee
benefit plans (Stock Option Plans) as in existence on the date of the
Underwriting Agreement (which shall not be exercised within six months
after the admission of the Shares of common stock at the Frankfurt Stock
Exchange "Neuer Markt") and any acquisitions by the Company within the
framework of its current business policy as contemplated on the date of
the Underwriting Agreement and as included in the Offering Documents,
provided that these acquisitions are executed by means of an exchange of
shares or a capital increase of the share capital against non-cash
capital contributions.
(viii) The Company shall comply with the requirements as an issuer in
accordance with Article 15 of the Securities Trading Act
("Wertpapierhandelsgesetz")
(ix) The Company has obtained the signatures of those existing
shareholders identified by the Lead Manager in accordance with the rules
and regulations of the Frankfurt Stock Exchange "Neuer Markt" expressing
their acceptance of the Market-Protection Regulations
("Marktschutzbestimmungen") and has delivered such declarations to the
Lead Manager.
(x) The Company has accepted the "Ubernahmecodex der
Borsensachverstandigenkommission beim Bundesministerium der Finanzen"
(Takeover Code of the Exchange Expert Commission at the Federal Ministry
of Finance) dated 14 July 1995 and has delivered such declaration to the
Lead Manager.
(xi) The Company shall make available to its stockholders, as soon as
practicable after the end of each fiscal year, an annual report (in
English and in German) (including a balance sheet and statements of
income, shareholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants
and prepared in conformity with U.S. GAAP) and as soon as practicable
after the end of each fiscal quarter consolidated
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<PAGE>
summary financial information of the Company and its Subsidiaries in
reasonable detail, prepared in accordance with U.S. GAAP ("Quarterly
Reports")
(xii) The Company shall file an Annual Report on Form 10-KSB with the
Commission during the period of five years from the effective date of
the Registration Statement to the extent required by law, and during
such time, to file with the Commission within the time periods specified
in Form 10 QSB after the end of each of the first three fiscal quarters
of each year in such period a report on Form 10-QSB.
(xiii) The Company shall not (and shall not cause any of its
Subsidiaries to) take, directly or indirectly, any action which is
designed to or which constitutes or which might reasonably be expected
to cause or result in stabilisation or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(xiv) The Company shall use the net proceeds received by it from the
sale of the New Shares pursuant to this Agreement in the manner
specified in the Offering Documents.
(xv) The Company shall hold a meeting of analysts at least once a year.
(xvi) The Company shall make generally available to its security holders
as soon as practicable, but in any event not later than ________, 2000
(eighteen months after the effective date of the Registration Statement
(as de-fined in Rule 158 (c ) under the Act), an earnings statement of
the Company and its Subsidiaries (which not be audited) complying with
Section 11 (a) of the Act and the rules and regulations of the
Commission thereunder (including at the option of the Company, Rule 158)
(xvii) The Company has entered into "Designated Sponsor" contracts with
the Lead Manager and HSBC Trinkaus & Burkhardt KGaA.
(b) Undertakings of the Selling Stockholder and the Major Existing
Stockholders
The Selling Stockholder and each of the Major Existing Stockholders,
severally and not jointly, undertake to each Underwriter or, in the case
of the Greenshoe Option, to the Lead Manager:
(i) not to pledge, sell, offer to sell, or otherwise transfer or dispose
of, directly or indirectly any Shares of common stock or any securities
convertible into, or exercisable or exchangeable for any Shares of
common stock, or enter into any swap other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of the Shares of common stock, or taking other measures
economically equivalent to a sale for a period of at least six months
from the date of the admission of the Shares to the Neuer Markt. An
exemption thereof is subject to the prior written consent of both, the
Lead
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<PAGE>
Manager and Deutsche Borse AG and for another six months without the prior
written consent of the Lead Manager.
With regard to the Major Existing Stockholders, the foregoing does not
apply to the sale of the Greenshoe Shares as contemplated in Article 1 (b).
(ii) The Selling Stockholder and each of the Major Existing Stockholders
undertake to comply with the Market-Protection Regulations
("Marktschutzbedingungen")
Article 4 Payment of Expenses
The Company agrees with the Lead Manager that in addition to its other
obligations hereunder it will pay or cause to be paid the following:
(a) The Company and the Selling Stockholder (2/3 of the expenses of this
Article 4 (a) will be borne by the Company, 1/3 of the expenses of this
Article 4 (a) will be borne by the Selling Stockholder) will bear all
incurred pertinent costs and fees. In particular, pertinent costs shall
constitute the following:
(i) all costs incurred in conjunction with the production of the German or
the U.S. Prospectus (e.g. printing and distribution)
(ii) the cost of preparing certificates in definitive form representing
the Shares, if applicable
(iii) the costs for the publication of the Offering and the notification
thereof, and, if necessary, any supplements and other obligatory
publications
(iv) all other costs based on submitted records (e.g. costs for roadshows,
translations, etc.)
(v) all costs in conjunction with the publication of tombstone ads in
national dailies (in accordance with the marketing concept)
(vi) such expenses and listing fees as required in connection with the
listing of the Shares on the Frankfurt Stock Exchange and on the NASDAQ
National Market.
(vii) a banking lump-sum amount of DEM 50,000, per value of the First
Closing Date
(viii) all incurred costs in conjunction with the Legal and the Financial
Due Diligence.
(b) The Company, the Selling Stockholder and the Major Existing Stockholders
each agree to bear the costs of its own respective outside legal,
financial, advertising and other advisors in connection with the
transactions referred to in this Underwriting Agreement. The Company, the
Selling Stockholder and the Major
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<PAGE>
Existing Stockholders shall not bear the legal fees as incurred by
the Underwriters.
(c) The Company will bear the commission of the Underwriters' function as
paying and depositary agents with regard to - if applicable - the payment
of dividends by the Company. The applicable commission is subject to change
and may thus be adapted to current rates.
(d) The Company shall pay to the Lead Manager and to HSBC Trinkaus & Burkhardt
KGaA for its activities as a Designated Sponsor the amounts as specified in
the respective Designated Sponsor contracts.
Article 5 Underwriters' Commission and Listing Commission
In consideration of the agreement by the Underwriters to purchase the Firm
Shares as set forth above, the Company and the Selling Stockholder shall
pay to the Underwriters (a) a selling and underwriting commission of 5 %
of the Offer Price and (b) the listing commission of DEM 150,000
(Borseneinfuhrungsprovision, the "Listing Commission"). 2/3 of such
commissions shall be borne by the Company, 1/3 of such commissions shall be
borne by the Selling Stockholder). The Underwriters shall be entitled to
deduct the respective amounts of (a) the Underwriters' selling and
underwriting commission and (b) the Listing Commission from the gross
proceeds to be paid to the Company and the Selling Stockholder for the New
Shares and the Selling Stockholder Shares.
Upon exercise of the Greenshoe Option by NORD/LB pursuant to Article 1 (b)
hereof, each of the Major Existing Stockholders, as the case may be, shall
pay to NORD/LB the selling and underwriting commission of 5 % of the
aggregate gross proceeds for the number of Greenshoe Shares as set forth in
the Exercise Notice for each of the Major Existing Stockholder. The Lead
Manager shall be entitled to deduct the selling and underwriting commission
from such gross proceeds to be paid to each of the Major Existing
Stockholders.
Article 6 Indemnity
(a) The Company (the "Indemnifying Party") agrees to indemnify each Underwriter
and its directors, officers, employees, advisors, any affiliate of such
Underwriter and each person who may be deemed to control such Underwriter
(each an "Indemnified Party"), against any losses, claims or damages or
liabilities to which such Indemnified Person may become subject in
conjunction with any violation of any provision of this Underwriting
Agreement by the Company or any liabilities the Underwriters may incur in
conjunction with the provisions of the Securities Act. The Company shall
indemnify the Underwriters, in accordance with existing law, against any
losses, claims, damages, liabilities and expenses (including legal expenses
and fees) which the Underwriters, severally or jointly, sustain or incur
following threatened or asserted claims in connection with legal
proceedings subject to the fact that the proceedings or claims are based on
the Offering Documents being inaccurate, incorrect or incomplete or the
violation of other obligations or requirements in conjunction
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<PAGE>
with the admission of the Shares to the Stock Exchanges and the declaration
of effectiveness of the Registration Statement by the Commission, provided
that the Company shall not be liable in the event that
(i) the Lead Manager in conjunction with the admission of the Shares at
the Frankfurt Stock Exchange the Company does not observe the procedural
rules and regulations of the Frankfurt Stock Exchange or
(ii) any liability that is based upon any untrue or alleged untrue
statement of any material fact contained in the Offering Documents (with
regard to the sections "Certain Tax Consequences Under German Laws" and
"Neuer Markt"), or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Offering Documents (with regard to the
sections "Certain Tax Consequences Under German Laws" and "Neuer Markt")
and the , or any amendment or supplement thereto, in reliance upon and in
conformity with any written information furnished to the Company by the
Lead Manager specifically for use in the preparation thereof.
(b) The Underwriters (the "Indemnifying Party") agree to indemnify, but only to
the extent that the respective Underwriter(s) has/have violated any of the
terms of the Underwriting Agreement, the Company and its directors,
officers, employees, advisors, any subsidiaries of the Company (each an
Indemnified Party) against any losses, claims or damages or liabilities and
expenses (including legal expenses and fees) to which such Indemnified
Party may become subject to in conjunction with any violation of the terms
of this Underwriting Agreement by the Underwriters.
(c) The Selling Stockholder (the "Indemnifying Party") agrees to indemnify each
Underwriter and its directors, officers, employees, advisors, any affiliate
of such Underwriter and each person who may be deemed to control such
Underwriter (each an "Indemnified Party"), against any losses, claims or
damages or liabilities to which such Indemnified Person may become subject
in conjunction with any violation of any provision of this Underwriting
Agreement by the Selling Stockholder. The Selling Stockholder shall
indemnify the Underwriters, in accordance with existing law, against any
losses, claims, damages, liabilities and expenses (including legal expenses
and fees) to the extent, but without limitation thereto, that any
statements or omissions are made in any Offering Documents or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder
specifically for use therein, such Offering Document or amendment or
supplement thereto did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
The Selling Stockholder shall indemnify the Underwriters regarding the
Offering Document as to Hicomp, being accurately described therein, being
duly
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incorporated, having a good standing under the law of its jurisdiction
and having validly issued and fully paid all shares.
(d) Each or both of the Major Existing Stockholder(s), as the case may be, (the
"Indemnifying Party") agree(s) to indemnify each Underwriter and its
directors, officers, employees, advisors, any affiliate of such Underwriter
and each person who may be deemed to control such Underwriter (each an
"Indemnified Party"), against any losses, claims or damages or liabilities
to which such Indemnified Person may become subject in conjunction with any
violation of any provision of this Underwriting Agreement by each or both
of the Major Existing Stockholder(s), as the case may be. The Major
Existing Stockholder(s) shall, in particular, but without limitation
thereto, indemnify the Underwriters, in accordance with existing law,
against any losses, claims, damages, liabilities and expenses (including
legal expenses and fees) to the extent that any statements or omissions are
made in any Offering Documents or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by such Major Existing Stockholder specifically for use therein,
such Offering Document or amendment or supplement thereto did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The Major Existing Stockholder(s) shall indemnify the Underwriters
regarding the Offering Document as to COPE, Inc. and its Subsidiaries,
being accurately described therein, being duly incorporated, having a good
standing under the law of its jurisdiction and having validly issued and
fully paid all Shares.
(e) No Indemnified Party, as defined in subsections (a) to (d) above, shall,
without the written consent of the Indemnifying Party, effect the
settlement or compromise of, or consent to the entry of any judgement with
respect to, any pending or threatened action or claim in respect of which
indemnification may be sought hereunder, accept a claim, conclude a
settlement or waive a remedy if, by doing so, a claim could be
substantiated and sought pursuant to this Agreement.
(f) If any action, suit, proceeding (including any governmental or regulatory
investigation) claim or demand ("Action") shall be brought or asserted
against any Indemnified Party under subsection (a), (b), (c ) and (d) in
respect of which indemnity may be sought pursuant to this Article 8, the
Indemnified Party shall promptly notify the Indemnifying Party in writing.
The omission to promptly notify the Indemnifying Party shall not relieve it
from any liability which it may have to any Indemnified Party, except to
the extent that the delayed notification impaired the Indemnifying Party's
ability to influence the outcome of the Action. Promptly upon receipt of
such notice by the Indemnified Party, the Indemnifying Party may retain
legal advisers reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others, the Indemnifying Party may
assume the defence of such Action and shall retain such legal advisers
related to such Action. In any Action for which the Indemnifying Party has
assumed the defence and retained legal advisers, any Indemnified Party
shall have the
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right to retain its own legal advisers, but the fees and
expenses of such legal advisers shall be the liability of such Indemnified
Party, unless any of the following circumstances occur in which case they
shall be the liability of the Indemnifying Party:
(i) the Indemnifying Party has failed within a reasonable time to retain
legal advisers reasonably satisfactory to the Indemnified Party or
(ii) the parties in any such Action include both the Indemnifying Party and
the Indemnified Party and representation of both parties by the same legal
advisers would be inappropriate due to actual or potential differing
interests between them or
(iii) the Indemnified Party could raise defences in the Action which are
not available to the Indemnifying Party.
The Indemnifying Party shall not, in connection with any Action or related
action in the same jurisdiction, be liable (except as mentioned above) for
the fees and expenses of more than one separate firm of legal advisers ( in
addition to any local legal advisers) for all Indemnified Parties, and all
such fees and expenses shall be reimbursed as the are incurred.
(g) The foregoing indemnities shall remain unaffected by any termination of
this Agreement or the completion of the Offering, as contemplated by this
Agreement.
(h) The respective obligations of the Company and the Underwriters under this
Article 6 shall be in addition to any liability which such parties may
otherwise have.
Article 7 Conditions Precedent
The obligations of the Underwriters to purchase and pay for the Firm
Shares shall be subject, in the Underwriters' sole discretion, to the
following conditions:
(a) the Lead Manager shall have received
(i) certified copies of the resolutions of the Board of Directors and
Stockholders
of the Company authorising the issue of the Offered Shares. ;
(ii) a legal opinion from Oppenheimer Wolff & Donnelly LLP, dated the First
Closing and the Second Closing Date, in form and substance satisfactory to
the Lead Manager and to the effect substantially in the form set forth in
Annex A ;
(iii) a legal opinion from Oppenheimer Wolff & Donnelly LLP, dated the
Second Closing Date, in form and substance satisfactory to the Lead Manager
and to the effect substantially in the form set forth in Annex B ("10b-5
Opinion);
(iv) a letter dated, respectively, the First Closing Date and the Second
Closing Date from Dr. Ebner, Dr. Stolz & Partner, in form and substance
satisfactory to the Underwriters and to the effect substantially in the
form set forth in Annex C;
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(v) a certificate, in a form satisfactory to the Lead Manager, dated as of
the Second Closing Date of duly authorised officers of the Company as to
(A) the accuracy of the warranties of the Company at and as of the date of
such certificate, (B) the performance by the Company of all its obligations
to be performed hereunder at or prior to such date, (C ) the filing of all
Offering Documents required to be filed under applicable law in the Federal
Republic and in the United States as of the date of this Agreement and (D)
the absence of any material averse change as specified in Article 8 (c ) in
the form set forth in Annex D and;
(vi) certificates, in a form satisfactory to the Lead Manager, dated of the
Second Closing Date of the Selling Stockholder and the Major Existing
Stockholders as to (A) the accuracy of the warranties of the Selling
Stockholder and the Major Existing Stockholders, and (B) the performance of
the Selling Stockholder and the Major Existing Stockholders of all his
obligations to be performed hereunder in the form set forth in Annexes E, F
and G.
(vii) a letter dated, respectively, the First Closing Date and the Second
Closing Date from ATAG Ernst & Young, in form and substance satisfactory to
the Lead Manager and to the effect substantially in the form set forth in
Annex H;
(b) The Shares have been admitted to the Regulated Market ("Geregelter Markt")
with admission to trading on the Neuer Markt of the Frankfurt Stock
Exchange and the Registration Statement as filed with the Securities and
Exchange Commission has been declared effective.
(c) There has been no event making any of the warranties or undertakings or
their performance by the Company, the Selling Stockholder and the Major
Existing Stockholders contained in Articles 2 and 3 untrue or incorrect and
the Company, the Selling Stockholder and the Major Existing Stockholders
have not been in non-compliance with any of their other undertakings or
warranties set forth in this Agreement, in each case material for the
Offering.
(d) The Lead Manager on behalf of the Underwriters shall have received from the
Company 3 copies of each of the Offering Documents duly signed by two
officers of the Company with sufficient power to represent the Company in
such matters.
(e) On or before the Second Closing Date the Lead Manager on behalf of the
Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company,
the Selling Stockholder and the Major Existing Stockholders.
(f) The actions as specified for purposes of the First Closing, Article 1
(a)(iii)(A) and Article 1 (c ) have been fully and finally performed.
(g) The Company or any of its Subsidiaries sustained any material loss or
interference with their respective Business or properties from any accident
or calamity, whether or not covered by insurance or from any legal or
governmental
-24-
<PAGE>
proceeding, or there shall have been any materially adverse change, or a
development involving a prospective materially adverse change in the
condition (financial or otherwise), any change in the capital stock or
debt structure management, earnings, properties, business affairs,
stockholders' equity or business prospects, net worth or results of
operations of the Company or any of its Subsidiaries, except in each case
contemplated in the Offering Documents. ("Material Adverse Change")
(h) The Underwriters, in their sole discretion, shall have the right to waive,
any of the conditions as specified in Article 7 (a) - (g).
(i) Notwithstanding the foregoing of this Article 7
(i) the obligation of the Company and the Selling Stockholder to pay to
the Lead Manager on behalf of the Underwriters the expenses, to the extent
incurred, by the Underwriters, the banking lump-sum amount of DEM 50,000
and all costs of third parties which NORD/LB, in agreement with the
Company -has engaged, shall continue in full force and effect; and
(ii) any liability (including as to Article 6) as a result of any prior
breach of the provisions of this Agreement shall continue in full force
and effect.
Article 8 Termination
(a) Under the following circumstances, at the sole discretion of the Lead
Manager on behalf of the Underwriters (in the case of Article 8 (a)(i)) or
in the opinion of the Underwriters (in the case of Article 8 (a)(ii) -
(iv)), this Agreement may be terminated by notice in writing to the
Company, the Selling Stockholder and the Major Existing Stockholders. This
Agreement may only be terminated until the first day of listing of the
Shares at the Frankfurt Stock Exchange, "Neuer Markt".
(i) The Legal Due Diligence or the Financial Due Diligence produces
substantially new and materially adverse findings
(ii) The occurrence of any substantial alterations in the capital markets in
the wake of extraordinary and inevitable events of an economic and/or
political nature whereby the successful execution of this Secondary Public
Offering is endangered or if this Secondary Public Offering is deemed to
be no longer reasonable for the Underwriters.
(iii) The Company or any of its Subsidiaries sustained any material loss or
interference with their respective Business or properties from any
accident or calamity, whether or not covered by insurance or from any
legal or governmental proceeding, or there shall have been any materially
adverse change, or a development involving a prospective materially
adverse change in the condition (financial or otherwise), any change in
the capital stock or debt structure management, earnings, properties,
business affairs, stockholders' equity or business prospects, net worth or
results of operations of the Company
-25-
<PAGE>
or any of its Subsidiaries, except in each case contemplated in the
Offering Documents.
(iv) The admission to the Geregelter Markt and listing on the "Neuer Markt" of
the Frankfurter Wertpapierborse (Frankfurt Stock Exchange) or the approval
of the Registration Statement by the Commission not been effected by the
time of the execution of this Agreement and, in the sole discretion of the
Underwriters and after consultation with the Company is not expected to be
effected or is expected to be effected at a time whereby the successful
execution of this Secondary Public Offering is endangered or if this
Secondary Public Offering is deemed to be no longer reasonable for the
Underwriters.
(b) If this Agreement is terminated pursuant to the conditions as set out in
Article 8 (a)(i)-(iv) or otherwise, it is agreed that the Lead Manager -
for and on behalf of the Underwriters - is entitled to request the Company
to - within a period of thirty (30) calendar days as of the listing of the
Shares at the Frankfurt Stock Exchange, Neuer Markt, dated 7 September
1999- designate a purchaser of the New Shares that shall purchase the New
Shares at an aggregate price that shall not fall short of the amount as
effected on the First Closing Date. In the event that COPE, Inc. fails to
designate such a purchaser in the before-mentioned period, the
Underwriters shall be entitled to sell the New Shares to a third party.
The aggregate gross proceeds hereby received shall be paid to COPE, Inc.
by the Lead Manager. The amount as paid on the First Closing Date shall be
deducted from such aggregate gross proceeds.
The Underwrites shall transfer the Selling Stockholder Shares to the
Existing Stockholder to an account designated by the Selling Stockholder
in Article 17 (d).
(c) Notwithstanding the foregoing of this Article 8, the following provisions
shall continue in full force and effect
(i) the obligation of the Company and the Selling Stockholder to pay to
the Lead Manager on behalf of the Underwriters the expenses to the extent
incurred by the Underwriters, the banking lump-sum amount of DEM 50,000
and all costs of third parties which NORD/LB - in agreement with the
Company -has engaged;
(ii) any liability as a result of any prior breach of the provisions of
this Agreement;
(iii) the respective indemnities of the Company, the Underwriters, the
Selling
Stockholder and the Major Existing Stockholders as specified in Article 6
hereof.
(iv) any other provisions of this Agreement that are expressed to survive
the termination hereof.
Article 9 Stabilisation
-26-
<PAGE>
Under the condition that this may be necessary, the Lead Manager may, with
the consent of the Company, to the extent permitted by, and in accordance
with, applicable laws and regulations take stabilising measures. The Lead
Manager shall act as agent of the Underwriters and not as agent of the
Company, and any profit or loss resulting from such stabilising measures
shall be retained or borne (as the case may be) by the Underwriters.
The Lead Manger and HSBC Trinkaus & Burkhardt Kommanditgesellschaft auf
Aktien shall be available as Designated Sponsors for purposes of the
Frankfurt Stock Exchange, "Neuer Markt" for the minimum period of at least
one year. Rule 103 of Regulation M shall apply to the Lead Manger.
Article 10 Written Form
All amendments to this Agreement shall be made in writing including a
waiver of the requirement of writing.
Article 11 Notices
In all dealings hereunder, the Lead Manager shall act on behalf of each of
the Underwriters. Any notice or notification in any form to be given under
this Agreement may be delivered in person or sent by facsimile or given by
telephone (in the case of a communication by telephone a confirmation in
writing shall be furnished) addressed to:
in the case of the Company
COPE, Inc.
Mr Adrian Knapp
Grundstrasse 14
CH - 6343 Rotkreuz
Phone: + 41 41 798 3344
Facsimile: + 41 41 798 3393
in the case of the Underwriters
Norddeutsche Landesbank Girozentrale
(as Representative)
Capital Markets / Documentation
Hildesheimer Strasse 6
D - 30159 Hannover
Phone: + 49 511 361 2959
Facsimile: + 49 511 361 4441
in the case of the Major Existing Stockholders
-27-
<PAGE>
Mr Adrian Knapp
details, as specified for purposes of the Company
Mr Stephan Isenschmid
details, as specified for purposes of the Company
in the case of the Selling Stockholder
Mr Uwe Hinrichs
Grundgensstrasse 16
D - 22309 Hamburg
Phone: + 49 40 6380910
Facsimile: + 49 40 6316004
Any notice under this Article 11 shall take effect, in the case of delivery
at the time of such delivery and, in the case of a notice by facsimile at
the time of receipt thereof and in the case of a notice given by telephone
at the time of receipt of the respective written confirmation.
Article 12 Severability
It is the desire and intent of the parties that the provision of this
Agreement be enforced to the fullest extent permissible under the laws and
the public policies applied in each jurisdiction where enforcement is
sought. Accordingly the following shall apply:
If any provision of this Agreement shall be held illegal, invalid or
unenforceable (in whole or in part), the remaining provisions of this
Agreement shall continue to be in full force and effect. The illegal,
invalid or unenforceable provision shall be replaced by legal, valid and
enforceable provisions that as closely as possible reflect the economic
impact of the illegal, invalid or unenforceable provisions, as the case may
be. Such replacing provisions shall be determined in good faith
negotiations.
Article 13 Governing Law
This Agreement shall be governed and construed in accordance with the
substantive laws of the Federal Republic of Germany.
Article 14 Submission to Jurisdiction
The parties to this Agreement agree that any legal suit, action or
proceeding arising out of or in connection with this Agreement will be
instituted in the courts of Frankfurt am Main, Federal Republic of Germany.
-28-
<PAGE>
Article 15 Release
All parties to this Agreement are released from the restrictions of (S)
181 BGB ("Burgerliches Gesetzbuch" - the German Civil Code)
Article 16 Successors
This Agreement shall be binding upon, and inure solely to the benefit of
the parties to this Agreement and, to the extent provided for in Article 6,
the "Indemnified Persons" as defined therein, and their respective
successors and assignees. No other person shall have any right under or by
virtue of this Agreement. It shall be understood that no purchaser of any
of the Shares shall be deemed to be a successor or assignee by reason
merely of such purchase.
Article 17 Miscellaneous
(a) Schedules, etc.
All Schedules and Annexes hereto form an integral part of this
Agreement.
(b) Subsidiaries
For purposes of this Agreement, Subsidiaries shall refer to the following
entities: COPE Holding AG, COPE AG, COPE GmbH, COPE Handelsges.mbH and
HICOMP GmbH,
(c) Counterparts
Each executed counterpart shall constitute an original of one and the same
Agreement.
(d) Headings The headings herein contained are inserted for convenience of
reference only and are not intended to be part of, or to affect, the
meaning of interpretation of this Agreement.
(e) Accounts
to be delivered
-29-
<PAGE>
IN WITNESS WHEREOF, the undersigned, in the case of the Company and the
Underwriters having been duly authorised and empowered, have executed this
Agreement as of the (needs to be discussed) 1999.
(1) COPE, Inc.
By: ---------------------------------------
By: ---------------------------------------
(2) Mr Uwe Hinrichs
- -------------------------------------------
(3) Mr Stephan Isenschmid, as Major Existing Stockholder
- -------------------------------------------
(4) Mr Adrian Knapp, as Major Existing Stockholder
- ------------------------------------------
(5) Norddeutsche Landesbank Girozentrale
By: --------------------------------------
By: --------------------------------------
-30-
<PAGE>
(6) HSBC Trinkaus & Burkhardt Kommanditgesellschaft auf Aktien
By: -------------------------------------
By: -------------------------------------
(7) Bank Julius Bar & Co. AG, Zurich
By: -------------------------------------
By: -------------------------------------
-31-
<PAGE>
EXHIBIT 10.27
[English translation of original German text]
NORD/LB 1st copy (of three)
FK Direktkredite H/S/W
2866/2024-bol
Credit Line Agreement
Norddeutsche Landesbank Girozentrale
Georgsplatz 1, 30159 Hannover
hereinafter "NORD/LB"
grants
Cope Inc.
Hermosa Beach, CA, U.S.A.
and
Cope Holding AG
Grundstrasse 14, 6343 Rotkreuz, Switzerland
as joint debtors
hereinafter "Debtors"
a credit line in the amount of
DEM 1.825.000,00
(in words: Deutsche Mark one million eight hundred twenty five)
at the following conditions:
1. Utilisation
-----------
The credit line can be used either as a current account credit and/or as fixed
credit (with minimum installments of DEM 500.000,00). To call the credit, a
written declaration of Cope Holding AG suffices.
2. Purpose
-------
Interim financing of costs incurred by Cope Inc. before the public offering on
the Frankfurt New Market.
3. Interest
--------
<PAGE>
The interest of the current account credit is 6 % p.a., such rate being
applicable until further notice. NORD/LB has the right to modify the interest by
making a unilateral declaration if a modification occurs on the money or capital
market.
The interest for the fixed credits depend on the money market and therefore has
to be determined for each case individually.
4. Term
----
The credit line shall be paid back from the means raised by the public offering.
The credit line has to be paid back at the latest on 15 December 1999.
5. Payment
-------
The payment is effectuated as soon as NORD/LB holds the following documents:
- - the credit line agreement duly signed by the Debtors
- - the duly signed signature cards for the current account
- - copy of the personal identification cards/passports of the people who are
entitled to represent and sign (for the Debtor) (identity test completed)
- - legal opinion showing right of representation
6. Security
--------
The credit line is granted without any security - this does not affect the
rights of NORD/LB pursuant to no. 21 and no. 22 para. 1 of the General
Conditions of NORD/LB.
7. Effectiveness
-------------
This Agreement is effective as soon as it has been signed by all parties to the
Agreement. Deletions and modifications to this text have to be confirmed by both
parties in writing.
8. Miscellaneous
-------------
The General Conditions of NORD/LB are applicable in the currently valid version.
- --------------------------------------------------------------------------------
The Debtor receives an example thereof.
- ---------------------------------------
This credit line agreement is governed by the laws of Germany.
The place of jurisdiction is Hannover.
Pursuant to (S) 18 of the credit law statute, the Debtors are obliged to the
regular and timely disclosure of their economic situation. The Debtors therefore
undertake to keep the information mentioned in (S) 18 of the credit law statute
and in particular the annual accounts at the disposal of NORD/LB at all times
and to furnish any explanations requested. The parties agree that the Debtors
will furthermore submit to NORD/LB the interim accounts as well as the planning
for the next year.
Rothkreuz, 15 July 1999 signed Cope Inc., Hermosa Beach, CA., U.S.A.
<PAGE>
Rothkreuz, 15 July 1999 signed Cope Holding AG
Hannover, 19 July 1999 signed Norddeutsche Landesbank Girozentrale
<PAGE>
Exhibit 23.1
CONSENT OF THE INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 26, 1999 except as to Note 18 for which the date
is August 27, 1999, in the Pre-Effective Amendment No. 1 to the Registration
Statement (Form SB-2 No. 333-81981) and related Prospectus of COPE, Inc. for the
registration of 700,000 shares of its common stock.
ATAG Ernst & Young Ltd.
K. McCabe Y. Vontobel
Zurich, Switzerland
August 27, 1999
<PAGE>
Exhibit 23.3
CONSENT OF THE INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 9, 1999 with respect to the financial statements
of Hicomp Software Systems GmbH included in the Pre-Effective Amendment No. 1 to
the Registration Statement (Form SB-2 No. 333-81981) and related Prospectus of
COPE, Inc. for the registration of 700,000 shares of its common stock.
Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
R. Law P. Marshall
Chartered Accountant Certified Public Accountant
Hamburg, Germany
August 30, 1999
