<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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>
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- -------------------------------------------------------------------------------------------------
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
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</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
0.96 Euros to one U.S. dollar 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.
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- -------------------------------------------------------------------------------
<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 June , 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 over-the-counter market (Freiverkehr) of the Berlin Stock
Exchange and Hamburg Stock Exchange under the security number [WKN] 876 954. On
June 25, 1999, the last reported sale price of our common stock on the OTC
Bulletin Board was $29.00. As of June 25, 1999, the last reported sales of our
common stock on the Berlin and Hamburg Stock Exchanges took place on June 24,
1999 at a price of (Euro)24.00 ($25.00). However, we consider our common stock
to be "thinly traded" and any reported sale prices may not be a true market-
based valuation of our common stock. 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."
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(1) COPE Selling Stockholder
------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C>
Per Share.... (Euro) (Euro) (Euro) (Euro)
Total(2)..... (Euro) (Euro) (Euro) (Euro)
</TABLE>
(1) We have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
(2) Before deducting expenses we will pay, estimated to be approximately
.
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
Trinkaus & Burkhardt KGaA BANK JULIUS BAR & CO. AG
The date of this Prospectus is , 1999
<PAGE>
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus
in connection with the offer described in this Prospectus and, if given or
made, such information and representations must not be relied upon as having
been authorized by COPE. Neither the delivery of this Prospectus nor any sale
made under this Prospectus shall under any circumstances create any implication
that there has been no change in the affairs of COPE since the date hereof or
since the date of any documents incorporated herein by reference. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than the securities to which it relates, or an
offer or solicitation in any state to any person to whom it is unlawful to make
such offer in each state.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise specified, all references to "U.S. dollars," "dollars" or
"$" are to United States dollars, the legal currency of the United States of
America. All references to "Sfr" are to Swiss francs, the legal currency of
Switzerland, and all references to "(Euro)" or "euro" are to the Euro, the
legal currency of the European Union. As of June 25, 1999, the Euro-U.S. dollar
exchange rate was .96 Euros for one U.S. dollar and the Swiss franc-U.S. dollar
exchange rate was 1.53 Swiss francs for one U.S. dollar.
Our financial statements are presented in U.S. dollars and have been
prepared in accordance with U.S. generally accepted accounting principles.
Unless otherwise specified, fiscal 1996 refers to the financial year ended
December 31, 1996, fiscal 1997 refers to the financial year ended December 31,
1997 and fiscal 1998 refers to the financial year ended December 31, 1998.
The sale of the offered shares will be settled in Euros and the offering
price is (Euro) 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
$ per share based on a Euro-U.S. dollar exchange rate of .96 Euros for one
U.S. dollar as of June 25, 1999.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Market for Common Stock and Related Stockholder Matters.................. 14
Dividend Policy.......................................................... 14
Use of Proceeds.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
The Company.............................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business of COPE......................................................... 25
Management............................................................... 32
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Principal Stockholders and Beneficial Ownership of Management............. 36
Description of Securities................................................. 37
Anti-Takeover Provisions.................................................. 38
Book-Entry-Only Issuance of Common Stock Trading on German Exchanges...... 40
Taxation.................................................................. 40
Underwriters.............................................................. 45
Internet Subscriptions.................................................... 46
The Neuer Markt........................................................... 46
Shares Eligible for Future Sale........................................... 48
Legal Matters............................................................. 48
Experts................................................................... 48
Available Information..................................................... 49
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 Company
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.
. Expand Through Targeted Acquisitions. We intend to aggressively seek out
and acquire high quality independent consulting firms throughout Western
Europe.
3
<PAGE>
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 do not plan to pay dividends in the
foreseeable future. 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 March 31,
1999 and the income statement data as of March 31, 1999 and 1998 are derived
from the unaudited financial statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------------- ---------------------
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 $8,537,914 $4,640,835
Cost of sales........... 20,281,131 12,817,738 8,829,711 5,673,756 3,167,524
Operating expenses...... 7,685,600 4,557,179 3,275,185 2,616,275 1,397,085
Net income.............. 1,011,571 632,897 315,823 161,080 101,765
Basic earnings per
share.................. 0.34 0.23 0.12 0.051 0.036
Weighted average shares
outstanding............ 2,936,589 2,740,833 2,700,000 3,152,861 2,862,000
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------------
Actual As Adjusted(1)
----------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit)............................ $ (72,614)
Total assets......................................... 12,587,647
Total liabilities.................................... 9,404,695
Stockholders' equity................................. 3,182,952
</TABLE>
- --------
(1) As adjusted to give effect to the sale of shares of common stock
sold by us at a public offering price of $ per share, after deducting
underwriting discounts and estimated offering expenses, and our application
of the net proceeds as described under "Use of Proceeds."
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 adversely affect
our business, operating results or financial condition.
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, our business, operating results or financial
condition may be adversely affected.
We Intend to Engage in Future Acquisitions that may Dilute our Stockholders,
Cause Us to Incur Debt and Assume Contingent Liabilities
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 specific acquisitions, we may acquire
businesses, products or technologies in the future. Such actions by us could
materially adversely affect our results of operations and the price of our
common stock. 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.
6
<PAGE>
These factors could materially adversely effect our business, results of
operations or financial condition and the price of our common stock. We expect
to finance any future acquisitions with cash, debt or stock, or a combination
thereof. To the extent 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
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
materially adversely affect our business, operating results or financial
condition.
We compete for client contracts, we also compete for qualified technical
engineers and consultants. Our future success depends in significant part upon
the continued service of our key technical personnel and our continuing ability
to attract and retain highly qualified technical engineers, consultants and
management. Competition for such personnel is intense, and there can be no
assurance that we can retain our key technical and managerial employees or that
we can attract and retain other highly qualified technical personnel in the
future.
We Must Keep Pace with the Rapidly Changing Product Requirements of Our
Customers
Technology and customer needs change rapidly in the data storage and
security industry, which requires ongoing technological development and
introduction of new products. We believe our future success will depend, in
part, on our ability to anticipate and adapt to such changes and to offer, on a
timely basis, products and services that meet our customers' demands. Our
inability to develop or provide on a timely basis new products and services or
enhancements to existing products and services, or the failure of such products
and services or enhancements to achieve market acceptance, could materially
adversely affect our business, operating results or financial condition.
Significant Fluctuations in Quarterly Operating Results
Our operating results may fluctuate significantly in the future. Many
factors may cause such 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;
7
<PAGE>
. The pace of development of the technology underlying the data storage and
security industry and our continued access to such 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.
There Are Risks Related to Product Defects
Computer software and hardware products and systems often 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
would otherwise protect us from certain liability for damages to a customer
resulting from a defect in one of our solutions. Although we maintain liability
insurance covering certain 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
business, operating results or financial condition.
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 such 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.
8
<PAGE>
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 these
trademark holders 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 such 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 % 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 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 Are Subject to the Risks Associated with Currency Fluctuations
Virtually all of our sales are denominated in Euros or Swiss Francs.
However, a significant amount of our cost of sales (i.e. hardware and software
purchases) are denominated in US dollars. Consequently, our cost of doing
business is directly affected by changes in the exchange rate amongst these
currencies. Although we typically enter into forward exchange contracts
covering fifty percent (50%) of our cost of sales in order to partially
mitigate the adverse effects of currency exchange fluctuations, changes in
currency rates in the future could have a material adverse affect on our
business, operating results or financial condition.
We Are Subject to Risks Associated with the Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
("EU") 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
9
<PAGE>
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. There can be no assurance that Euro conversion will not have a material
adverse effect on our business, operating results or financial condition.
We Are Subject to Risks Associated with International Operations
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.
Any of these factors could adversely affect our international operations and
could have a material adverse effect on our current or future business,
operating results or financial condition.
Risks Associated with the Year 2000 Problem
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 such "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 such 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, which could have a material
adverse effect on our business, operating results or financial condition.
Dependence on Our Key Personnel
Our success depends to a significant degree upon the continued services of
Adrian Knapp, our Chairman of the Board and Executive Vice President, and
Stephan Isenschmid, our Chief Executive Officer and President. In addition, we
need to retain our sales and consulting personnel and hire additional qualified
personnel as needed. Competition for such personnel, particularly qualified
engineers, is intense. The loss of the services of any key personnel, as well
as the failure to recruit and train additional personnel in a timely manner,
could materially adversely affect our business, operating results or financial
condition.
No Immediate Plans to Pay Cash Dividends
We have never declared or paid cash dividends on our capital stock and we do
not expect to declare or pay any cash dividends for the foreseeable future.
Earnings, if any, will be retained to fund development and
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expansion. 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 such other factors as the board of directors may deem relevant.
Control by Existing Stockholders May Limit Your Ability to Influence the
Outcome of Director Elections and Certain Transactions
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 and approval of
significant corporate transactions, and will have veto power with respect to
any stockholder action or approval requiring a majority vote.
Certain Provisions in Our Corporate Charter and Bylaws, as Well as Applicable
Regulations, May Discourage Take-Over Attempts and thus Depress the Market
Price of Our Stock
Certain provisions of our Certificate of Incorporation, Bylaws, and Delaware
law may be deemed to have an anti-takeover effect. Such 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 additional
shares of common stock or establish one or more classes or series of preferred
stock, having rights, preferences and limitations as determined by the board of
directors without stockholder approval.
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 certain 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 the Delaware Code and
the German Code 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.
Certain Provisions in Our Corporate Charter and Bylaws May Effect The Rights of
Common Stockholders
Our Board of Directors has the authority 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.
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 over-the-counter market (Freiverkehr) of the Berlin Stock Exchange
and Hamburg Stock Exchange under the security number [WKN] 876 954. On
June 25, 1999, the last reported sale price of the common stock on the OTC
Bulletin Board was $29.00 per share. As of June 25, 1999, the last reported
sales of our common stock on the Berlin and Hamburg Stock Exchanges took place
on June 24, 1999 at a price of (Euro)24.00 ($25.00). 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
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<PAGE>
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 such 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 the NASDAQ/NMS. As
such, the underwriters will not be in a position to organize an orderly market
for our common shares traded on the NASDAQ/NMS. 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
the NASDAQ/NMS. However, there can be no assurance that an orderly market will
develop for our common shares on the NASDAQ/NMS or that the trading in our
common shares on the NASDAQ/NMS will not have an adverse effect on the trading
in our common shares on the Frankfurt Stock Exchange, "Neuer Markt".
Changes in Government Regulations
Our business, results of operations and financial condition could be
adversely affected if laws, regulations or standards relating to our products
or services were newly implemented or changed.
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 $ per share in pro forma net tangible book value.
The exercise of outstanding options and warrants may result in further
dilution.
Shares Eligible for Future Sale
No prediction can be made as to the effect, if any, that future sales of
shares of our common stock, or the availability of shares of our common stock
for future sale, will have on the market price for our common stock prevailing
from time to time. Sales of substantial amounts of our common stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for shares of our common stock. Upon completion of the offering,
based on shares outstanding on June 25, 1999 and without giving effect to the
exercise of the overallotment option, we will have outstanding 3,995,751 shares
of common stock. Approximately 1,154,881 shares will be tradable without
restriction or further registration under the 1933 Act by persons other than
our "affiliates," including shares which will be eligible for immediate sale in
the public market without restriction pursuant to Rule 144(k) under the 1933
Act. As of the closing of this offering, the remaining approximately 2,840,870
shares of common stock will be "restricted securities" (as defined in Rule 144
under the 1933 Act), and may be sold under Rule 144 subject to the holding
period, volume limitations and other restrictions under Rule 144. Approximately
2,840,870 of such shares of common stock are subject to lock-up agreements
under which the holders of such shares have agreed with the representative of
the underwriters not to sell or otherwise dispose of any of such shares for a
period of up to 12 months following the date of this Prospectus, subject to
certain limited exceptions.
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 such terms or other comparable
terminology. These statements are only
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<PAGE>
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. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking
statements after the date of this Prospectus to conform such statements to
actual results or to changes in our expectations.
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<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 over-the-counter 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 (through June 25, 1999)........................ $35.00 $24.25
</TABLE>
As of June 25, 1999, COPE had approximately 343 record holders of its common
stock.
DIVIDEND POLICY
COPE has never declared nor paid any cash dividends on its capital stock.
COPE currently intends to retain any future earnings to finance the growth and
development of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon COPE's financial condition, results of operations, capital
requirements, general business condition and such other factors as the Board of
Directors may deem relevant.
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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 $ million ($ ), at
an assumed public offering price of $ and after deducting
underwriting discounts and commissions and estimated offering expenses of
$ payable by us.
We expect to use the net proceeds for yet unidentified acquisitions and
working capital ($ ) and repayment of bank debt ($2,500,000). We also
intend to apply $300,000 towards research and development.
The amounts actually expended for such 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 such transaction. Pending such
uses, the net proceeds from this offering will be invested in short-term,
interest-bearing, investment-grade securities.
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DILUTION
Our net tangible book value per share was $0.89 based upon our consolidated
balance sheet as of March 31, 1999, without giving any effect to any changes
after March 31, 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 the estimated offering
expenses payable by us, the pro forma net tangible book value per share at
March 31, 1999, will be approximately $ . The current stockholders will thus
benefit from an immediate increase in net tangible book value per share of
$ . There will be an immediate dilution to new investors of approximately
$ per share.
The following table illustrates the dilution to investors in this offering
on a per share basis as of March 31, 1999 assuming the sale of offered shares
at $ per share:
<TABLE>
<S> <C> <C>
Offering price per share...................................... $
Net tangible pro forma book value per share before
offering................................................... $0.89
Increase per share attributable to payments made by new
investors.................................................. $
Pro forma net tangible book value per share after offering.... $
---
Dilution in net tangible book value per share offered hereby.. $
</TABLE>
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<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999 (i) our actual
capitalization and (ii) our capitalization 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 $ per share (after deducting estimated underwriting
discounts and commissions and estimated offering expenses). This table should
be read in conjunction with our consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------
As
Actual(1) Adjusted(2)
---------- -----------
<S> <C> <C>
Shareholders' equity:
Common stock, $.001 par value:
30,000,000 shares authorized, actual and as
adjusted; 3,152,861 shares issued and outstanding
actual; and shares issued and outstanding,
as adjusted........................................ $ 3,153 $
Additional paid in capital............................. 506,031
Cumulative translation adjustment...................... (134,892)
Retained earnings...................................... 2,808,660
---------- ------
Total shareholders' equity......................... 3,182,952
---------- ------
Total capitalization............................... $3,182,952 $
========== ======
</TABLE>
- --------
(1) Excludes: (i) 297,400 shares of common stock reserved for issuance upon
exercise of options outstanding at a weighted average exercise price of
$18.01 per share as of March 31, 1999; (ii) 29,793 shares of common
issuable upon exercise of warrants outstanding at an exercise price of
$7.54 per share as of March 31, 1999; and (iii) an aggregate of 102,600
shares of common stock reserved for future issuance under the 1998 Stock
Option Plan.
(2) As adjusted to give effect to the sale of shares of common stock
sold by us at a public offering price of $ per share, after deducting
underwriting discounts and estimated offering expenses, and our application
of the net proceeds therefrom.
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THE COMPANY
COPE, Inc. is a Swiss-based provider of enterprise data storage and security
consulting, services and solutions. COPE, Inc. was formed under the laws of the
State of Utah on October 7, 1985 under the name Harrier, Inc. On June 6, 1990,
the company reorganized as a Delaware corporation and from 1990 until September
1998 the company was operated by predecessor management as a developer and
marketer of health, fitness and medical products. In September 1998, the
predecessor management of COPE, Inc. (which was then known as Harrier, Inc.)
completed a series of transactions by which the company discontinued all
operations and divested itself of substantially all of its assets and
liabilities and, at the same time, 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.
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.
Pursuant to an Amended and Restated Securities Purchase Agreement and Plan
of Reorganization dated July 24, 1998 between COPE, Inc. (which was known at
the time as Harrier, Inc. and operated by predecessor management) and the
shareholders of COPE Holding AG, including Messrs. Knapp and Isenschmid, COPE,
Inc. (i) amended its Certificate of Incorporation to (a) changed its name to
COPE, Inc., and (b) reverse split its outstanding shares of common stock on a
one for 58 basis; and (ii) issued 2,862,000 shares (post-split) of its common
stock (which at the time represented 91.4% of the issued and outstanding common
stock) to the shareholders of COPE Holding AG in exchange for all of the issued
and outstanding capital shares of COPE Holding AG. Following the
reorganization, the stockholders of COPE Holding AG became the controlling
stockholders of COPE, Inc. and COPE Holding AG became its wholly-owned
subsidiary.
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. The executive offices of COPE are located at Grundstrasse 14, 6343
Rotkreuz, Switzerland; telephone + 41 41 798 3344.
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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" (i) should be read in conjunction with COPE's financial
statements, the notes thereto and the other financial data included elsewhere
in this Prospectus and (ii) includes 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. On September 25, 1998, COPE consummated 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
COPE, Inc., COPE Holding AG, a Swiss corporation, and the stockholders of COPE
Holding AG ("COPE Stockholders"). Pursuant to the Reorganization Agreement,
COPE, Inc., among other things, (i) effected a one for 58 reverse split of its
shares of common stock issued and outstanding immediately prior to the close of
the COPE Reorganization, thus reducing its issued and outstanding shares of
common stock to approximately 270,654; (ii) sold a controlling interest in its
only subsidiary, Glycosyn Pharmaceuticals, Inc., a Delaware corporation, and
otherwise divested itself of substantially all of its assets and liabilities on
hand immediately prior to the close of the COPE Reorganization; and (iii)
issued 2,862,000 shares (post-split) of its common stock in exchange for all of
the outstanding capital shares of COPE Holding AG.
Since the COPE Stockholders owned approximately 91.4% of the outstanding
shares of the common stock of COPE, Inc. after giving effect to the COPE
Reorganization, COPE Holding AG was deemed the accounting acquiror and COPE,
Inc.'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. COPE Holding AG is assumed to have acquired COPE, Inc. and therefore
the assets and liabilities of COPE, Inc. as they existed immediately prior to
the consummation 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 COPE Inc.'s equity and accumulated deficit.
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 ("Forum"), a
German data storage company, for $962,977. The acquisition of Forum has been
accounted for by the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16 "Business Combinations."
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 ("Hicomp"), a German software company. Pursuant to a 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 as a pooling of interests.
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 certain securities registration rights pursuant to which he is
entitled 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,
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<PAGE>
"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 certain financial
commitments payable in Swiss Francs, the unit of currency of Switzerland. All
Swiss Franc based amounts are designated by the symbol SFr. As of June 25,
1999, the Swiss Franc-Dollar exchange rate was 1.53 Swiss Francs to 1 U.S.
Dollar.
Although COPE reports its results in US dollars, virtually all of its sales
are denominated in other currencies, primarily, Swiss francs 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
Euro, 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
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Revenue. During the three months ended March 31, 1999, COPE had net
revenue of $8,537,914 which amounts to an increase of 84% over the net revenue
of $4,640,835 during the prior year period. The increase in net revenue is due
in part to COPE's acquisition of Forum, which was acquired on June 25, 1998 and
has been included in the consolidated quarterly results for periods subsequent
to June 25, 1998. COPE believes that approximately $3,600,000 of the increase
in revenue over the prior year period is attributable to the acquisition of
Forum. Sales of services (revenue from stand-alone consulting services)
increased approximately 159% during the three months ended March 31, 1999 over
the prior year period reaching $1,282,607 in 1999, as compared to $495,348 in
1998. 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 three months ended March 31, 1999, cost of sales
increased by 79.1% to $5,673,756 compared to $3,167,524 for the prior year
period, representing 78.2% and 76.4%, respectively, of total revenue from the
sale of solutions. The increase in cost of sales as a percentage of total
revenue from the sale of solutions is the result of smaller margins for
products sold in Germany and a general margin erosion for hardware products.
Cost of sales consists exclusively of the cost of software and hardware
acquired for resale.
Gross Profit. COPE's gross profit margin for the three months ended March
31, 1999 was 33.5% compared to 31.7% 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.
Selling, General, Administrative and Consulting Expenses. COPE's selling,
general, administrative and consulting expenses as a percentage of net revenue
increased between the three months ended March 31, 1999 (29.2%) and the prior
year period (27.6%). The increase is primarily attributable to the hiring of
additional personnel necessary to support the growth in sales of services.
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<PAGE>
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% 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 (revenue from resale of software and hardware components
along with associated consulting services) 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. 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 (revenue from stand-alone consulting services) increased
178% during the year ended December 31, 1998 reaching $3,647,174 as compared to
$1,310,996 for the prior year period. 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% to $20,281,131 compared to $12,817,738 for the prior period,
representing 69.8% and 71.5% of the total revenues, respectively. The cost of
sales as a percentage of net revenue (total of "sales solutions" and "sales
services") decreased during the year ended December 31, 1998 because sales of
services increased as a percentage of net revenue from 7.3% up to 12.6%. 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 (25.0%) 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% over the net revenue of
$12,515,123 during the prior year period as a result of further increase in
market share.
Sales of solutions increased 40% 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 market share
in Germany and Austria. Net revenue in these markets grew by approximately 83%
in 1997 as compared to growth of approximately 40% in 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
greater market share.
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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 software
and hardware, on a turn-key basis pursuant to 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
software and hardware components of the information systems. As of March 31,
1999, COPE had established short-term overdraft facilities under which COPE and
its subsidiaries could borrow up to $2,600,563. 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.
As of March 31, 1999, COPE had a working capital deficit of approximately
$72,614, compared to a working capital position of $773,162 as of March 31,
1998. The principal reasons for the decrease in working capital is the increase
in short-term borrowings which were used to purchase Forum and additional
equipment. As of March 31, 1999, COPE had approximately $700,000 available for
borrowing under existing lines of credit at a weighted average interest rate of
approximately 3%.
While COPE believes that its available working capital, including presently
available credit lines, is adequate for its current working capital
requirements, 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 such 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 products (for example 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
22
<PAGE>
agreements with customers and end users typically contain provisions designed
to limit COPE's liability for such 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 such claims, with or without merit, could result in a
material adverse effect on COPE's business, operating results or financial
condition, 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 such systems, updating or replacing such equipment, and modifying such
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 also initiated formal communications with many 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 such suppliers to continue to provide
goods and services to COPE. 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 such 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. Such failures could have a material adverse effect on COPE's
business, financial condition and results of operations. 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, (excluding the costs of the Year 2000
compliance problems associated with COPE's vendors, customers, financial
institutions and government agencies noted above) although 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 IT expenditures. 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 such problems arise.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union ("EU") 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 EU member countries in which it offers its
services. Moreover, the content within the financial information distributed by
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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 certain forward-looking statements that are based
on COPE's beliefs as well as assumptions made by and information currently
available to COPE. When used herein, the words "believe," "expect,"
"anticipate," "estimate" and similar expressions are intended to identify
forward-looking statements. Such 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. The Company cautions stockholders of COPE
and potential investors not to place undue reliance on any such forward-looking
statements, all of which speak only as of the date made.
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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 the Company
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 RAID
(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 RAID 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.
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In April 1999, COPE acquired its first proprietary product through its
acquisition of Hicomp Software Systems GmbH, a Hamburg, Germany based developer
of certain back-up software, marketed under the trademarks Hiback and Hibars.
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 such 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, RAID, 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
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<PAGE>
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.
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. RAID
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. RAID 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
RAID algorithms, thus ensuring the immediate availability of RAID 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, 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 such 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, the Company 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 (i) consulting; (ii) solution sales and (iii)
integration services. A client engagement begins with the appointment of a team
from COPE's consulting division. As of June 25, 1999, COPE employed
10 professionals in its consulting division, each of whom is a trained engineer
with a complete understanding
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<PAGE>
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.
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
June 25, 1999, COPE's solution sales division consisted of 41 professionals,
including 23 sales representatives and 18 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 June 25, 1999, this department consisted of 16
employees.
The Company'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 (IT) operations. COPE believes that most IT
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.
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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.
COPE is a value added 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, high-end servers, and numerous other
peripheral 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 High End Servers 8%
Sun Microsystems High End 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.
COPE generally contracts to deliver storage and security systems, including
all hardware and software, on a turn-key basis pursuant to 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 its storage and security systems.
Accordingly, COPE is required to finance its clients' contracts, including the
purchase of the software and hardware components of the information systems.
COPE's principal sources of working capital are cash from operations and
operating lines of credit in the aggregate amount of $2,812,083 as of December
31, 1998. 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.
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.
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<PAGE>
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 June 25, 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 IT department personnel, and works closely with
system and network 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 such 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.
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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. ("ADI"), a private company
located in Greenwich, Connecticut, filed a civil action against COPE for money
damages alleging COPE's wrongful termination of that certain 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 certain health and medical products.
In its complaint, ADI alleged that COPE was indebted to the plaintiff 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 the
plaintiff 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. Management of COPE
prior to the COPE Reorganization has publicly announced its belief that COPE
has meritorious defenses to all of ADI'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.
In connection with the COPE Reorganization, 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 COPE Reorganization,
including attorneys' fees and costs of arbitration or litigation relating to
the ADI 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 the COPE Reorganization and is currently a member of the Board of Directors
of COPE.
Employees
As of June 25, 1999, COPE had a total of 102 employees. Of the total, 10
were in consulting, 41 were in solution sales, 16 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 pursuant to 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>
31
<PAGE>
MANAGEMENT
The executive officers and directors of COPE, the positions held by them and
their ages as of June , 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 A.G., a Zurich based financial and management
consulting firm.
Each director holds office until his successor is elected and qualified or
until his earlier resignation in the manner provided in COPE's Bylaws. 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.
32
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
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 $1,000 per month.
(2) Compensation in 1996 and one-half of 1997 compensation represent fees paid
to consulting firms controlled by Messrs. Isenschmid and Knapp for the
services rendered by them to COPE.
33
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------
Number of Securities
Underlying % of Total Options/SARs Exercise or
Options/SARs Granted Granted to Employees in Base Price
Name (#) Fiscal Year ($/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.
34
<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 such 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: (i) indemnify its directors, officers, employees and agents and
persons serving in such capacities in other business enterprises (including,
for example, its subsidiaries) at its request, to the fullest extent permitted
by Delaware law; and (ii) 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 certain 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 Securities Act. However, COPE is aware that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
35
<PAGE>
PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the shares of common stock as of June 25, 1999 by (1) each person
known by COPE to be the beneficial owner of more than five percent (5%) of the
common stock, (2) each of COPE's directors and executive officers and (3) 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 June 25, 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 June 25, 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%).
36
<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 June 25, 1999, 3,595,751 shares were issued and
outstanding and held by 343 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 certain fundamental matters (such as certain amendments
to the Certificate of Incorporation, and certain 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 such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor, and in the event of
liquidation, dissolution or winding up, to share ratably 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
pursuant to the 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 thereof. Options under the 1998 Stock Option
Plan generally are not transferrable, and each option is exercisable during the
lifetime of the optionee only by such 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 March 31, 1998, 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 does not anticipate the payment of cash dividends on its common stock
in the foreseeable future. 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.
37
<PAGE>
ANTI-TAKEOVER PROVISIONS
General
Certain provisions of the Delaware General Corporation Law and COPE's
Certificate of Incorporation and Bylaws 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.
Such provisions also may render the removal of directors and management more
difficult. Such provisions could limit the price that certain 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 certain types of
transactions involving an actual or threatened change of control of COPE
(including unsolicited takeover attempts), 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
Certain provisions of the Certificate of Incorporation and Bylaws 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. In certain circumstances, such issuance could 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: (i) 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 (ii)
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
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of COPE. These provisions are
designed to reduce the vulnerability of COPE to an unsolicited acquisition
proposal and to discourage certain tactics that may be used in proxy fights.
Such 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. Such provisions also may have the effect of preventing changes in the
management of COPE.
38
<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 combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets of
the corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
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 (v) 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 such 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 certain disclosures
to the target company's stockholders, treat stockholders equally in an offer,
and comply with certain other regulatory requirements. In addition, the rights
of COPE's stockholders under the German Takeover Code 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 the German Takeover Code and
to review and regulate specific merger and acquisitions. Compliance with the
German Takeover Code could have the effect of delaying, deferring or preventing
a tender offer or takeover, notwithstanding that such tender offer or takeover
might result in stockholders receiving a premium over the market price for
their shares.
39
<PAGE>
BOOK-ENTRY-ONLY ISSUANCE OF COMMON STOCK TRADING
ON GERMAN STOCK EXCHANGES
In general, the shares of common stock offered hereby 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
("DBC"). Any investor who has an actual certificate representing shares of
common stock who desires to sell such shares of common stock on a German
Exchange will be required to deposit such certificate with the Depository Trust
Company ("DTC") for credit to DBC's account as described below, which transfer
will be reflected on DBC's books and records. Certificates representing shares
of common stock held through DBC will not be issued unless such shares are
withdrawn from DBC in which case the shares will not be eligible to trade on a
German Exchange unless redeposited as described above. DBC will hold shares of
common stock through its account with DTC. DTC, or its nominee, will be the
registered owner of all shares of common stock that are held by investors
through DBC.
Beneficial owners of common stock held through DBC will receive
confirmations and statements of their holdings from DBC (through their brokers
or other financial institutions that are DBC participants). DBC will register
all transfers of such common stock between DBC participants on its books and
records through its book-entry system. Shares of common stock held by DTC will
be registered in the name of DTC's nominee, Cede & Co.
Any dividend or other payments on common stock held through DBC will be made
by COPE to Cede & Co., as nominee of DTC. DTC, upon receipt of such payments,
will credit DBC's account at DTC for the amount of such payments. Payments by
DBC to the beneficial owners of common stock will be governed by standing
instructions and DBC's customary practices, subject to any statutory or
regulatory requirements as may be in effect from time to time. The dividends
will be converted into Deutsche Marks, if requested, and distributed by DBC.
The underwriters will act as paying and depository agents in such case.
TAXATION
Certain 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. With the
exception of certain illustrative data, 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 such 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
recently elected 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 hereof. Further, any variation or differences
from the facts or representations recited herein, for any reason, might affect
the following discussion, perhaps in an adverse manner, and render such
discussion inapplicable.
Taxation of Dividends. Dividends on the common stock that are (i) paid to
holders who are German residents (for tax purposes, the term "resident"
includes a natural person having a residence or his or her
40
<PAGE>
habitual abode in Germany) or who are corporations that maintain their
statutory seat or principal place of management in Germany (a "German Holder"),
or (ii) attributable to a permanent establishment maintained by, or a fixed
base regularly available to a holder otherwise not deemed to be a German
resident (a "Foreign Holder"), are subject to German income taxes or corporate
income taxes, respectively, at regular German tax rates. Such dividend payments
also are subject to a surcharge equal to 5.5% of the otherwise applicable
German income or corporate income tax liability (Solidaritaetszuschlag und
Kirchensteuer).
German Holders 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 Holders who are natural persons may deduct from dividend income the
expenses associated with the acquisition, safeguarding, or maintaining of the
common stock (the "Werbungskosten"), including fees for custodian and re-
financing costs. Without supporting documents, Werbungskosten in the amount of
DM 100 (DM 200 in the case of married couples filing joint returns) are
deductible for tax purposes from such 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 such dividend income. If, however, the German income tax
attributable to such dividends is lower than the withholding tax because of a
deduction of Werbungskosten (including, but not limited to refinancing costs)
from such dividends, withholding taxes can only be credited against German
income taxes up to an amount of German income tax attributable to such 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 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-deductable 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 (i) in the case of a Foreign Holder, the
gains are attributable to a permanent establishment maintained by, or a fixed
base regularly available to, such holder in Germany, (ii) in the case of a
German Holder, such holder is a corporate entity that is a German resident or
the common stock was held by the holder as a business asset, (iii) the holder
is a German Holder who is a natural person 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 or her private property, or (iv) a speculative
capital gain (i.e. if 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) is given by a German Holder who is a natural
person who holds the common stock.
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.
41
<PAGE>
Certain United States Federal Income Tax Consequences To Non-United States
Holders
The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a non-U.S. holder. As used herein, 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 (the "Code"), existing, final, temporary, and proposed
treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and
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 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, subject to certain exemptions, be deemed to be a
resident alien (as opposed to a non-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 (counting for such purposes, all of the days present in
the current year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding year). 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 30% rate or such lower rate as may be specified by an applicable
income tax treaty. However, if (a) 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 (b) an Internal Revenue Service
("IRS") Form 4224 or successor form is filed with the payor, then 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 graduated individual or
corporate rate. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a rate of 30% or such lower rate as may be specified by
an applicable income tax treaty.
Dividends paid to an address in a country outside the United States are
presumed to be paid to a resident of such country (unless the payor has
knowledge to the contrary) 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 (the "Final Withholding Regulations"), provide that a non-U.S. holder must
comply with certain certification procedures (or, in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures), directly or through an intermediary to obtain
the benefits of a reduced rate under an income tax treaty. In addition, the
Final 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 pursuant to an income tax treaty may obtain a refund
of any excess amount withheld by filing an appropriate claim for refund with
the IRS.
42
<PAGE>
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 (a) 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 (b) the company is or has been a U.S. Real Property Holding Corporation" (a
"USRPHC") for United States federal income tax purposes, as discussed below.
An individual non-U.S. holder who falls within clause (a) above will, unless
an applicable treaty provides otherwise, be taxed on his or her net gain
derived from the sale under regular graduated United States federal income tax
rates. An individual non-U.S. holder who falls under clause (b) 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 graduated
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 Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable income
tax treaty.
A corporation is a USRPHC 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 USRPHC. However, since the determination of USRPHC status is
based upon the composition of the assets of COPE from time to time, and because
there are uncertainties in the application of certain relevant rules, there can
be no assurance that COPE will not become a USRPHC. If COPE were to become a
USRPHC, 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
(a) the common stock was "regularly traded" on an established securities market
within the meaning of the applicable treasury regulations, and (b) 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 USRPHC.
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 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 certain payments
to persons that fail to furnish certain 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 Final Withholding Regulations provide that a non-U.S.
holder generally will be subject to withholding tax at a 31% rate unless
certain certification procedures (or, in the case of payments made outside the
United States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary. 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 certain identifying information in the manner required.
The Final Withholding Regulations provide certain 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.
43
<PAGE>
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 for certain periods from the conduct of a trade or business in
the United States (or, for periods after December 31, 2000, a foreign
partnership that at any time during its fiscal year either (a) is engaged in
the conduct of a trade or business in the United States, or (b) 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), such payments will be subject
to information reporting, but no back-up withholding, unless (aa) such broker
has documentary evidence in its records that the beneficial owner is a non-U.S.
holder and certain other conditions are met, or (bb) the beneficial owner
otherwise establishes an exemption.
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.
44
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, NORD/LB, acting as representative and in the name
and for account of the underwriters, as specified below, has agreed to purchase
and acquire and COPE, Inc. has agreed to issue and sell an aggregate of
400,000 shares of common stock and the selling stockholder has agreed to sell
an aggregate of 200,000 shares of common stock and NORD/LB, acting in the name
and for account of the underwriters has agreed to purchase and acquire such
number of shares of common stock at the offering price set forth on the cover
page hereof, less underwriting commissions and fees. The Secondary Public
Offering is conducted by means of a firm underwriting. 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, Inc. The subscription period for 10,000 shares of common
stock which shall be allocated by NORD/LB by means of the Internet, 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..........................................................
Trinkaus & Burkhardt KGaA........................................
BANK JULIUS BAR & CO. AG.........................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the fulfilment of certain conditions precedent.
Pursuant to the underwriting agreement, two major existing stockholders have
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 hereof, less
underwriting commissions. NORD/LB may exercise such option for the purpose of
covering over-allotments, if any, made in connection with the Secondary Public
Offering of the shares of common stock offered hereby. To the extent such
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, Inc., up to 5% of such
shares of common stock shall be allocated on a preferential basis by the
underwriters to persons designated by COPE. As a result thereof, the number of
shares of common stock available for sale to the public will be reduced
accordingly.
COPE, Inc., its directors and officers have each agreed, severally and not
jointly, not to 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 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 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 Frankfurt Stock
Exchange, "Neuer Markt" and continuing for another six months after the date
thereof, unless prior written consent is obtained from NORD/LB and Deutsche
Borse AG and for another six months without the prior written consent of
NORD/LB, acting as representative on behalf of the Underwriters, and Deutsche
Borse AG.
The restrictions described in the previous paragraph do not apply to the
sale to the Underwriters of the 400,000 shares of common stock under the
Underwriting Agreement, issuances of certain shares of common stock or options
to purchase shares of common stock pursuant to the Company's employee benefit
plan (Stock Option Plan) as in existence on the date of the Underwriting
Agreement 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.
45
<PAGE>
The selling stockholder and each of the major existing stockholders have
each agreed, severally and not jointly, 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 Frankfurt Stock Exchange, "Neuer Markt". An
exemption thereof is subject to the prior written consent of both, the Lead
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 restrictions described in the previous paragraph do not apply
to the sale of the Greenshoe Shares.
COPE, Inc. 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 such
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 such 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 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 Inc., 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.
INTERNET SUBSCRIPTIONS
NORD/LB intends to offer up to 10,000 shares of common stock over the
Internet to their clients in Germany. The Internet Subscription period shall be
between and (until p.m.). Depending on the number of subscription
offers received by NORD/LB, the applicable allocation ratio may be more or less
favorable than that for the remaining portion of the shares of common stock
allocated by NORD/LB. For further and more detailed information regarding the
terms of the Internet Subscriptions, reference is made to NORD/LB's Web page
located at www.nordlb.de.
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 OTC 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 special 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 ("Designated
Sponsor");
. The issuer should have been in existence as an enterprise for at least
three years;
46
<PAGE>
. Equity should amount to no less than EUR 1.5 million;
. 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 EUR 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, issuers are required to prepare their annual
financial statements in both German and English in compliance with IAS
(International Accounting Standards) or US-GAAP (US-Generally Accepted
Accounting Standards). Reconciliation accounts between national accounting
standards and IAS or US-GAAP 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 and 17.00. The Neuer Markt trading model combines a
central order book with sponsors, who provide liquidity. The Designated Sponsor
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 max. 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.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The shares sold in the offering will be freely tradable without restrictions
or further registration under the 1933 Act, except for any shares purchased by
an affiliate of COPE, which will be subject to the limitations of Rule 144
under the 1933 Act.
Upon completion of the offering, based on shares outstanding on June 25,
1999 and without giving effect to the exercise of the overallotment option,
COPE will have outstanding 3,995,751 shares of common stock. Approximately
1,154,881 shares will be tradable without restriction or further registration
under the 1933 Act by persons other than "affiliates" of COPE, including shares
which will be eligible for immediate sale in the public market without
restriction pursuant to Rule 144(k) under the 1933 Act. As of the closing of
this offering, the remaining approximately 2,840,870 shares of common stock
will be "restricted securities" (as defined in Rule 144 under the 1933 Act),
and may be sold under Rule 144 subject to the holding period, volume
limitations and other restrictions under Rule 144. Approximately 2,840,870 of
such shares of common stock are subject to lock-up agreements under which the
holders of such shares have agreed with the representative of the underwriters
not to sell or otherwise dispose of any of such shares for a period of up to
one year following the date of this Prospectus, subject to certain limited
exceptions.
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 such
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
Certain legal matters with respect to the shares of common stock offered
hereby will be passed upon for COPE by Oppenheimer Wolff & Donnelly LLP,
Newport Beach, California. Certain legal matters in connection with the
offering will be passed upon for the Underwriters by Hale & Dorr LLP, Boston,
Massachusetts.
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, Inc.'s 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. The Company has
had no disagreements with Raimondo Pettit Group during the past two years and
the subsequent interim period preceding such 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.
48
<PAGE>
AVAILABLE INFORMATION
COPE is subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). COPE's reports, proxy statements and other
information filed pursuant to the Exchange Act 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 such 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 Securities Act with respect to the common stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
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.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditors' Report thereon
are included herein on the pages indicated:
<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 March 31, 1999.............. F-19
Condensed Consolidated Statements of Income for the three month periods
ended March 31, 1999 and 1998.......................................... F-20
Condensed Consolidated Statements of Cash Flows for the three month
periods ended March 31, 1999 and 1998.................................. F-21
Notes to Condensed Consolidated Financial Statements.................... F-22
</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 April 19, 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
$59,855, $0 and $0)............... Note 4 777,714 0 9,736
Intangible assets.................. 249,459 125,631 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....... (399,940) (220,363) (340,145)
------------ ------------ -----------
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........................... 224,375 220,363 262,155
Amortization........................... 175,565 0 0
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 business/net of cash
acquired.............................. (187,322) 0 (3,865)
----------- ----------- ---------
Net cash flow used in investing
activities.............................. (590,497) (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............................ 648,515 502,770 (293,085)
COPE reorganization.................... (371,112) 0 0
----------- ----------- ---------
Net cash flow provided (used) by
financing activities.................... 429,723 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
</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 (ii) 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>
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 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.
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 on January 1, 1996.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................. $36,744,704 $28,321,655 $23,307,767
Net income............................ 1,023,002 422,595 174,826
Basic earnings per share.............. 0.35 0.15 0.06
Diluted earnings per share............ 0.35 0.15 0.06
</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, 1996, or which may result in the future.
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>
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>
F-11
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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>
F-12
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-13
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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
F-14
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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.
F-15
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-16
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<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>
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 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.
F-17
<PAGE>
COPE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 a pooling-of-
interest. COPE issued 420,000 new shares 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>
March 31,
1999
-----------
<S> <C>
ASSETS
------
Current assets
Cash and cash equivalents........................................ $ 600,864
Trade accounts receivable........................................ 6,141,256
Inventories (net of provision of $82,344 and $89,455)............ 1,951,918
Other current assets............................................. 638,043
-----------
Total current assets......................................... 9,332,081
Property, plant and equipment, net................................. 834,699
Loans receivable................................................... 923,655
Goodwill (net of amortization of $88,559 and $59,855).............. 688,448
Intangible assets.................................................. 296,393
Deferred income taxes.............................................. 512,371
-----------
Total assets................................................. $12,587,647
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Short-term borrowings............................................ $ 1,901,584
Trade accounts payable........................................... 6,332,450
Customer advances................................................ 304,295
Other current liabilities........................................ 523,907
Current income taxes payable..................................... 142,380
Deferred income taxes............................................ 200,079
-----------
Total current liabilities.................................... 9,404,695
-----------
Commitments and contingent liabilities............................. 0
Shareholders' equity
Share capital:
Common stock $0.001 par value
Authorized shares 30,000,000
Issued and outstanding shares 3,152,861......................... 3,153
Additional paid in capital....................................... 506,031
Accumulated other comprehensive income
Cumulative translation adjustment.............................. (134,892)
Retained earnings................................................ 2,808,660
-----------
Total shareholders' equity................................... 3,182,952
-----------
Total liabilities and shareholders' equity................... $12,587,647
===========
</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 ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three month periods
ended
------------------------
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net Revenue
Sales of solutions.................................. $ 7,255,307 $ 4,145,487
Sales of services................................... 1,282,607 495,348
----------- -----------
Total revenue......................................... 8,537,914 4,640,835
Cost of sales......................................... (5,673,756) (3,167,524)
----------- -----------
Gross profit.......................................... 2,864,158 1,473,311
----------- -----------
Operating expenses
Selling, general and administrative expenses........ (2,437,519) (1,213,242)
Consultancy expenses................................ (59,290) (67,787)
Depreciation and amortization....................... (119,466) (116,056)
----------- -----------
Total operating expenses.............................. (2,616,275) (1,397,085)
Operating income.................................... 247,883 76,226
Other income (expense):
Interest expense.................................... (64,667) (13,058)
Interest income..................................... 38,276 0
Other............................................... (3,513) 1,145
----------- -----------
(29,904) (11,913)
----------- -----------
Earnings before taxes................................. 217,979 64,313
Current income taxes.................................. (20,964) (47,297)
Deferred income taxes................................. (35,935) 84,749
----------- -----------
(56,899) 37,452
----------- -----------
Net income............................................ $ 161,080 $ 101,765
=========== ===========
Basic earnings per share.............................. $ 0.051 $ 0.036
Diluted earnings per share............................ $ 0.049 $ 0.036
Weighted average shares outstanding................... 3,152,861 2,862,000
Dilutive effect of stock options...................... 163,382 0
----------- -----------
Diluted average shares outstanding.................... 3,316,243 2,862,000
=========== ===========
</TABLE>
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 three month periods ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three month periods
ended
-----------------------
March 31, March 31,
1999 1998
----------- ----------
<S> <C> <C>
Cash flow provided by operating activities:
Net income......................................... $ 161,080 $ 101,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 83,868 53,052
Amortization....................................... 35,598 63,004
Deferred income taxes.............................. 35,935 (84,749)
Effects of changes in operating assets and
liabilities
Accounts receivable................................ 1,125,873 1,236,466
Inventories........................................ (310,917) 119,639
Other current assets............................... 230,872 (81,264)
Accounts payable................................... (1,201,913) (459,174)
Customer advances.................................. (108,242) (543,317)
Other current liabilities.......................... 226,964 (60,394)
----------- ----------
Net cash flow provided by operating activities....... 279,118 345,028
----------- ----------
Cash flow used in investing activities
Purchase of property, plant and equipment.......... (229,512) (171,716)
Loans receivables.................................. (322,984) (267,785)
Purchase of intangible assets...................... (68,361) 0
----------- ----------
Net cash flow used in investing activities........... (620,857) (439,501)
Cash flow used in financing activities:
Decrease of short term borrowings.................. (304,301) (145,010)
----------- ----------
Net cash flow used in financing activities........... (304,301) (145,010)
Effect of exchange rate changes on cash.............. (56,210) 22,072
Net decrease of cash and cash equivalents............ (702,250) (217,411)
Cash and cash equivalents at beginning of the
period.............................................. 1,303,114 678,936
----------- ----------
Cash and cash equivalents at end of the period....... $ 600,864 $ 461,525
=========== ==========
Supplemental cash flow disclosure
Interest paid...................................... $ 59,879 $ 12,485
Income taxes paid.................................. 22,145 1,141
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-21
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1999 and for the three month
periods ended March 31, 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 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 reflects 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.
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. Weighted
average shares have been retroactively restated for the equivalent number of
shares received by the 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 $863,546 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.
Note 4--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. On April 30, 1999, the company issued 22,390 shares of common stock upon
exercise of outstanding common stock purchase options.
F-22
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--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.
Information concerning the Company's reportable segments is summarized as
follows by location of operations (Intercompany sales are generally at purchase
cost):
<TABLE>
<CAPTION>
Three Months ended
March 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Total revenue:
Switzerland.......................................... $ 3,262,701 $3,892,360
Germany.............................................. 4,680,720 588,717
Austria.............................................. 594,493 236,986
----------- ----------
8,537,914 4,718,063
----------- ----------
Sales between geographic areas:
Switzerland.......................................... $ 0 $ 54,501
Germany.............................................. 0 12,875
Austria.............................................. 0 9,852
----------- ----------
0 77,228
----------- ----------
Total revenue from external customers:
Switzerland.......................................... $ 3,262,701 $3,837,859
Germany.............................................. 4,680,720 575,842
Austria.............................................. 594,493 227,134
----------- ----------
$ 8,537,914 $4,640,835
=========== ==========
Depreciation and amortization:
Switzerland.......................................... $ 69,308 $ 111,487
Germany.............................................. 37,129 593
Austria.............................................. 13,029 3,976
----------- ----------
$ 119,466 $ 116,056
=========== ==========
Operating income
Switzerland.......................................... $ 181,847 $ 284,280
Germany.............................................. 127,817 (128,662)
Austria.............................................. (24,812) (79,392)
Other................................................ (36,969) 0
----------- ----------
$ 247,883 $ 76,226
=========== ==========
</TABLE>
F-23
<PAGE>
COPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
March 31,
-----------------------
1999 1998
------------ ----------
<S> <C> <C>
Total Assets:
Switzerland........................................... $ 5,644,145 $4,361,220
Germany............................................... 5,580,932 993,888
Austria............................................... 1,171,244 451,802
Other................................................. 191,326 0
------------ ----------
$ 12,587,647 $5,806,910
============ ==========
</TABLE>
Note 6--Subsequent Events
On April 19, 1999, the Company acquired Hicomp Software Systems GmbH
(Hicomp), a German software company, in a stock transaction accounted for as a
pooling-of-interest. The Company issued 420,000 shares 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-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Market for Common Stock and Related Stockholder Matters.................. 14
Dividend Policy.......................................................... 14
Use of Proceeds.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
The Company.............................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business of COPE......................................................... 25
Management............................................................... 32
Principal Stockholders and Beneficial Ownership of Management............ 36
Description of Securities................................................ 37
Anti-Takeover Provisions................................................. 38
Book-Entry-Only Issuance of Common Stock Trading on German Stock
Exchanges............................................................... 40
Taxation................................................................. 40
Underwriters............................................................. 45
Internet Subscriptions................................................... 46
The Neuer Markt.......................................................... 46
Shares Eligible for Future Sale.......................................... 48
Legal Matters............................................................ 48
Experts.................................................................. 48
Available Information.................................................... 49
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
600,000 Shares
COPE, INC.
Common Stock
---------------
PROSPECTUS
---------------
Norddeutsche Landesbank Girozentrale
Trinkaus & Burkhardt KGaA
BANK JULIUS BAR & CO. AG
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[Alternate Pages for German Prospectus]
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 DTC for credit to DBC's account -
from the capital increase for cash resolved by the meeting of the Board of
Directors on 22nd June 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 DTC for credit to DBC'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 DTC for credit to DBC'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 1st January 1999 through 31st December 1999
Securities Code Number 876 954 -
- ISIN Code US 217 208 107 5 -
- Valor Number CH 952517 -
of
COPE, Inc.
Wilmington, Delaware, USA
(incorporated under the laws of the State of Delaware)
<PAGE>
and
Company Report
for an 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 22nd June 1999
each carrying full dividend rights as from the fiscal year
from 1st January 1999 through 31st December 1999
Securities Code Number 876 954 -
- ISIN Code US 217 208 107 5 -
- Valor Number CH 952517 -
and
up to
400,000 par value shares of common stock
with a par value per share of USD 0.001
USD 400.-
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
of
COPE, Inc.
Wilmington, Delaware, USA
(incorporated under the laws of the State of Delaware)
<PAGE>
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 1st January 1999 through 31st December 1999
Securities Code Number 876 954 -
- ISIN Code US 217 208 107 5 -
- Valor Number CH 952517 -
and
up to
400,000 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
of
Cope, Inc.
Wilmington, 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, July 1999
Norddeutsche Landesbank
Girozentrale
Trinkaus & Burkhardt KGaA Bank Julius Bar & Co. AG
<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 incurred by COPE in
connection with the issuance and distribution of the Shares being registered.
All such expenses are estimated except for the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee..................................................
NASDAQ National Market System Listing Fee.............................
Neuer Markt Listing Fee...............................................
Printing expenses.....................................................
Fees and expenses of counsel for the Company..........................
Fees and expenses of accountants for Company..........................
Miscellaneous.........................................................
*Total..............................................................
</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.
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.
II-4
<PAGE>
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 one
individual 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(18)
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
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)
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).
</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.
II-6
<PAGE>
(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.
(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) To be filed by amendment.
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;
II-7
<PAGE>
(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;
(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 Registration Statement
on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in Rotkreuz, Switzerland, on June 30, 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 June 30, 1999
____________________________________ Vice President (principal
Adrian Knapp executive officer)
/s/ Stephan Isenschmid President and Chief June 30, 1999
____________________________________ Executive Officer and
Stephan Isenschmid Director
/s/ Markus Bernhard Chief Financial Officer June 30, 1999
____________________________________ (principal financial and
Markus Bernhard accounting officer)
/s/ Markus Stalder Director June 30, 1999
____________________________________
Markus Stalder
/s/ Peter Koch Director June 30, 1999
____________________________________
Peter Koch
/s/ Kevin DeVito Director June 30, 1999
____________________________________
Kevin DeVito
</TABLE>
II-9
<PAGE>
EXHIBIT 5.1
OPPENHEIMER WOLFF & DONNELLY LLP
500 Newport Center Drive
Suite 700
Newport Beach, California 92660
(949) 719-6000
(949) 719-6040 (Fax)
June 30, 1999
COPE, Inc.
Grundstrasse 14
6343 Rotkreuz
Switzerland
Re: Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
As counsel for COPE, Inc., a Delaware corporation (the "Company"), we have
examined its Certificate of Incorporation, as amended, Bylaws and such other
corporate records, documents and proceedings, and such questions of law as we
have deemed relevant for the purpose of this opinion. We have also, as such
counsel, examined the Registration Statement on Form SB-2 of the Company as
filed with the Securities and Exchange Commission, covering the registration
under the Securities Act of 1933, as amended, of a total 700,000 shares of $.001
par value common stock ("Common Stock"), including the exhibits and form of
Prospectus (the "Prospectus") pertaining thereto, and any amendments thereto
(collectively, the "Registration Statement").
Upon the basis of such examination, we are of the opinion that:
1. The Company is a corporation duly authorized and validly existing in
good standing under the laws of the State of Delaware, with all requisite power
to conduct the business described in the Registration Statement.
2. The shares of the Company's Common Stock registered pursuant to the
Registration Statement have been duly and validly authorized and, subject to the
payment therefor pursuant to the terms contemplated in the final Prospectus,
such shares of Common Stock will be duly and validly issued as fully paid and
non-assessable securities of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ OPPENHEIMER WOLFF & DONNELLY LLP
<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 April 19, 1999, in the Regsitration Statement (Form SB-2 No. 33-00000) 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
June 25, 1999
