SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Earliest Event Reported): December 22,
1997
Exact name of Registrant
as specified in its charter: Coyote Network Systems,
Inc.
State or Other Jurisdiction of Incorporation: Delaware
Commission File Number: 1-5486
I.R.S. Employer Identification Number: 36-2448698
Address of Principal Executive Office: 4360 Park
Terrace Drive
Westlake Village, CA 91361
Registrant's Telephone Number, Including Area Code:
(818) 735-7600
Registrant's Former Name: The Diana Corporation
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Form of Subscription Agreement
4.2 Form of Note
4.3 Form of Registration Rights Agreement
4.4 Offshore Warrant Subscription Agreement
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO
REGULATION S
(a) Securities sold. On December 22, 1997, the
Registrant sold $5,000,000 in 8% Convertible Notes ("Notes") Due
December 22, 2000. At any time commencing one year after the
Closing, the Company may, by written notice to the Holder,
prepay the Notes in whole or in part. The notice shall be given at
least ten (10) days prior to the payment date and on such
date the Company shall pay the outstanding principal and
all accrued interest on the Note, unless prior to such payment
date the Holder has delivered a Notice of Conversion.
(b) Underwriters and other purchasers. First Bermuda
Securities Limited, Chevron House, 11 Church Street, Hamilton
HM 11, Hamilton HM NX, Bermuda, acting as placement
agent, distributor and escrow agent, received executed
subscription
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agreements for the purchase of the notes from the
following; Offshore Nominees Limited ($500,000), Buckingham
Global Investors ($600,000), Mid Ocean Capital, S. A.
($1,500,000), CuttyHunk Fund Limited ($400,000), Bronia GmbH
($1,000,000) and Thomson Kernaghan & Co. Limited ($1,000,000).
(c) Consideration. The aggregate offering price of
the Notes was $5,000,000. Commissions totaling $350,000 and
expenses of $15,000 were deducted resulting in net proceeds to
the Company of $4,635,000. In addition, First Bermuda
Securities Limited received warrants to purchase 48,611
shares of Common Stock at an exercise price of $7.20 per share.
These warrants are exercisable immediately and expire on December 22,
2002. The holder of the warrants also received so-called
"piggyback" registration rights with respect to the warrant
shares..
(d) Exemption from registration claimed. The Company
claims exemption from registration pursuant to Regulation
S under the Securities Act of 1933 as amended. In so doing,
the Company has relied upon the representations made
by the purchasers of the Notes and First Bermuda
Securities Limited acting as placement agent, distributor and escrow
agent. These representations include representation as to
the purchasers status as non US persons.
(e) Terms of conversion or exercise. The holder of
the Note(s) is entitled, at its option, at any time commencing
forty-five (45) days after the Closing Date (December 22,
1997), until maturity to convert one-third (1/3 rd) or any
lesser portion of the initial principal amount which is a least
$25,000 into shares of Common Stock ("Shares") at a conversion
price for each Share equal to the lesser of $7.00 per share
or eighty percent (80%) of the average closing bid price of
the Common Stock for the five (5) trading days immediately
prior to the Conversion Date with a conversion floor price (the
"Conversion Floor Price") of $4.00 per Share (collectively,
the "Conversion Price"); beginning seventy-five (75)
days after the Closing Date, an additional one third (1/3 rd)
of the initial principal amount which is at least $25,000
may be converted into Shares at the Conversion Price; and
beginning one hundred and five (105) days after the Closing
Date, the remaining one-third (1/3 rd) of the initial
principal amount which is at least $25,000 may be converted into
Shares at the Conversion Price, provided that if the average of
the closing bid price of the Common Stock for the twenty (20)
consecutive trading days immediately prior to a conversion
date is less than $4.00 per share, the Conversion Floor Price
will be adjusted to equal eighty percent (80%) of such
twenty (20) consecutive trading day average of the closing bid
price, provided, however, that in no event shall the
Holder be entitled to convert any portion of the Note in
excess of that portion of the Note upon conversion of which the
sum of (1) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (other than shares of
Common Stock
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which may be deemed beneficially owned through the
ownership of the unconverted portion of this note, as
defined in the Subscription Agreement) and (2) the number of
Shares issuable upon the conversion of the portion of the note
with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the holder and
its affiliates of more than 4.9% of the outstanding
shares. For purposes of the proviso to the immediately
proceeding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (1) of such
proviso. In addition, if at any time, there occurs a
transaction in which in excess of 50% of the Company's voting power is
transferred (excluding any public or private offering of
Company equity securities), including any consolidation or merger
of the Company with or into any other corporation or
other entity or person (whether or not the Company is the
surviving corporation), or any other corporate
reorganization or transaction or series of transactions, the holder
of the note then outstanding may participate in any such
transaction as a class with the common stockholders on the same
basis as if the note had been converted one day prior to the
effective date of the transaction; provided, however, that at the
option of the holder of the note, such holder may treat the
effective date of any transaction that occurs prior to December
22, 2000 as a redemption of the note at a price equal to 125% of
the outstanding principal amount of the note, plus
accrued but unpaid interest. The holder shall be entitled to
make such election at any time up to ten (10) days prior to
the effective date of the transaction. The Company
has entered into a registration rights agreement with the
Purchasers of the Notes wherein, upon a decision to convert by
the Purchasers of the Notes, and if the Shares are
required to be registered, the Shares will be registered with the
Securities and Exchange Commission pursuant to Securities Act
of 1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
COYOTE NETWORK SYSTEMS, INC.
(Registrant)
Date: December 31, 1997
/s/ Daniel W. Latham
President and Chief Operating
Officer
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EXECUTION COPY Exhibit 4.1
THE SECURITIES SUBSCRIBED FOR HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S
UNDER THE ACT) OR TO OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS (AS DEFINED IN REGULATION S) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT.
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement (the
"Agreement"), dated December __, 1997, is entered into
by and between Coyote Network Systems, Inc., a company
incorporated in the state of Delaware (the "Company"),
and ___________________ (the "Buyer").
The Company has offered for sale outside the United
States (as that term is defined in Regulation S
("Regulation S") under the Act up to $6,000,000 of an
8% Convertible Note due December __, 2000 (the
"Securities") convertible into common stock of the
Company. Buyer has been offered $_____________ in
principal amount of the Securities. Interest on the
Securities will be payable as provided in the form of
Convertible Note attached hereto as Annex A. The terms
on which the Securities may be converted into shares of
the Company's common stock (such shares underlying the
Securities being referred to herein as "Shares") and
the other terms of the Securities are set forth in the
Form of Convertible Note attached as Annex A.
Capitalized terms used herein and not defined herein
shall have the meanings given to them in Regulation S
as the same may be amended from time to time.
The parties hereto agree as follows:
1. Purchase and Sale of Securities. Upon the basis
of the representations and warranties, and subject to
the terms and conditions, set forth in this Agreement,
the Company covenants and agrees to sell to the Buyer
on the Closing Date (as hereinafter defined)
$______________ in principal amount of the Securities
at a price of 100% of the original principal amount,
and upon the basis of the representations and
warranties, and subject to the terms and conditions,
set forth in this Agreement, the Buyer covenants and
agrees to purchase from the Company, on the Closing
Date $__________ in principal amount of the Securities
of the Company at 100% of the original principal
amount.
2. Closing Instructions to Escrow Agent. (a)
The closing of the purchase and sale of the Securities
pursuant to Section 1 hereof shall take place on or
before December __, 1997 (the "Closing Date") after the
Company has delivered to the offices of First Bermuda
Securities Limited (the "Escrow Agent") located at
Chevron House, 11 Church Street, Hamilton, HM 11
Bermuda, __ Convertible Notes (each a "Convertible
Note") representing the Securities in denominations of
not less than $25,000, registered in the name of the
Buyer (representing the maximum amount of Securities to
be purchased by the Buyer hereunder).
(b) The Company and the Buyer agree that they shall
instruct the Escrow Agent as provided in Annex B and as
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provid in Annex B and as follows:
(i) On the Closing Date, for each
Convertible Note subscribed for and delivered to the
Escrow Agent pursuant to paragraph 2(a) above, the
Escrow Agent shall, upon confirmation in the form of a
federal funds wire number that First Bermuda Securities
Limited has wired payment of the aggregate purchase
price for the Securities (less any fees the Company has
authorized Escrow Agent to deduct) in immediately
available funds to the Company's account as provided in
the escrow instructions attached as Annex B, release
the Securities described in paragraph 2(a) above. The
Escrow Agent shall return to the Company any
Convertible Notes that the Buyer does not purchase on
the Closing Date. If the closing shall not have taken
place by December __, 1997, this Agreement shall
terminate.
(ii) The Escrow Agent will make delivery of
the number of Convertible Notes set forth in clause
2(a) above in accordance with the instructions of the
Buyer subject to customary settlement procedures upon
confirmation of the wiring of funds to the Company as
described in clause 2(b)(i) above, except that all such
Convertible Notes shall be delivered to a location
outside the United States and none of the Convertible
Notes shall be delivered to a U.S. Person (as defined
in Regulation S).
3. Representations and Warranties of the Buyer: The
Buyer understands and represents and warrants to, and
agrees with the Company that:
(a) The Buyer understands that no federal or
state agency has passed on, or made any recommendation
or endorsement of the Securities.
(b) The Buyer acknowledges that, in making the
decision to purchase the Securities, it has relied
solely upon independent investigations made by it and
not upon any representations made by the Company with
respect to the Company or the Securities, except for
the representations and warranties in this Agreement,
the Convertible Note, the Registration Rights Agreement
and the Officer's Certificate (as defined below),
except that the Buyer has received, reviewed and relied
upon the Opinion of Counsel (as defined below) and
copies of the report on Form 10-Q for the quarter ended
September 30, 1997, the report on Form 10-K for the
year ended March 30, 1997, filed by the Company
pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and all other filings,
including filings on Form 8-K, under the Exchange Act
since March 30, 1997, which, together with any filings
by Company after the date hereof and prior the Closing,
are defined as "Exchange Act Reports".
(c) The Buyer understands that the Securities are
being offered and sold to it in reliance on specific
exemptions from or non-application of the registration
requirements of federal and state securities laws and
that the Company is relying upon the truth and accuracy
of the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set
forth herein in order to determine the applicability of
such exemptions and the suitability of the Buyer to
acquire the Securities.
(d) The Buyer is not a U.S. Person (as defined in
Regulation S) and is not and will not be an affiliate
(as defined in the Exchange Act) of the Company. To
enable the Company to avoid withholding interest paid,
the Buyer certifies under penalty of perjury
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that it is neither a citizen nor a resident of the United
States and that its address set forth in the Escrow Agreement
is correct.
(e) No public offer or solicitation of the
Securities or the Shares issuable on conversion of the
Securities was made to the Buyer and no offer of the
Securities or the Shares issuable on conversion of the
Securities was made to the Buyer while the Buyer was
present in the United States.
(f) At the time the buy order for the Securities
was originated the Buyer was located outside the United
States and is outside the United States on the date of
the execution and delivery of this agreement and will
be outside the United States on the Closing Date.
(g) The Buyer is aware that the Securities and
the Shares issuable upon exercise of conversion rights
have not been and will not be registered under the Act
(except as may be required under the Registration
Rights Agreement) and may only be offered or sold
pursuant to registration under the Act or an available
exemption therefrom and Buyer has not, and will not,
engage in any public offering or distribution of the
Securities or the Shares.
(h) The Buyer (i) will not, during the period
commencing on the Closing Date and ending 40 days after
the Closing Date (the "Restricted Period"), offer or
sell or agree to sell the Securities in the United
States, to a U.S. Person or for the account or benefit
of a U.S. Person or other than in accordance with Rule
903 or 904, as applicable, of Regulation S, and (ii)
will, after the expiration of the Restricted Period,
offer, sell, pledge or otherwise transfer the
Securities or the common stock issuable upon the
exercise of conversion rights only pursuant to
registration under the Act or an available exemption
therefrom and, in any case, in accordance with
applicable federal and state securities laws.
(i) The Buyer and its affiliates have been
advised of and are familiar with, have complied, and
will comply, with the offering restrictions, and any
other requirements, of Regulation S.
(j) The transactions contemplated by this
Agreement (i) have not been pre-arranged by the Buyer
with a purchaser located in the United States which is
a U.S. Person, and (ii) are not part of a plan or
scheme by the Buyer to evade the registration
provisions of the Act.
(k) The Buyer is an "accredited investor" as
defined in the Act and will be purchasing the
Securities for its account for the purpose of
investment and not (i) with a view to, or for sale in
connection with, any distribution thereof or (ii) for
the account or on behalf of any U.S. Person.
(l) Neither the Buyer nor any of its affiliates
has entered, has the intention of entering, or will
during the Restricted Period, directly or indirectly,
enter into, with any U.S. Person, any put option, short
position or other similar instrument or position
(including hedging positions) with respect to the
Securities or securities into which the Securities are
convertible or participate in any other attempt
designed to lower the trading prices of the Company's
common stock.
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(m) The Buyer shall indemnify the Company against
any loss, cost or damages (including reasonable
attorney's fees and expenses) incurred as a result of
the Buyer's breach of any representation, warranty,
covenant or agreement in this Agreement.
4. Registration Rights. On or prior to the Closing
Date, the Company and Buyer agree to execute a
Registration Rights Agreement (the "Registration Rights
Agreement") in the form substantially set out in Annex
C attached hereto, respectively.
5. Conversion of Securities The Securities may be
converted into the Shares, as herein defined, at the
option of the holder thereof under the terms set forth
in the Form of Convertible Note, attached hereto as
Annex A.
6. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees
with, the Buyer that:
(a) The Company has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of Delaware.
(b) This Agreement has been duly authorized,
executed and delivered by the Company and is a valid
and binding agreement enforceable in accordance with
its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or
affecting creditors' rights generally and to general
principles of equity; and the Company has full
corporate power and authority necessary to enter into
this Agreement and to perform its obligations
thereunder.
(c) No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator
having jurisdiction over the Company or any of its
affiliates is required for execution of this Agreement,
including, without limitation, the issuance and sale of
the Securities, or the performance of its obligations
hereunder.
(d) Neither the sale of Securities pursuant to,
nor the performance of its obligations under this
Agreement by the Company will (i) violate, conflict
with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the
lapse of time or both would be reasonably likely to
constitute a default) under (A) the certificate of
incorporation, charter or by-laws of the Company or any
of its affiliates, (B) any decree, judgment, order,
law, treaty, rule, regulation or determination
applicable to the Company or any of its affiliates of
any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its
affiliates or over the properties or assets of the
Company or any of its affiliates, (C) the terms of any
bond, debenture, note or any other evidence of
indebtedness, or any material agreement, stock option
or other similar plan, indenture, lease, mortgage, deed
of trust or other material instrument to which the
Company or any of its affiliates is a party, by which
the Company or any of its affiliates is bound, or to
which any of the properties of the Company or any of
its affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or
similar agreement to which the Company or any of its
affiliates is a party to; or (ii) result in the
creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of
the Company or any of its affiliates.
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(e) The Company has an authorized capitalization
consisting of 15,000,000 shares of common stock, par
value $1.00 per share (the "Common Stock"), and
5,000,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock"). The Company has issued and
outstanding __________ shares of Common Stock and nil
shares of Preferred Stock as of December __, 1997. All
of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are
fully paid and non-assessable; prior to the Closing
Date, the authorized capitalization shall include the
Shares to be issued upon conversion of the Securities.
The shares of Common Stock issuable upon conversion of
the Securities, when issued and delivered in accordance
with the terms of the Securities, will be duly and
validly issued, fully paid and non-assessable. The
issuance of the Shares will not be in violation of any
preemptive or similar rights of the holders of any
securities of the Company. The Securities (i) are free
and clear of any security interests, liens, claims or
other encumbrances, (ii) have been duly and validly
authorized and on the Closing Date will be duly and
validly issued, fully paid and non assessable, (iii)
will not have been, individually and collectively,
issued or sold in violation of any preemptive or other
similar rights of the holders of any securities of the
Company and (iv) will not subject the holders thereof
to personal liability by reason of being such holders.
The Common Stock underlying the Securities is quoted
on, and will be, following the completion of the
Restricted Period (if sold in accordance with the
provisions of this Agreement, applicable securities law
and Regulation S as then in effect), eligible for
trading on, The National Association of Securities
Dealers Inc. Electronic Bulletin Board ("NASDAQ").
(f) The Company is a Reporting Issuer (as defined
in Regulation S) because it has a class of securities
registered pursuant to Section 12(g) of the Exchange
Act and has filed all the material required to be filed
pursuant to Section 13(a) of the Exchange Act for a
period of at least twelve (12) months preceding the
date of this Agreement. The Common Stock is quoted on
NASDAQ and the Company has received no notice, oral or
written, with respect to its continued eligibility for
such listing. The Company hereby agrees, promptly
following the Closing of the transactions contemplated
by this Agreement, to take such action as is necessary
to cause the Shares issued upon exercise of conversion
rights under the Convertible Notes to be quoted on
NASDAQ upon such conversion following expiration of the
Restricted Period (subject, if required, to notice to
NASDAQ of the actual number of shares issued). The
Company further agrees, if the Company applies to have
the Common Stock traded on any other principal stock
exchange or market, it will include in such application
the Shares and will take such other action as is
necessary or desirable to cause the Shares to be listed
on such other exchange or market upon expiration of the
Restricted Period.
(g) The Exchange Act Reports are the only filings
made by the Company since March 31, 1997 pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act, and the Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b)
of the Securities Exchange Act of 1934, will comply in
all respects with its reporting and filing obligations
under said Act, and will not take any action or file
any document (whether or not permitted by said Act or
the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting
and filing obligations under said Act. The Company
will take all action necessary to continue the quoting
and trading of its Common Stock on NASDAQ and will
comply in all respects with the Company's reporting,
filing and other obligations under the by-laws or rules
of the NASD and NASDAQ.
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(h) The Company has the requisite corporate power
to own its properties and to carry on its business as
now being conducted. The Company is duly qualified as
a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes
such qualification necessary other than those in which
the failure so to qualify would not have a Material
Adverse Effect. "Material Adverse Effect" means any
adverse effect on the business, operations, properties,
prospects, or financial condition of the entity with
respect to which such term is used and which is
material to such entity.
(i) The Company has furnished or made available
to the Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on the date
hereof (the "Certificate of Incorporation"), and the
Company's By-Laws, as in effect on the date hereof (the
"By-Laws").
(j) The Company has delivered or made available
to the Buyer true and complete copies of the Exchange
Act Reports (including, without limitation, proxy
information and solicitation materials excluding any
preliminary proxy not distributed). The Company has
not provided to the Buyer any information which,
according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which
has not been so disclosed. As of their respective
dates, the Exchange Act Reports complied in all
material respects with the requirements of the Exchange
Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such
Exchange Act Reports, and none of the Exchange Act
Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in light of the circumstances under
which they were made, not misleading. The financial
statements of the Company included in the Exchange Act
Reports comply as to form in all material respects with
applicable accounting requirements and the published
rules and regulations of the SEC or other applicable
rules and regulations with respect thereto. Such
financial statements have been prepared in accordance
with generally accepted accounting principles applied
on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or
summary statements) and fairly present in all material
respects the financial position of the Company as of
the dates thereof and the results of operations and
cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit
adjustments).
(k) Except as set forth in the financial
statements and other documents filed by the Company
under the Exchange Act, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent
to September 30, 1997 and (ii) obligations under
contracts and commitments incurred in the ordinary
course of business, which in either case are required
under generally accepted accounting principles to be
reflected in such financial statements, which
individually or in the aggregate, are material to the
financial condition or operating results of the
Company. The Company has not provided to the Buyer any
information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the
Company but which has not been so disclosed.
<PAGE>
(l) Since September 30, 1997 there has been no
material adverse change and no material adverse
development in the business, properties, operations,
financial condition, results of operations or prospects
of the Company, except as disclosed in accordance with
the Exchange Act Reports.
(m) There is no material action, suit,
proceeding, inquiry or to the knowledge of the Company
or any of its subsidiaries, investigation before or by
any court, public board, government agency, self-
regulatory organization or body pending, or to the
knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of
its subsidiaries other than as set forth in the
Exchange Act Reports.
(n) Neither the Company, nor any or its
affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy
any security, under circumstances that would require
registration of the Securities under the Act.
(o) The Company has taken no action which would
give rise to any claim by any person for brokerage
commissions, finder's fees or similar payments by the
Buyer relating to this Agreement or the transactions
contemplated hereby, except for dealings with First
Bermuda Securities Limited, whose commissions and fees
will be paid for by the Company.
(p) As of the date hereof, the Company has
reserved and the Company shall continue to reserve and
keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of
its Common Stock upon conversion of the Securities;
provided, however, that the number of shares so
reserved shall at all times be at least 1,250,000 in
aggregate for purposes of conversion of the Securities.
On the Closing Date, such shares of Common Stock, with
restrictive legend, shall be deposited with the Escrow
Agent (as herein defined). The number of shares so
reserved may be reduced by the number of shares
actually delivered pursuant to the conversion of the
Securities (provided that in no event shall the number
of shares so reserved be less than the number required
to satisfy the remaining conversion rights on the
unconverted Securities) and the number of shares so
reserved shall be increased to reflect stock splits and
stock dividends and distributions.
(q) No legend has been or shall be placed on the
Securities or share certificates representing the
Securities or Shares and no note or stock transfer
instructions have been or shall be given to the
Company's transfer agent with respect thereto other
than as set forth in Section 10.
(r) Based upon the truth and accuracy of the
representations and warranties made by the Buyer, the
sale of the Securities pursuant to this Agreement will
be made in accordance with the provisions and
requirements of Regulation S and applicable state law.
(s) No offer to sell the Securities was made by
the Company to any person in the United States.
(t) None of the Company, any affiliate of the
Company, or any person acting
<PAGE>
on behalf of the Company or any such affiliate has
engaged, or will engage, in any Directed Selling Efforts
as that term is defined in Regulation S with respect
to the Securities nor any general solicitation of the
Securities.
(u) The transactions contemplated by this
Agreement (i) have not been pre-arranged with a
purchaser who is in the United States or is a U.S.
Person, and (ii) are not part of a plan or scheme to
evade the registration provisions of the Act.
(v) The Company undertakes and agrees to make all
necessary filings in connection with this offering as
required by the laws and regulations of all appropriate
jurisdictions and securities exchanges in the United
States of America.
(w) The Company shall indemnify the Holder
against any loss, cost or damages (including reasonable
attorney's fees and expenses) incurred as a result of
the Company's breach of any representation, warranty,
covenant or agreement in this Agreement.
7. Offering Materials. All offering materials and
documents used in connection with the offers and sales
of the Securities prior to the expiration of the
Restricted Period shall include statements to the
effect that the Securities and the Shares issuable upon
the exercise of conversion rights have not been
registered under the Act and that the Buyer, may not
directly or indirectly offer or sell the Securities or
such shares in the United States or to a U.S. Persons
(other than distributors) unless the Securities or
shares are registered under the Act, or an exemption
from the registration requirements of the Act is
available. Such statements shall appear (1) on the
cover of any prospectus or offering circular used in
connection with the offer or sale of the Securities and
(2) in the placement section of any prospectus or
offering circular used in connection with the offer or
sale of the Securities. Buyer represents that all
offering materials and documents received by it in
connection with the offers and sales of the Securities
prior to the Closing of the transactions contemplated
herein have complied with the foregoing. Nothing
contained in this Section 7 shall negate or detract
from any of the representations, warranties and
agreements of Buyer contained in Section 3 above.
8. Covenants of the Company. (a) The Company
covenants and agrees that during the period beginning
on the date hereof and ending 90 days following the
Closing Date, the Company will not, without the prior
written consent of a "Majority-in-interest" of the
Buyers, negotiate or contract with any party to obtain
additional equity financing (including debt financing
with an equity component) pursuant to the exemption
from the registration requirements of Regulation S (the
"Future Offerings"). In addition, the Company will not
conduct any Future Offerings during the period
beginning on the 90th day following the date hereof and
ending 180 days following the Closing Date unless it
shall have first delivered to the Buyer at least ten
(10) business days prior to the closing of such Future
Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof,
and providing the Buyer an option during such ten (10)
day period to purchase all or any portion of its "pro-
rata" share of the securities being offered in the
Future Offerings on the same terms as contemplated by
such Future Offering (the limitations referred to in
this and the immediately preceding sentence are
collectively referred to as the "Capital Raising
Limitation"). The Capital Raising Limitation shall not
apply to any transaction involving the Company's
commercial banking arrangements or
<PAGE>
issuances of securities in connection with a merger,
consolidation or sale of assets, or in connection with
any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a
business, product or license by the Company (so long
as the securities so issued are "restricted securities"
within the meaning of Rule 144 under the 1933 Act and do
not carry registration or piggy back rights for at least
360 days from the date of this Agreement), the issuance
of securities to settle securities litigation, the
exercise of outstanding warrants or exercise of options
or conversion of Coyote Technologies LLC membership
units by or the grant of performance shares to
employees, consultants or directors. The terms (i)
"majority-in-interest" means Holders of 8% Convertible
Notes holding more than 50% of the Common Stock
underlying the Securities (treating the Securities on
an as converted basis) and (ii) "pro-rata share" means
the principal amount of the Securities initially
purchased divided by the aggregate principal amount of
all Securities sold hereunder.
(b) The parties shall use their best efforts
timely to satisfy each of the conditions described in
Section 9 of this Agreement.
(c) So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to
the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under
the Exchange Act even if the Exchange Act or the rules
and regulations thereunder would permit such
termination, except in the event of a merger,
consolidation or sale of all or substantially all of
the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the
agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the AMEX,
the NYSE or the NASDAQ.
(d) At Buyer's request, the Company agrees to
send the following reports to Buyer until Buyer
transfers, assigns, or sells all of the Securities: (i)
within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-
K; and (ii) within two (2) business days after release,
copies of all press releases issued by the Company or
any of its subsidiaries.
(e) The Company shall at all times have
authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Securities
and issuance of the Shares in connection therewith
(based on the conversion price of the Securities in
effect from time to time). In that regard, on the
Closing Date, the Company shall have at least 1,250,000
shares reserved for issuance upon conversion of the
Securities (subject to adjustment in order to comply
with the immediately preceding sentence); provided that
the Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of
the Securities without the consent of a majority-in-
interest of the buyers of the Securities, which consent
will not be unreasonably withheld.
(f) So long as the Buyer beneficially owns any
Securities, the Company shall maintain its corporate
existence, except in the event of a merger,
consolidation or sale of all or substantially all of
the Company's assets, as long as the surviving or
successor entity
<PAGE>
in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly
traded corporation whose Common Stock is listed for trading
on the AMEX, the NYSE or the NASDAQ.
(g) The Company and the Buyer agree that the
Closing Date, when certified by Escrow Agent as the
Closing shall be deemed to be a conclusion of the
offering of the Securities contemplated hereby. The
Company acknowledges and agrees that, for purposes of
clarifying and specifying the applicable Restricted
Period under Regulation S, the Buyer intends to observe
as the Restricted Period (as defined in Regulation S)
for the Securities, the period of 40 days commencing on
the Closing Date and ending 40 days thereafter.
(h) The Shares issued upon conversion of the
Securities and the certificates evidencing the same
shall at all times be free of legends (except as
provided in Section 10 below), "stock transfer
restrictions," or other restrictions, except as
expressly set forth in this Agreement and the
Convertible Note.
9. Conditions Precedent to the Buyer's Obligation.
The obligations of the Buyer hereunder are subject to
the performance by the Company of the following
additional conditions precedent:
(a) The Buyer shall receive, on the Closing Date,
an opinion of counsel to the Company, dated the Closing
Date, as to the representations made by the Company in
Sections 6(a) through and including 6(f) and in
Sections 6(m) and 6(n) hereof, and such other matters
as Buyer reasonably requests (collectively, the
"Opinion of Counsel"). The form of the Opinion of
Counsel shall be as set forth in Exhibit 1 hereof.
(b) Delivery of the notes representing the
Securities with restrictive legend to the Escrow Agent
as set forth herein.
(c) The Company shall have delivered to the Buyer
a certificate (the "Officer Certificate") in form and
substance reasonably satisfactory to the Buyer,
executed by an executive officer of the Company, to the
effect that all the conditions to the Closing shall
have been satisfied and the representations and
warranties of the Company herein are true and correct
as of the date when made and as of the Closing Date,
and certifying as to the Company's Certificate of
Incorporation, By-Laws, resolutions authorizing
transaction, and incumbency of Company officers.
(d) The Company and the Buyer shall have entered
into the Registration Rights Agreement as contemplated
by Section 4.
10. Legends. (a) The certificates representing the
Securities, and the Shares issued during the Restricted
Period, shall bear the following legend (the "Legend"):
"The securities represented hereby have been
issued pursuant to Regulation S promulgated under
the Securities Act of 1933, as amended (the "1933
Act"), and have not been registered under the 1933
Act. Such securities may not be transferred,
offered or sold prior to the end of the forty (40)
day period (the "Restricted Period") commencing on
December __, 1997 unless such transfer,
<PAGE>
offer or sale is made in an "offshore transaction"
and not to or for the account of or benefit of
a "U.S. Person" (as such terms are defined in
Regulation S) and is otherwise in accordance
with the requirements of Regulation S. Following
the expiration of the Restricted Period, the
securities represented hereby may not be offered,
sold or otherwise transferred in the United States
or to a U.S. Person unless the securities are
registered under the 1933 Act and applicable state
securities laws, or such offers, sales and
transfers are made pursuant to an available
exemption or safe-harbor from the registration
requirements of those laws."
(b) Following the expiration of the Restricted
Period, and subject to Section 10(d) below, the Company
will remove or will promptly instruct its transfer
agent to remove the Legend from the Shares issued
during the Restricted Period (and will instruct its
transfer agent to issue without the Legend, the Shares
issuable upon any conversion or exercise occurring
after the Restricted Period), if the Buyer holding such
Securities or any other person in whose name the
certificates have been or are to be validly and legally
issued shall have delivered a certificate (a "Removal
Certificate") to the Company to the following effect:
"The undersigned acknowledges that the securities
to which this certificate relates have not been
registered under Securities Act of 1933, as
amended (the "1933 Act") and that offers, sales or
other transfer of such securities must be made in
compliance with Regulation S promulgated under the
1933 Act, pursuant to an effective registration
statement under the 1933 Act or pursuant to an
available exemption from registration, and the
undersigned certifies that the undersigned has not
made, nor will the undersigned make or cause to be
made, any offer, sale or other transfer of such
securities, in violation of the 1933 Act, other
applicable securities laws or the rules and
regulations of the Securities and Exchange
Commission."
(c) Upon the submission, at any time after the
expiration of the Restricted Period, by Buyer of a
written request for legend removal for the purpose of a
bona fide pledge or deposit of the Shares with a margin
account, together with the certificates for which the
legend removal is being requested and a Removal
Certificate signed by both the Buyer and the pledgee or
other holder of the Shares, the Company will reissue or
will promptly instruct its transfer agent to reissue
the certificates representing the Shares to be so
pledged or deposited without the Legend.
(d) Notwithstanding the provisions of this
Section 10, if with respect to the Company's receipt of
a Removal Certificate from any person, prior to any
removal of the Legend, there shall have been after the
date hereof any amendment to the Act or Regulation S or
any no action letter, interpretative release or other
advice from the Securities and Exchange Commission
after the date hereof, which disallows the removal of
the Legend under the circumstances in which the request
that it be removed is being made or otherwise indicates
that the Securities would be restricted, then the
Company shall have no obligation to remove or to
instruct its transfer agent to remove the Legend,
unless the Company shall have received from the person
requesting such removal a written letter of counsel to
such person reasonably acceptable to the Company and
its counsel confirming that the Legend may be so
removed or share certificates may be so issued without
the Legend without violation of the Act. If the person
requesting a removal of the Legend is unable to supply
<PAGE>
the legal opinion referred to above then the Company
shall, upon demand of such person, be obligated to
register the Common Stock for resale pursuant to the
terms of the Registration Rights Agreement.
11. Transfer Agent Instructions. The Company's
transfer agent will be instructed to reserve for
issuance such number of shares of the Company's Common
Stock as would be issuable if the Convertible Notes
were converted on the Closing Date and such additional
number of shares as, from time to time, shall be
necessary to provide for the issuance of Shares upon
the conversion of the Convertible Notes. Additionally,
the Company shall deliver to its transfer agent
promptly after closing irrevocable instructions
substantially in the form set forth in Annex E attached
hereto, pursuant to which the transfer agent shall be
instructed to issue upon conversion the number of
shares provided for in the Convertible Note being
converted on the terms provided for therein without
restrictive legend, registered in the names provided by
the Holders, subject to the terms and conditions in
this Agreement and in the Convertible Note. The
Company warrants and covenants that no instructions
restricting the transferability of the Shares other
than the instructions in the immediately preceding
sentence and instructions for a "stop transfer"
instruction until the end of the Restricted Period have
been given, or shall be given, to the transfer agent,
and that the Shares shall otherwise be freely
transferable on the books and records of the Company,
subject to the restrictions in this Agreement and in
the Convertible Note. Nothing in this section,
however, shall affect in any way the obligations and
agreement of the Buyer to comply with all applicable
federal, state and foreign securities laws upon resale
of the Securities.
12. Miscellaneous. (a) This Agreement may be
executed in one or more counterparts and it is not
necessary that signatures of all parties appear on the
same counterpart, but such counterparts together shall
constitute but one and the same agreement.
(b) Notices. Any notice or other
communication given or permitted under this Agreement
shall be in writing and shall be deemed to have been
duly given if personally delivered or sent by
registered or certified mail, return receipt requested,
postage prepaid or by air courier, (a) if to Buyer, at
its address hereinabove set forth, (b) if to the
Company, at its address hereinabove set forth, and (c)
if to a holder other than Buyer, at the address thereof
furnished by like notice to the Company, or (d) to any
such addresses at such other address or addresses as
shall be so furnished to the other parties by like
notice..
(c) This agreement shall inure to the benefit of
and be binding upon the parties hereto, their
respective successors, and no other person shall have
any right or obligation hereunder. This Agreement
shall not be assignable by either party without the
prior written consent of the other, and any assignment
in violation hereof shall be void. Notwithstanding the
foregoing, the Buyer may assign its rights in this
Agreement subject to the terms and conditions of this
Agreement and the Convertible Note, and the provisions
of this Agreement shall then inure to the benefit of,
and be enforceable by, any transferee of any of the
Securities or Shares.
(d) This Agreement together with the Convertible
Note and the Registration Rights Agreement constitutes
the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior oral or
written proposals or agreements related
<PAGE>
thereto. This Agreement may not be amended or any
provision hereof waived, in whole or in part, except
by a written amendment signed by both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have
duly executed and delivered this Agreement, all as of
the day and year above written.
COYOTE NETWORK SYSTEMS, INC.
By: _____________________________________________
James J. Fiedler, Chairman & Chief Executive Officer
[BUYER]
By: _____________________________________________
EXECUTION COPY Exhibit 4.2
NOTE NO. __
THE SECURITIES REPRESENTED HEREBY AND ANY SHARES (AS
DEFINED BELOW) ISSUED UPON THE EXERCISE OF CONVERSION
RIGHTS HEREUNDER HAVE BEEN AND WILL BE ISSUED PURSUANT
TO REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), AND HAVE NOT BEEN
REGISTERED UNDER THE 1933 ACT. SUCH SECURITIES MAY NOT
BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE
FORTY (40) DAY PERIOD (THE "RESTRICTED PERIOD")
COMMENCING ON DECEMBER 22, 1997 UNLESS SUCH TRANSFER,
OFFER OR SALE IS MADE IN AN "OFFSHORE TRANSACTION" AND
NOT TO OR FOR THE ACCOUNT OF OR BENEFIT OF A "U.S.
PERSON" (AS SUCH TERMS ARE DEFINED IN REGULATION S) AND
IS OTHERWISE IN ACCORDANCE WITH THE REQUIREMENTS OF
REGULATION S. THIS NOTE MAY NOT BE CONVERTED INTO
SHARES BY OR ON BEHALF OF ANY U.S. PERSON. FOLLOWING
THE EXPIRATION OF THE RESTRICTED PERIOD, THE SECURITIES
REPRESENTED HEREBY AND ANY SHARES ISSUED UPON THE
EXERCISE OF CONVERSION RIGHTS MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A
U.S. PERSON UNLESS THE SECURITIES ARE REGISTERED UNDER
THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS, OR
SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO
AN AVAILABLE EXEMPTION OR SAFE-HARBOR FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
COYOTE NETWORK SYSTEMS, INC.
8% CONVERTIBLE NOTE DUE DECEMBER 22, 2000
THIS NOTE is one of a duly authorized issue of
Convertible Notes of COYOTE NETWORK SYSTEMS, INC., a
Corporation duly organized and existing under the laws
of the state of Delaware (the "Company") designated as
its 8% Convertible Note Due December 22, 2000, in an
aggregate principal amount of up to $6,000,000 (the
"Notes").
FOR VALUE RECEIVED, the Company promises to pay to
[BUYER] or the permitted registered holder hereof (the
"Holder"), the principal sum of $__________ (United
States Dollars) (the "Initial Principal Amount") or
such lesser principal amount as is indicated on the
table (the "Table") below following the conversion or
conversions of this Note in accordance with Paragraph 4
(the "Outstanding Principal Amount") on December 22,
2000 (the "Maturity Date"), and to pay interest on the
Outstanding Principal Amount from time to time, semi-
annually in arrears on the first day of June and
December (the "Interest Payment Dates"), at the rate of
8% per annum accruing from the date of issuance.
Accrual of interest shall commence on the first
business day to occur after the date hereof until
repayment in full of the principal sum has been made or
duly provided for. Accrued and unpaid interest shall
bear interest at the same rate from the due date of the
interest payment, until paid. The interest so payable
will be paid in shares of the Company's common stock
(the "Common Stock") at the then applicable conversion
price (computed as described in Paragraph 4 below) on
June 1st and December 1st to the person in whose name
this Note (or one or more predecessor Notes) is
registered on the records of the Company regarding
registration and transfers of the Notes (the "Note
Register") on the tenth day prior to the Interest
Payment Date. The principal of this Note is payable in
such coin or currency of the United States of America
as at the time of payment is legal tender for payment
of public and private debts, at the address last
appearing on the Note Register of the Company as
designated in writing by the Holder from time to time.
The Company will pay the principal of and interest upon
this Note on the due
<PAGE>
date, free of any withholding or deduction of any kind
(subject to the provisions of Paragraph 2 below), to
the registered Holder of this Note as of the due date
and addressed to such Holder at the last address appearing
on the Note Register. The forwarding of such check or
shares shall constitute a payment of principal and
interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Note to
the extent of the sum represented by such check or shares.
TABLE
Outstanding
Conversion Conversion Principal Authorized
Date Amount Amount Signature
This Note is subject to the following additional
provisions:
1. The Notes are originally issuable in amounts of
not less than $25,000 and integral multiples thereof.
2. All payments on account of the principal of and
interest on this Note and all other amounts
payable under this Note (whether made by the
Company or any other person) to or for the account
of the Holder hereunder shall be made free and
clear of and without reduction by reason of any
present and future income, stamp, registration and
other taxes, levies, duties, costs and charges
whatsoever imposed, assessed, levied or collected
by the United States or any political subdivision
or taxing authority thereof or therein, together
with interest thereon and penalties with respect
thereto, if any, on or in respect of this Note
(all such taxes, levies, duties, costs and charges
being herein collectively called "United States
Taxes"). Should any such payment be subject to
any United States Tax and the provisions of the
preceding sentence of this Paragraph 2 either
cannot be effected or do not result in the Holder
actually receiving free and clear of all United
States Taxes an amount equal to the full amount
provided under this Note, the Company shall pay to
the Holder such
<PAGE>
additional amounts as may be necessary to ensure
that the Holder receives a net amount equal to the
full amount that it would have received had such
payment not been made subject to United States Taxes
unless withholding arises because holder has failed
to furnish the data described below in this Paragraph 2.
In addition to the United States Taxes paid by the
Company or additional amounts paid to the Holder,in each
case pursuant to the preceding provisions of this
Paragraph 2 ("Additional Payments"), the Company
shall also pay to the Holder upon demand such
additional amounts as may be necessary to
compensate the Holder, on an after-tax basis, for
any tax or levy imposed or assessed by any
jurisdiction on or with respect to any such
Additional Payments (including any income taxes
payable by the Holder with respect to Additional
Payments pursuant to the income tax laws of the
jurisdiction of its principal office or lending
office or any political subdivision or taxing
authority thereof). Holder agrees to provide
Company a Form W-8, a certification under penalty
of perjury, or a certificate from a financial
institution described in Section 871(h)(4)(B) of
the Internal Revenue Code of 1986 demonstrating
that the Holder is not a United States person.
3. If at any time there occurs a transaction in which
in excess of 50% of the Company's voting power is
transferred (excluding any public or private
offering of Company equity securities), including
any consolidation or merger of the Company with or
into any other corporation or other entity or
person (whether or not the Company is the
surviving corporation), or any other corporate
reorganization or transaction or series of related
transactions, the Holder of this Note then
outstanding may participate in any such
transaction as a class with common stockholders on
the same basis as if this Note had been converted
one day prior to the effective date of such
transaction; provided, however, that at the option
of the Holder of this Note, such Holder may treat
the effective date of any transaction that occurs
prior to December 22, 2000 as a redemption date
and shall be entitled to have the Company redeem
this Note at a price equal to 125% of the
Outstanding Principal Amount of this Note, plus
accrued but unpaid interest. Such holder shall be
entitled to make such election at any time up to
ten (10) days prior to the effective date of the
transaction. The Company shall not effect any
stock split, subdivision or combination with an
effective date within three (3) trading days
preceding the effective date of a merger or
consolidation. The Company shall not make, or fix
a record date for the determination of holders of
Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of
Common Stock, with an effective date within three
(3) trading days prior to the effective date of a
merger or consolidation.
4. The Holder of this Note is entitled, at its
option, at any time commencing forty-five (45)
days after the Closing Date as defined in the
Subscription Agreement (as defined below) until
maturity hereof to convert one-third (1/3rd) or
any lesser portion of the Initial Principal Amount
which is at least $25,000 into shares of Common
Stock ("Shares") at a conversion price for each
Share equal to the lesser of $7.00 per share or
eighty percent (80%) of the average closing bid
price of the Common Stock for the five (5) trading
days immediately prior to the Conversion Date with
a conversion floor price (the "Conversion Floor
Price") of $4.00 per share (collectively, the
"Conversion Price"); beginning seventy-five (75)
days after the Closing Date, an additional one-
third (1/3rd) of the Initial Principal Amount
which is at least $25,000 may be converted into
Shares at the Conversion Price; and beginning one
hundred and five (105) days after the Closing
Date, the remaining one-third (1/3rd) of the
Initial Principal Amount which is at least $25,000
may be converted
<PAGE>
into Shares at the Conversion Price, provided that
if the average of the closing bid price of the Common
Stock for the twenty (20) consecutive trading days
immediately prior to a conversion date is less than
$4.00 per share, the Conversion Floor Price will be
adjusted to equal eighty percent (80%) of such twenty (20)
consecutive trading day average of the closing bid
price, provided, however, that in no event shall
the Holder be entitled to convert any portion of
this Note in excess of that portion of this Note
upon conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned by
the Holder and its affiliates (other than shares
of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted
portion of this Note, as defined in the
Subscription Agreement) and (2) the number of
Shares issuable upon the conversion of the portion
of this Note with respect to which the
determination of this proviso is being made, would
result in beneficial ownership by the Holder and
its affiliates of more than 4.9% of the
outstanding Shares. For purposes of the proviso
to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulations 13 D-G
thereunder, except as otherwise provided in clause
(1) of such proviso. In the event of any stock
split, dividend, combination or similar event
occurring after the Conversion Date and prior to
the issuance of the respective stock certificates,
the conversion price will be subject to
appropriate adjustment. For purposes of this
section, the closing bid price of the Common Stock
shall be the closing bid price as reported by The
Nasdaq Stock Market, or the closing bid price in
the over-the-counter market or, if the Common
Stock is listed on a stock exchange, the closing
bid price on such exchange as reported in The Wall
Street Journal. Such conversion shall be
effectuated by surrendering the Notes to be
converted to the Company, with the form of
conversion notice attached to the Note as Exhibit
A, executed by the Holder of the Note evidencing
such Holder's intention to convert this Note, and
accompanied, if required by the Company, by proper
assignment hereof in blank. Interest accrued or
accruing from the date of issuance to the date of
conversion on the amount so converted shall be
paid in shares of common stock of the Company,
calculated at the same conversion price (as
determined above), as would apply on the
conversion date of the principal amount being
converted but using the discount percentage
applicable as of such date and shall constitute
payment in full of any such interest on the same
terms as would otherwise apply to the conversion
of the principal amount hereof. No fractional
Shares or scrip representing fractions of Shares
will be issued on conversion, but the number of
Shares issuable shall be rounded to the nearest
whole Share. The date on which notice of
conversion is given (the "Conversion Date") shall
be deemed to be the date on which the Holder
notifies the Company of its intention to convert
by delivery, by facsimile transmission or
otherwise, of a copy of the Conversion Notice (as
defined below). Notice may be given by facsimile
to the Company at (818) 735-7633. This Note,
together with the original executed copy of the
Notice of Conversion, shall be delivered to the
Company as soon as practicable following the date
on which notice of conversion is given as
described above. Any unconverted principal amount
and accrued interest thereon shall at the maturity
date be paid, at the option of the Company, in
either (a) cash or (b) Shares valued at a price
equal to the average closing bid price of the
Common Stock for the five (5) trading days
immediately preceding the maturity date.
Upon the surrender of this Note, accompanied by a
Notice of Conversion of Convertible Note in the
form attached hereto as Exhibit A, properly
completed and duly executed by the Holder (a
"Conversion Notice"), the Company shall issue and,
within five (5) business
<PAGE>
days (the "Deadline") after actual delivery of
this Note with the Conversion Notice, deliver to or
upon the order of the Holder (1) that number of
Shares for the portion of the Note converted as shall be
determined in accordance herewith and (2) this
Note with the appropriate notation to the Table by
an authorized officer of the Company to account
for the remaining balance of the principal amount
hereof following conversion, if any. Without in
any way limiting the Holder's right to pursue
other remedies, including actual damages and/or
equitable relief, the parties agree that if
delivery of the Shares issuable upon conversion of
this Note is more than one (1) business day after
the Deadline the Company shall pay to the Holder
$250 per each $25,000 principal amount Note per
day in cash, for the first day beyond the Deadline
and $500 per each $25,000 principal amount Note
per day for each day thereafter that the Company
fails to deliver the Shares. Such cash amount
shall be paid to Holder by the fifth day of the
month following the month in which it has accrued
or, at the option of the Holder (by written notice
to the Company by the first day of the month
following the month in which it has accrued),
shall be added to the principal amount of this
Note, in which event interest shall accrue thereon
in accordance with the terms of this Note and such
additional principal amount shall be convertible
into Shares in accordance with the terms of this
Note.
Furthermore, in addition to any other remedies
which may be available to the Holder, in the event
that the Company fails for any reason to effect
delivery of such shares of Common Stock within
five days after the Delivery Date, the Holder will
be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect
to the Company whereupon the Company and the
Holder shall each be restored to their respective
positions immediately prior to delivery of such
Notice of Conversion.
The number of shares of Common Stock to be issued
upon each conversion of this Note shall be
determined by dividing (i) the sum of (A) that
portion of the principal amount of the Note to be
converted plus (B) the "Conversion Date Interest"
(as defined below), by (ii) the conversion price
in effect on the date the Conversion Notice is
delivered to the Company by the Holder.
Conversion Date Interest means the product of (i)
the principal amount of the Note to be converted,
multiplied by (ii) a fraction (A) the numerator of
which is the number of days elapsed since the
later of (x) the date of issuance of this Note or
(y) the date through which interest on this Note
has been paid and (B) the denominator of which is
365, multiplied by (iii) .08.
5. At any time commencing one year after the Closing,
Company may, by written notice to Holder at
Holder's registered address, prepay this Note in
whole or in part. Such notice shall be given at
least ten (10) business days prior to the payment
date and on such date Company shall pay the
outstanding principal and all accrued interest on
this Note, unless prior to such payment date
Holder has delivered a Notice of Conversion. Upon
delivery of a Notice of Conversion, the provisions
of paragraph 4 shall apply, except that no further
interest shall accrue after the proposed payment
date.
6. Not used.
7. No provision of this Note shall alter or impair
the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and
interest on, this Note at the time, place, and
rate, and in the coin or currency or Shares,
herein prescribed. This Note and all
<PAGE>
other Notes now or hereafter issued on similar terms are
direct obligations of the Company. This Note
ranks equally with all other Notes now or
hereafter issued under the terms set forth herein.
In the event of any liquidation, reorganization,
winding up or dissolution repayment of this Note
shall be subordinate in all respects to any other
indebtedness for borrowed money of the Company,
whether outstanding as of the date of this Note or
hereafter incurred. Such subordination shall
extend without limiting the generality of the
foregoing, to all indebtedness of the Company to
banks, financial institutions, other secured
lenders, equipment lessors and equipment finance
companies, but shall exclude trade debts; and any
warrants, options or other securities convertible
into stock of the Company shall rank pari passu
with the Notes in all respects.
8. The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any
action to collect amounts called for hereunder and
shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence,
act or omission as or with respect to the
collection of any amount called for hereunder.
9. If the Company at any time or from time to time
after the Closing Date makes, a dividend or other
distribution to holders of Common Stock payable in
securities of the Company other than Shares, then
and in each such event provision shall be made so
that the Holder shall receive upon conversion of
this Note pursuant to Paragraph 4 hereof, in
addition to the number of Shares receivable
thereupon, the amount of such other securities of
the Company to which the Holder on the relevant
record or payment date, as applicable, of the
number of Shares so receivable upon conversion
would have been entitled, plus any dividends or
other distributions which would have been received
with respect to such securities had the Holder
thereafter, during the period from the date of
such event to and including the Conversion Date
retained such securities, subject to all other
adjustments called for during such period under
this Note with respect to the rights of the
Holder.
10. If at any time or from time to time after the
Closing Date, the Common Stock issuable upon the
conversion of the Note is changed into the same or
different number of shares of any class or classes
of stock, whether by re-capitalization,
reclassification or otherwise (other than a
subdivision or combination of shares or stock
dividend or reorganization provided for elsewhere
in this Note or a merger or consolidation,
provided for in Paragraph 3), then and in each
such event the Holder shall have the right
thereafter to convert the Note into the kind of
stock receivable upon such re-capitalization,
reclassification or other change by holders of
shares of Common Stock, all subject to further
adjustment as provided herein. In such event, the
formulae set forth herein for conversion and
redemption shall be equitably adjusted to reflect
such change in number of shares or, if shares of a
new class of stock are issued, to reflect the
market price of the class or classes of stock
issued in connection with the above described
transaction.
11. If at any time or from time to time after the
Closing Date there is a capital reorganization of
the Common Stock (other than a re-capitalization,
subdivision, combination, reclassification
exchange of shares provided for elsewhere in this
Note) then, as a part of such reorganization,
provision shall be made so that the Holder shall
thereafter be entitled to receive upon conversion
of this Note the number of shares of stock or
other securities or
<PAGE>
property to which a holder of the number of Shares
deliverable upon conversion would have been entitled
on such capital reorganization. In any such case,
appropriate adjustment shall be made in the application
of the provisions of this Note with respect to the rights
of the Holder after the reorganization to the end
that the provisions of this Note shall be
applicable after that event and be as nearly
equivalent as may be practicable, including, by
way of illustration and not limitation, by
equitably adjusting the formulae set forth herein
for conversion and redemption to reflect the
market price of the securities or property issued
in connection with the above described
transaction.
12. If one or more of the "Events of Default" as
described in Paragraph 13 shall occur, the Company
agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred
by the Holder in collecting any amount due under
this Note.
13. If one or more of the following described "Events
of Default" shall occur:
(a) The Company shall default in the payment
of principal or interest on this Note; or
(b) Any of the representations or warranties
made by the Company herein, in the Offshore
Securities Subscription Agreement dated as
of December 22, 1997 between the Company
and the Holder (the "Subscription
Agreement"), or in any certificate or
financial or other statements heretofore or
hereafter furnished by or on behalf of the
Company in connection with the execution
and delivery of this Note or the
Subscription Agreement shall be false or
misleading in any material respect at the
time made; or
The Company fails to issue shares of Common
Stock to the Holder or to cause its
Transfer Agent to issue shares of Common
Stock upon exercise by the Holder of the
conversion rights of the Holder in
accordance with the terms of this Note,
fails to transfer or to cause its Transfer
Agent to transfer any certificate for
shares of Common Stock issued to the Holder
upon conversion of this Note and when
required by this Note or the Registration
Rights Agreement, or fails to remove any
restrictive legend or to cause its Transfer
Agent to transfer on any certificate or any
shares of Common Stock issued to the Holder
upon conversion of this Note as and when
required by this Note, the Agreement or the
Registration Rights and any such failure
shall continue uncured for five (5)
business days.
(c) The Company shall fail to perform or
observe any other covenant, term, provision,
condition, agreement or obligation of the
Company under this Note and such failure
shall continue uncured for a period of
thirty (30) days after notice from the
Holder of such failure; or
(d) The Company shall (1) become insolvent;
(2) admit in writing its inability to pay
its debts as they mature; (3) make an
assignment for the benefit of creditors or
commence proceedings for its dissolution; or
(4) apply for or consent to the appointment
of a trustee, liquidator or receiver for it
or for a substantial part of its property or
business; or
(e) A trustee, liquidator or receiver shall
be appointed for the Company or for a
<PAGE>
substantial part of its property or business
without its consent and shall not be
discharged within thirty (30) days after
such appointment; or
(f) Any governmental agency or any court of
competent jurisdiction at the instance of
any governmental agency shall assume custody
or control of the whole or any substantial
portion of the properties or assets of the
Company and shall not be dismissed within
thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of
attachment, or similar process except
mechanics and materialmen's liens incurred
in the ordinary course of business in excess
of Five Hundred Thousand Dollars ($500,000)
in the aggregate shall be entered or filed
against the Company or any of its properties
or other assets and shall remain
unsatisfied, unvacated, unbonded or unstayed
for a period of thirty (30) days (unless
such order provides for delayed payment, or
is covered by insurance) or in any event
later than five (5) days prior to the date
of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency
or liquidation proceedings or other
proceedings for relief under any bankruptcy
law or any law for the relief of debtors
shall be instituted by or against the
Company and, if instituted against the
Company, shall not be dismissed, stayed or
bonded within sixty (60) days after such
institution or the Company shall by any
action or answer approve of, consent to, or
acquiesce in any such proceedings or admit
the material allegations of, or default in
answering a petition filed in any such
proceeding; or
(i) The Company shall have its common stock
delisted from an exchange or The Nasdaq
Stock Market.
Then, or at any time thereafter, and in each
and every such case, unless such Event of Default
shall have been waived in writing by the holders
of a majority of all Notes then outstanding (which
waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the holders
of a majority of all Notes outstanding and in
their discretion, the Holder may consider this
Note immediately due and payable, without
presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived,
anything herein or in any note or other
instruments contained to the contrary
notwithstanding, and the Holder may immediately,
and without expiration of any period of grace,
enforce any and all of the Holder's rights and
remedies provided herein or any other rights or
remedies afforded by law. In such event, this
Note shall be redeemed by the Company at a
redemption price per Note equal to (i) the lesser
of (a) 125% of the Outstanding Principal Amount
due hereunder or (b) the maximum redemption
premium which may be permitted under the laws of
Delaware (including any provision of law relating
to usury) and (ii) accrued and unpaid interest.
14. If at any time on or after the date hereof and
prior to the first anniversary of the Closing
Date, trading in the shares on the Common Stock is
suspended on the principal market or exchange for
such shares (including The Nasdaq Stock Market),
for a period of five (5) consecutive trading days,
other than as a result of the suspension or
trading in securities in general, or if such
Shares are delisted, then, at the Holder's option,
the Company shall
<PAGE>
redeem the Note at a redemption date designated by Holder,
and for the redemption price provided in Paragraph 13.
15. Notwithstanding anything to the contrary contained
herein, each Conversion Notice shall contain a
representation that, after giving effect to the
Shares to be issued pursuant to such conversion
notice, the total number of Shares deemed
beneficially owned by the Holder, together with
all Shares deemed beneficially owned by the
Holder's "affiliates" as defined in Rule 144 of
the Act, will not exceed 4.9% of the total issued
and outstanding Shares.
16. The Holder may, subject to compliance with the
Subscription Agreement and the provisions of
Regulation S, without notice, transfer, assign,
mortgage or encumber this Note, any interest
herein or any part hereof integral multiples of
$25,000 or the entire outstanding balance to an
"accredited investor" as defined in the 1933 Act
(other than to a U.S. Person or on behalf of a
U.S. Person) that will be acquiring the Note or
interest herein for its account for the purpose of
investment and not with a view to, or for sale in
connection with any distribution hereof and, each
assignee, transferee and mortgagee (which may
include any affiliate of the Holder) shall have
the right to transfer or assign its interest
subject to the same limitations. Each such
assignee, transferee and mortgagee shall have all
of the rights of the Holder under this Note. The
Company may condition registrations of transfers
on the receipt of a certificate from the assignee,
transferee or mortgagee in a form acceptable to
the Company that contains representations and
warranties similar to those of the Holder
contained in Section 3 of the Subscription
Agreement, and IRS Form W-8 or an equivalent
certification under penalty of perjury in
compliance with Section 871(h)(4)(B) of the
Internal Revenue Code of 1986.
17. For so long as any amount payable under this Note
remains unpaid, the Company shall furnish to the
Holder, upon request by the Holder, the following
information:
(a) No later than one hundred five (105) days
following the end of each fiscal year, beginning
with the fiscal year ending March 31, 1998,
consolidated balance sheets, statements of
operations and statements of cash flow and
shareholders' equity of the Company and its
subsidiaries, if any, prepared in accordance with
generally accepted accounting principles, and
audited by a firm of independent public
accountants. The Company may satisfy this
requirement by delivering its report on Form 10-K
for each such year.
(b) Within fifty-one (51) days after the end of
each quarter (except the fourth quarter) of each
fiscal year, consolidated balance sheets,
statements of operations and statements of cash
flow and shareholders' equity of the Company and
its subsidiaries. The Company may satisfy this
requirement by delivering its report on Form 10-Q
for each such quarter.
18. The Company covenants and agrees that until all
amounts due under this Note have been paid in
full, by conversion or otherwise, unless the
Holder waives compliance in writing, the Company
shall:
(a) Give prompt written notice to the Holder of
any Event of Default or of any other matter which
has resulted in, or could reasonably be expected
to result in, a materially adverse change in its
financial condition or operations.
<PAGE>
(b) Give prompt notice to the Holder of any
claim, action or proceeding which, in the event of
any unfavorable outcome, would or could reasonably
be expected to have a Material Adverse Effect (as
defined in the Subscription Agreement) on the
financial condition of the Company.
(c) At all times reserve and keep available out
of its authorized but unissued stock, for the
purpose of effecting the conversion of this Note
such number of its duly authorized Shares as shall
from time to time be sufficient to effect the
conversion of the outstanding principal balance of
this Note into Shares. If the Company does not
have a sufficient number of Shares available to
satisfy the Company's obligations to the Holder
upon receipt of a Conversion Notice or is
otherwise unable to issue such Shares in
accordance with the terms of this Note (a
"Conversion Default"), from and after the fifth
(5th) day following a Conversion Default (which
for all purposes shall be deemed to have occurred
upon the Company's receipt of the applicable
conversion notice), the Holder shall have the
right to demand from the Company immediate
redemption of this Note in cash at a redemption
price equal to 125% of the Outstanding Principal
Amount, plus accrued but unpaid interest on the
Note; provided, however, that no Redemption Notice
may be delivered by the Holder subsequent to the
Holder's receipt of notice from the Company (sent
by overnight or 2-day courier with a copy sent by
facsimile) of availability of sufficient Shares to
permit conversion (a "Post-Default Conversion") of
the Note; provided further that such right shall
be reinstated if the Company shall thereafter fail
to perfect such Post-Default Conversion by
delivery of Common Stock certificates in
accordance with the applicable provision of
Paragraph 4 hereof and payment of all accrued and
unpaid interest in cash with respect thereto
within five business days of delivery of the
notice of Post-Default Conversion. In addition to
the foregoing, upon a Conversion Default, the rate
of interest on the Note shall, to the maximum
extent of the law, be increased by two percent
(2%) (i.e., from 8% to 10% commencing on the first
day of the thirty (30) day period (or part
thereof) following a Conversion Default; an
additional two percent (2%) commencing on the
first day of each of the second and third such
thirty (30) day periods (or part thereof); an
additional one percent (1%) on the first day of
each consecutive thirty (30) day period (or part
thereof) thereafter until such securities have
been duly converted or redeemed as herein
provided. Any such interest which is not paid
when due shall, to the maximum extent permitted by
law, accrue interest until paid at the rate from
time to time applicable to interest on the Note as
to which the Conversion Default has occurred.
(d) Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note and
(i) in the case of loss, theft or
destruction, upon provision of indemnity
reasonably satisfactory to it and/or its transfer
agent, or
(ii) in the case of mutilation, upon
surrender and cancellation of this Note,
the Company at its expense will execute and
deliver a new Note, dated the date of the lost,
stolen, destroyed or mutilated Note.
19. The Holder of this Note, by acceptance hereof,
agrees that this Note is being acquired for
investment and that such Holder will not offer,
sell or otherwise dispose of this Note or the
<PAGE>
Shares issuable upon exercise thereof except under
circumstances which will not result in a violation
of the 1933 Act or any applicable state securities
laws.
20. In case any provision of this Note is held by a
court of competent jurisdiction to be excessive in
scope or otherwise invalid or unenforceable, such
provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum
extent possible, and the validity and
enforceability of the remaining provisions of this
Note will not in any way be affected or impaired
thereby.
21. This Note, the Subscription Agreement and the
Registration Rights Agreement (as defined in the
Subscription Agreement) between the Company and the
Holder constitute the full and entire understanding and
agreement between the Company and the Holder with
respect to the subject hereof. Neither this Note nor
any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by
the Company and the Holder.
22. This Agreement and the validity and performance of
the terms hereof shall be governed by and construed in
accordance with the laws of the State of Delaware. The
parties hereto hereby consent to, and waive any
objection to the exercise of, personal jurisdiction in
the State of Delaware with respect to any action or
proceeding arising out of this Agreement.
IN WITNESS WHEREOF, the Company has caused
this instrument to be duly executed by an officer
thereunto duly authorized.
COYOTE NETWORK SYSTEMS, INC.
Dated: ____________________________
By: ______________________________
Name: James J. Fiedler
Title: Chairman & Chief Executive Officer
[BUYER]
Dated: ____________________________
By: ______________________________
Name:
Title: Authorized Signatory
Buyer certifies under penalty of perjury that
Buyer is neither a citizen nor a resident of the
<PAGE>
United States and that Buyer's full name and
address are as set out below:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Note)
Re: a 8% Convertible Note of Coyote Network Systems, Inc.
in the principal amount outstanding of $6,000,000
The undersigned hereby irrevocably elects to convert
$__________________ of the outstanding principal amount
of the above referenced Note No._________ (the "Note")
into shares of common stock of Coyote Network Systems,
Inc. (the "Company") according to the conditions
hereof, as of the date written below. The undersigned
represents and warrants that (i) all of the
requirements of Regulation S promulgated under the
Securities Act of 1933, as amended (the "Securities
Act") applicable to the undersigned have been complied
with by the undersigned, (ii) the undersigned is not a
"U.S. Person" as defined in Regulation S and the Note
is not being converted on behalf of any "U.S. Person,"
(iii) the undersigned has not engaged in any
transaction or series of transactions that is a part of
or a plan or scheme to evade the registration
requirements of the Securities Act, (iv) on the date of
the conversion the undersigned was located outside the
United States and (iv) the undersigned has complied
with the terms and conditions of the Note and the
Subscription Agreement (as defined in the Note)
pertaining to conversion of the Note. Further, the
undersigned represents and warrants that after giving
effect to the conversion hereby requested, the
undersigned will not beneficially own, together with
its affiliates, more than 4.9% of the Company's issued
and outstanding common stock.
-----------
Date of Conversion*
-----------
Applicable Conversion Price
----------
Signature
----------
Name
Address:
-----------
-----------
<PAGE>
* The original Note and this Notice of Conversion must
be received by the Company by the fifth business day
following the Date of Conversion (as defined in the
Note).
EXECUTION COPY Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this
"Agreement"), entered into as of December __, 1997 by
and between [BUYER], c/o First Bermuda Financial
Services Limited, Chevron House, 11 Church Street,
Hamilton HM NX, Bermuda (the "Buyer"), and COYOTE
NETWORK SYSTEMS, INC., a Delaware corporation with
offices at 4360 Park Terrace Drive, Westlake Village,
CA 91361, U. S. A. (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities
Subscription Agreement, dated as of the date hereof
(the "Subscription Agreement"), by and between the
Company and the Buyer, the Company has agreed to sell
and the Buyer has agreed to purchase U.S. $__________
of the Company's 8% Convertible Notes due December __,
2000 (the "Notes") convertible into shares of the
Company's common stock, $1.00 par value (the "Shares");
WHEREAS, pursuant to the terms of, and in
partial consideration for, the Buyer's agreement to
enter into the Subscription Agreement, the Company has
agreed to provide the Buyer with certain registration
rights with respect to the Shares as set forth in this
Agreement;
NOW, THEREFORE, in consideration of the
mutual promises, representations, warranties, covenants
and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the
Buyer agree as follows:
1. Certain Definitions. As used in this
Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the
time administering the Securities Act.
"Registrable Securities" shall mean the
Shares issued to Buyer or its designee upon conversion
of the Notes or upon any stock split, stock dividend,
recapitalization or similar event with respect to such
Shares; provided, however, that Registrable Securities
shall cease to be Registrable Securities when they may
be sold pursuant to Rule 144 under the Securities Act.
Registrable Securities shall not include the Notes.
The terms "register", "registered" and
"registration" shall refer to a registration effected
by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules
and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration
statement.
"Registration Expenses" shall mean all
expenses to be incurred by the Company in connection
with Buyer's exercise of its registration rights under
this Agreement, including, without limitation, all
registration and filing fees, printing expenses, fees
and disbursements of
<PAGE>
counsel for the Company, blue sky fees and expenses,
reasonable fees and disbursements of one counsel to Holders
participating in the registration for a review of the
Registration Statement and related documents, and the
expense of any special audits incident to or required by
any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in
any event by the Company).
"Selling Expenses" shall mean all
underwriting discounts and selling commissions
applicable to the sale of Registrable Securities and
all fees and disbursements of counsel for Holder not
included with "Registration Expenses".
"Holder" shall include the Buyer and any
permitted transferee of Notes, Shares or Registrable
Securities which have not been sold to the public to
whom the registration rights conferred by this
Agreement have been transferred in compliance with
Section 11 herein.
"Registration Statement" shall have the
meaning set forth in Section 3(a) herein.
"Regulation S" shall mean Regulation S as
promulgated pursuant to the Securities Act, and as
subsequently amended.
"Rule 144" shall mean Rule 144 under the
Securities Act, as such rule may be amended from time
to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Securities Act" shall mean the United States
Securities Act of 1933, as amended.
2. Conditions to Registration Requirement.
The Company's obligation hereunder to register
Registrable Securities shall arise in the event that
Company receives a written opinion of counsel for the
Holder (which counsel shall be of a law firm
experienced in United States securities matters)
indicating that there has been an amendment or material
change to the Securities Act or Regulation S after the
date hereof, or the promulgation by the Commission of
an interpretative release or other statement after the
date hereof, which prohibits or restricts or otherwise
materially affects the Holder from reselling
Registrable Securities without registration under the
Securities Act (a "Registration Trigger Event").
Notwithstanding the foregoing, it will not be deemed a
"Registration Trigger Event" to the extent that Holder
desires to engage in a distribution of the Registrable
Securities which otherwise requires registration under
the Securities Act or in activity which otherwise deems
Holder to be a statutory underwriter under Section 5 of
the Securities Act. In the event that a Registration
Trigger Event has occurred, then Holder shall be
entitled to require the Company to register all of
Holder's Registrable Securities in accordance with this
Agreement.
3. Request for Registration.
(a) Upon the occurrence of a
Registration Trigger Event, if the Company shall
receive from a Holder (or, in the event there is more
than one Holder as a result of the issuance by the
Company of the Notes, the Company shall receive written
notice from such Holders acting with respect to their
rights under this Agreement according to a vote of a
majority-in-interest of the Holders) a written request
that the Company effect any registration
<PAGE>
with respect to any Registrable Securities, the Company
shall use its commercially reasonable efforts to effect such
registration (including, without limitation, the
execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable
state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act)
as may be so requested and as would permit or
facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified
in such request in the states specified in such
request. Notwithstanding the foregoing, the Company
shall not be obligated hereunder to effect such
registration unless the proposed public offering price
of the securities to be included in such registration
shall be at least $250,000 (before deducting
underwriting discounts and commissions). If the
registration request pertains to any Registrable
Securities not yet outstanding because conversion
rights have not been exercised, Company may condition
the registration of such securities on an irrevocable
undertaking to pay all expenses incident to such
registration if such conversion rights are not
exercised prior to the effective date of the
registration statement.
Subject to the previous paragraph, the
Company shall file (i) a registration statement with
the Commission pursuant to Rule 415 under the
Securities Act on Form S-3 under the Securities Act (or
in the event that the Company in ineligible to use such
form, such other form as the Company is eligible to use
under the Securities Act) covering at least __________
of the Registrable Securities so requested to be
registered ("Registration Statement"); (ii) such state
securities filings as shall have been requested by the
Holder; and (iii) any required filings with The Nasdaq
Stock Market, Inc. or exchange where the Shares are
traded, as soon as practicable, after receipt of the
request of the Holder. Thereafter the Company shall
use its commercially reasonable efforts to have such
Registration Statement and other filings declared
effective.
(b) (i) Subject to the conditions
contained in Section 3(a) above, if the Company fails
to file a Registration Statement complying with the
requirements of this Agreement within 45 days from the
date of receipt by the Company of the Holder's written
request (provided, however, that under the
circumstances described in 3(e) below the Company may
have an additional 45 days thereafter to file such
Registration Statement by providing written notice to
the Holders requesting such registration indicating
that the Company is diligently pursuing the filing of
such Registration Statement) or if such Registration
Statement has not become effective within 90 days from
the date of filing thereof, the Holder shall have, in
addition to and without limiting any other rights it
may have at law, in equity or under the Notes, the
Subscription Agreement, or this Agreement (including
the right to specific performance), the right to
receive, as liquidated damages, the payments as
provided in subparagraph (ii) of this section.
(ii) If after ninety (90) days from
the date of filing of the Registration Statement, the
Registration Statement has not been declared effective
by the Commission, then the Company shall pay to the
Buyer an amount equal to 3% of the Initial Principal
Amount (as defined in the Note) in cash, for each 30-
day period after the ninety (90) day period that such
Registration Statement is not effective (which payment
shall be pro rata for any period of less than 30 days).
In addition to the foregoing, if after 180 days from
the date of filing of the Registration Statement, the
Registration Statement has not been declared effective
by the Commission, then at the option of such Holder,
the Company shall be required to redeem all the Notes
held by such Holder at a redemption price equal to 125%
of the Outstanding Principal Amount of the Note plus
accrued interest thereon, together with all other
payments due
<PAGE>
under this paragraph and under the Note
and the Agreement.
(iii) The Company acknowledges
that its failure to register the Registrable Securities
in accordance with this Agreement will cause the Holder
to suffer damages in an amount that will be difficult
to ascertain. Accordingly, the parties agree that it
is appropriate to include in this Registration Rights
Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated
damages provisions set forth above represent the
parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not
constitute a penalty.
(iv) In computing the time periods
provided in this paragraph 3(b), any delays arising
from the failure or refusal of any Holder to provide
information which the Company's counsel or the
Commission states in writing is required for inclusion
on the Registration Statement within ten (10) days of a
written request by the Company to provide such
information, shall increase the number of days for the
Company to act by a corresponding number.
(c) If there is more than one Holder,
such Holders shall act with respect to their rights
under this Agreement according to the vote of a
majority-in-interest of the Holders.
(d) The Company shall make available
for inspection by a representative or representatives
of the Holder, and any attorney or accountant retained
by such Holder, all financial and other records
customary for such purposes, pertinent corporate
documents and properties of the Company, and cause the
Company's officers, directors and employees to supply
all information reasonably requested by any such
representative, attorney or accountant in connection
with such Registration Statement. The Holder will
agree to keep all non-public information supplied to it
confidential until such information is included in a
Registration Statement which has been made publicly
available.
(e) The Company shall not be obligated
to keep such Registration Statement continuously
effective for a period of more than two years from the
date it is declared effective by the Commission;
provided, however, that if so requested by the holders
of a majority-in-interest of the Registrable Securities
the Company shall agree to extend the period for which
the Registration Statement remains effective to the
same extent that "suspension periods" are imposed
pursuant to the next paragraph, but only so long as the
then unsold Registrable Securities covered by such
Registration are too numerous to be sold under the
volume limitations of Rule 144 in any applicable three-
month period by any holder.
Following the effectiveness of the
Registration Statement pursuant to this Agreement, the
Company may, at any time, suspend the effectiveness of
such Registration Statement and sales thereunder for up
to twenty (20) business days, as appropriate (a
"Suspension Period"), by giving notice to each holder
(or underwriter, if any) selling thereunder, if the
Board of Directors shall have determined in good faith
that the Company may be required to disclose any
material corporate development which disclosure (i) may
have a material adverse effect on the Company, (ii) may
have a material adverse affect on the transaction or
matter to be disclosed, or (iii) would be detrimental
to the Company or its stockholders. Notwithstanding
the foregoing, no more than two Suspension Periods
(i.e., forty
<PAGE>
(40) business days) may occur in any twelve (12) month
period, and the Company shall use its commercially
reasonable efforts to limit the duration and number of
any suspension periods. Holder agrees (and shall require
that any underwriter agree) that, upon receipt of any
notice from the Company of any Suspension Period, Holder
shall forthwith discontinue disposition of shares covered
by the Registration Statement and related prospectus or
other offering materials (the "Prospectus") until such
Holder (i) is advised in writing by the Company that the use
of the applicable Prospectus may be resumed, (ii) has received
copies of a supplemental or omitted Prospectus, if
applicable, and (iii) has received copies of any
additional or supplemental filings which are
incorporated or deemed to be incorporated by reference
in such Prospectus. Holder acknowledges that receipt
of notice of a Suspension Period could, itself, be
considered material nonpublic information and agrees
not to trade on (or tip others with respect to) such
information.
4. Expenses of Registration. All
Registration Expenses incurred in connection with any
registration, qualification or compliance with
registration pursuant to this Agreement shall be borne
by the Company, and all Selling Expenses shall be borne
by the Holder, except for a legal fee not to exceed
$3,500 of Counsel to the Holder for review of the
Registration Statement.
5. Registration on Form S-3. Although the
Company shall use its commercially reasonable efforts
to qualify for registration on Form S-3 or any
comparable or successor form or forms, or in the event
that the Company is ineligible to use such form, such
form as the Company is eligible to use under the
Securities Act, nothing in the Subscription Agreement
or this Agreement is intended to require the Company to
pay dividends in order to use Form S-3.
6. Registration Procedures. In the case of
each registration effected by the Company pursuant to
this Agreement, the Company will keep the Holder
advised in writing as to the initiation of each
registration and as to the completion thereof. At its
expense, the Company will use its commercially
reasonable efforts to:
(a) Keep such Registration Statement
effective for the period ending twenty-four (24) months
after the registration has been declared effective by
the Commission or until the Holder has completed the
distribution described in the Registration Statement
relating thereto, whichever first occurs.
(b) Furnish such number of Prospectuses
and other documents incident thereto as the Holder from
time to time may reasonably request.
7. Indemnification.
(a) Company Indemnity. The Company
will indemnify the Holder, each of its officers,
directors and partners, and each person controlling
Holder, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder
with respect to which registration, qualification or
compliance has been effected pursuant to this
Agreement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any
Prospectus, (including any related Registration
Statement, notification or the like) incident to any
such registration, qualification or compliance, or
based on any omission (or alleged omission) to
<PAGE>
state therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, or any violation by the Company of the
Securities Act or any state securities law or in either
case, any rule or regulation thereunder applicable to
the Company and relating to action or inaction required
of the Company in connection with any such
registration, qualification or compliance, and will
reimburse the Holder, each of its officers, directors
and partners, and each person controlling such Holder,
for any legal and any other expenses reasonably
incurred in connection with investigating and defending
any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any
such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based
on any untrue statement or omission based upon written
information furnished to the Company by Holder and
stated to be specifically for use therein. The
indemnity agreement contained in this Section 7(a)
shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such
settlement is effected without the consent of the
Company (which consent will not be unreasonably
withheld).
(b) Holder Indemnity. The Holder will,
if Registrable Securities held by it are included in
the securities as to which such registration,
qualification or compliance is being effected,
indemnify the Company, each of its directors, officers,
partners, and each underwriter, if any, of the
Company's securities covered by such a registration
statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the
Securities Act and the rules and regulations
thereunder, each other Holder (if any), and each of
their officers, directors and partners, and each person
controlling such other Holder against all claims,
losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material
fact contained in any such registration statement,
prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a
material fact required to be stated therein or
necessary to make the statement therein not misleading,
and will reimburse the Company and such other holders
and their directors, officers and partners,
underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with
investigating and defending any such claim, loss,
damage, liability or action, in each case to the
extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration
statement, prospectus, offering circular or other
document in reliance upon and in conformity with
written information furnished to the Company by Holder
and stated to be specifically for use therein, and
provided that the maximum amount for which the Holder
shall be liable under this indemnity shall not exceed
the net proceeds received by the Holder from the sale
of the Registrable Securities. The indemnity agreement
contained in this Section 7(b) shall not apply to
amounts paid in settlement of any such claims, losses,
damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not
be unreasonably withheld).
(c) Procedure. Each party entitled to
indemnification under this Section 7 (the "Indemnified
Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party")
promptly after the Indemnified Party has actual
knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to
assume the defense of any such claim in any litigation
resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of
such claim or any litigation resulting therefrom, shall
be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at
such
<PAGE>
party's expense, and provided further that the
failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying
Party of its obligations under this Section 7 except to
the extent that the Indemnifying Party is materially
and adversely affected by such failure to provide
notice. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required
in connection with the defense of such claim and
litigation resulting therefrom.
8. Contribution. If the indemnification
provided for in Section 7 herein is unavailable to the
Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than
by reason of the exceptions provided therein), then
each such Indemnifying Party, in lieu of indemnifying
the Indemnified Party, shall contribute to the amount
paid or payable by the Indemnified Party as a result of
such losses, claims, damages or liabilities (i) as
between the Company and the Holder on the one hand and
the underwriters on the other, in such proportion as is
appropriate to reflect the relative benefits received
by the Company and the Holder on the one hand or
underwriters, as the case may be, on the other from the
offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the
Company on the one hand and of the Holder or
underwriters, as the case may be, on the other in
connection with the statements or omissions which
resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations and (ii) as between the Company on the
one hand and the Holder on the other, in such
proportion as is appropriate to reflect the relative
fault of the Company and of the Holder in connection
with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any
other relevant equitable considerations.
The relative benefits received by the Company
on the one hand and the Holder or the underwriters, as
the case may be, on the other shall be deemed to be in
the same proportion as the proceeds from the offering
(net of underwriting discounts and commissions but
before deducting expenses) received by the Company from
the initial sale of the Notes which can be converted
into Registrable Securities by the Company to the
Holder pursuant to the Subscription Agreement which
corresponds to this Agreement bear to the gain realized
by such Holder or the total underwriting discounts and
commissions received by the underwriters as set forth
in the table on the cover page of the prospectus, as
the case may be. The relative fault of the Company on
the one hand and of the Holder or underwriters, as the
case may be, on the other shall be determined by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to
information supplied by the Company, by the Holder or
by the underwriters.
In no event shall the obligation of any
Indemnifying Party to contribute under this Section 8
exceed the amount that the Indemnifying Party would
have been obligated to pay by way of indemnification if
the indemnification provided for under Section 7(a) or
7(b) hereof had been available under the circumstances.
<PAGE>
The Company and the Holder agree that it
would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata
allocation (even if the Holder or the underwriters were
treated as one entity for such purpose) or by any other
method of allocation which does not take account of the
equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an
Indemnified Party as a result of the losses, claims,
damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include,
subject to the limitations set forth above, any legal
or other expenses reasonably incurred by the
Indemnified Party in connection with investigating or
defending any such action or claim. Notwithstanding
the provisions of this Section, no Holder or
underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of the
Holder, the net proceeds received by the Holder from
the sale of Registrable Securities or (ii) in the case
of an underwriter, the total price at which the
Registrable Securities purchased by it and distributed
to the public were offered to the public exceeds, in
any such case, the amount of any damages that the
Holder or underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9. Survival. The indemnity and
contribution agreements contained in Sections 7 and 8
shall remain operative and in full force and effect
regardless of (i) any termination of the Subscription
Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified
Party or by or on behalf of the Company and (iii) the
consummation of the sale or successive resales of the
Registrable Securities.
10. Information by Holder. The Holder shall
furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as
the Company may reasonably request in writing and as
shall be reasonably required in connection with any
registration, qualification or compliance referred to
in this Agreement.
11. Transfer or Assignment of Registration
Rights. The rights, granted to Buyer by the Company
under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be
transferred or assigned to a transferee or assignee of
not less than $250,000 in principal amount of Notes,
provided that the Company is given written notice by
Holder at the time of or within a reasonable time after
said transfer or assignment, stating the name and
address of said transferee or assignee and identifying
the securities with respect to which such registration
rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights
is not deemed by the board of directors of the Company,
in its reasonable judgment, to be a competitor of the
Company; and provided further that the transferee or
assignee of such rights agrees to be bound by this
Agreement.
Buyer is one of a group of holders of
Registrable Securities issued or issuable pursuant to a
total aggregate amount of up to $3,000,000 of Notes
purchased by Buyer and others in a transaction designed
to qualify as an offering pursuant to Regulation S.
Any action to be taken under this Agreement or any term
of this Agreement may be amended or waived only with
written action by the Company and the holders of at
least a majority-in-interest of the total of the
Registrable Securities. Any action, amendment or
waiver effected in accordance with this paragraph shall
be binding upon each of the other holders of
Registrable Securities at the time
<PAGE>
then outstanding.
12. Miscellaneous.
(a) Entire Agreement. This Agreement
contains the entire understanding and agreement of the
parties, and may not be modified or terminated except
by a written agreement signed by both parties.
(b) Notices. Any notice or other
communication given or permitted under this Agreement
shall be in writing and shall be deemed to have been
duly given if personally delivered or sent by
registered or certified mail, return receipt requested,
postage prepaid or by air courier, (a) if to Buyer, at
its address hereinabove set forth, (b) if to the
Company, at its address hereinabove set forth, and (c)
if to a holder other than Buyer, at the address thereof
furnished by like notice to the Company, or (d) to any
such addresses at such other address or addresses as
shall be so furnished to the other parties by like
notice.
(c) Gender of Terms. All terms used
herein shall be deemed to include the feminine and the
neuter, and the singular and the plural, as the context
requires.
(d) Governing Law; Consent of
Jurisdiction. This Agreement and the validity and
performance of the terms hereof shall be governed by
and construed in accordance with the laws of the State
of Delaware. The parties hereto hereby consent to, and
waive any objection to the exercise of, personal
jurisdiction in the State of Delaware with respect to
any action or proceeding arising out of this Agreement.
(e) Titles. The titles used in this
Agreement are used for convenience only and are not to
be considered in construing or interpreting this
Agreement.
(f) Prospectus Delivery Requirements.
Holder agrees, on Holder's behalf, and shall require
any transferee or assignee pursuant to Section 11 above
to agree, to comply with all applicable federal and
state securities laws, including without limitation all
prospectus delivery requirements applicable to resales
of the securities pursuant to the Registration
Statement and Regulation M and Rule 10b-5 under the
Securities Exchange Act of 1934, as amended.
(g) Termination. The rights of Holder
to require the Company to request a registration
pursuant to this Agreement shall terminate on the date
which is five (5) years from the date of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed as of the
date first above written.
[BUYER] COYOTE NETWORK SYSTEMS, INC.
a Delaware Corporation
By: By:
Name: Name: James J. Fiedler
Title: Authorized Signatory Title: Chairman & Chief
Executive Officer
Exhibit 4.4
OFFSHORE WARRANT SUBSCRIPTION AGREEMENT
This Warrant Subscription Agreement (the
"Agreement"), dated as of December 22, 1997, is entered
into by and between Coyote Network Systems Inc., a
Delaware corporation (the "Issuer"), and First Bermuda
Securities Limited. (the "Purchaser").
The Issuer has offered to sell outside the
United States (as that term is defined in Regulation S
("Regulation S") under the United States Securities Act
of 1933, as amended (the "Act")) to the Purchaser a
warrant to purchase 48,611 shares of its common stock
("Common Stock"), $1.00 par value, at a price of $7.20
per share. Capitalized terms used herein and not
defined herein shall have the meanings given to them in
Regulation S.
The parties hereto agree as follows:
1. Sale of Warrant. Upon the basis of the
representations and warranties, and subject to the
terms and conditions, set forth in this Agreement, the
Issuer covenants and agrees to sell to the Purchaser on
the Closing Date (as hereinafter defined), a warrant in
the form of Exhibit A hereto (the "Warrant") to
purchase 48,611 shares of its Common Stock (such shares
of Common Stock and other securities issued and
issuable upon any exercise of the Warrant or a New
Warrant (as defined below), the "Warrant Shares"), at a
price equal to $7.20 per share, in exchange for
services already rendered in full by the Purchaser in a
capital-raising transaction for the Issuer and upon the
basis of the representations and warranties, and
subject to the terms and conditions, set forth in this
Agreement, the Purchaser covenants and agrees to accept
from the Issuer on the Closing Date the Warrant as
payment for said services.
2. Closing. The closing of the sale of the
Warrant pursuant to Section 1 hereof shall take place
on or before December 22, 1997 (the "Closing Date"), at
the offices of First Bermuda Securities Limited,
located at 11 Church Street, Chevron House, Hamilton,
Bermuda HM11. The Warrant shall be delivered by, or on
behalf of, the Issuer at the above-mentioned offices of
First Bermuda on the Closing Date. Delivery of the
Warrant shall be in accordance with the instructions of
the Purchaser, and in such names as the Purchaser shall
instruct, subject to customary settlement procedures.
3. Description of the Warrant
(a) Execution and Delivery. The
Warrant shall be executed by the Issuer and delivered
to the Purchaser on the Closing Date.
(b) Exercise. (i) The Issuer covenants
that procedures will be implemented ("Procedures") to
ensure that the Warrant and any new warrant issued
pursuant to Section 2(a) or Section 4 of the Warrant or
otherwise (a "New Warrant") may not be exercised within
the United States and that no Warrant Share may be
delivered within the United States upon any such
exercise, other than in an offering that meets the
definition of "offshore transaction" pursuant to
paragraph (i)(3) of Rule 902 of Regulation S, unless
registered under the Act or an exemption from such
registration is available. The Purchaser and any
subsequent transferee pursuant to the terms of this
Agreement and the Warrant or any New Warrant (the
Purchaser and each such transferee, a "Holder")
covenant not to
<PAGE>
exercise the Warrant or any New Warrant except in compliance
with the Procedures and the terms of this Agreement and the
Warrant or such New Warrant.
(ii) Each Holder agrees to
deliver, prior to any exercise of the Warrant or any
New Warrant, a certificate in the form of Schedule Two
to Exhibit A hereto or a written opinion of counsel
that the Warrant, or New Warrant, as the case may be,
and the Warrant Shares delivered upon any exercise
thereof have been registered under the Act or are
exempt from registration thereunder.
(iii) The Issuer need not issue
or deliver Warrant Shares unless and until in the
opinion of the Issuer's counsel (such counsel's fees to
be paid by the Issuer) all applicable requirements of
federal and state securities laws and registration (or
exemption from registration) of such shares under the
Act, and all applicable listing requirements of any
national securities exchange on which shares of the
same class are then listed, have been complied with.
(c) Transferability of Warrant. Each
Holder will not sell, assign, convey, pledge,
hypothecate, grant security interests in, encumber,
give away or in any other manner dispose of or
transfer, whether voluntarily or by operation of law,
any of the Warrant, any New Warrant or the Warrant
Shares to any person or entity that, to the knowledge
of such Holder, competes directly or indirectly with
the Issuer without the prior written consent of the
Issuer. Any attempted transfer of the Warrant, the
Warrant Shares or any New Warrant not in accordance
with this Section 3(c) shall be null and void, and the
Issuer shall not in any way be required to give effect
to such transfer. No transfer of the Warrant or any
New Warrant shall be effective for any purpose
hereunder unless and until (i) written notice of such
transfer and of the name and address of the transferee
has been received by the Issuer, (ii) the transferee
shall first agree in a writing deposited with the
Secretary of the Issuer to be bound by all the
provisions of this Agreement, and (iii) in the opinion
of the Issuer's counsel (such counsel's fees to be paid
by the Issuer) all requirements of applicable state
securities laws and any requirement to register such
transfer under the Act have been complied with.
(d) Successors to the Issuer. This
Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Issuer.
(e) Legends. The Warrant and each New
Warrant shall bear a legend stating:
This warrant and the shares of common stock
of Coyote Network Systems Inc. to be issued
upon any exercise of the Warrant have not
been registered under the Securities Act of
1933, as amended (the "Act") and this warrant
may not be exercised by or on behalf of any
U.S. person (as defined in Regulation S under
the Act) unless registered under the Act or
an exemption from such registration is
available.
In addition, this Warrant is subject to
restrictions on sale, assignment, conveyance,
pledge, hypothecation, grant of security
interest, encumbrance, gift or any other
manner of disposition or transfer, whether
voluntarily or by operation of law, as set
forth in an Offshore Warrant Subscription
Agreement, dated as of December 22, 1997, by
and between First Bermuda Securities Limited,
and Coyote Network Systems Inc., a copy of
which is available for inspection at the
offices of Coyote Network Systems Inc..
Further, unless the Warrant Shares have been registered
under the Act, upon any exercise of any part of the
Warrant or any New Warrant, all certificates
representing Warrant Shares shall bear on the face
thereof substantially the following legend:
The shares of common stock represented hereby
have not been registered under the Federal
Securities Act of 1933, as amended (the
"Act") or the securities laws of any
<PAGE>
state, and may be offered or sold only if registered
under the Act and all other applicable
securities laws or if Coyote Network Systems
Inc. receives a satisfactory opinion of
counsel that an exemption from such
registration is available.
4. Representations and Warranties of the
Purchaser. The Purchaser understands, and represents
and warrants to, and agrees with, the Issuer, that:
(a) The Purchaser understands that no
federal or state agency has passed on or made any
recommendation or endorsement of the Warrant.
(b) The Purchaser acknowledges that, in
making the decision to purchase the Warrant, it has
relied solely upon independent investigations made by
it and not upon any representations made by the Issuer
with respect to the Issuer or the Warrant.
(c) The Purchaser understands that the
Warrant is being offered and sold to it in reliance on
specific exemptions or non-application from the
registration requirements of federal and state
securities laws and that the Issuer is relying upon the
truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the
Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of
the Purchaser to acquire the Warrant.
(d) The Purchaser is not a U.S. Person
(as defined in Regulation S) and is not an affiliate of
the Issuer.
(e) No offer of the Warrant was made to
the Purchaser in the United States.
(f) At the time the buy order for the
Warrant was originated the Purchaser was located
outside the United States.
(g) None of the Purchaser, its
affiliates or any person acting on behalf of the
Purchaser or any such affiliate has engaged, or will
engage, in any Directed Selling Efforts with respect to
the Warrant, any New Warrant or the Warrant Shares; and
the Purchaser and its affiliates have complied, and
will comply, with the Offering Restrictions, and any
other requirements, of Regulation S.
(h) The Purchaser is aware that the
Warrant, any New Warrant and the Warrant Shares have
not been and will not be registered under the Act and
may only be offered or sold pursuant to registration
under the Act or an available exemption therefrom, and
subject to the terms and conditions set forth herein.
(i) The Purchaser:
(i) will not, during the period
commencing on the Closing Date and ending on the day 40
days after the Closing Date (the "Restricted Period"),
offer or sell the Warrant, any New Warrant or any
Warrant Shares in the United States, to a U.S. Person
or for the account or benefit of a U.S. Person or other
than in accordance with Rule 903 or Rule 904 of
Regulation S; and
(ii) will, after the expiration of
the Restricted Period, offer, sell, pledge or otherwise
transfer the Warrant, any New Warrant or any Warrant
Shares only pursuant to registration under the Act or
an available exemption therefrom and, in any case, in
accordance with applicable state securities laws.
<PAGE>
(j) If the Purchaser offers and sells
the Warrant, any New Warrant or any Warrant Shares
during the Restricted Period, then it will do so only
in accordance with the provisions of Regulation S or
pursuant to registration under the Act.
(k) The transactions contemplated by
this Agreement:
(i) have not been pre-arranged
with a purchaser located in the United States or is a
U.S. Person; and
(ii) are not part of a plan or
scheme to evade the registration provisions of the Act.
(l) The Purchaser is purchasing the
Warrant for its own account for the purpose of
investment and not (i) with a view to, or for sale in
connection with, any distribution thereof or of any New
Warrant or Warrant Shares or (ii) for the account or on
behalf of any U.S. Person.
(m) The Purchaser has consulted with
the Issuer with respect to the transactions pursuant to
this Agreement, and no objection has been raised by the
Issuer.
(n) Neither the Purchaser nor any
affiliate thereof has entered, or will enter or has the
intention of entering, into any put option, short
position or other similar instrument or position with
respect to the Warrant Shares or securities of the same
class as the Warrant Shares purchased in any
transaction.
5. Representations and Warranties of the
Issuer. The Issuer represents and warrants to, and
agrees with, the Purchaser that:
(a) The Issuer has been duly
incorporated and is validly existing as a corporation
in good standing under the laws of Delaware.
(b) This Agreement has been duly
authorized, executed and delivered by the Issuer and is
a valid and binding agreement enforceable in accordance
with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or
affecting creditors' rights generally and to general
principles of equity; and the Issuer has full corporate
power and authority necessary to enter into this
Agreement and to perform its obligations hereunder.
(c) No consent, approval, authorization
or order of any court, governmental agency or body or
arbitrator having jurisdiction over the Issuer or any
of its affiliates is required for execution of this
Agreement, including, without limitation, the issuance
and sale of the Warrant or any exercise of the Warrant
or the issuance of shares upon any exercise of the
Warrant, or the performance of its obligations
hereunder.
(d) Neither the sale of the Warrant or
any exercise of the Warrant, any New Warrant or the
issuance of Warrant Shares upon any exercise of the
Warrant, pursuant to, nor the performance of its
obligations under, this Agreement by the Issuer will:
(i) violate, conflict with, result
in a breach of, or constitute a default (or an event
which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a
default) under (A) the articles of incorporation,
charter or by-laws of the Issuer or any of its
affiliates, (B) any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to
the Issuer or any of its affiliates of any court,
governmental agency or body, or arbitrator having
jurisdiction over the Issuer or any of its affiliates
or over the properties or assets of the Issuer or any
of its affiliates,
<PAGE>
(C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option
or other similar plan, indenture, lease, mortgage, deed of
trust or other instrument to which the Issuer or any of its
affiliates is a party, by which the Issuer or any of its
affiliates is bound, or to which any of the properties
of the Issuer or any of its affiliates is subject, or
(D) the terms of any "lock-up" or similar provision of
any underwriting or similar agreement to which the
Issuer or any of its affiliates is a party; or
(ii) result in the creation or
imposition of any lien, charge or encumbrance upon the
Warrant, any New Warrant or any Warrant Shares or any
of the assets of the Issuer or any of its affiliates.
(e) The Warrant (except for clauses iii
and vi below) and all Warrant Shares upon issuance:
(i) are, or will be, free and
clear of any security interests, liens, claims or other
encumbrances;
(ii) have been, or will be, duly
and validly authorized and will be duly and validly
issued;
(iii) shall be duly authorized,
validly issued, fully paid and nonassessable, and the
Holder will have full legal and equitable title
thereto, free and clear of all liens, encumbrances,
claims and rights of others created by or through the
Issuer. The Issuer shall use its best efforts to list
such Warrant Shares prior to such delivery upon each
securities exchange, if any, upon which such class of
security is listed at the time of such delivery;
(iv) will not have been issued or
sold in violation of any preemptive or other similar
rights of the holders of any securities of the Issuer;
(v) will not subject the holders
thereof to personal liability by reason of being such
holders; and
(vi) are quoted on, and will be,
following the completion of the Restricted Period (if
sold in accordance with the provisions of this
Agreement), eligible for trading on, the National
Association of Securities Dealers Automated Quotations
system ("NASDAQ").
(f) The Issuer is a Reporting Issuer
and has filed all reports required to be filed by
Section 13(a) or 15(d) of the Securities and Exchange
Act of 1934 (the "Exchange Act") during the preceding
12 months and has been subject to such filing
requirements for the past 90 days.
(g) There is no pending or, to the best
knowledge of the Issuer, threatened action, suit,
proceeding or investigation before any court,
governmental agency or body, or arbitrator having
jurisdiction over the Issuer or any of its affiliates
that would materially affect the execution by the
Issuer of, or the performance by the Issuer of its
obligations under, this Agreement other than as set
forth in the Exchange Act Reports, public announcements
made by the Company prior to the Closing Date and
information submitted to the Purchaser in the letter
dated September 30, 1997.
(h) The Issuer, any person representing
the Issuer, and, to the best knowledge of the Issuer,
any other person selling or offering to sell the
Warrant in connection with the transaction contemplated
by this Agreement, have not made, at any time through
and including the date hereof, any oral communication
in connection with the offer or sale of the Warrant
which contained any untrue statement of a material fact
or omitted to state any material fact necessary in
order to make the statements, in the light of the
circumstances under which they were made, not
misleading.
<PAGE>
(i) The sale of the Warrant pursuant to
this Agreement will be made in accordance with the
provisions and requirements of Regulation S and any
applicable state law.
(j) No offer to buy the Warrant was
made to the Issuer by any person in the United States.
(k) None of the Issuer, any affiliate
of the Issuer, or any person acting on behalf of the
Issuer or any such affiliate has engaged, or will
engage, in any Directed Selling Efforts with respect to
the Warrant, any New Warrant or the Warrant Shares.
(l) The transactions contemplated by
this Agreement:
(i) have not been pre-arranged
with a purchaser who is in the United States or is a
U.S. Person; and
(ii) are not part of a plan or
scheme to evade the registration provisions of the Act.
(m) The Issuer has not issued, and
after the Closing Date will not issue, any stop
transfer order or other order impeding the sale and
delivery of the Warrant, any New Warrant or any Warrant
Shares except for a stop order restricting the sale of
the Warrant, any New Warrant or any such Warrant Shares
into the United States or to, or for the account or
benefit of, U.S. Persons during the Restricted Period,
and a stop order restricting the sale of the Warrant
and any New Warrant pursuant to Section 3(c) hereof.
6. Covenants of the Issuer. The Issuer
covenants and agrees with the Purchaser to:
(a) continue to comply with all
applicable reporting requirements of the Exchange Act;
(b) refrain from publishing or
disseminating any material in connection with the
offering of the Warrant, any New Warrant or the Warrant
Shares except as required by regulatory or judicial
order or request or as deemed by the Issuer to be
advisable in complying with SEC or Nasdaq reporting or
listing requirements.
(c) ensure that all Offering
Restrictions applicable to the sale of Warrant, any New
Warrant and the Warrant Shares pursuant to this
Agreement are thoroughly complied with and satisfied;
(d) refrain from engaging, and insure
that none of its affiliates will engage, in any
Directed Selling Efforts with respect to the Warrant,
any New Warrant and the Warrant Shares; and
(e) notify the Purchaser promptly if at
any time during the period beginning on the date of
this Agreement and ending on the Closing Date (i) any
event shall have occurred as a result of which any oral
communication made by the Issuer, any person
representing the Issuer, or, to the best knowledge of
the Issuer, by any other person in connection with the
transactions contemplated by this Agreement would
include an untrue statement of a material fact or omit
to state any material fact necessary in order to make
the statements therein, in the light of the
circumstances under which they were made, not
misleading, or (ii) there is any public disclosure of
material information regarding the Issuer or its
financial condition or results of operation.
<PAGE>
7. Conditions Precedent to the Purchaser's
Obligations. The obligations of the Purchaser
hereunder are subject to the performance by the Issuer
of its obligations hereunder and to the satisfaction of
the following additional conditions precedent:
(a) The representations and warranties
made by the Issuer in this Agreement shall, unless
waived by the Purchaser, be true and correct as of the
date hereof and at the Closing Date, with the same
force and effect as if they had been made on and as of
the Closing Date.
8. Conditions Precedent to the Issuer's
Obligations. The obligations of the Issuer hereunder
are subject to the performance by the Purchaser of its
obligations hereunder and to the satisfaction of the
following additional conditions precedent:
(a) The representations and warranties
made by the Purchaser in this Agreement shall, unless
waived by the Issuer, be true and correct as of the
date hereof and at the Closing Date, with the same
force and effect as if they had been made on and as of
the Closing Date.
(b) The Purchaser will execute and
deliver to the Issuer, and retain in the records of the
Purchaser, a certificate in the form attached hereto as
Exhibit B.
9. Fees and Expenses. Each of the
Purchaser and the Issuer agrees to pay its own expenses
incident to the performance of its obligations
hereunder, including, but not limited to, the fees,
expenses and disbursements of such party's counsel.
10. Indemnification.
(a) In the event the Purchaser becomes
involved in any capacity in any action, proceeding or
investigation in connection with any matter referred to
in or relating to this Agreement (except as expressly
provided for in paragraph (c) of this Section 10), the
Issuer will reimburse the Purchaser for its reasonable
legal and other expenses (including the cost of any
investigation and preparation) incurred in connection
therewith, as such expenses are incurred, and will
indemnify and hold the Purchaser harmless from and
against any losses, claims, damages or liabilities to
which it may become subject in connection with any such
action, proceeding, investigation or matter, unless
such loss, claim, damage or liability results primarily
from the Purchaser's gross negligence, recklessness or
bad faith in performing the services which are the
subject of this Agreement.
(b) In the event that the Issuer
becomes involved in any capacity in any action,
proceeding or investigation in connection with any
matter referred to in or relating to this Agreement
(except as expressly provided for in paragraph (c) of
this Section 10), the Purchaser will reimburse the
Issuer for its reasonable legal and other expenses
(including the cost of any investigation and
preparation) incurred in connection therewith, as such
expenses are incurred, and will indemnify and hold the
Issuer harmless from and against any losses, claims,
damages or liabilities to which it may become subject
in connection with any such action, proceeding,
investigation or matter, unless such loss, claim,
damage or liability results primarily from the Issuer's
gross negligence, recklessness or bad faith in
performing the services which are the subject of this
Agreement.
(c) Promptly after receipt by an
indemnified party under this Section 10 of notice of
the commencement of any action, such indemnified party
shall notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying
party from any liability which it may have pursuant to
this Section 10 unless,
<PAGE>
due to the failure to be so notified, the indemnifying
party is unable to contest the losses or claims indemnified
against, and such omission shall in no event relieve the
indemnifying party from any liability which it may have to
any indemnified party otherwise than under this Section 10.
In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to
the extent that it may elect by written notice
delivered to such indemnified party promptly after
receiving the aforesaid notice from such indemnified
party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party, (who
shall not, except with the consent of the indemnified
party, which consent shall not be unreasonably
withheld, be counsel to the indemnifying party);
provided, however, that if the defendants in any such
action include both the indemnified party and the
indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which
are different from or additional to those available to
the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel
to assert such legal defenses and otherwise to
participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such
action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to
such indemnified party under this Section 10 for any
legal or other expenses subsequently incurred by such
indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have
employed separate counsel in connection with the
assertion of legal defenses in accordance with the
proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall
be liable for only the reasonable expenses of counsel
and shall not be liable for the expenses of more than
one separate counsel for each indemnified party), (ii)
the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable
time after notice of commencement of the action or
(iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the
expense of the indemnifying party; provided further,
however, that, if clause (i) or (iii) is applicable,
such liability shall be only in respect of the counsel
referred to in such clauses (i) or (iii).
11. Survival of the Representations,
Warranties, etc. The respective agreements,
representations, warranties, indemnities and other
statements made by or on behalf of the Issuer and the
Purchaser, respectively, pursuant to this Agreement,
shall remain in full force and effect for the term of
the Warrant, regardless of any investigation made by or
on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling
or under common control with, such party and will
survive delivery of any payment for the Warrant.
12. Notices. All communications hereunder
shall be in writing, and, if sent to the Purchaser
shall be sufficient in all respects if delivered, sent
by registered mail, or by telecopy and confirmed to the
Purchaser at:
First Bermuda Securities Limited
11 Church Street, Chevron House
Hamilton, Bermuda HM11
Attention: Maxwell R. Roberts
Telephone: (441) 295-1330
Telecopy: (441) 292-9471
or, if sent to the Issuer, shall be delivered, sent by
registered mail or by telecopy and confirmed to the
Issuer at:
Coyote Network Systems Inc.
<PAGE>
4360 Park Terrace Drive
Westlake Village, California 91361
Attention: James Fiedler
Telephone: (818) 735-7600
Telecopy: (818) 735-7633
13. Miscellaneous.
(a) This Agreement may be executed in
one or more counterparts and it is not necessary that
signatures of all parties appear on the same
counterpart, but such counterparts together shall
constitute but one and the same agreement.
(b) This Agreement shall inure to the
benefit of and be binding upon the parties hereto,
their respective successors and, with respect to
Section 10 hereof, the officers, directors and
controlling persons thereof and each person under
common control therewith, and no other person shall
have any right or obligation hereunder.
(c) This Agreement shall be governed
by, and construed in accordance with, the laws of the
state of Delaware.
(d) The headings of the sections of
this document have been inserted for convenience of
reference only and shall not be deemed to be a part of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have
duly executed and delivered this Agreement, all as of
the day and year first above written.
BY: COYOTE NETWORK SYSTEMS INC.
Signature:
Name: James Fiedler
Title: Chief Executive Officer
BY: FIRST BERMUDA SECURITIES LIMITED
Signature:
Name: Maxwell R. Roberts, CPA
Title: Chief Operating Officer
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF
COMMON STOCK OF COYOTE NETWORK
SYSTEMS INC. TO BE ISSUED UPON ITS
EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") AND THIS
WARRANT MAY NOT BE EXERCISED BY OR
ON BEHALF OF ANY U.S. PERSON (AS
DEFINED IN REGULATION S UNDER THE
ACT) UNLESS REGISTERED UNDER THE
ACT OR ON EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
IN ADDITION, THIS WARRANT IS
SUBJECT TO RESTRICTIONS ON SALE,
ASSIGNMENT, CONVEYANCE, PLEDGE,
HYPOTHECATION, GRANT OF SECURITY
INTEREST, ENCUMBRANCE, GIFT OR ANY
OTHER MANNER OF DISPOSITION OR
TRANSFER, WHETHER VOLUNTARILY OR BY
OPERATION OF LAW, AS SET FORTH IN
AN OFFSHORE WARRANT SUBSCRIPTION
AGREEMENT, DATED AS OF DECEMBER 22,
1997, BY AND BETWEEN FIRST BERMUDA
SECURITIES, LTD., AND COYOTE
NETWORK SYSTEMS INC. (THE
"AGREEMENT"), A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE
OFFICES OF COYOTE NETWORK SYSTEMS
INC..
WARRANT
to Purchase 48,611 Shares
of
Common Stock ($1.00 par value)
of
COYOTE NETWORK SYSTEMS INC.
This certifies that, for value received,
First Bermuda Securities Limited and any subsequent
transferee pursuant to the terms of the Agreement and
this Warrant (each, a "Holder") is entitled to
purchase, subject to the provisions of this Warrant,
from Coyote Network Systems Inc., a Delaware
corporation (the "Issuer"), at any time or from time to
time on or after the date hereof and on or before
December 22, 2002 (the "Expiration Date"), 48,611 fully
paid and nonassessable shares of common stock, $1.00
par value (the "Common Stock"), of the Issuer at a
price equal to $7.20 per share (the "Exercise
Price")(such shares of Common Stock and other
securities issued and issuable upon exercise of this
Warrant, the "Warrant Shares").
Section 1. Definitions. Except as otherwise
specified herein, terms defined herein shall have the
meanings assigned to them in the Agreement.
<PAGE>
Section 2. Exercise of Warrant. (a) Subject to
the provisions hereof, this Warrant may be exercised,
in whole or in part, but not as to a fractional share,
at any time or from time to time on or after the date
hereof and on or before the Expiration Date, by
presentation and surrender hereof to the Issuer at the
address which, in accordance with the provisions of
Section 10 hereof, is then effective for notices to the
Issuer, with the Election to Purchase Form annexed
hereto as Schedule One, duly executed and accompanied
by payment to the Issuer as further set forth below in
this Section 2, for the account of the Issuer, of the
Exercise Price for the number of Warrant Shares
specified in such form. If this Warrant should be
exercised in part only, the Issuer shall, upon
surrender of this Warrant for the cancellation, execute
and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the Warrant
Shares purchasable hereunder. The Issuer shall
maintain at its principal place of business a register
for the registration of this Warrant and registration
of transfer for this Warrant. The Exercise Price for
the number of Warrant Shares specified in the Election
to Purchase Form shall be payable in United States
dollars by certified or official bank check payable to
the order of the Issuer or by wire transfer of
immediately available funds to an account by the Issuer
for that purpose.
(b) Prior to the delivery of any securities
which the Issuer shall be obligated to deliver upon
exercise of this Warrant, the Issuer shall use its best
efforts to comply with all Federal and state laws and
regulations thereunder, including without limitation,
Regulation S under the Act, requiring the registration
of such securities with, or any approval of or consent
to the delivery thereof by, any governmental authority,
provided, however, that the Issuer shall have no
obligation to register the Warrant Shares beyond its
obligation set forth in Section 9 below. The Issuer
need not issue or deliver such shares of Common Stock
unless and until in the opinion of the Issuer's counsel
(such counsel's fees to be paid by the Issuer) all
applicable requirements of state securities laws and
registration of such shares under the Act, and all
applicable listing requirements of any national
securities exchange on which shares of the same class
are then listed, have been complied with.
(c) The Issuer covenants that procedures
will be implemented ("Procedures") to ensure that this
Warrant may not be exercised within the United States
and that the Warrant Shares may not be delivered within
the United States upon such exercise, other than in
offerings that meet the definition of "offshore
transaction" pursuant to paragraph (i)(3) of Rule 902
of Regulation S under the Act, unless registered under
the Act or an exemption from such registration is
available. The Holder covenants not to exercise this
Warrant except in compliance with the Procedures and
the terms of the Agreement. The Purchaser or any other
Holder of this Warrant must deliver, prior to any
exercise of this Warrant, (i) a certificate in the form
attached hereto as Schedule Two or (ii) a written
opinion of counsel that this Warrant and the securities
delivered upon any exercise thereof have been
registered under the Act or are exempt from
registration thereunder.
(d) All Warrant Shares, when issued upon
exercise of this Warrant, shall be duly authorized,
validly issued, fully paid and nonassessable, and the
Holder will have full legal and equitable title
thereto, free and clear of all liens, encumbrances,
claims and rights of others created by or through the
Issuer. The Issuer shall use its best efforts to list
such Warrant Shares prior to such delivery upon each
securities exchange, if any, upon which such class of
security is listed at the time of such delivery.
(e) Unless the Warrant Shares have been
registered under the Act, upon any exercise of any part
of this Warrant, all certificates representing Warrant
Shares shall bear on the face thereof substantially the
following legend:
The shares of common stock represented hereby
have not been registered under the Federal
Securities Act of 1933, as amended (the
"Act") or the securities laws of any state,
and may be offered or sold only if registered
under the Act and all other applicable
<PAGE>
securities laws or Coyote Network Systems
Inc. receives a satisfactory opinion of
counsel that an exemption from such
registration is available.
(f) This Warrant may not be exercised to any
extent by anyone after the end of the Warrant term.
Section 3. Reservation of Shares; Preservation of
Rights of Investor. The Issuer hereby agrees that
there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant
Shares as shall be required for issuance or delivery
upon exercise of this Warrant. The Warrant surrendered
upon exercise shall be cancelled by the Issuer. After
the Expiration Date, no shares of Common Stock shall be
subject to reservation in respect of this Warrant. The
Issuer further agrees (i) that it will not, by
amendment of its Articles of Incorporation or through
reorganization, consolidation, merger, dissolution or
sale of assets, or by any other voluntary act, avoid or
seek to avoid the observation or performance of any of
the covenants, stipulations or conditions to be
observed or performed hereunder by the Issuer, (ii)
promptly to take all action as may from time to time be
required in order to permit the Holder to exercise this
Warrant and the Issuer duly and effectively to issue
shares of its Common Stock or other securities as
provided herein upon the exercise hereof, and (iii)
promptly to take all action required or provided for
herein to protect the rights of the Holder granted
hereunder against dilution other then issuances on
conversion of options, offerings or acquisitions.
Without limiting the generality of the foregoing,
should the Warrant Shares at any time consist in whole
or in part of shares of capital stock having a par
value, the Issuer agrees that before taking any action
which would cause an adjustment of the Exercise Price
so that the same would be less than the then par value
of such Warrant Shares, the Issuer shall take any
corporate action which may, in the opinion of its
counsel, be necessary in order that the Issuer may
validly and legally issue fully paid and nonassessable
shares of such Common Stock at the Exercise Price as so
adjusted. The Issuer further agrees that it will not
establish a par value for its Common Stock while this
Warrant is outstanding in an amount greater than the
Exercise Price.
Section 4. Exchange, Transfer, Assignment or Loss
of Warrant. The Holder will not sell, assign, convey,
pledge, hypothecate, grant security interests in,
encumber, give away or in any other manner dispose of
or transfer, whether voluntarily or by operation of
law, any of this Warrant, the Warrant Shares or any new
Warrant to any person or entity that, to the knowledge
of such Holder, competes directly or indirectly with
the Issuer without the prior written consent of the
Issuer. Any attempted transfer of this Warrant, the
Warrant Shares or any new Warrant not in accordance
with this Section shall be null and void, and the
Issuer shall not in any way be required to give effect
to such transfer. No transfer of this Warrant shall be
effective for any purpose hereunder until (i) written
notice of such transfer and of the name and address of
the transferee has been received by the Issuer, (ii)
the transferee shall first agree in a writing deposited
with the Secretary of the Issuer to be bound by all the
provisions of this Agreement and (iii) in the opinion
of the Issuer's counsel (such counsel's fees to be paid
by the Issuer), all requirements of applicable state
securities laws and any requirement to register such
transfer under the Act have been complied with. Upon
surrender of this Warrant to the Issuer by any
transferee authorized under the provisions of this
Section 4, and subject to the terms and conditions of
the Securities Act, the Issuer shall, without charge,
execute and deliver a new Warrant registered in the
name of such transferee at the address specified by
such transferee, and this Warrant shall promptly be
cancelled. The Issuer may deem and treat the
registered holder of any Warrant as the absolute owner
thereof for all purposes, and the Issuer shall not be
affected by any notice to the contrary. Any Warrant,
if presented by an authorized transferee, may be
exercised by such transferee without prior delivery of
a new Warrant issued in the name of the transferee.
<PAGE>
Upon receipt by the Issuer of evidence
reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Issuer
will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered
shall constitute a separate contractual obligation on
the part of the Issuer, whether or not the Warrant so
lost, stolen, destroyed or mutilated shall be at any
time enforceable by anyone, provided, such
indemnification obligation may be used as an offset
against this new Warrant.
Section 5. Rights of the Holder. Neither a
Holder nor his transferee by devise or the laws of
descent and distribution or otherwise shall be, or have
any rights or privileges of, a shareholder of the
Issuer with respect to any Warrant Shares, unless and
until certificates representing such Warrant Shares
shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and
Warrant Shares. The Exercise Price and Warrant Shares
shall be subject to adjustment from time to time as
provided in this Section 6.
(a) If the Issuer is recapitalized through
the subdivision or combination of its outstanding
shares of Common Stock into a larger or smaller number
of shares, the number of shares of Common Stock for
which this Warrant may be exercised shall be increased
or reduced, as of the record date for such
recapitalization, in the same proportion as the
increase or decrease in the outstanding shares of
Common Stock, and the Exercise Price shall be adjusted
so that the aggregate amount payable for the purchase
of all Warrant Shares issuable hereunder immediately
after the record date for such recapitalization shall
equal the aggregate amount so payable immediately
before such record date.
(b) If the Issuer declares a dividend on
Common Stock, or makes a distribution to holders of
Common Stock, and such dividend or distribution is
payable or made in Common Stock or securities
convertible into or exchangeable for Common Stock, or
rights to purchase Common Stock or securities
convertible into or exchangeable for Common Stock, the
number of shares of Common Stock for which this Warrant
may be exercised shall be increased, as of the record
date for determining which holders of Common Stock
shall be entitled to receive such dividend or
distribution, in proportion to the increase in the
number of outstanding shares (and shares of Common
Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a
result of such dividend or distribution, and the
Exercise Price shall be adjusted so that the aggregate
amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record
date for such dividend or distribution shall equal the
aggregate amount so payable immediately before such
record date.
(c) If the Issuer declares a dividend on
Common Stock (other than a dividend covered by
subsection (b) above) or distributes to holders of its
Common Stock, other than as part of its dissolution or
liquidation or the winding up or its affairs, any
shares of its stock, any evidence of indebtedness or
any cash or other of its assets (other than Common
Stock or securities convertible into or exchangeable
for Common Stock), the Holder shall receive notice of
such event as set forth in Section 8 below.
(d) In case of any consolidation of the
Issuer with, or merger of the Issuer into, any other
corporation (other than a consolidation or merger in
which the Issuer is the continuing corporation and in
which no change occurs in its outstanding Common
Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Issuer, or in
the case of any statutory exchange of securities with
another corporation (including any exchange effected in
connection with a merger of a third corporation into
the Issuer, except where the Issuer is the surviving
entity and no change occurs in its outstanding
<PAGE>
Common Stock), the corporation formed by such consolidation
or the corporation resulting from such merger or the
corporation which shall have acquired such assets or
securities of the Issuer, as the case may be, shall
execute and deliver to the Holder simultaneously
therewith a new Warrant, satisfactory in form and
substance to the Holder, together with such other
documents as the Holder may reasonably request,
entitling the Holder thereof to receive upon exercise
of such Warrant the kind and amount of shares of stock
and other securities and property receivable upon such
consolidation, merger, sale, transfer or exchange of
securities, or upon the dissolution following such sale
or other transfer, by a holder of the number of shares
of Common Stock purchasable upon exercise of this
Warrant immediately prior to such consolidation,
merger, sale, transfer, or exchange, provided that if
the kind or amount of securities, cash or other
property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which
rights of election shall not have been exercised ("non-
electing share"), then for the purpose of this
paragraph (d) the kind and amount of securities, cash
or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the
non-electing shares. Such new Warrant shall contain
the same basic other terms and conditions as this
Warrant and shall provide for adjustments which, for
events subsequent to the effective date of such written
instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this
Section 6. The above provisions of this paragraph (d)
shall similarly apply to successive consolidations,
mergers, exchanges, sales or other transfers covered
hereby.
(e) If the Issuer shall, at any time before
the expiration of this Warrant, dissolve, liquidate or
wind up its affairs, the Holder shall, upon exercise of
this Warrant have the right to receive, in lieu of the
shares of Common Stock of the Issuer that the Holder
otherwise would have been entitled to receive, the same
kind and amount of assets as would have been issued,
distributed or paid to the Holder upon any such
dissolution, liquidation or winding up with respect to
such shares of Common Stock of the Issuer had the
Holder been the holder of record of such shares of
Common Stock receivable upon exercise of this Warrant
on the date for determining those entitled to receive
any such distribution. If any such dissolution,
liquidation or winding up results in any cash
distribution in excess of the Exercise Price provided
by this Warrant for the shares of Common Stock
receivable upon exercise of this Warrant, the Holder
may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price and, in
such case, the Issuer shall, upon distribution to the
Holder, consider the Exercise Price to have been paid
in full and, in making settlement to the Holder, shall
obtain receipt of the Exercise Price by deducting an
amount equal to the Exercise Price for the shares of
Common Stock receivable upon exercise of this Warrant
from the amount payable to the Holder. For purposes of
this paragraph, the sale of all or substantially all of
the assets of the Issuer and distribution of the
proceeds thereof to the Issuer's shareholders shall be
deemed a liquidation.
(f) If an event occurs which is similar in
nature to the events described in this Section 6, but
is not expressly covered hereby, the Board of Directors
of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the
Exercise Price.
(g) The term "Common Stock" shall mean the
Common Stock, $1.00 par value, of the Issuer as the
same exists at the Closing Date or as such stock may be
constituted from time to time, except that for the
purpose of this Section 6, the term "Common Stock"
shall include any stock of any class of the Issuer
which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the Issuer and which is not subject to redemption by
the Issuer.
<PAGE>
(h) The Issuer shall retain a firm of
independent public accountants of recognized standing
(who may be any such firm regularly employed by the
Issuer) to make any computation required under this
Section 6, and a certificate signed by such firm shall
be conclusive evidence of the correctness of any
computation made under this Section 6.
(i) Whenever the number of Warrant Shares or
the Exercise Price shall be adjusted as required by the
provisions of this Section 6, the Issuer forthwith
shall file in the custody of its secretary or an
assistance secretary, at its principal office, and
furnish to each Holder hereof, a certificate prepared
in accordance with paragraph (h) above, showing the
adjusted number of Warrant Shares and the Exercise
Price and setting forth in reasonable detail the
circumstances requiring the adjustment.
(j) Notwithstanding any other provision,
this Warrant shall be binding upon and inure to the
benefit of any successor or successors of the Issuer.
(k) No adjustment in the Exercise Price in
accordance with the provisions of this Section 6 need
be made if such adjustment would amount to a change in
such Exercise Price of less than $.01; provided,
however, that the amount by which any adjustment is not
made by reason of the provisions of this paragraph (k)
shall be carried forward and taken into account at the
time of any subsequent adjustment in the Exercise
Price.
(l) If an adjustment is made under this
Section 6 and the event to which the adjustment relates
does not occur, then any adjustments in accordance with
this Section 6 shall be readjusted to the Exercise
Price and the number of Warrant Shares which would be
in effect had the earlier adjustment hot been made.
Section 7. Taxes on Issue or Transfer of
Common Stock and Warrant. The Issuer shall pay any and
all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of
shares of Common Stock or other securities on the
exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect
of any transfer of this Warrant or in respect of any
transfers involved in the issue or delivery of shares
or the exercise of this Warrant in a name other than
that of the Holder and the person requesting such
transfer, issue or delivery shall be responsible for
the payment of any such tax (and the Issuer shall not
be required to issue or deliver said shares until such
tax has been paid or provided for).
Section 8. Notice of Adjustment. So long as
this Warrant shall be outstanding, (a) if the Issuer
shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the
Issuer shall offer generally to the holders of Common
Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible
into Common Stock or any other similar rights, or (c)
if there shall be any proposed capital reorganization
of the Issuer in which the Issuer is not the surviving
entity, recapitalization of the capital stock of the
Issuer, consolidation or merger of the Issuer with or
into another corporation, sale, lease or other transfer
of all or substantially all of the property and assets
of the Issuer, or voluntary or involuntary dissolution,
liquidation or winding up of the Issuer, or (d) if the
Issuer shall give to its stockholders any notice,
report or other communication respecting any
significant or special action or event, then in such
event, the Issuer shall give to the Holder, at least
thirty days prior to the relevant date described below
(or such shorter period as is reasonably possible if
thirty days is not reasonably possible), a notice
containing a description of the proposed action or
event and stating the date or expected date on which a
record of the Issuer's stockholders is to be taken for
any of the foregoing purposes, and the date or expected
date on which any such dividend, distribution,
subscription, reclassification, reorganization,
consolidation, combination,
<PAGE>
merger, conveyance, sale, lease or transfer, dissolution,
liquidation or winding up is to take place and the date or
expected date, if any is to be fixed, as of which the
holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or
other property deliverable upon such event.
Section 9. Registration Rights. (a) Right
to Piggyback. Whenever the Company proposes to
register any of its shares of Common Stock under the
Securities Act of 1933, as amended (the "Securities
Act") and the registration form to be used is not a
Form S-8 or Form S-4 and otherwise may be used for the
registration of any Warrant Shares (a "Piggyback
Registration"), the Company will give prompt written
notice to all holders of the Warrant Shares for which
the registration form may be used of its intention to
effect such a registration and will include in such
registration all Warrant Shares (in accordance with the
priorities set forth in Subsections 9(b) and 9(c)
below) with respect to which the Company has received
written requests for inclusion therein within fifteen
(15) days after the receipt of the Company's notice or
such shorter time as the Company may deem necessary or
advisable due to the anticipated filing date of such
registration. Inclusion of Warrant Shares in any
secondary registration on behalf of holders of the
Company's securities will be subject to any rights of
approval and other rights which such holders may have
and conditions which such holders may impose.
(b) Priority on Primary Registrations. If a
Piggyback Registration is an underwritten primary
registration on behalf of the Company and the managing
underwriters advise the Company in writing that in
their opinion the number of securities requested to be
included in such registration exceeds the number which
can be sold in such offering, the Company will include
in such registration (i) first, the securities that the
Company proposes to sell and (ii) second, the Warrant
Shares requested to be included in such registration
and other securities requested to be included in such
registration pro rata among the holders of the Warrant
Shares and the other securities on the basis of the
number of securities so requested to be included
therein.
(c) Priority on Secondary Registrations. If
a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's
securities and the managing underwriters advise the
Company in writing that in their opinion the number of
securities requested to be included in such
registration exceeds the number which can be sold in
such offering, the Company will include in such
registration (i) first, the securities requested to be
included therein by the holders requesting such
registration and such other securities as may have the
right to be included on a priority with such
securities, pro rata based on the number of such
securities requested to be included in such
registration and (ii) second, the Warrant Shares and
other securities requested to be included in such
registration, pro rata based on the number of Warrant
Shares and other securities so requested to be included
therein.
(d) Selection of Underwriters. If any
Piggyback Registration is an underwritten offering, the
selection of investment banker(s) and manager(s) for
the offering will be in the sole discretion of the
Company.
Section 10. Notices. All communications
hereunder shall be in writing, and, if sent to the
Holder shall be sufficient in all respects if
delivered, sent by registered mail, or by telecopy and
confirmed to the Holder at:
First Bermuda Securities Limited
11 Church Street, Chevron House
Hamilton, Bermuda HM11
Attention: Maxwell R. Roberts
Telephone: (441) 295-1330
Telecopy: (441) 292-9471
<PAGE>
or it to any other Holder, addressed to such Holder at
such address as it shall have specified to the Issuer
in writing, or, if sent to the Issuer, shall be
delivered, sent by registered mail or by telecopy and
confirmed to the Issuer at:
Coyote Network Systems Inc.
4360 Park Terrace Drive
Westlake Village, California 91361
Attention: James Fiedler
Telephone: (818) 735-7600
Telecopy: (818) 735-7633
Section 11. Governing Law. This Warrant
shall be governed by, and interpreted in accordance
with, the laws of the State of Delaware.
Dated: December 22, 1997
COYOTE NETWORK SYSTEMS INC.
BY:_______________________________
Name:
Title:
ATTEST:
__________________________________
Secretary
<PAGE>
Schedule One
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to
exercise this Warrant and to purchase ____________
shares of Coyote Network Systems Inc. Common Stock
issuable upon the exercise of this Warrant, and
requests that certificates for such shares shall be
issued in the name of:
________________________________________________________
(Name)
________________________________________________________
(Address)
________________________________________________________
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
________________________________________________________
(Name)
________________________________________________________
(Address)
and, if the number of Warrant Shares so purchased are
not all of the Warrant Shares issuable upon exercise of
this Warrant, that a Warrant to purchase the balance of
such Warrant Shares be registered in the name of, and
delivered to, the undersigned at the address stated
below.
Date:________________________, 19___
Name of Registered Owner: _____________________________
Address: _____________________________________________
______________________________________________________
Signature: ___________________________________________
<PAGE>
Schedule Two
[Warrant Agent]
Dear Sir/Madam
In connection with the warrant of Coyote Network
Systems Inc. issued to First Bermuda Securities
Limited, on December 22, 1997, and attached hereto, the
undersigned certifies, represents and warrants as
follows:
1. I/We hereby exercise the warrants
identified above. [Give details of how
payment is being made, in accordance with
terms of warrants.]
2. I/We hereby certify that I am/we are not
a U.S. person (as that term is defined in
Regulation S under the Securities Act); nor
am I/we acting for or on behalf of a U.S.
person.
3. At the time of exercise of the warrants
I am/we are and any person for whom we are
acting is located outside the United States.
4. Please deliver the common stock of
Coyote Network Systems Inc. as follows:
______________
______________
______________
[specify address outside the United States]
Very truly yours,
[WARRANTHOLDER]
By:________________
Name:
Title:
<PAGE>
EXHIBIT B
Coyote Network Systems Inc.
4360 Park Terrace Drive
Westlake Village, California 91361
U. S. A.
Attention: Mr. James Fiedler
Dear Sirs:
In connection with the Warrant of Coyote Network
Systems Inc., issued to First Bermuda Securities
Limited, on December 22, 1997, and attached hereto, the
undersigned performed the functions of managing
underwriter in connection with the offering of such
warrants and certifies, represents and warrants as
follows:
We hereby certify that the distribution of the
warrants identified above was completed on December 22,
1997.
Very truly yours,
FIRST BERMUDA SECURITIES LIMITED
By:_____________________________
Name: Maxwell R. Roberts, CPA
Title: Chief Operating Officer
