As filed with the Securities and Exchange Commission on December 3, 1998
Reg. No. 33-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under the Securities Act of 1933
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COYOTE NETWORK SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-2448698
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4360 Park Terrace Drive, Westlake Village, CA 91361 (818) 735-7600
(Address, including Zip Code of (Telephone Number,
Registrant's Principal Executive Offices) Including Area Code)
James J. Fiedler, Chairman and CEO
COYOTE NETWORK SYSTEMS, INC.
4360 Park Terrace Drive, Westlake Village, CA 91361
(818) 735-7600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies of all communications to:
REINHART BOERNER VAN DEUREN NORRIS & RIESELBACH, S.C.
1000 North Water Street, Suite 210, Milwaukee, WI 53202
Attn: David R. Krosner, Esq.
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(C) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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- --------------- ------------- ---------------- ------------------ --------------
Title of Amount Proposed maximum Proposed Amount of
Shares to be to be aggregate price maximum aggregate Registration
registered Registered(1) per share(2) offering price(2) Fee
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- --------------- ------------- ---------------- ----------------- --------------
Common Stock 5,414,789 $16.00 $86,636,624 $25,558.00
$1.00 Par Value
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(1) Represents 2,864,943 shares of Common Stock which may be received upon
exercise of transferable warrants and 2,549,846 shares of Common Stock
which may be received upon conversion of certain convertible securities.
(2) Calculated in accordance with Rule 457(c) based on the average of the high
and low sales prices of the Common Stock as reported on the Nasdaq National
Market on November 30, 1998 solely for the purpose of calculating the
amount of the registration fee.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
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PROSPECTUS DATED December ___, 1998
5,414,789 Shares
COYOTE NETWORK SYSTEMS, INC.
COMMON STOCK
The shares offered hereby (the "Shares") consist of up to 5,414,789
shares of common stock, $1.00 par value per share (the "Common Stock") of Coyote
Network Systems, Inc., a Delaware corporation ("Coyote" or the "Company") which
are issuable by the Company to the selling stockholders listed herein under
"Selling Stockholders" (the "Selling Stockholders") upon exercise of warrants
held by certain of the Selling Stockholders and upon conversion of convertible
securities owned by certain of the Selling Stockholders. This Prospectus covers
the sale of the Shares from time to time by the Selling Stockholders. The
issuance of the Shares of Common Stock upon exercise of the warrants and
conversion of the convertible securities is not covered by this Prospectus, but
rather only the resale of such Shares.
The Shares may be offered from time to time by the Selling
Stockholders. All expenses of the registration incurred in connection herewith
are being borne by the Company, but any brokers' or underwriters' fees or
commissions will be borne by the Selling Stockholders. The Company will not
receive any proceeds from the sale of the Shares by the Selling Stockholders.
The Selling Stockholders have not advised the Company of any specific
plans for the distribution of the Shares covered by this Prospectus, but it is
anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) on the Nasdaq National
Market at the market price then prevailing, although sales may also be made in
negotiated transactions or otherwise. The Selling Stockholders and the brokers
and dealers through whom sale of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and their commissions or discounts and other compensation may
be regarded as underwriters' compensation. See "Plan of Distribution."
The Common Stock is currently listed on the Nasdaq National Market
under the symbol "CYOE." On November 30, 1998, the last reported sale price of
the Common Stock on the Nasdaq National Market was $16.00 per share.
The Company's principal executive offices are located at Coyote Network
Systems, Inc., 4360 Park Terrace Drive, WestlakeVillage, California 91361, and
its telephone number at such address is (818) 735-7600.
THERE ARE CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BEFORE PURCHASING
SHARES IN THIS OFFERING. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
-----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1998.
<PAGE>
PROSPECTUS DATED December ___, 1998
5,414,789 Shares
COYOTE NETWORK SYSTEMS, INC.
COMMON STOCK
The shares offered hereby (the "Shares") consist of up to 5,414,789
shares of common stock, $1.00 par value per share (the "Common Stock") of Coyote
Network Systems, Inc., a Delaware corporation ("Coyote" or the "Company") which
are issuable by the Company to the selling stockholders listed herein under
"Selling Stockholders" (the "Selling Stockholders") upon exercise of warrants
held by certain of the Selling Stockholders and upon conversion of convertible
securities owned by certain of the Selling Stockholders. This Prospectus covers
the sale of the Shares from time to time by the Selling Stockholders. The
issuance of the Shares of Common Stock upon exercise of the warrants and
conversion of the convertible securities is not covered by this Prospectus, but
rather only the resale of such Shares.
The Shares may be offered from time to time by the Selling
Stockholders. All expenses of the registration incurred in connection herewith
are being borne by the Company, but any brokers' or underwriters' fees or
commissions will be borne by the Selling Stockholders. The Company will not
receive any proceeds from the sale of the Shares by the Selling Stockholders.
The Selling Stockholders have not advised the Company of any specific
plans for the distribution of the Shares covered by this Prospectus, but it is
anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) on the Nasdaq National
Market at the market price then prevailing, although sales may also be made in
negotiated transactions or otherwise. The Selling Stockholders and the brokers
and dealers through whom sale of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and their commissions or discounts and other compensation may
be regarded as underwriters' compensation. See "Plan of Distribution."
The Common Stock is currently listed on the Nasdaq National Market
under the symbol "CYOE." On November 30, 1998, the last reported sale price of
the Common Stock on the Nasdaq National Market was $16.00 per share.
The Company's principal executive offices are located at Coyote Network
Systems, Inc., 4360 Park Terrace Drive, WestlakeVillage, California 91361, and
its telephone number at such address is (818) 735-7600.
THERE ARE CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BEFORE PURCHASING
SHARES IN THIS OFFERING. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
-----------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1998.
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AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act, omits
certain of the information set forth in the Registration Statement. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the securities offered
hereby. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Information concerning the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-800-SEC-0330. The reports, proxy statements and other information can also
be inspected and copied at the following regional offices of the Commission:
Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511, and Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, NY 10048. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Such reports and other
information filed with the Commission may also be available at the Commission's
site on the World Wide Web at http:www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of a document filed by the Company with
the Commission (File No. 1-5486) are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998.
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
June 30 and September 30, 1998.
(c) The Company's current report of Form 8-K dated October 15, 1998.
(d) The description of the Company's Common Stock which is contained in
the Company's Registration Statement on Form 8-A filed on February 27, 1997
under the Exchange Act, including all amendments and reports filed for the
purpose of updating such description.
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All reports and other documents filed by the Company with the Commission
pursuant to sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which de-registers all securities remaining unsold, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document, all
or a portion of which is incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained or incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral request for copies should be
directed to Brian A. Robson, Coyote Network Systems, Inc., 4360 Park Terrace
Drive, Westlake Village, California 91361, (818) 735-7600.
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THE COMPANY
Coyote Network Systems, Inc. ("Coyote" or the "Company"), formerly The
Diana Corporation, is a Delaware corporation which was incorporated in 1961. The
Company is engaged, through Coyote Technologies, LLC ("CTL"), formerly Sattel
Communications, LLC, in the provision of scalable telecommunications switches
and Internet Protocol-based gateway systems to telecommunications service
providers. The Company is also engaged, through American Gateway
Telecommunications, Inc. ("AGT"), in wholesaling international long distance
services to telecom carriers and through INET Interactive Network Systems, Inc.
("INET") is engaged in marketing international long distance services, primarily
to affinity groups. The Company's principal executive offices are located at
4360 Park Terrace Drive, Westlake Village, California 91361, and its telephone
number is (818) 735-7600.
FORWARD-LOOKING STATEMENTS
All statements other than historical statements contained in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Without limitation, these
forward-looking statements include statements regarding new products to be
introduced by the Company in the future, statements about the Company's business
strategy and plans, statements about the adequacy of the Company's working
capital and other financial resources, and in general statements herein that are
not of an historical nature. Any Form 10-K, annual report to stockholders, Form
10-Q, Form 8-K or press release of the Company may include forward-looking
statements. In addition, other written or oral statements which constitute
forward-looking statements have been made or may in the future be made by the
Company, including statements regarding future operating performance, short- and
long-term sales and earnings estimates, backlog, the status of litigation, the
value of new contract signings, industry growth rates and the Company's
performance relative thereto. These forward-looking statements rely on a number
of assumptions concerning future events, and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, that could cause actual results to differ materially from such
statements. These include, but are not limited to: risks associated with recent
operating losses, no assurance of profitability, the need to increase sales,
liquidity deficiency and in general the other risk factors set forth herein (see
"Risk Factors"). The Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new information,
future events or otherwise.
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RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below as well as the other information contained in this Prospectus.
Recent Operating Losses; No Assurance of Profitability
The Company has reported losses from continuing operations for the last
four fiscal years. There can be no assurance that the Company will return to
profitability.
Need to Increase Sales
Coyote has a limited operating history and has not yet achieved consistent
sales of its products over an extended period. Net sales from continuing
operations of the Company were $264,000 in the 1996 fiscal year, $7,154,000 in
the 1997 fiscal year and $5,387,000 in the 1998 fiscal year. These sales were
not sufficient to offset the operating and other expenses incurred by the
Company. If the Company is to achieve profitability, it will need to increase
the market acceptance and sales of its products to levels commensurate with the
expense levels of the Company. No assurances can be given that the Company will
be successful in this effort.
Liquidity Deficiency
Recent events have improved the Company's short-term liquidity. The Company
nevertheless considers that its capital situation, over the long term, will be
dependent on its operating results and its ability to obtain additional capital
required to acquire and develop successful operations through acquisitions. The
Company could remain relatively constrained and its ability to access outside
sources of capital could be restricted until such time as the Company is able to
demonstrate higher levels of sales and more favorable operating results. No
assurances can be given that the Company will be able to maintain its liquidity
over an extended period of time as required for the Company to achieve its
operating goals.
Fluctuations in Quarterly Operating Results
The Company's quarterly operating results are difficult to forecast with
any degree of accuracy because a number of factors subject these results to
significant fluctuations. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's sales are subject to quarterly and annual fluctuations due to
a number of factors. The Company expects to experience fluctuations in sales
from quarter to quarter due in large part to the capital budgeting and spending
patterns of potential customers in the telecommunications industry. The
Company's ability to affect and judge the timing of individual customer orders
is, by its nature, limited. The Company's sales for a given quarter may depend
to a significant degree upon a limited number of customers, often related to
specific customer orders.
The Company's revenues, costs and expenses have fluctuated significantly in
the past and may continue to fluctuate significantly in the future as a result
of numerous factors. The Company's revenues in any given period can vary due to
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factors such as call volume fluctuations, particularly in regions with
relatively high per-minute rates; the addition or loss of major customers,
whether through competition, merger, consolidation or otherwise; the loss of
economically beneficial routing options for the termination of the Company's
traffic; financial difficulties of major customers; pricing pressure resulting
from increased competition; and technical difficulties with or failures of
portions of the Company's network that impact the Company's ability to provide
service or to bill its customers.
The Company's cost of services and operating expenses in any given period
can vary due to factors such as fluctuations in rates charged by carriers to
terminate the Company's traffic; increases in bad debt expense and reserves; the
timing of capital expenditures, and other costs associated with acquiring or
obtaining other rights to switching and other transmission facilities; changes
in the Company's sales incentive plans; and costs associated with changes in
staffing levels of sales, marketing, technical support and administrative
personnel.
Delays or lost sales can be caused by other factors beyond the Company's
control, including changes in implementation priorities and slower than
anticipated growth in demand for products and services. Delayed sales have
occurred in the past and may occur in the future. In addition, the Company has,
on occasion, experienced delays as a result of the need to modify its products
to comply with unique customer specifications. These and similar delays or lost
sales could have a material adverse effect on its business.
Operating results may also fluctuate due to factors such as the timing of
new product enhancements and introductions by the Company, its major customers
or its existing or potential competitors, delays in new product introductions,
market acceptance of new or enhanced versions of the Company's products and
services, changes in the product or customer mix of sales, changes in the level
of operating expenses, competitive pricing pressures, the gain or loss of
significant customers, increased research and development and sales and
marketing expenses associated with new product enhancements and introductions,
and general economic conditions. All of the above factors are difficult for the
Company to forecast, and these or other factors could have a material adverse
effect on the Company's business for a quarter or a series of quarters. The
Company's expense levels are based in part on its expectations regarding future
sales and, to a large extent, are fixed in the short term. Therefore, the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected shortfall in sales. Any significant decline in demand relative to
the Company's expectations or any material delay of customer orders could have a
material adverse effect on the Company's business. It is possible that in the
future, the Company's operating results may experience such problems, which
could have a material adverse effect on the price of the Company's Common Stock.
Reductions in Size and Diversification
While now considered more focused, the Company is a smaller and less
diversified company and has a lower fixed asset and revenue base than it had
prior to its restructuring. Consequently, the effect of any decline in operating
results after the restructuring could more immediately and severely affect the
Company's business.
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Risks Inherent in Acquisition Strategy
An important component to the Company's strategy is to grow and expand
through acquisitions. This growth strategy is dependent on the continued
availability of suitable acquisition candidates and subjects the Company to a
number or risks. In April 1998, the Company completed one acquisition, AGT. This
acquisition has placed significant demands on the Company's financial and
management resources, as the process of integrating acquired operations presents
a significant challenge to the Company's management and may lead to
unanticipated costs or a diversion of management's attention from day-to-day
operations. There can be no assurance that the Company will be able to
successfully integrate this acquisition or any other acquisitions made by the
Company. Integrating acquisitions may require integration of financial and
information systems, network and other physical facilities and personnel.
Difficulties in integrating these and other acquisitions can cause system
degradation, added costs and loss of personnel or customers. Additionally, the
Company may incur unknown liabilities despite management's efforts to
investigate the operations of the acquired business. The impact of these risks,
and other risks arising as a result of the Company's acquisition strategy, could
adversely affect the Company's business.
Dependence on Telecommunications Industry; Telecom Switch Market, IP Gateway
System Market and the International Long Distance Service Market
After the restructuring, the Company's customers are concentrated in the
telecommunications and Internet service industries. Accordingly, the Company's
future success depends upon the capital spending patterns of such customers and
the demand by such customers for the DSS Switch, Carrier IP Gateway system and
international long distance services. Coyote is initially targeting the market
for small- to medium-sized telecom switches and IP gateway systems in the United
States, Mexico, South America and the Far East. Historically, there has been
little, if any, demand for telecommunications switches similar in functionality,
type and size to the DSS Switch and Carrier IP Gateway system, accordingly,
there can be no assurance that potential customers will consider the near term
value of the DSS Switch sufficient to influence their purchasing decisions or
that they will pursue strategic business alternatives that would benefit from a
less expensive, small- to medium-sized switches. Furthermore, there can be no
assurance that telecommunications companies and other potential customers will
not adopt alternative architectures or technologies that are incompatible with
the DSS Switch or Carrier IP Gateway system, which could have a material adverse
effect on the Company's business. Infrastructure improvements requiring the
Company's or similar technology may be delayed or prevented by a variety of
factors, including cost, regulatory obstacles, the lack of consumer demand for
advanced telecommunications services and alternative approaches to service
delivery.
The telecommunications switch and IP gateway markets are highly
competitive. Coyote faces potential competition in the data communications
market segment from a number of data communications equipment providers, such as
Nortel, Cisco Systems, Lucent Technologies, Newbridge Networks and 3Com.
In addition, the manufacturers of large scale central office switches such
as Lucent Technologies, Northern Telecom, Digital Switch Corporation, Siemens
AG, Alcatel, LM Ericsson and others have the resources and expertise to compete
in the smaller-scale central office switching equipment segment. It is also
possible that large communication carriers such as AT&T Corporation, MCI
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Worldcom Communications, Sprint and, when and if legally permitted to the RBOCs,
may enter the small- to mid-sized central office and IP gateway switching
equipment business. Many of these competitors possess financial resources
significantly greater than those of Coyote and, accordingly, could initiate and
support prolonged price competition to gain market share.
Additionally, the telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of competitive product and
service offerings, such as the utilization of the Internet for international
voice and data communications. The Company is unable to predict which
technological development will challenge its competitive position or the amount
of expenditures that will be required to respond to a rapidly changing
technological environment.
AGT and INET are expected to generate a substantial majority of Coyote's
revenues by providing international telecommunications services to its
customers. The international nature of the Company's operations involves certain
risks, such as changes in U.S. and foreign government regulations and
telecommunications standards, dependence on foreign partners, tariffs, taxes and
other trade barriers, the potential for nationalization and economic downturns
and political instability in foreign countries. In addition, the Company's
business could be adversely affected by a reversal in the current trend toward
deregulation of telecommunications carriers. The Company will be increasingly
subject to these risks to the extent that the Company proceeds with the planned
expansion of its international operations.
The international telecommunications industry is intensely competitive and
subject to rapid change. AGT's competitors in the international wholesale long
distance market and INET's competitors in the retail international long distance
market include large, facilities-based multinational corporations and smaller
facilities-based providers in the U.S. and overseas that have emerged as a
result of deregulation, switchless and switch-based resellers of international
long distance services and international joint ventures and alliances among such
companies. AGT and INET also compete abroad with a number of dominant
telecommunications operators that previously held various monopolies established
by law over the telecommunications traffic in their countries. International
service providers compete on the basis of price, customer service, transmission
quality, breadth of service offerings and value-added services.
Further, the number of AGT and INET competitors is likely to increase as a
result of the competitive opportunities created by a new Basic
Telecommunications Agreement concluded by members of the World Trade
Organization (WTO) in April 1997. Under the terms of the WTO agreement, starting
February 5, 1998, the United States and more than 65 countries have committed to
open their telecommunications markets to competition and foreign ownership and
to adopt measures to protect against anti-competitive behavior. As a result, AGT
and INET believe that competition will continue to increase, placing downward
pressure on prices. Such pressure could adversely affect AGT's and INET's gross
margins if AGT and INET are not able to reduce its costs commensurate with such
price reductions.
A majority of the U.S.-based international telecommunications services
revenue is currently generated by AT&T Corp. ("AT&T"), MCI Worldcom
Communications Corp. ("MCI") and Sprint Corporation ("Sprint"). AGT and INET
also compete with companies such as Star Telecommunications, Inc., Pacific
Gateway Exchange, Inc. and other U.S.-based and foreign long distance providers,
including the RBOCs, which presently have FCC authority to resell and terminate
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international telecommunication services. Many of these competitors have
considerably greater financial and other resources and more extensive domestic
and international communications networks than the Company. AGT's and INET's
businesses would be materially adversely affected to the extent that a
significant number of such customers limit or cease doing business with AGT or
INET for competitive or other reasons. Consolidation in the telecommunications
industry could not only create even larger competitors with greater financial
and other resources, but could also affect AGT and INET by reducing the number
of potential customers for the Company's services.
Concentrated Product Line; New Product Delays
In fiscal 1998, Coyote derived substantially all of its revenues from the
DSS Switch. As a result, any decrease in the overall level of sales of, or the
prices for, the DSS Switch due to product issues or any other reason could have
a material adverse effect on the Company's business. The Company may consider
the acquisition of other similar companies or technologies provided they are
complementary to its core business.
The telecommunications equipment market, in general, is characterized by
rapidly changing technology, evolving industry standards, changes in end-user
requirements, and frequent new product introductions and enhancements. The
introduction of products embodying new technologies or the emergence of new
industry standards will be a continuing factor in the market. Coyote's success
will depend, in part, upon its ability to enhance the technology for the DSS
Switch and to develop and introduce, on a timely basis, new products, such as
the Carrier IP Gateway system, that keep pace with technological developments
and emerging industry standards and address changing customer requirements in a
cost-effective manner. There can be no assurance that Coyote will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or that its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance.
Furthermore, from time to time, Coyote or its competitors may announce new
products or product enhancements, services or technologies that have the
potential to replace or shorten the life cycle of Coyote's products and that may
cause customers to defer purchases. There can be no assurance that future
technological advances in the telecommunications industry will not diminish any
market acceptance for Coyote's products, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Coyote has experienced delays in completing development and introduction of
new products and features, and there can be no assurance that such delays will
not reoccur in the future. Furthermore, the DSS Switch contains a significant
amount of complex software that may contain undetected or unresolved errors as
products are introduced o as new versions are released. Coyote has in the past
discovered software errors in certain DSS Switch installations. There can be no
assurance that, despite significant testing by Coyote, software errors will not
be found in new enhancements of the DSS Switch and/or the Carrier IP Gateway
system after commencement of shipments, resulting in delays in or loss of market
acceptance, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Dependence on Outsource Manufacturers and Other Key Suppliers
Coyote's outsource manufacturers have from time to time experienced delays
in receipt of certain hardware components. Certain components, including
crystals and microprocessors, are presently single-sourced or are available from
a limited number of sources. An interruption in business between Coyote and its
outsource manufacturers could have a material adverse effect on the Company.
Coyote has established relationships with alternate suppliers such as Sanmina
and I-PAC and has assembled product itself. Some sole-source suppliers are
companies which from time to time allocate parts to telecommunications equipment
manufacturers due to market demand for telecommunications equipment. Many of
Coyote's potential competitors for such parts are much larger and may be able to
obtain priority allocations from these shared suppliers, thereby limiting or
making unreliable the sources of supply for these components. There can be no
assurance that shortages in component parts will not occur in the future or will
not result in Coyote having to pay a higher price for components. A failure by a
supplier to deliver quality products on a timely basis, or the inability to
develop additional alternative sources if and as required, could result in
delays which could have a material adverse effect on the Company's business.
Limited Protection of Proprietary Technology; Risk of Third-Party Claims of
Infringement
Coyote uses a combination of patents, trade secrets, confidentiality and
non-compete agreements and tight control of its software to protect the products
and features that it believes give it competitive advantages. In particular,
Coyote relies on contractual restrictions to establish and protect its rights to
the technology developed by outside contractors used to assist in the
development of Coyote's products. Coyote's success and ability to compete is
dependent, in part, upon its technology.
There can be no assurance that the steps taken by Coyote will be adequate
to prevent mis-appropriation of its technology or that Coyote's competitors will
not independently develop technologies that are substantially equivalent or
superior to Coyote's technology. In addition, the laws of many foreign countries
do not protect Coyote's intellectual property rights to the same extent as the
laws of the United States. The failure of Coyote to protect its proprietary
information could have a material adverse effect on the Company's business,
financial condition and results of operations.
The increased dependence of the telecommunications industry on proprietary
technology has resulted in frequent litigation based on allegations of the
infringement of patents and other intellectual property. The Company may be
subject to litigation to defend against claimed infringements of the rights of
others or to determine the scope and validity of the proprietary rights of
others. Litigation also may be necessary to enforce and protect trade secrets
and other intellectual property rights owned by the Company. Any such litigation
could be costly and cause diversion of management's attention, either of which
could have a material adverse effect on the Company's business. Adverse
determinations in such litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties, or prevent the Company from
manufacturing or selling its products, any one of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, there can be no assurance that any necessary licenses
will be available on reasonable terms.
10
<PAGE>
Customer Concentration
Revenues in fiscal 1998 were from shipments to twelve customers, one of
which accounted for approximately 40% of the total revenues. Approximately 94%
of Coyote's revenues for fiscal 1997 were derived from sales to Concentric
Network. The Company anticipates that its results of operations in any given
period will continue to depend to a significant extent upon sales to a limited
number of customers. There can be no assurance that the Company's principal
customers will continue to purchase product from the Company at current levels,
if at all. The loss of one or more major customers in any segment could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Difficulties in Managing Growth
The Company has experienced growth in the number of employees and the scope
of its operations. To manage potential future growth effectively, the Company
must improve its operational, financial and management information systems and
must hire, train, motivate and manage its employees. The future success of the
Company also will depend on its ability to increase its customer support
capability and to attract and retain qualified technical, sales, network
operations, marketing and management personnel, for whom competition is intense.
The Company is currently hiring a number of sales and engineering personnel and,
in some instances, has experienced delays in filling such positions. There can
be no assurance that the Company will be able to effectively achieve or manage
such growth, and failure to do so could delay product development cycles or
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations.
Introduction of Switch Server Architecture into the Telecommunications Market
In January 1977, Coyote announced the new Switch Server Architecture (SSA).
SSA encompasses a client/server approach to low, medium and high speed
communications. There can be no assurance of its successful acceptance by the
telecommunications market in general.
Competition to DSS Switch and Carrier IP Gateway System Market
The telecommunications market and Internet markets are extremely
competitive. Coyote uses a combination of patents, trade secrets,
confidentiality agreements and non-compete agreements to protect the product and
features that it believes give it competitive advantages. There can be no
assurance, however, that other competitors, some of whom have much greater
access to resources and funding, cannot functionally replicate Coyote's critical
products and features. Likewise, there is no guarantee that competitors cannot
develop features which equal or exceed Coyote's offerings.
Outsourced Manufacturing; Capacity Constraints
Coyote performs certain manufacturing functions in-house. In addition,
Coyote outsources some of its manufacturing to Sanmina, I-PAC and other
non-affiliated contract manufacturers and expects to continue to outsource some,
or all, of its manufacturing. The Company's ability to increase capacity may be
constrained and it may have less control over manufacturing than it would if it
performed all the manufacturing functions in-house. There can be no assurance,
11
<PAGE>
in the event of substantial increases in demand, that Coyote can successfully
deliver its products in a timely fashion and/or without additional expense which
would result in a deterioration of product margins.
International Risks
The Company's business strategy includes greater expansion into
international markets. There can be no assurance that the Company will obtain
the permits and operating licenses required for it to operate, to hire and train
employees or to market, sell and deliver high quality products and services
internationally. In addition to the uncertainty as to the Company's ability to
expand its international presence, there are certain risks inherent to doing
business on an international level, such as unexpected changes in regulatory
requirements, trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in current exchange rates, seasonal
reductions in business activity, and potentially adverse tax consequences, which
could adversely impact the success of the Company's international operations. In
many countries, the Company may need to enter into a joint venture or other
strategic relationship with one or more third parties in order to successfully
market its products and services and to conduct its operations. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international operations and, consequently, on the Company's
business, financial condition and results of operations.
No Dividends
The Company has not paid cash dividends to its stockholders in the last six
years. The Company does not anticipate paying cash dividends to stockholders for
the foreseeable future.
Need for Additional Capital to Finance Growth and Capital Requirements
The Company believes that it must continue to enhance and expand its
products and services. The Company's ability to grow depends, in part, on its
ability to expand its product and service offerings, which requires significant
capital expenditures that are often incurred prior to the Company's receipt of
the related revenue.
If the Company's growth exceeds current expectations, or if the Company
obtains one or more attractive opportunities to purchase the business or assets
of another company, or if the Company's cash flow from operations after the end
of such period is insufficient to meet its working capital and capital
expenditure requirements, the Company will need to raise additional capital from
equity or debt sources. There can be no assurance that the Company will be able
to raise such capital on favorable terms or at all. If the Company is unable to
obtain such additional capital, the Company may be required to reduce the scope
of its anticipated expansion, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
12
<PAGE>
Volatility of Stock Price
The market price of the shares of the Company's Common Stock has been
volatile and may be affected by factors such as actual or anticipated
fluctuations in the Company's operating results, the announcement of potential
acquisitions by the Company, changes in federal and international regulations,
activities of the larger voice and data equipment providers, domestic and
international service providers, industry consolidation and mergers, conditions
and trends in the international telecommunications market, adoption of new
accounting standards affecting the telecommunications industry, changes in
recommendations and estimates by securities analysts, general market conditions
and other factors. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have particularly
affected the market prices for the shares of emerging growth companies like the
Company. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock.
Accounting Pronouncements
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure About Segments on Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income. SFAS No. 131 requires disclosure of each segment that is
similar to those required under current standards and additional quarterly
disclosure requirements. Both standards were adopted on April 1, 1998.
Year 2000 Compliance
The Company believes that its DSS Switch and Carrier IP Gateway operating
systems and its internal computer systems are Year 2000 compliant and does not
anticipate that it will incur significant expenditures to ensure that such
systems will function properly with respect to dates in the Year 2000 and
beyond. The Company has designed and tested the current version of its DSS
Switch, AMT and CMS products, which comprise the principle products sensitive to
the Year 2000 issues. There were no problems found with the date rollover issue
nor were any problems encountered with the Year 2000 leap year issue. The
products continued processing calls without interruption during the test cycles.
Testing of all products and components will continue as other adjuncts are
integrated and tested. The Company is conducting a review of its significant
suppliers and other third parties to ensure that those parties have appropriate
plans to remedy Year 2000 issues where their systems interface with the
Company's systems or otherwise impact its operations. The Company is continuing
to request and receive Year 2000 certification documents from its third party
software suppliers. Third party software used in the development and operation
of DSS, AMT & CMS products was verified to be Year 2000 compliant during system
testing.
The costs incurred by the Company to date on the Year 2000 issues have not
been material to the Company's financial condition or operations. The Company
presently does not have a documented Year 2000 contingency plan to cope with a
worst case scenario. The Company intends to complete documentation of a
contingency plan by December 31, 1998. There can be no assurance that a failure
of the DSS switching product operating system or that the systems of third
parties on which the Company's systems and operations rely to be Year 2000
compliant will not have a material adverse affect on the Company's business,
financial condition or operating results.
13
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders. The Company will, however, receive the exercise price
from the exercise of any warrants held by the Selling Stockholders. The Company
will use all such funds received upon exercise of warrants for general working
capital purposes.
14
<PAGE>
SELLING STOCKHOLDERS
The Shares offered for sale pursuant to this Prospectus are shares of the
Company's Common Stock which may be acquired by the Selling Stockholders listed
below upon exercise of outstanding warrants and conversion of certain
convertible securities owned by the Selling Stockholders as set forth in the
table below:
<TABLE>
<CAPTION>
Shares of Common Shares to be Owned After
Stock Owned Prior Shares the Offering*
to Offered for
Offering Sale Hereby
Number Percent
<S> <C> <C> <C> <C>
Ardent Research 582,625 236,250(1) 346,375 2.4%
Chesed Congregation 157,500 78,750(1) 78,750 +
Emerald International 73,500 36,750(1) 36,750 +
Europa International Inc. 105,000 52,500(1) 52,500 +
Michael Fantetti 358,125 118,125(1) 240,000 1.7%
James J. Fiedler 560,437** 183,750(1)(2) 376,687 2.6%
John Fife 206,850 157,500(1) 49,350 +
Maxwell H. Gluck Foundation 157,500 78,750(1) 78,750 +
Stuart Isen 105,000 105,000(1) 0 +
Ruth Ellen Keiser 26,250 13,125(1) 13,125 +
Aurel E. Mircea 63,000 31,500(1) 31,500 +
Montpellier Resources 136,500 68,250(1) 68,250 +
Steve Nassau 18,700 14,500(1) 4,200 +
Theodore Netzky 52,500 52,500(1) 0 +
Michelle Portner 2,625 1,313(1) 1,312 +
Stephen Portner 21,000 10,500(1)(3) 10,500 +
Praxis II Partners Inv. II 80,850 52,500(1) 28,350 +
George Salameh 10,700 3,350(1) 7,350 +
William J. Smith 68,250 34,125(1) 34,125 +
South Ferry #2 94,500 52,500(1) 42,000 +
Anthony D. Squeglia 42,230 15,750(1)(4) 26,480 +
Fred Stein 181,400 78,750(1) 102,650 +
Strategic Restructuring Fund 52,500 26,250(1) 26,250 +
Strategic Restructuring Partnership 538,650 262,500(1) 276,150 1.9%
U.S. Equity Portfolio 105,000 52,500(1) 52,500 +
Valor Capital Management 105,000 52,500(1) 52,500 +
Ronald N. Weiser Trust 105,000 105,000(1) 52,500 +
Comdisco, Inc 40,740 40,740(5) 0 +
Comdisco, Inc 78,750 78,750(5) 0 +
Comdisco, Inc 73,500 73,500(5) 0 +
First Bermuda Securities Ltd 38,889 38,889(6) 0 +
First Bermuda Securities Ltd 51,042 51,042(6) 0 +
Donald L Hawley 105,000 105,000(7) 0 +
Systeam, S.p.A. 127,733 127,733 (8) 0 +
JNC Opportunity Fund 551,118*** 2,561,096(9) 0 +
Gary Shemano 34,125 34,125(10) 0 +
Mitchell & Kristen Levine TTEE 17,063 17,063(11) 0 +
William & Mary Corbett 17,063 17,063(12) 0 +
Jesup & Lamont 70,000 70,000(13) 0 +
Charles Chandler 191,800 175,000(14) 16,800 +
Sydney B. Lilly 221,257 50,000(15) 171,257 1.2%
<FN>
* Assumes resale of all shares of common stock offered hereby. For the purposes
of determining the percentage of ownership after the offering, it has been
assumed that all shares offered are issued except for the JNC Opportunity
Fund, where it has been assumed that 1,107,594 shares will be issued based
upon a conversion price of $6.32 per common share for the eventual conversion
of its preferred stock.
+ Percentage of ownership is less than 1%
15
<PAGE>
** Includes Mr. Fiedler's ownership of 350 Class B Units of Coyote
Technologies, LLC which are convertible into 192,937 shares of Company
common stock.
*** The Certificate of Designation governing the Series A Convertible Preferred
Stock issued to JNC on August 31, 1998 (the "Preferred Stock") prohibits
JNC from converting shares of the Preferred Stock (or receiving shares of
Common Stock as payment of dividends thereunder) to the extent that such
conversion would result in JNC beneficially owning in excess of 4.999% of
the outstanding shares of Common Stock following such conversion. Such
restriction may be waived by JNC upon not less than 75 days' notice to the
Company. The number of shares of Common Stock listed in this table as
beneficially owned by JNC represents the number of shares of Common Stock
issuable to JNC, (i) subject to the limitation set forth in the first
sentence of this footnote, upon conversion of 700 shares of the Preferred
Stock at an assumed conversion price of $6.32 (which price will fluctuate
from time to time based on changes in the market place of the Common Stock
and provisions in the formula for determining the conversion price), and
(ii) upon exercise of the warrant issued to JNC in conjunction with the
sale of the Preferred Stock for the purchase of 225,000 shares of Common
Stock at an exercise price of $8.01 per share (the "JNC Warrant") which,
because of a recent stock dividend declared by the Company, currently
entitles JNC to acquire 236,250 shares of Common Stock. Because the number
of shares of Common Stock issuable upon conversion of the Preferred Stock
and as payment of dividends thereon is dependent in part upon the market
price of the Common Stock prior to a conversion, the actual number of
shares of Common Stock that will be issued in respect of such conversions
or dividend payments, and, consequently, the number of shares of Common
Stock that will be beneficially owned by JNC, will fluctuate daily and
cannot be determined at this time.
(1) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of outstanding warrants issued to the Selling
Stockholder on or about June 30, 1997. The warrants are exercisable at
$2.86 per share.
(2) Mr. Fiedler has been the Company's Chairman of the Board and Chief
Executive Officer since November 1996 and Chairman and Chief Executive
Officer of Coyote Technologies, LLC since September 1995.
(3) Mr. Portner has been a Director of Company's Board of Director since
September 1998.
(4) Mr. Squeglia has been the Company's Director of Corporate Communications
since May 1996.
(5) Represents shares of Common Stock which will be received by the Selling
Stockholder upon exercise of outstanding warrants issued to the Selling
Stockholder on March 26, 1998, June 26, 1998 and September 30, 1998. The
warrants issued on March 26, 1998 entitle the Selling Stockholder to
purchase 40,750 shares at an exercise price of $3.81 per share, the
warrants issued on June 26, 1998 entitle the Selling Stockholder to
purchase 78,750 shares at an exercise price of $8.33 per share and the
warrants issued on September 30, 1998 entitle the Selling Stockholder to
purchase 73,500 shares at an exercise price of $8.10 per share. The Company
has entered into a general sale agreement with Comdisco, Inc., a
third-party leasing company, who in turn leases the equipment to the
Company's end-user customers.
16
<PAGE>
(6) Represents shares of Common Stock which will be received by the Selling
Stockholder upon exercise of outstanding warrants issued to the Selling
Stockholder on July 17, 1997 and December 22, 1997. The warrants issued on
July 17, 1997 entitle the Selling Stockholder to purchase 38,889 shares at
an exercise price of $6.43 per share. The warrants issued on December 22,
1997 entitle the Selling Stockholder to purchase 51,042 shares at an
exercise price of $6.86 per share. First Bermuda Securities Ltd. provided
service as an agent in connection with the issuance of convertible notes in
July and December 1997.
(7) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of an outstanding warrant issued to the Selling
Stockholder on May 29, 1998. The warrant entitles the Selling Stockholder
to purchase 105,000 shares at an exercise price of $2.86 per share. Mr.
Donald L. Hawley provided consulting services with respect to the sale of
subsidiaries.
(8) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of an outstanding warrant issued to the Selling
Stockholder on September 4, 1998, and shares of common stock issued to the
Selling Stockholder in a private transaction in May 1998. The warrant
entitles the Selling Stockholder to purchase 52,500 shares at an exercise
price of $3.99 per share. In May 1998, Systeam, S.p.A. invested $300,000 in
Coyote Network Systems and the Company issued 71,650 shares of the
Company's common stock to Systeam, S.p.A.. Mr. James J. Fiedler, chairman
and chief executive officer of Coyote Network Systems, Inc. is an advisor
to the board of directors of Systeam, S.p.A. Subsequently, the Company
invested $300,000 in equity and $450,000 in a convertible note that
Systeam, S.p.A. issued to the Company. If the convertible note was
exercised, the Company would own approximately a 9% equity investment in
Systeam, S.p.A. on a fully diluted basis.
(9) Represents shares of Common Stock issuable to JNC upon conversion in full
of the Preferred Stock as payment of dividends thereunder and exercise in
full of the JNC Warrant. Because the number of shares of Common Stock
issuable upon conversion of the Preferred Stock and as payment of dividends
thereon is dependent in part upon the market price of the Common Stock
prior to a conversion, the actual number of shares of common stock that
will be issued in respect of such conversions or dividend payments and,
consequently, offered for sale under this Registration Statement, cannot be
determined at this time. Accordingly, the Company has contractually agreed
to include herein 2,561,096 shares of Common Stock issuable upon conversion
of the Preferred Stock, payment of dividends thereunder and exercise of the
JNC Warrant. This number includes 200% of the number of shares which will
be received upon conversion of the Preferred Stock at the current $6.32
execise price in effect on December 3, 1998. However, if the share price
(as defined in the Certificate of Designation governing the Preferred
Stock) of the Company common stock is above $7.50 at the time of
conversions, the actual number of shares to be issued upon the eventual
conversion of all of the JNC Preferred Stock would not exceed 1,107,594.
(10) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of an outstanding warrant issued to the Selling
Stockholder on August 31, 1998. The warrant entitles the Selling
Stockholder to purchase 34,125 shares of Coyote's Common Stock at an
exercise price of $8.03 per share. The Selling Stockholder received the
warrant described above in consideration of financial consulting services
rendered in connection with the offering of the Preferred Stock.
17
<PAGE>
(11) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of an outstanding warrant issued to the Selling
Stockholder on August 31, 1998. The warrant entitles the Selling
Stockholder to purchase 17,063 shares of Coyote's Common Stock at an
exercise price of $8.03 per share. The Selling Stockholder received the
warrant described above in consideration of financial consulting services
rendered in connection with the offering of the Preferred Stock.
(12) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of an outstanding warrant issued to the Selling
Stockholder on August 31, 1998. The warrant entitles the Selling
Stockholder to purchase 17,063 shares of Coyote's Common Stock at an
exercise price of $8.03 per share. The Selling Stockholder received the
warrant described above in consideration of financial consulting services
rendered in connection with the offering of the Preferred Stock.
(13) Represents shares of Common Stock, which will be received by the Selling
Stockholder upon exercise of an outstanding warrant issued to the Selling
Stockholder on August 31, 1998. The warrant entitles the Selling
Stockholder to purchase 70,000 shares of Coyote's Common Stock at an
exercise price of $8.03 per share. The Selling Stockholder received the
warrant described above in consideration of financial consulting services
rendered in connection with the offering of the Preferred Stock.
(14) Represents shares of Common Stock issuable to Mr. Chandler upon conversion
of 350 Class A Units of Sattel Communications, LLC, an affiliate of the
Company, which were issued to Mr. Chandler on October 2, 1996.
(15) Represents shares of Common Stock issuable to Mr. Lilly upon conversion of
100 Class A Units of Sattel Communications, LLC, an affiliate of the
Company, which were issued to Mr. Lilly on October 2, 1996. Mr. Lilly was a
director of the Company from 1988 to September 1998 and was Executive Vice
President of the Company from April 1995 to November 1996.
</FN>
</TABLE>
18
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, donees, transferees and
successors-in-interest may, without limitation and from time to time, sell all
of a portion of the shares of Common Stock being registered hereunder (the
"Shares") on any stock exchange, market or trading facility on which the Shares
are traded, at market prices prevailing at the time of sale, fixed prices or at
negotiated prices. The Share may, without limitation, be sold by the Selling
Stockholders by one or more of the following methods:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer engaged by the Selling Stockholder
will attempt to sell the Shares as agent for the Selling Stockholder but
may position and resell a portion of the block as principal to facilitate
the transaction;
o purchases by a broker-dealer as principal and resale by such broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o in accordance with Rule 144 promulgated under the Securities Act of 1933,
as amended, rather than pursuant to this prospectus;
o a combination of any such methods of sale; or
o any other method permitted pursuant to applicable law.
From time to time the Selling Stockholder may engage in short sales, short
sales against box, puts and calls and other transactions in securities of the
Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. From time tot time
the Selling Stockholders may pledge their Shares pursuant to the margin
provisions of its customer agreements with its brokers. Upon a default by the
Selling Stockholders, the broker may, from time to time, offer and sell the
pledged Shares.
In effecting sales, brokers-dealers engaged by the Selling Stockholders may
arrange for other brokers-dealers to participate in such sales. Brokers-dealers
may receive commissions or discounts from the Selling Stockholders (or, if any
such broker-dealer acts as agent for the purchase of such Shares, from such
purchaser) in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the Selling Stockholders to sell a specified number of such Shares at a
stipulated price per share. Broker-dealers may agree with the Selling
Stockholders to sell a specified number of such Shares at a stipulated price per
share, and, to the extent such broker-dealer is unable to do so acting as agent
for a Selling Stockholder, to purchase as principal any unsold Shares at the
price required to fulfill the broker-dealer commitment to the Selling
19
<PAGE>
Stockholders. The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the Shares purchased by them may be
deemed to e underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedule incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended March 31, 1998, have
been audited by Arthur Andersen LLP, independent auditors, as set forth in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon such reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements as of March 31, 1997, and for each of
the two years in the period ended March 31, 1997, incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of Coyote Network
Systems, Inc. for the year ended March 31, 1998, have been so incorporated in
reliance on the report (which contains an explanatory paragraph relating to
certain uncertainies as described in Notes 6 and 14 to the financial statements)
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of such firm as experts in auditing and accounting.
LEGAL MATTERS
The legality of the Shares of Common Stock offered hereby will be passed
upon for the Company by Reinhart, Boerner, Van Deuren, Norris & Rieselbach,
P.C., One Norwest Center, 1700 Lincoln Street, Suite 3725, Denver, Colorado
80203. Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C. has served as
corporate counsel for the Company for the past several years and, as such, has
been compensated for its services.
20
<PAGE>
No person is authorized to give any
information or to make any representations 5,414,789 Shares
not contained in this Prospectus in
connection with the offer contained herein,
and, if given or made, such information or
representation must not be relied upon as
having been authorized by the Company.
This Prospectus does not constitute an COYOTE NETWORK SYSTEMS, INC.
offer to sell or the solicitation of an
offer to buy any security other than the COMMON STOCK
shares of Common Stock offered by this
Prospectus, nor does it constitute an
offer to sell or a solicitation of an
offer to buy shares of Common Stock in
any jurisdiction where such offer or
solicitation would be unlawful. Neither
the delivery of this Prospectus nor any
sales made hereunder shall, under any
circumstances, create any implication PROSPECTUS
that there has been no change in the ----------
affairs of the Company since the date hereof.
TABLE OF CONTENTS Page
Available Information................2
Incorporation of Certain
Documents by Reference..............2
The Company..........................4
Forward-Looking Statements...........4
Risk Factors.........................5
Use of Proceeds.....................14
Selling Stockholders................15 December ___, 1998
Plan of Distribution................19
Experts.............................20
Legal Matters.......................20
21
<PAGE>
II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses relating to the registration of the Shares of Common Stock
being offered hereby, other than underwriting discounts and commissions, will be
borne by the Company. Such expenses are estimated to be as follows:
Item Amount
---- ------
Securities and Exchange Commission
Registration Fee $25,558
Nasdaq Listing Fees 17,500
Legal Fees and Expenses 15,000
Accounting Fees and Expenses 10,000
Miscellaneous Expenses 5,000
-------
Total $73,058
=======
Item 15. Indemnification of Directors and Officers
Consistent with section 145 of the Delaware General Corporation Law
("Delaware Law"), Article IX of the Company's By-Laws provides that the Company
shall indemnify any person in connection with legal proceedings threatened or
brought against him by reason of his present or past status as an officer or
director of the Company or present or past status as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise if he is serving in such capacity at the request of the
Company, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person,
provided that the person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The Company shall also indemnify any such person in
connection with any action by or in the right of the Company provided the person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; except in such cases as involve
gross negligence or willful misconduct in the performance of his duties. In
addition, to the extent that any officer or director is successful in the
defense of any such legal proceeding, the Company is required to indemnify him
against expenses, including attorneys' fees, that are actually and reasonably
incurred by him in connection therewith. The By-Laws also contain a
nonexclusivity clause which provides in substance that the indemnification
rights under the By-Laws shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any agreement with the
Company, any By-Law, any vote of stockholders or disinterested directors of the
Company or otherwise.
22
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Consistent with section 102(b) of the Delaware Law, Article IX of the
Company's Restated Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for damages for
breach of fiduciary duties as a director, subject to certain limitations.
Article IX does not eliminate or limit the liability of a director for (a) any
breach of the director's duty of loyalty to the Company or its stockholders; (b)
any acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law; (c) any conduct that is the subject of section
174 of the Delaware Law; or (d) any transaction from which the director derived
an improper personal benefit.
The Company maintains D&O insurance for its directors and officers.
The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the foregoing liabilities and expenses.
Item 16. Exhibits
Exhibit
Number Description
- ------- -----------
4.1 Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of the Company's Form 10-Q for the
quarter ended September 30, 1998).
4.2 By-Laws of the Company (incorporated herein by reference to Exhibit 3.2
of the Company's Form 10-K for the year ended March 31, 1997).
5 Opinion of Counsel.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.3 Consent of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C.
(included in Exhibit 5).
24 Power of Attorney (incorporated by reference to the signature page of
this Registration Statement).
23
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Item 17. Undertakings
The undersigned Registrant undertakes as follows:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs 1(a) and (b) will not apply if the information required
to be included in a post effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to section 13 or 15(d) of the
Exchange Act and which are incorporated by reference in this Registration
Statement.
2. That, for the purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
24
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westlake Village, State of California, on the 3rd day
of December, 1998.
COYOTE NETWORK SYSTEMS, INC.
BY /s/ James J. Fiedler
James J. Fiedler,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant, in the capacities indicated below. Each person whose
signature appears below hereby appoints James J. Fiedler and Daniel W. Latham
and each of them individually, his true and lawful attorney-in-fact, with power
to act with or without the other and with full power of substitution and
resubstitution, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement and file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ James J. Fiedler Chairman of the Board and December 3, 1998
- ---------------------- Chief Executive Officer
James J. Fiedler
/s/ Daniel W. Latham President, Chief Operating Officer December 3, 1998
- ---------------------- and Director
Daniel W. Latham
/s/ Brian A. Robson Vice President and Controller December 3, 1998
- ----------------------
Brian A. Robson
/s/ Jack E. Donnelly Director December 3, 1998
- ----------------------
Jack E. Donnelly
/s/ Stephen W. Portner Director December 3, 1998
- ----------------------
Stephen W. Portner
25
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EXHIBIT INDEX
Exhibit Page
Number Description Number
5 Opinion of Counsel 27
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants 28
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants 29
23.3 Consent of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, 27
s.c. (included in Exhibit 5)
24 Power of Attorney (included on the signature page hereto) 25
26
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EXHIBIT 5
December 1, 1998
Coyote Network Systems, Inc.
4360 Park Terrace Drive
Westlake Village, CA 91361
Ladies and Gentlemen: Re: Registration Statement on Form S-3
(the "Registration Statement")
We have acted as counsel for Coyote Network Systems, Inc., a Delaware
corporation (the "Company"), in connection with the Company's registration of
5,414,789 shares (the "Shares") of its $1.00 par value common stock at the
request of the selling stockholders listed in the Registration Statement (the
"Selling Stockholders").
In such capacity we have examined, among other documents, the Restated
Certificate of Incorporation of the Company, a certificate of good standing
issued by the Secretary of State of the State of Delaware and the Registration
Statement on Form S-3 to be filed by the Company with the Securities and
Exchange Commission on or shortly after the date of this letter covering the
sale by the Selling Stockholders of the Shares. Based on the foregoing and such
additional investigation as we have deemed necessary, it is our opinion that:
1. The Company is a corporation existing in good standing under the
laws of the State of Delaware.
2. The shares issued upon valid conversion of the convertible
securities and upon valid exercise of the warrants and payment of the required
exercise price (all as set forth in the Registration Statement) will be legally
issued, fully-paid and nonassessable.
We consent to the filing of a copy of this opinion as an exhibit to the
Registration Statement on Form S-3.
REINHART, BOERNER, VAN DEUREN,
NORRIS & RIESELBACH, P.C.
BY /s/ Timothy G. Atkinson
--------------------------
Timothy G. Atkinson
27
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EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration of our report dated July 13, 1998, included in
the Coyote Network Systems, Inc. Form 10-K for the year ended March 31,1998, and
to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
November 30, 1998
28
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EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
September 22, 1997, which appears in Coyote Network Systems, Inc.'s Annual
Report on Form 10-K for the year ended March 31, 1998. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
November 30, 1998
29
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