COYOTE NETWORK SYSTEMS INC
8-K, 1999-11-12
TELEPHONE & TELEGRAPH APPARATUS
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 8-K


                                 CURRENT REPORT

                       Pursuant to Section 13 or 15(d) of
                     the Securities and Exchange Act of 1934


                Date of Report (Date of Earliest Event Reported):
                                October 27, 1999



                          COYOTE NETWORK SYSTEMS, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


           Delaware                    1-5486                  36-2448698
- ----------------------------   ------------------------   -------------------
(State or other jurisdiction   (Commission File Number)      (IRS Employer
       of incorporation)                                   Identification No.)



               4360 Park Terrace Drive Westlake Village, CA 91361
               --------------------------------------------------
                     Address of principal executive offices


                                (818) 735-7600
                         -----------------------------
                         Registrant's Telephone Number,
                               Including area code




================================================================================
<PAGE>

Item 2.  Acquisition or Disposition of Assets.

     On October 27, 1999, pursuant to a Purchase Agreement (the "Agreement")
dated September 30, 1999, among Coyote Network Systems, Inc. (the "Company"),
American Gateway Telecommunications, Inc. ("AGTI"), Coyote Gateway, LLC (d/b/a
American Gateway Telecommunications, "AGT"), PrinVest Corp. ("PVC"), PrinVest
Financial Corp. ("PFC"; together with PVC, "PrinVest") and Arnold A. Salinas
("Salinas"), the Company sold its approximately 80% membership interest in AGT
to AGT's remaining member, AGTI, which previously held an approximately 20%
membership interest in AGT (the "Sale"). AGT sells wholesale international long
distance services and has operated at a loss since its formation in March 1998.
Apart from their former joint membership of AGT, there is no material
relationship between the Company, its affiliates, officers, directors or any
associates of the Company's officers and directors and AGTI. The effective date
of the Sale is September 30, 1999.

     In consideration for the Sale, the Company will receive, for the next
18 months, a monthly margin participation payment from AGT equal to $0.0025 per
minute of telecommunications traffic switched or routed by AGT through AGT's
telecommunications network. Pursuant to the terms of the Agreement, AGT will
remain directly liable for its $10.2 million credit facility (the "Credit
Facility") with PrinVest, whose affiliate owns 53.75 % of AGTI. The Company will
be relieved of its obligations under its pledge agreement with PrinVest which
secured the Credit Facility and, in connection therewith, PrinVest will return
to the Company the 708,692 treasury shares of the Company's common stock which
had been pledged by the Company as collateral for the Credit Facility. In
addition, as a result of the Sale, the Company will no longer be required to
reflect the Credit Facility on its consolidated financial statements and,
accordingly, the Company will recognize a gain of $6,209,000 from the Sale. The
Company will not receive any immediate cash payments as a result of the Sale.

     In addition, for the next 18 months, the Company shall be the exclusive
supplier of telecommunications switches to AGT; AGT shall receive a fifty
percent purchase discount on all Company-manufactured switches it purchases from
the Company during this time period. Coyote Communications Services, LLC, an
affiliate of the Company, shall continue to provide maintenance and technical
support services to AGT on a month-to-month renewable basis, pursuant to the
parties' existing maintenance and servicing agreement.
The parties negotiated the terms of the Agreement at arms-length.

     The Company will continue to pursue business opportunities in the
wholesale international long distance market through its wholly-owned
subsidiary, INET Interactive Network System, Inc.


Item 7.   Financial Statements and Exhibits.

          (a) Financial Statements of Businesses Acquired: Not applicable.

          (b) Pro Forma Financial Information: The Company's pro forma
              financial information will be filed by amendment to this report
              within 60 days.

          (c) Exhibits

              2  Purchase  Agreement,  dated  September  30, 1999,  among the
                 Company, AGTI, AGT, PVC, PFC and Salinas.

<PAGE>
                                   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 hereunto duly authorized.


Dated:    November 12, 1999           COYOTE NETWORK SYSTEMS, INC.


                                      By:  /s/ Brian A. Robson
                                           ------------------------------
                                           Brian A. Robson
                                           Executive Vice President,
                                           Chief Financial Officer and Secretary



                               PURCHASE AGREEMENT

This  Agreement,  effective  September  30, 1999,  is entered into among each of
COYOTE NETWORK  SYSTEMS,  INC., a Delaware  corporation  (herein  referred to as
"COYOTE   SYSTEMS"),   AMERICAN  GATEWAY   TELECOMMUNICATIONS,   INC.,  a  Texas
corporation  (herein  referred to as "AGTI"),  COYOTE  GATEWAY,  LLC, a Colorado
limited    liability    company,    doing   business   as   "AMERICAN    GATEWAY
TELECOMMUNICATIONS"  (herein referred to as "AGT"), PRINVEST CORP., a New Jersey
corporation  (herein  referred to as "PVC" in the context of a single  corporate
entity,  or  collectively  as  "PRINVEST"  when  viewed  collectively  with  its
affiliated subsidiary corporation, PRINVEST FINANCIAL CORP.), PRINVEST FINANCIAL
CORP., a New Jersey corporation (herein referred to as "PFC" in the context of a
single corporate entity, or collectively as "PRINVEST" when viewed  collectively
with its  parent  corporation,  PRINVEST  CORP.),  and  ARNOLD  A.  SALINAS,  an
individual (herein referred to as "SALINAS").

                                   BACKGROUND

     A.   WHEREAS,  this Agreement  pertains to the purchase and  acquisition by
          AGTI of the outstanding  Membership  Interest of COYOTE  GATEWAY,  LLC
          ("AGT"),  presently  owned by COYOTE  SYSTEMS,  and comprising  Eighty
          Percent (80%) of the voting units, and a roughly equivalent percentage
          of the economic interests, all as more completely set forth in the AGT
          Operating Agreement, a copy of which is attached as Exhibit "A" and is
          incorporated  by  reference.   This  Agreement  also  sets  forth  the
          respective performances,  mutual promises, covenants,  representations
          and other  actions to be taken by each of the parties  hereto,  all of
          which  constitutes the aggregate  consideration to be exchanged by the
          respective  parties  hereto to effect the  transfer  of the  aforesaid
          Eighty Percent (80%) Membership Interest of AGT from COYOTE SYSTEMS to
          AGTI, and which aforesaid  transfer of the Membership  Interest in AGT
          shall cause AGTI to become the ONE HUNDRED  PERCENT  (100%)  owner and
          sole Member of AGT,  thereby making AGT a  wholly-owned  subsidiary of
          AGTI.

     B.   WHEREAS,  COYOTE GATEWAY, LLC conducts a  telecommunications  business
          under the d/b/a "AMERICAN GATEWAY TELECOMMUNICATIONS" or "AGT".

     C.   WHEREAS,  COYOTE SYSTEMS presently owns the Membership Interest in AGT
          which is the subject of this acquisition transaction.

     D.   WHEREAS,  AMERICAN  GATEWAY  TELECOMMUNICATIONS,  INC.  ("AGTI")  is a
          holding company, and AGTI is presently a Member of AGT under the terms
          of Exhibit "A" hereto.


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<PAGE>

     E.   WHEREAS, PRINVEST is in the business of providing commercial financing
          and lending services to business borrowers.

     F.   WHEREAS, PRINVEST has previously established for the benefit of AGT, a
          certain  credit  facility,  whereby AGT has received to date advances,
          including   accrued   interest  and  fees,  from  PRINVEST  an  amount
          aggregating  to NINE MILLION  EIGHT HUNDRED  SIXTY-EIGHT  THOUSAND TWO
          HUNDRED TWENTY-SEVEN  DOLLARS AND TWENTY-ONE CENTS  ($9,868,227.21) in
          U.S.  currency  (herein  referred  to as the  "Credit  Facility"),  as
          evidenced by a certain  Financing and Security  Agreement,  dated June
          30,  1999,  as entered  into  between  AGT and PFC, as well as certain
          Promissory Notes executed by AGT regarding such advances.

     G.   In connection  with the Credit  Facility and the advances  provided by
          PRINVEST to AGT,  and as further  collateral  to secure the  repayment
          obligations  owed  by AGT  to  PRINVEST,  COYOTE  SYSTEMS  pledged  to
          PRINVEST  Seven Hundred Eight Thousand Six Hundred  Ninety-Two  shares
          (708,692) of common  stock in COYOTE  SYSTEMS  under a certain  Pledge
          Agreement  (herein  referred to as the  "Pledged  Collateral"),  which
          Pledged Collateral  PRINVEST presently holds as collateral with regard
          to the ongoing obligations of AGT as owed to PRINVEST.

     H.   WHEREAS,  PVC is a Fifty-Three  and Three  Quarters  Percent  (53.75%)
          shareholder of AGTI.

     I.   WHEREAS,  SALINAS is a  Forty-Six  and One  Quarter  Percent  (46.25%)
          shareholder of AGTI. SALINAS is also an officer and employee of AGT.

                     BINDING AGREEMENT OF THE PARTIES HERETO

For good and valuable  consideration,  the receipt and  sufficiency  of which is
hereby  acknowledged,  including  the mutual  promises and  covenants  exchanged
herein,  as well as the  promised  performances  as also set forth  herein,  and
intending  to be  legally  bound  hereby,  all of the  parties  hereto  agree as
follows:

     1.   TRANSFER BY COYOTE SYSTEMS OF ITS ENTIRE MEMBERSHIP INTEREST IN AGT TO
          AGTI.

          As a  result  of its  execution  of  this  Agreement,  COYOTE  SYSTEMS
          transfers  and endorses to the order of AGTI,  all of COYOTE  SYSTEMS'
          Membership  Interest  in  AGT.  By  virtue  of its  execution  of this
          Agreement,  AGTI,  as the recipient of the transfer and as a Member of
          AGT, hereby consents to the transfer.



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<PAGE>

     2.   COYOTE SYSTEMS' REPRESENTATION AND WARRANTIES

          COYOTE  SYSTEMS  hereby  represents  and warrants that the  Membership
          Interest is free and clear of any liens, encumbrances, or pledges, and
          that the transfer of said interest is not in material violation of any
          contract of COYOTE  SYSTEMS,  and has been duly  authorized  by COYOTE
          SYSTEMS'  Board of Directors,  and is being  executed by an officer of
          COYOTE  SYSTEMS.  COYOTE SYSTEMS makes no further  representations  or
          warranties whatsoever regarding AGT.


     3.   SURETYSHIP  AGREEMENT TO BE EXECUTED BY AGTI REGARDING THE OBLIGATIONS
          OWED BY AGT TO PRINVEST UNDER THE CREDIT FACILITY.

          Contemporaneously  with the  execution of this  Agreement,  AGTI shall
          execute a Suretyship  Agreement with PRINVEST in such form as required
          by PRINVEST or its legal counsel,  and AGTI (as a surety for AGT) thus
          becomes  directly  liable  to  PRINVEST  for  all of  the  outstanding
          repayment  obligations  of AGT  owed  to  PRINVEST  under  the  Credit
          Facility,  which amount of  indebtedness  aggregates  in the amount of
          NINE  MILLION   EIGHT   HUNDRED   SIXTY-EIGHT   THOUSAND  TWO  HUNDRED
          TWENTY-SEVEN  DOLLARS AND TWENTY-ONE CENTS  ($9,868,227.21)  as of the
          date  hereof.  AGTI shall not be  required to make any  separate  cash
          payment,  or  other  down  payment,  to  any  other  party  hereto  in
          connection with transactions described in this Agreement.

     4.   RETURN OF ALL OF THE PLEDGED COLLATERAL BY PRINVEST TO COYOTE SYSTEMS.

          Contemporaneously with the execution of this Agreement, PRINVEST shall
          return and  deliver to COYOTE  SYSTEMS  the  Pledge  Agreement  marked
          cancelled,  and all of the Pledged Collateral,  specifically the Seven
          Hundred Eight Thousand Six Hundred  Ninety-Two shares (i.e.,  708,692)
          of common stock of COYOTE SYSTEMS,  which Pledged  Collateral had been
          previously  pledged by COYOTE  SYSTEMS to PRINVEST under the aforesaid
          Pledge  Agreement  as  further  collateral  to  secure  the  repayment
          obligations of AGT to PRINVEST under the Credit  Facility.  As soon as
          practicable  after the  execution  of this  Agreement,  PRINVEST  will
          prepare and deliver to COYOTE SYSTEMS such UCC Termination  Statements
          (i.e.,  UCC-3  forms) as is necessary  for COYOTE  SYSTEMS to file the
          same  with all such  applicable  governmental  recording  authorities,
          which UCC-3 forms shall  terminate and extinguish any and all security
          interests  as  was  previously   granted  to  PRINVEST  regarding  the


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<PAGE>
          aforesaid  Pledged  Collateral,  and as may have been evidenced by any
          and all UCC-1 Financing Statements,  if any, as may have been filed by
          PRINVEST regarding said Pledged Collateral.

     5.   COYOTE  SYSTEMS TO  RECEIVE  FROM AGT A MONTHLY  MARGIN  PARTICIPATION
          PAYMENT OF $0.0025 PER MINUTE FOR NETWORK TRAFFIC GENERATED OVER AGT'S
          SWITCHES FOR THE 18 MONTH PERIOD:  OCTOBER 1ST, 1999 THROUGH MARCH 31,
          2001.

          (a)  Margin  Participation  Payment  payable to COYOTE SYSTEMS by AGT.
               Regarding all operational  network traffic as may be generated by
               AGT, or such other network  traffic as may have  originated  from
               sources other than AGT, but is nevertheless switched or otherwise
               routed   by  AGT   through   AGT's   telecommunications   network
               (collectively  referred  to as the "AGT  Traffic"),  and only for
               such  limited  eighteen  (18) month  period from  October 1, 1999
               through  March 31, 2001 (which  aforesaid  eighteen  month period
               shall not otherwise be tolled, suspended or extended beyond March
               31, 2001),  COYOTE  SYSTEMS shall be entitled to receive from AGT
               payable on a monthly basis, a margin participation  payment equal
               to $0.0025 per minute (i.e.,  one quarter [1/4] of one U.S. penny
               per  minute)  on all such AGT  Traffic,  which  shall  herein  be
               referred to as the "Margin Participation Payment".

          (b)  Timing of Payment to COYOTE  SYSTEMS of the Margin  Participation
               Payment.  AGT shall pay and deliver to COYOTE  SYSTEMS the Margin
               Participation  Payment on a monthly  basis for each said calendar
               month  commencing  on October 1, 1999 and  expiring  on March 31,
               2001 within ten (10)  business days of each  succeeding  calendar
               month  following  the close of the preceding  calendar  month for
               which said Margin  Participation  Payment is payable  (i.e.,  the
               first  Margin  Participation  Payment  payable  by AGT to  COYOTE
               SYSTEM  for the month of  October,  1999  shall be paid not later
               than November 12, 1999.)

          (c)  Verification of Margin Participation  Payment. In order to verify
               and confirm  the  accuracy  of the Margin  Participation  Payment
               payable  to COYOTE  SYSTEMS by AGT,  AGT shall  deliver to COYOTE
               SYSTEMS on a weekly  basis copies of "Call  Detail  Reports",  or
               such other similar  records,  if any,  which reports shall detail
               monthly AGT Traffic.  COYOTE SYSTEMS may, at its own expense, and


                                       4
<PAGE>

               no more than quarterly, request an audit of the AGT Traffic, with
               which AGT agrees to cooperate  fully. In the event that the audit
               reveals an  underpayment,  AGT agrees to pay COYOTE  SYSTEMS  the
               amount of the underpayment,  plus interest  calculated at 18% per
               annum plus the cost of the audit.

     6.   MUTUAL LIMITED RELEASES AGAINST EACH OF THE PARTIES HERETO.

          In consideration of the mutual agreements,  promises, performances and
          covenants  contained  herein,  the receipt and sufficiency of which is
          hereby  acknowledged,  each of COYOTE  SYSTEMS,  AGT, AGTI,  PRINVEST,
          SALINAS  and  their   respective   employees,   officers,   directors,
          shareholders,    affiliates,    agents,   assigns,    representatives,
          attorneys-in-fact,  accountants,  legal  counsel,  designees and other
          appointees,  do hereby  release and forever  discharge  each and their
          respective employees, officers, directors,  shareholders,  affiliates,
          agents,  assigns,  representatives,   attorneys-in-fact,  accountants,
          legal counsel, designees and other appointees, from any and all claims
          of  negligence  in the  performance  of  their  respective  duties  in
          connection  with AGT  and/or  the Credit  Facility,  whether  known or
          unknown,  from the  beginning  of time  until the date  hereof of this
          Agreement.

     7.   COYOTE  COMMUNICATION  SERVICES TO PROVIDE  MAINTENANCE  AND TECHNICAL
          SUPPORT SERVICES TO AGT ON A MONTH-TO-MONTH  RENEWABLE BASIS UNDER THE
          PARTIES' EXISTING MAINTENANCE AND SERVICING AGREEMENT.

               (a)  In accordance  with the terms and conditions  other than the
                    18-month original  duration,  including such performance and
                    quality  assurance  standards  as set forth in the  existing
                    Maintenance     and     Servicing      Agreement,      dated
                    ___________________,  1999  entered  into  between  AGT  and
                    COYOTE COMMUNICATION SERVICES,  INC., an affiliate of COYOTE
                    SYSTEMS,  COYOTE  COMMUNICATION  SERVICES  shall continue to
                    provide AGT with maintenance and technical  support services
                    on a month-to-month (i.e., 30-day) renewable basis.

               (b)  As  soon  as   practicable   after  the  execution  of  this
                    Agreement,  each of AGTI,  AGT, COYOTE SYSTEMS and/or COYOTE
                    COMMUNICATION  SERVICES shall  identify and designate  their
                    respective  personnel,  employees,  representatives or other


                                       5
<PAGE>

                    designees, which persons shall interface,  jointly work with
                    and/or communicate with each other on a frequent and regular
                    basis  in  order  to  fully  perform  and  discharge   their
                    respective   duties,   rights  and  obligations   under  the
                    aforesaid Maintenance and Servicing Agreement.

     8.   COYOTE SYSTEMS TO BE THE EXCLUSIVE  SWITCHING  SUPPLIER TO AGT FOR THE
          18 MONTH PERIOD, OCTOBER 7, 1999 THROUGH APRIL 6, 2001; AGT TO RECEIVE
          A 50% PURCHASE DISCOUNT FROM COYOTE SYSTEMS DURING SAID PERIOD.

               (a)  For the eighteen (18) month period  commencing on October 7,
                    1999 and expiring on April 6, 2001,  AGT hereby  agrees that
                    it shall  purchase  from COYOTE  SYSTEMS to the exclusion of
                    any other  switch  supplier,  additional  switches,  if any,
                    deployed by AGT.  However,  if COYOTE  SYSTEMS cannot timely
                    deliver  and make  operational  such  additional  switch  as
                    needed  by AGT  within  30  days of  such  request,  AGT may
                    purchase such needed  switch from any other switch  supplier
                    without any monetary obligation owing to COYOTE SYSTEMS.

               (b)  In exchange for such exclusive  relationship  and during the
                    aforesaid  eighteen (18) month period  commencing on October
                    7, 1999 and expiring on April 6, 2001,  AGT shall  receive a
                    Fifty Percent (50%)  purchase  discount from COYOTE  SYSTEMS
                    (i.e.,  which 50%  purchase  discount  shall be  applied  to
                    COYOTE  SYSTEMS'  full  retail list price  policies)  on all
                    switches as may purchased by AGT from COYOTE  SYSTEMS.  This
                    discount  shall not apply to any OEM equipment  distributed,
                    but not manufactured by COYOTE SYSTEMS.

     9.   NO PUBLIC  STATEMENTS OR OTHER PRESS RELEASES,  IF ANY, MADE BY COYOTE
          SYSTEMS  REGARDING  THIS  TRANSACTION  SHALL  MAKE  ANY  REFERENCE  TO
          PRINVEST NAME.

          COYOTE  SYSTEMS  shall  neither make any public  statement,  nor shall
          COYOTE  SYSTEMS  release  into the public  domain  any press  release,
          mentioning the name of PRINVEST and, concerning any portion or part of
          this transaction described herein in this Agreement unless required by
          law,  statute,  regulation,  ordinance,  order of  court of  competent
          jurisdiction  or  other  rule of any  governmental  or  administrative
          agency.

                                       6
<PAGE>

     10.  GOVERNING LAW AND WAIVER OF JURY TRIAL.

          This  Agreement  shall be  governed  by the  laws of the  State of New
          Jersey,  and shall be interpreted  and enforced in accordance with New
          Jersey law without  regard to  principles of conflicts of laws. In the
          event that any matter of dispute under this Agreement may subsequently
          arise  between  the  parties  hereto,  which  dispute  may  proceed to
          litigation,  all parties to this Agreement hereby waive and relinquish
          all rights to have such dispute adjudicated by a jury trial.

     11.  COUNTERPART SIGNATURES.

          This  Agreement  may be  executed in several  counterparts,  and as so
          executed shall constitute one single Agreement,  binding on all of the
          parties hereto,  notwithstanding that all parties are not signatory to
          the original or the same counterpart.

     12.  SEVERABILITY.

          If any portion of this  agreement  is  declared  by a court  competent
          jurisdiction to be void or unenforceable, such portion shall be deemed
          severed from the  Agreement,  and the balance of the  Agreement  shall
          remain in effect.



COYOTE NETWORK SYSTEMS, INC.            PRINVEST CORP
By:     /s/ Daniel W. Latham            By:     /s/ Rudolf A. Tervooren
        --------------------------              --------------------------
Title:  President                       Title:  President
        --------------------------              --------------------------

AMERICAN GATEWAY                        PRINVEST FINANCIAL CORP
TELECOMMUNICATIONS, INC.
By:     /s/ Arnold A. Salinas           By:     /s/ Rudolf A. Tervooren
        --------------------------              --------------------------
Title:  President and CEO               Title:  President
        --------------------------              --------------------------

COYOTE GATEWAY, LLC d/b/a AMERICAN      ARNOLD A. SALINAS
GATEWAY TELECOMMUNICATIONS
By:     /s/ Daniel W. Latham            /s/ Arnold A. Salinas
        --------------------------      ----------------------------------
Title:  Manager                         Arnold A. Salinas
        --------------------------


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