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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):
January 31, 2000
COYOTE NETWORK SYSTEMS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 1-5486 36-2448698
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4360 Park Terrace Drive Westlake Village, CA 91361
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Address of principal executive offices
(818) 735-7600
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Registrant's Telephone Number,
Including area code
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Item 5. Other Events
On January 31, 2000, Coyote Network Systems, Inc. (the "Company") sold, for
$5 million, and on February 4, 2000, for $10 million, pursuant to Rule 506 under
Regulation D, an aggregate of 3,157,895 shares of the Company's 6% Series B
Preferred Stock (the "Series B Preferred Stock") at $4.75 per share upon the
initial and final closings, respectively, of a private placement with accredited
investors (the "Offering"). Sunrise Securities Corp., the placement agent
("Sunrise"), received a commission equal to 7.0% of the gross proceeds of the
sale of the Series B Preferred Stock, consisting of $718,500 cash and 75,000
shares of the Company's Common Stock, par value $1.00 per share (the "Common
Stock"), plus reimbursement for expenses. A copy of the press release is
attached hereto as Exhibit 99 and is hereby incorporated by reference herein.
The Company has agreed to use its best efforts to file a registration
statement within 120 business days after the final closing of the Offering and
to cause such registration statement to become effective as soon as possible
after it is filed.
Pursuant to the Company's Certificate of Designations, Preferences, and
Rights of Series B Preferred Stock, filed January 31, 2000 (the "Certificate of
Designations") and attached hereto as Exhibit 4.2, the preferences and rights of
the shares of Series B Preferred Stock are summarized as follows (all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Certificate of Designations):
1. The holders of Series B Preferred Stock (the "Holders") shall receive cash
dividends when and as declared by the Company's Board of Directors;
2. Dividends on each share of Series B Preferred Stock shall accrue on a daily
basis at the rate of 6% per annum of the sum of the Face Amount thereof,
plus all accumulated and unpaid dividends thereon, commencing on the 90th
day after the Original Issuance Date of the Series B Preferred Stock;
3. In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the Holders shall be entitled to receive the
assets of the Company prior and in preference to any distribution of the
assets to the holders of any Junior Stock, but after the holders of the
Company's Series A Preferred Stock have been paid in full and pari passu to
the holder of any Liquidation Parity Stock.
4. The Preferred Stock is non-voting except as otherwise provided by law and
except that, without the affirmative approval of a majority of the Holders,
the Company may not (i) alter the powers, preferences, rights,
qualifications, limitations or restrictions of any class or series of
capital stock of the Company if such alteration would adversely affect the
rights of the Holders, except with regard to the creation and issuance of
another series of Preferred Stock, or (ii) authorize, designate, create,
issue or agree to issue any additional shares of Series B Preferred Stock;
5. At their option, and at any time, the Holders may convert any shares of
Series B Preferred Stock into shares of the Company's Common Stock at a
conversion price of $4.75 per share, subject to adjustment, in the manner
provided in the Certificate of Designations; and
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6. At any time after the Trading Price of the Common Stock equals or exceeds
$10 for 20 consecutive trading days, the Company may, at its option, redeem
all or any portion of the shares of Series B Preferred Stock then
outstanding at $4.75 per share, plus any declared and unpaid dividends.
Dividends shall cease to accrue on the shares of Series B Preferred Stock
once such shares have been redeemed. If the Company exercises its option to
redeem shares of Series B Preferred Stock, the rights of the Holders to
convert such shares will terminate at the close of business on the business
day preceding the Redemption Date.
The foregoing summary of the preferences and rights of the Series B
Preferred Stock is qualified in its entirety by reference to a copy of the
Certificate of Designations filed as Exhibit 4.2 hereto and incorporated by
reference herein.
Item 7. Financial Statements and Exhibits
(c) Exhibits
(4.1) Form of Subscription Agreement (as supplemented)
(4.2) Certificate of Designations, Preferences and Rights
of Series B Preferred Stock, filed January 31, 2000.
(99) Press Release issued by Coyote Network Systems, Inc.
on January 31, 2000.
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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: February 14, 2000 COYOTE NETWORK SYSTEMS, INC.
By: /s/ Brian A. Robson
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Brian A. Robson
Executive Vice President,
Chief Financial Officer
and Secretary
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Index to Exhibits
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Exhibit No. Description
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(4.1) Form of Subscription Agreement (as supplemented)
(4.2) Certificate of Designations, Preferences and Rights of
Series B Preferred Stock, filed January 31, 2000.
(99) Press Release issued by Coyote Network Systems, Inc.
on January 31, 2000.
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Coyote Network Systems, Inc.
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SUBSCRIPTION AGREEMENT
Coyote Network Systems, Inc.
4360 Park Terrace Drive
Westlake Village, California 91361
Attn: James J. Fiedler, Chairman and CEO
Ladies and Gentlemen:
1. Subscription. The undersigned is hereby purchasing from Coyote Network
Systems, Inc., a Delaware corporation (the "Company"), ___________ shares
of preferred stock (the "Shares") convertible into shares of the Company's
common stock, par value $1.00 per share (the "Common Stock"), at a
conversion price of $4.75 per share. The aggregate purchase price for such
Shares is $ ________ (the "Purchase Price"). This Subscription is being
made in connection with the Company's private placement of the Shares
solely to "Accredited Investors" as that term is defined in Section 501(a)
of Regulation D under the Securities Act of 1933 (the "Act")(the
"Offering"). The terms of the Offering are more specifically described on
Annex A hereto.
2. Closing. On the date hereof (the "Closing"), payment of the Purchase Price
is being made by electronic wire transfer in accordance with the following
instructions:
Bank Name:
ABA #:
Credit:
Account #:
Further Credit:
Account #:
Attention:
or by delivery of a bank check or certified check made payable to "Coyote
Network Systems, Inc. Escrow Account," in either case against delivery to the
undersigned of a certificate representing the Shares. All checks should be
delivered, together with an executed copy of this Subscription Agreement, to
Sunrise Securities Corp., the Placement Agent for this Offering as follows:
Sunrise Securities Corp.
135 East 57th Street
11th floor
New York, New York
Attention: Preston Tsao, Head of Corporate Finance
<PAGE>
3. Representations and Warranties of the Company. To induce the undersigned to
enter into this Agreement and to purchase the Shares, the Company hereby
represents and warrants to the undersigned the following:
(1) Organization Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority
to own or lease its properties and to carry on its business as it is
now being conducted. The Company has the requisite corporate power and
authority to issue the Shares and, upon conversion the underlying
Common Stock (the "Underlying Shares") and to perform its obligations
under this Subscription Agreement.
(2) Valid Issuance. The Shares, when issued and delivered pursuant to
terms of this Subscription Agreement, will be duly authorized, validly
issued and enforceable in accordance with their respective terms and
the terms of this Subscription Agreement and the Underlying Shares,
will upon conversion of the Shares in accordance with their terms, be
duly authorized, validly issued, fully paid and non-assessable.
(3) Corporate Acts and Proceedings. This Subscription Agreement and the
Offering have been duly authorized by all necessary corporate action
on behalf the Company. This Subscription Agreement has been duly
executed and delivered by authorized officers of the Company, is a
valid and binding agreement on the part of the Company and is
enforceable against the Company in accordance with its terms. All
corporate actions necessary to the authorization, creation, issuance
and delivery of the Shares and the conducting of the Offering have
been taken by the Company.
(4) Compliance with Applicable Laws and Other Instruments. Neither the
execution or delivery of, nor the performance of or compliance with
this Subscription Agreement, the issuance of the Shares nor the
consummation of the transactions contemplated hereby and thereby will,
with or without the giving of notice or passage of time, result in any
material breach of, or constitute a material default under, or result
in the imposition of any material lien or encumbrance upon any asset
or property of the Company pursuant to any material agreement or other
instrument to which the Company is a party or by which it or any of
its properties, assets or rights is bound or affected, and will not
violate the Company's Certificate of Incorporation or Bylaws.
(5) Securities Laws. Based in part upon the representations of the
undersigned in Section 5 hereof, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory
authority is required under current laws and regulations in connection
with the execution and delivery of this Agreement or the offer,
issuance, sale or delivery of the Shares, other than (i) the filing of
a Form D pursuant to Regulation D under the Securities Act of 1933, as
amended (the "Act"); (ii) the filing, if required, of any notice with
any state whose laws require such filing; and (iii) the qualification
thereof, if required, under other applicable state laws, which
qualification has been or will be effected as a condition of the
Offering. Under the circumstances contemplated by this Subscription
Agreement, the offer, issuance, sale and delivery of the Shares will
not, under current laws and regulations, require compliance with the
prospectus delivery or registration requirements in the Act.
<PAGE>
(6) Capital Stock. The authorized capital stock of the Company consists of
30,000,000 shares of common stock, par value $1.00 per share (the
"Common Stock") of which 14,919,311 shares are issued and outstanding
as of January 26, 2000, and 5,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock"). There are 434 shares of
Series A Convertible Preferred Stock outstanding. Other than the
Series A Preferred Stock, there are no other shares of Preferred Stock
outstanding. As of January 26, 2000, the Company has reserved for
issuance 8,452,607 shares of Common Stock underlying the Series A
Preferred Stock, options (including options available for grant under
existing stock option plans), warrants and A and B Units of Coyote
Technologies, LLC, and has also reserved 2,250,000 shares for issuance
in connection with the contemplated settlement of certain class action
litigation and 1,250,000 shares for issuance to a consultant pursuant
to a consulting agreement. The issued and outstanding shares of
capital stock of the Company are duly authorized, validly issued,
fully paid and non-assessable. Except as described above and in the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1999 (as amended by Amendments No. 1 and 2, the "Form 10-K"), the
Quarterly Reports on Form 10-Q for the quarters ended June 30, 1999
and September 30, 1999, the Current Reports on Form 8-K dated as of
October 27, 1999 and November 18, 1999, and the Amendment to Current
Report on Form 8-K dated as of October 27, 1999 (collectively, the
"SEC Filings"), in each case as filed with the Securities and Exchange
Commission (the "Commission"), there are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or
nature whatever, other than in connection with the Offering, pursuant
to which the Company is obligated to issue any securities of any kind
representing an ownership interest in the Company. Neither the offer
nor the issuance or sale of the Shares constitutes an event under any
anti-dilution provisions of any securities issued (or issuable
pursuant to outstanding rights, warrants or options) by the Company or
any agreements with respect to the issuance of securities by the
Company, which will either increase the number of securities issuable
pursuant to such provisions or decrease the consideration per share to
be received by the Company pursuant to such provisions. No holder of
any securities of the Company is entitled to any preemptive or similar
rights to purchase any securities of the Company in connection with
the Offering.
(7) SEC Filings. The Company has furnished, or made available to the
undersigned through the EDGAR Internet web site of the Commission, to
the undersigned, true and complete copies of the SEC Filings and its
Registration Statement on Form S-3, Registration No. 333-68333 (the
"Form S-3"), including the risk factors ("Risk Factors") contained in
such Form S-3. As of their respective filing dates, the SEC Filings
complied in all material respects with the applicable requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder. None of the SEC
Filings, as of their respective dates, and taken as a whole with the
Risk Factors, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE>
4. Transfer Restrictions.
(1) The undersigned realizes that the Shares and the Underlying Shares are
not registered under the Act or any foreign or state securities laws.
The undersigned agrees that the Shares and the Underlying Shares will
not be sold, offered for sale, pledged, hypothecated or otherwise
transferred (collectively, "Transfer"), except in compliance with the
Act and applicable foreign and state securities laws. The undersigned
understands that the undersigned can only Transfer the Shares and the
Underlying Shares pursuant to registration under the Act or pursuant
to an exemption therefrom. The undersigned understands that to
Transfer the Shares and the Underlying Shares may require in certain
jurisdictions specific approval by the appropriate governmental agency
or commission in such jurisdiction. The undersigned has been advised
that, except as set forth in Section 6 hereof, the Company has no
obligation, and does not intend to cause the Shares and the Underlying
Shares to be registered under the Act or the securities laws of any
other jurisdiction or to comply with the requirements for any
exemption under the Act, including but not limited to, those provided
by Rule 144 and Rule 144A promulgated under the Act, or under the
securities laws of any other jurisdiction.
(2) To enable the Company to enforce the Transfer restrictions contained
in Section 4(a), hereof, the undersigned hereby consents to the
placing of legends upon the certificates representing the Shares and
the Underlying Shares, and the placing of stop transfer orders with
the transfer agent of the Common Stock with respect to the Shares and
the Underlying Shares.
5. Representations and Warranties of the Undersigned. To induce the Company to
accept the undersigned's subscription, the undersigned hereby represents
and warrants to the Company that:
(1) the undersigned, if an individual, has reached the age of majority in
the jurisdiction in which the undersigned resides, is a bona fide
resident of the jurisdiction contained in the address set forth on the
signature page of this Subscription Agreement, is legally competent to
execute this Subscription Agreement, and does not intend to change
residence to another jurisdiction;
(2) the undersigned, if an entity, is duly authorized to execute this
Subscription Agreement and this Subscription Agreement, when executed
and delivered by the undersigned, will constitute a legal, valid and
binding obligation enforceable against the undersigned in accordance
with its terms and that the execution, delivery and performance of
this Subscription Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite
corporate or other necessary action on the part of the undersigned;
(3) the Shares subscribed for hereby are being acquired by the undersigned
for investment purposes only, for the account of the undersigned and
not with the view to any resale or distribution thereof, and the
undersigned is not participating, directly or indirectly, in a
distribution of such Shares and will not take, or cause to be taken,
any action that would cause the undersigned to be deemed an
"underwriter" of such Shares as defined in Section 2(l1) of the Act;
<PAGE>
(4) the undersigned has had access to all materials, books, records,
documents and information relating to the Company which the
undersigned has requested, including the SEC Filings and has
independently verified the accuracy of the information contained
therein;
(5) the undersigned acknowledges and understands that investment in the
Shares involves a high degree of risk, including without limitation,
the risks set forth in the Form S-3 and other risks, including the
possible reversal or adjustment of certain revenues recognized by the
Company in prior periods, the Company's continued difficulty in
obtaining lease financing in order to consummate equipment sales and
breaches by third parties of equipment sales previously made, the
Company's need for financing, the possible breach by the Company of
certain contracts, including agreements to register securities with
the SEC and failure to pay a promissory note, and the failure of
several previously announced joint ventures, including the Telecom
Alliance, to generate significant benefits, which may lead to their
dissolution.
(6) the undersigned acknowledges that the undersigned has been offered an
opportunity to ask questions of, and receive answers from, officers of
the Company concerning all material aspects of the Company and its
business and the Offering, and that any request, for such information
has been fully complied with to the extent that the Company possesses
such information or can acquire it without unreasonable effort or
expense;
(7) the undersigned has such knowledge and experience in financial and
business matters that the undersigned is capable of evaluating the
merits and risks of an investment in the Company and can afford a
complete loss of his investment in the Company;
(8) the undersigned has, in connection with its decision to purchase the
Shares, relied solely upon the SEC Filings, the Risk Factors, the
information disclosed herein and their own due diligence;
(9) the undersigned represents and warrants to and covenants with the
Company that the undersigned has not engaged and will not engage in
any sales of the Shares prior to the effectiveness of the Resale
Registration Statement (as defined below in Section 6);
(10) the undersigned recognizes that no governmental agency has passed upon
the issuance of the Shares or made any finding or determination as to
the fairness of this Offering;
(11) if the undersigned is purchasing the Shares subscribed for hereby in a
representative or fiduciary capacity, the representations and
warranties contained herein shall be deemed to have been made on
behalf of the person or persons for whom such Shares are being
purchased;
(12) the undersigned has not entered into any agreement to pay commissions
to any persons with respect to the purchase or sale of the Shares,
except commissions for which the undersigned will be responsible;
<PAGE>
(13) the undersigned acknowledges that the Company will pay to Sunrise
Securities Corp. ("Sunrise") a commission with respect to the sale of
the Shares by the Company to the undersigned and the undersigned
acknowledges that Sunrise has not engaged in an independent due
diligence investigation of the Company and is relying solely on the
Company's representations.
(14) the undersigned is an "Accredited Investor" as that term is defined in
Section 501(a) of Regulation D promulgated under the Act.
Specifically, the undersigned is (check appropriate item(s)): [ ] (i)
a bank as defined in Section 3(a)(2) of the Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of
the Act, whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to Section 15 of the Exchange
Act; an insurance company as defined in Section 2(13) of the Act; an
investment company registered under the Investment Company Act of 1940
(the "Investment Company Act") or a business development company, as
defined in Section 2(a)(48) of that Act; a small business investment
company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan established and maintained by a state, its political subdivisions
or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; or an employee benefit plan within the
meaning of the Employment Retirement Income Security Act of 1974 if
the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or
if the employee benefit plan has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are Accredited Investors;
[ ] (ii) a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
[ ] (iii)a corporation, Massachusetts or similar business trust, or
partnership, or an organization described in Section 501(c)(3) of the
Internal Revenue Code, not formed for the specific purpose of
acquiring the Shares, with total assets in excess of $5,000,000;
[ ] (iv) a director or executive officer of the Company;
[ ] (v) a natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his or her purchase,
exceeds $1,000,000;
[ ] (vi) a natural person who had an individual income (not including his
or her spouse's income) in excess of $200,000 in 1998 and 1999 or
joint income with his or her spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching such
income level in 2000;
[ ] (vii) a trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Shares, whose purchase of
<PAGE>
the Shares is directed by a person having such knowledge and
experience in financial and business matters that he or she is capable
of evaluating the merits and risks entailed in the purchase of the
Shares; or
[ ] (viii) an entity in which all of the equity owners are Accredited
Investors. (If this alternative is checked, the undersigned must
identify each equity owner and provide statements signed by each;
demonstrating how each is qualified as an Accredited Investor.)
(15) the undersigned understands and acknowledges that the contents of any
discussions with the Company's management and the matters included in
the SEC Filings and the Risk Factors include "forward looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. As such, those statements involve known and
unknown risks and uncertainties, which may cause the actual results in
future periods to be materially different from any future performance
the Company presently anticipates or predicts. The undersigned has
been cautioned not to place undue reliance on any forward looking
statements.
6. Registration of Shares under the Act.
(1) By its acceptance hereof, the Company agrees that it shall, at its
expense, (1) not later than 120 business days after the final closing
of the Offering (the "Filing Deadline") use its best efforts to file a
registration statement or amend an existing effective registration
statement (in either case, the "Resale Registration Statement") with
the Commission to register under the Act the resale by the undersigned
of the Underlying Shares; (ii) use its best efforts to cause the
Resale Registration Statement to become effective under the Act as
soon as possible after it is filed; (iii) after the Resale
Registration Statement is declared effective under the Act, furnish
the undersigned with such number of copies of the final prospectus
included in the Resale Registration Statement (the "Prospectus") as
the undersigned may reasonably request to facilitate the resale of the
Underlying Shares; and (iv) use its best efforts to cause such
Registration Statement to remain effective until such time as the
undersigned becomes eligible to resell the shares pursuant to Rule
144(k) of the Act.
(2) The Company will (i) prepare and file with the Commission such
amendments and Prospectus supplements, including post-effective
amendments to the Resale Registration Statement, as the Company
determines may be necessary or appropriate, and use its best efforts
to have such post-effective amendments declared effective as promptly
as practicable; (ii) cause the Prospectus to be supplemented by any
Prospectus supplement, and as so supplemented, to be filed with the
Commission; and (iii) promptly notify the undersigned when a
Prospectus, and any Prospectus supplement or post-effective amendment
must be filed or has been filed (including any filing in response to a
Sale Notice) and, with respect to any post-effective amendment, when
the same has become effective.
(3) In connection with the Resale Registration Statement, the undersigned
shall furnish the Company such information as the Company shall
reasonably request.
(4) The undersigned shall give the Company two business days prior written
notice of any sale pursuant to the Resale Registration Statement. At
<PAGE>
any time the Company may refuse to permit the undersigned to resell
any Underlying Shares pursuant to the Resale Registration Statement;
provided, however, that in order to exercise this right, the Company
must deliver a certificate in writing to the undersigned to the effect
that withdrawal of the Resale Registration Statement is necessary
because a sale pursuant to the Resale Registration Statement in its
then-current form could constitute a violation of the federal
securities laws. In such an event, the Company shall use its best
efforts to amend the Resale Registration Statement if necessary and
take all other actions necessary to allow such sale under the federal
securities laws, and shall notify the undersigned promptly after it
has determined that such sale has become permissible under the federal
securities laws. The undersigned hereby covenants and agrees that it
will not sell any Underlying Shares pursuant to the Resale
Registration Statement during the periods the Resale Registration
Statement is withdrawn as set forth in this Section 6(d).
(5) If the Resale Registration Statement is not declared effective within
180 days of the final closing of the Offering (the "Deadline"), the
Company shall issue to the undersigned Shares or Common Stock, as
appropriate, in an amount equal to 1% of the number of outstanding
Shares or Underlying Shares held by the undersigned for each 30 day
period or part thereof after the Deadline in which the Resale
Registration Statement is not declared effective and, if such Resale
Registration Statement is not effective within 60 days after the
Deadline, the 1% shall be increased to 2% for each 30 day period or
part thereof after such 60 day period elapses until the Resale
Registration Statement is effective or the Underlying Shares become
saleable pursuant to Rule 144(k).
7. Indemnification.
(1) The undersigned understands the meaning and legal consequences of the
representations and warranties made by the undersigned in this
Subscription Agreement, and agrees to indemnify and hold harmless the
Company and each of the Company's directors, officers, stockholders,
employees, counsel, agents, successors and assignees from and against
any and all losses, damages, liabilities or expenses (including,
without limitation, attorneys' fees), as and when incurred, due to or
arising out of (in such case in whole or in part) any breach of any
representation or warranty made by the undersigned set forth herein or
in any other agreement or other document furnished by the undersigned
to any of the foregoing in connection with the Offering, or any
failure by the undersigned to fulfill any of the covenants or
agreements set forth herein, or arising out of the resale or
distribution by the undersigned of the Underlying Shares or any
portion thereof in violation of the Act or any applicable foreign or
state securities or "blue sky" laws.
(2) The Company understands the meaning and legal consequences of the
representations and warranties made by it in this Subscription
Agreement, and agrees to indemnify and hold harmless the undersigned
and each of the undersigned's directors, officers, stockholders,
employees, counsel, agents, successors and assigns from and against
any and all losses, damages, liabilities or expenses (including,
without imitation, attorneys' fees), as and when incurred, due to or
arising out of (in each case in whole or in part) any breach of any
representation or warranty made by the Company set forth herein, or
any failure by the Company to fulfill any of its covenants or
agreements set forth herein.
<PAGE>
(3) To the extent permitted by law, the Company will indemnify and hold
harmless each holder of Underlying Shares included in the Resale
Registration Statement (a "Holder"), the directors, if any, of such
Holder, the officers, if any, of such Holder, and each person, if any,
who controls such Holder within the meaning of the Act or the Exchange
Act, against, any losses, claims, damages, expenses or liabilities to
which any of them may become subject, under the Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof, arise out of or are based upon any of
the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of
a material fact contained in the Resale Registration Statement,
including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading; or (iii)
any violation or alleged violation by the Company of the Act, the
Exchange Act, any state securities laws or any rule or regulation
promulgated under the Act, the Exchange Act or any state securities
laws. The Company will reimburse the Holders and each such controlling
person, promptly, as such expenses are incurred, for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such losses, claims, damages,
liabilities, actions or proceedings.
(4) To the extent permitted by law, each Holder, severally and not
jointly, will indemnify and hold harmless, to the same extent and in
the same manner set forth in Section 7(c), the Company, each of its
directors and officers who have signed the Resale Registration
Statement, and each person, if any, who controls the Company within
the meaning of the Act or the Exchange Act, against any losses,
claims, damages or liabilities to which any of them may become
subject, under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities, actions or proceedings,
whether commenced or threatened in respect thereof, arise out of or
are based upon any violation or alleged violation by the Company of
the Act, the Exchange Act, any state securities laws or any rule or
regulation promulgated under the Act, the Exchange Act or any state
securities laws, in each case to the extent (and only to the extent)
that such violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with the Resale Registration Statement or as a result of a
sale made after receipt of a certificate contemplated by Section 6(d).
Such Holder will reimburse such persons for any legal or other
expenses reasonably incurred by any of them in connection with
investigating or defending any such losses claims, damages,
liabilities, actions or proceedings.
(5) With respect to the indemnification set forth in Sections 7(c) or (d)
above, to the extent any indemnification by in indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it
would otherwise be liable under said Sections 7(c) or (d) to the
extent permitted by law, provided that (i) no contribution shall be
made under circumstances where the maker would not have been liable
for indemnification under the fault standards set forth in said
Sections 7(c) or (d) and (ii) no party guilty of fraudulent
<PAGE>
misrepresentation (within the meaning of Section 11 of the Act) shall
be entitled to contribution from any party who was not guilty of such
fraudulent misrepresentation.
8. Reduction of Shares. The undersigned agrees that the Placement Agent or the
Company may, in its sole and absolute discretion, reduce the undersigned's
subscription to any number of Shares that in the aggregate does not exceed
the number of Shares hereby applied for without any prior notice to or
further consent by the undersigned. The undersigned hereby irrevocably
constitutes and appoints the Placement Agent and each officer of the
Placement Agent, each of the foregoing acting singly, in each case with
full power of substitution, the true and lawful agent and attorney-in-fact
of the undersigned, with full power and authority in the undersigned's
name, place and stead, to amend this Subscription Agreement, including in
each case the undersigned's signature page thereto, to effect any of the
foregoing provisions of this Section.
9. Further Documents. The undersigned agrees that it will execute such other
documents as may be necessary or desirable in connection with the
transactions contemplated hereby.
10. Modification. Neither this Subscription Agreement nor any provisions hereof
shall be waived, modified, discharged or terminated except by an instrument
in writing signed by the party against whom any such waiver, modification,
discharge or termination is sought.
11. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service and delivered against receipt to the
party to whom it is to be given: (i) if to the Company, at the address set
forth on the first page hereof; (ii) if to the undersigned, at its address
set forth on the signature page hereto; or (iii) in either case, to such
other address as the party shall have furnished in writing in accordance
with the provisions of this Section 11. Notice to the estate of any party
shall be sufficient if addressed to the party as provided in Section 11.
Any notice or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice changing a
party's address, which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 11 shall
be deemed given at the time of receipt thereof.
12. Counterparts. This Subscription Agreement may be executed through the
execution of separate signature pages or in any number of counterparts, and
each such counterpart shall, for all purposes, constitute one agreement
binding on all parties, notwithstanding that all parties are not
signatories to the same counterpart.
13. Entire Agreement. This Subscription Agreement contains the entire agreement
of the parties with respect to the subject matter hereof and there are no
representations, covenants or other agreements except as stated or referred
to herein.
14. Severability. Each provision of this Subscription Agreements is intended to
be severable from every other provision, and the invalidity or illegality
of any portion hereof shall not affect the validity or legality of the
remainder hereof.
<PAGE>
15. Assignability. This Subscription Agreement is not transferable or
assignable by the undersigned.
16. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
regard to the principles of conflicts of law thereunder.
17. Choice of Jurisdiction. Any action or proceeding arising directly,
indirectly or otherwise, in connection with, out of or from this
Subscription Agreement, any breach hereof or any transaction covered hereby
shall be resolved within New York, New York. Accordingly, the parties
consent and submit to the jurisdiction of the United States federal, and
state courts located within New York, New York.
18. Taxpayer Identification Number. The undersigned verifies under penalties of
perjury that any Taxpayer Identification Number or Social Security Number
shown on the signature page hereto is true, correct and complete.
19. Pronouns. Any personal pronoun shall be considered to mean the
corresponding masculine, feminine or neuter personal pronoun, as the
context requires.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this ___ day of _______________, 2000.
Number of Shares Subscribed for: _____________ Shares
INDIVIDUAL SUBSCRIBER: ENTITY SUBSCRIBER:
__________________________________ ___________________________________
(Signature of Subscriber) (Print Name of Subscriber)
__________________________________ By: ____________________________
(Typed or Printed Name) Name: ____________________________
Title: ____________________________
__________________________________ ___________________________________
(Residence Address) (Address)
__________________________________ ___________________________________
(City, State and Zip Code) (City, State and Zip Code)
__________________________________ ___________________________________
(Telephone Number) (Telephone Number)
__________________________________ ___________________________________
(Telecopier Number) (Telecopier Number)
___________________________________ ___________________________________
(Tax I.D. or Social Security Number) (Tax I.D. or Social Security Number)
ACCEPTED:
Coyote Network Systems, Inc. For entities desiring that
certificates for the Shares be
By: ____________________________ delivered to an address other than
Name: ____________________________ set forth above, set for the
Title: ____________________________ delivery address:
Dated: ____________________________ ___________________________________
(Address)
___________________________________
(City, State and Zip Code)
<PAGE>
Annex A
- - The Offering shall consist of the sale of between $5,000,000 and
$10,000,000, with a $3,000,000 over-allotment option at the Company's
election, of the Company's Series B Preferred Stock (the "Shares") at a
price of $4.75 per share. The Shares shall pay a dividend of 6% per annum,
with dividends accruing 90 days from closing. The Shares shall be
convertible into the Company's common stock at $4.75 per share at the
option of the holder of the Shares. The Company shall have the right to
redeem the Shares if the Company's common stock trades at or above $10 for
twenty consecutive trading days, at which point the holders of Shares may
exercise their conversion rights.
- - The placement fee to the Placement Agent shall be 7% of the gross sales
price of the Shares (the "Placement Fee"). The Company may pay all or a
portion of such placement fee in Shares ("Placement Fee Shares") at $4.75
per share less the 7% Placement Fee. In addition, the Placement Agent will
be entitled to reimbursement of certain expenses.
- - The Company shall, at its expense, (i) not later than a date 120 business
days after the final closing of the Offering file a registration statement
(the "Registration Statement") with the Securities and Exchange Commission
(the "Commission") to register under the Securities Act of 1933 (the "Act")
the resale of shares of common stock underlying the Shares by the holders
of the Shares and the shares of common stock underlying the Placement Fee
Shares, if applicable, (ii) use its reasonable best efforts to cause the
Registration Statement to be declared effective under the Act as promptly
as practicable, (iii) after the Registration Statement is declared
effective under the Act, furnish holders with such number of copies of the
prospectus included in the Registration Statement as the holders may
reasonably request to facilitate the resale of the Shares; and (iv) use its
reasonable best efforts to cause such Registration Statement to remain
effective until such time as the holders become eligible to resell the
Shares pursuant to Rule 144(k). In the event that the Company shall fail to
cause the Registration Statement to be declared effective within 180 days
of the final closing of the Offering (the "Effectiveness Deadline"), the
Company shall issue to the holders as compensation therefor Shares equal to
(i) 1% of the Shares for each 30 days or part thereof effectiveness is
delayed until 60 days after the Effectiveness Deadline and (ii) 2% of the
Shares for each 30 days or part thereof effectiveness is delayed beyond 60
days after the Effectiveness Deadline.
<PAGE>
Coyote Network Systems, Inc.
ESCROW WIRE INSTRUCTIONS
Credit:
A/C #
Further Credit:
A/C #
Attn:
<PAGE>
SUPPLEMENT TO SUBSCRIPTION AGREEMENT
COYOTE NETWORK SYSTEMS, INC.
Reference is made to that certain Subscription Agreement, dated January 28,
2000, pursuant to which the undersigned has subscribed for shares of the
Company's preferred stock, which is convertible into shares of the Company's
Common Stock at a conversion price of $4.75 per share. All capitalized terms not
defined herein shall have the meanings set forth in the Subscription Agreement.
1. The first sentence of the first paragraph of Annex A to the Subscription
Agreement is hereby amended to read as follows:
The Offering shall consist of the sale of between $5,000,000 and
$15,000,000 of shares of the Company's Series B Preferred Stock at a price
of $4.75 per share, for a maximum of 3,157,894 shares of Series B Preferred
Stock.
2. The press release attached hereto as Annex I is hereby incorporated by
reference. Mr. McCullough's employment agreement provides for a salary of
$160,000 per year and options to purchase 750,000 shares of Common Stock at
$5.00 per share.
3. The following modification is hereby made to Section 3(f) of the
Subscription Agreement:
The 1,250,000 shares of Common Stock that are reserved for issuance to a
consultant pursuant to a consulting agreement, according to Section 3(f) of
the Subscription Agreement have now been issued, bringing the number of
shares issued to such consultant to 2,000,000. James McCullough owns
approximately 33% of the consultant (the balance of which is owned by
affiliates of First Venture Leasing, LLC) and approximately 25% of First
Venture Leasing, LLC.
4. Copies of Mr. McCullough's employment agreement, the financial services
agreement with First Venture Leasing, LLC and the consulting agreement are
available upon request.
<PAGE>
By signing below, the undersigned acknowledges that the information contained in
this Supplement amends, supersedes and updates the referenced provisions of the
Subscription Agreement. All other portions of the Subscription Agreement, unless
specifically amended by this Supplement, remain unchanged.
Date: _____________________ __________________________________
Name: ________________________
Title: ________________________
Accepted By:
COYOTE NETWORK SYSTEMS, INC.
____________________________
Name: _____________________
Title: _____________________
<PAGE>
ANNEX I
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, AND RIGHTS OF
SERIES B PREFERRED STOCK
(adopted by COYOTE NETWORK SYSTEMS, INC.)
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B PREFERRED STOCK
OF
COYOTE NETWORK SYSTEMS, INC.
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
COYOTE NETWORK SYSTEMS, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its
Preferred Stock, par value $.01 per share, designated as Series B Preferred
Stock:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $.01 per share, to be known as "Series B Preferred Stock", of the
Corporation be hereby created, and that the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
A. Designation and Amount. The shares of this series shall be designated as
"Series B Preferred Stock" (the "Series B Preferred Stock") and the number of
shares constituting such series shall be 3,157,895.
B. Terms of Series B Preferred Stock.
1. Dividends.
When and as declared by the Board of Directors and to the extent permitted
under the Delaware General Corporation Law, the Corporation shall pay
preferential dividends in cash to the holders of shares of Series B Preferred
Stock as provided in this Section 1. Dividends on each share of Series B
Preferred Stock shall accrue on a daily basis at the rate of 6% per annum of the
sum of the Face Amount thereof, plus all accumulated and unpaid dividends
thereon commencing on the 90th day after the Series B Preferred Original
Issuance Date of such shares of Series B Preferred Stock. No dividends shall
accrue prior to the 90th day after the Series B Preferred Original Issuance
Date. Such dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus
1
<PAGE>
or other funds of the Corporation legally available for the payment of
dividends; provided, however, that such dividends shall not be paid unless and
until all amounts then due to the holders of the Series A Preferred Stock have
theretofore been paid.
The Corporation shall not declare or pay any dividend, or order or make any
other distribution, upon any Junior Stock or Liquidation Parity Stock (other
than a dividend payable in such Junior Stock or Liquidation Parity Stock) unless
the Corporation shall first pay, or simultaneously therewith declare and set
apart a sum sufficient for the payment of, all accrued and unpaid dividends upon
the Series B Preferred Stock.
2. Liquidation Preference.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
shall be distributed in the following order of priority:
The holders of Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution to the holders of any Junior Stock but
only after the holders of the Series A Preferred Stock have been paid in full
and pari passu with any distribution to the holder of any Liquidation Parity
Stock, an amount per share equal to the Series B Preferred Original Issuance
Price (subject to appropriate adjustment upon the occurrence of any stock split,
stock dividend or combination of the outstanding shares of Series B Preferred
Stock) and, in addition, an amount equal to any dividends declared but unpaid on
the Series B Preferred Stock. If the assets of the Corporation available for
distribution to the holders of Series B Preferred Stock shall be insufficient to
permit the payment of the full preferential amount set forth herein, then the
holders of shares of Series B Preferred Stock shall share ratably in any
distribution of the assets of the Corporation (A) as to any Liquidation Parity
Stock, in proportion to the respective liquidation preferences of the Series B
Preferred Stock and such Liquidation Parity Stock and (B) as to the other
holders of the Series B Preferred Stock, in proportion to their respective
number of shares of Series B Preferred Stock.
3. Voting Rights.
(a) Except as may otherwise be provided by law or in subparagraph (b)
below, the Series B Preferred Stock shall not be entitled to vote.
(b) The Corporation shall not, without the affirmative approval of the
holders of shares representing at least a majority of the voting power of the
shares of Series B Preferred Stock then outstanding (which voting power shall be
determined, for purposes of this paragraph (b), based upon the number of votes
per share that equals the number of shares of Common Stock (including fractional
shares) into which each such share of Series B Preferred Stock is then
convertible, rounded up to the nearest share), acting separately from the
holders of Common Stock and the holders of any other series or class of capital
stock of the Corporation, given by written consent in lieu of a meeting or by
vote at a meeting called for such purpose, for which meeting timely and specific
notice shall have been given to each holder of Series B Preferred Stock, in the
manner provided in the By-Laws of the Corporation:
2
<PAGE>
(i) alter or change the powers, preferences or rights of any class or
series of capital stock of the Corporation, or the qualifications,
limitations or restrictions thereon, if any such alteration or change
would adversely affect the rights of the holders of Series B Preferred
Stock; provided, however, that the creation and issuance of another
series of Preferred Stock shall not be deemed to require the consent
of the holders of the Series B Preferred Stock pursuant to this clause
(i) so long as the proposed terms do not require consent of the
holders of the Series B Preferred Stock pursuant to clause (ii) below;
or
(ii) authorize, designate, create, issue or agree to issue any shares of
Series B Preferred Stock other than the shares of Series B Preferred
Stock referred to in A above.
4. Optional Conversion.
(a) The holder of any shares of Series B Preferred Stock shall have the
right, at such holder's option, at any time or from time to time commencing on
or after the date hereof, to convert any of such shares into such whole number
of fully paid and nonassessable shares of Common Stock as is equal to the
quotient obtained by dividing (A) the product obtained by multiplying the Series
B Preferred Original Issuance Price by the number of shares of Series B
Preferred Stock being converted, by (B) the Series B Preferred Conversion Price,
as last adjusted and then in effect, by surrender of the certificates
representing the shares of Series B Preferred Stock so to be converted in the
manner provided in Section 4(b) hereof. The holder of any shares of Series B
Preferred Stock exercising the aforesaid right to convert such shares into
shares of Common Stock shall be entitled to payment of any dividends declared
but unpaid with respect to such shares of Series B Preferred Stock.
(b) The holder of any shares of Series B Preferred Stock may exercise the
conversion right pursuant to Section 4(a) hereof as to any part thereof at any
time after the Optional Conversion Date by delivering to the Corporation during
regular business hours, at the principal executive office of the Corporation or
any transfer agent of the Corporation for the Series B Preferred Stock as may be
designated by the Corporation, the certificate or certificates for the shares to
be converted, duly endorsed or assigned in blank or to the Corporation (if
required by it), accompanied by written notice stating that the holder elects to
convert such shares and stating the name or names (with addresses) in which the
certificate or certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected on the date when the aforesaid
delivery is made (the "Conversion Date"). As promptly as practicable thereafter,
the Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled
and a check or cash in respect of any fractional interest in a share of Common
Stock as provided in Section 4(c) hereof and a check or cash in payment of all
dividends declared but unpaid, if any (to the extent permissible under law),
with respect to the shares of Series B Preferred Stock so converted. The Person
in whose name the certificate or certificates for Common Stock are to be issued
shall be deemed to have become a holder of record of Common Stock on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event such Person
3
<PAGE>
shall be deemed to have become a holder of record of Common Stock on the next
succeeding date on which the transfer books are open, but the Series B Preferred
Conversion Price shall be that in effect on the Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Series B Preferred Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the Corporation, a
new certificate covering the number of shares of Series B Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Series B Preferred Stock represented thereby to the same extent as if the
portion of the certificate theretofore covering such unconverted shares had not
been surrendered for conversion.
(c) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series B Preferred Stock. If more than one share of
Series B Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series B Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Preferred Stock, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to the then Current
Market Price of a share of Common Stock multiplied by such fractional interest.
Fractional interests shall not be entitled to dividends, and the holders of
fractional interests shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interest. (d) The Series B Preferred
Conversion Price shall be subject to adjustment from time to time as follows:
(i) If, at any time after such Series B Preferred Original Issuance Date,
the number of shares of Common Stock outstanding is increased by a
stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the Series B
Preferred Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each
share of Series B Preferred Stock shall be increased in proportion to
such increase in outstanding shares.
(ii) If, at any time after the Series B Preferred Original Issuance Date,
the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then, following
the record date for such combination, the Series B Preferred
Conversion Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each share of
Series B Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
4
<PAGE>
(iii) In case, at any time after the Series B Preferred Original Issuance
Date, of any capital reorganization, or any reclassification of the
stock of the Corporation (other than a change in par value or from par
value to no par value or from no par value to par value or as a result
of a stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Corporation with or
into another Person (other than a consolidation or merger in which the
Corporation is the continuing company and which does not result in any
change in the Common Stock) or of the sale or other disposition of all
or substantially all the properties and assets of the Corporation as
an entirety to any other Person, each share of Series B Preferred
Stock shall, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be convertible into
the kind and number of shares of stock or other securities or property
of the Corporation or of the company resulting from such consolidation
or surviving such merger or to which such properties and assets shall
have been sold or otherwise disposed to which the holder of the number
of shares of Common Stock deliverable (immediately prior to the time
of such reorganization, reclassification, consolidation, merger, sale
or other disposition) upon conversion of such share of Series B
Preferred Stock would have been entitled upon such reorganization,
reclassification, consolidation, merger, sale or other disposition.
The provisions of this Section 4 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(e) Whenever the Series B Preferred Conversion Price shall be adjusted as
provided in Section 4(d) hereof, the Corporation shall forthwith file, at the
office of Corporation or any transfer agent designated by the Corporation for
the Series B Preferred Stock, a statement, signed by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series B
Preferred Conversion Price then in effect. The Corporation shall also cause a
copy of such statement to be sent by first-class certified mail, return receipt
requested, postage prepaid, to each holder of shares of Series B Preferred Stock
at such Person's address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of Section 4(f) hereof.
(f) In the event the Corporation shall propose to take any action of the
types described in clauses (i), (ii) or (iii) of Section 4(d) hereof, the
Corporation shall give notice to each holder of shares of Series B Preferred
Stock, in the manner set forth in Section 4(e) above, which notice shall specify
the record date, if any, with respect to any such action and the date on which
such action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Series B Preferred Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable or purchasable upon
the occurrence of such action or deliverable upon conversion of shares of Series
B Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least ten (10) days prior to the date
so fixed, and in case of any other action, such notice shall be given at least
fifteen (15) days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.
5
<PAGE>
(g) The Corporation shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of Common Stock upon
conversion of any shares of Series B Preferred Stock, except for any transfer
taxes.
(h) The Corporation shall reserve, free from preemptive rights, out of its
authorized but unissued shares of Common Stock a sufficient number of shares of
Common Stock to provide for the conversion of all outstanding shares of Series B
Preferred Stock.
(i) All shares of Common Stock which may be issued in connection with the
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable, with no personal liability
attaching to the ownership thereof, and free from all taxes, liens or charges
with respect thereto.
5. Redemption.
(a) At any time after the Trading Price of the Common Stock equals or
exceeds $10 for a period of 20 consecutive trading days, the Corporation may, at
its option, redeem all or any portion of the shares of Series B Preferred Stock
then outstanding. Any shares of Series B Preferred Stock redeemed pursuant to
Section 6(a) shall be redeemed at the Redemption Price, which shall be payable
in cash.
(b) If fewer than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, then, subject to the right of any holder to convert any
shares of Series B Preferred Stock, the number of shares to be redeemed held by
each holder of record of the Series B Preferred Stock shall be determined on a
pro rata basis in the same proportion to the aggregate number of shares to be
redeemed as the number of shares held by such holder bears to the aggregate
number of outstanding shares of Series B Preferred Stock.
(c) If the Corporation shall exercise its option to redeem shares of Series
B Preferred Stock, notice of redemption will be mailed by first-class mail,
postage prepaid, at least 30 days but not more than 60 days prior to the
applicable Redemption Date, to each holder of record of the shares of Series B
Preferred Stock to be redeemed as of the close of business on such date, not
more than 25 nor less than 10 days prior to the date such notice is so given, as
the Board of Directors of the Corporation, in its sole discretion, may select as
the record date for such redemption, at such holder's address as the same
appears on the stock register of the Corporation. Each such notice shall state:
(i) the applicable Redemption Date; (ii) the number of shares to be redeemed
and, if fewer than all the shares held by such holder are to be redeemed, the
number of shares to be redeemed from such holder; (iii) the Redemption Price;
(iv) the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such Redemption Date except to the
extent the Corporation fails to make payment of the Redemption Price for such
shares when they are duly surrendered for redemption as herein provided.
(d) Notice having been mailed as aforesaid, from and after the applicable
Redemption Date (unless the Corporation shall default in the payment of the
Redemption Price on any shares, in which case, such shares shall continue to be
6
<PAGE>
outstanding), dividends on the shares of the Series B Preferred Stock so called
for redemption shall cease to accrue, said shares shall no longer be deemed to
be outstanding (notwithstanding that any certificate therefor shall not have
been surrendered for cancellation), the holder thereof shall cease to be a
stockholder with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right to receive from the
Corporation the Redemption Price therefor, without interest, upon the surrender
of certificates representing the same. Upon surrender in accordance with said
notice of the certificates for any shares to be so redeemed (properly endorsed
or assigned for transfer, if the Board shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the Redemption Price
aforesaid. In the event that fewer than the total number of the shares of Series
B Preferred Stock represented by any such certificate are redeemed, a new
certificate shall be issued representing the number of unredeemed shares without
cost to the holder thereof. Such new certificate shall contain any such legend
as was set forth on the surrendered certificate, unless such legend is no longer
necessary or appropriate.
(e) In the event that the Corporation exercises its option to redeem shares
of Series B Preferred Stock pursuant to this Section 6, the rights of any holder
of Series B Preferred Stock to convert such shares pursuant to Section 4 will
terminate at the close of business on the business day preceding the Redemption
Date for such Series B Preferred Stock (unless the Corporation shall default in
paying the Redemption Price when due, in which case the conversion right shall
terminate at the close of business on the date such default is cured and such
Series B Preferred Stock is redeemed).
6. Definitions. As used herein, the following terms shall have the following
meanings:
(a) The term "Common Stock" shall mean the Corporation's common stock,
$1.00 par value per __________ share.
(b) The term "Current Market Price" shall mean, as of the day in question,
the fair market value of a share of Common Stock on such date, as determined in
good faith by the Board of Directors of the Corporation.
(c) The term "Face Amount" of each share of Series B Preferred Stock shall
be $4.75, as the Series B Preferred Stock is presently constituted, such amount
to be proportionately adjusted as hereinafter provided.
(d) The term "Junior Stock" shall mean the Common Stock and any class or
series of capital stock of the Corporation ranking, as to payment of dividends
or distribution of assets, junior to the Series B Preferred Stock.
(e) The term "Liquidation Parity Stock" shall mean any class or series of
capital stock of the Corporation ranking, as to distribution of assets, pari
passu to the Series B Preferred Stock.
(f) The term "Redemption Date" shall mean any date on which any shares of
Series B Preferred Stock are to be redeemed.
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(g) The term "Redemption Price" shall mean an amount per share equal to the
Series B Preferred Original Issuance Price (subject to appropriate adjustment
upon the occurrence of any stock split, stock dividend or combination of the
outstanding shares of Series B Preferred Stock), plus, an amount equal to any
dividends declared but unpaid on the Series B Preferred Stock.
(h) The term "Series B Preferred Conversion Price" shall mean $4.75 as
adjusted from time to time pursuant to the provisions of Section 4(d) hereof.
(i) The term "Series B Preferred Original Issuance Date" shall mean the
date on which the first share of Series B Preferred Stock has been issued.
(j) The term "Series B Preferred Original Issuance Price" shall mean $4.75
per share of Series B Preferred Stock.
(k) The term "Trading Price" shall mean the last reported sale price of the
Common Stock or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case, as
reported by the principal United States securities exchange registered under the
Securities and Exchange Act of 1934, as amended, on which the Common Stock are
listed or admitted to trading.
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IN WITNESS WHEREOF, said COYOTE NETWORK SYSTEMS, INC. has caused this
Certificate of Designations, Preferences and Rights of Series B Preferred Stock
to be duly executed by its Chief Executive Office and attested to by its
Secretary and has caused its corporate seal to be affixed hereto, this ____ day
of __________, 2000.
COYOTE NETWORK SYSTEMS, INC.
By: _________________________________
Name: _________________________
Title: _________________________
(Corporate Seal)
ATTEST:
Name: __________________________
Title: __________________________
NEWS RELEASE
Contact: Tony Squeglia
Coyote Network Systems
(818) 735-5385
email: [email protected]
Coyote Network Systems Completes $15 Million Equity Private Placement
To Position for Growth in ASP Market; To Deliver IP-based Applications
Westlake Village, CA - February 4, 2000 - Coyote Network Systems, Inc. (Nasdaq:
CYOE) today announced it completed a $15 million equity private placement to a
group of new and existing investors, primarily domestic and institutional
investors. The Company sold 3,157,895 shares of unregistered Convertible
Preferred Stock. The Convertible Preferred Shares will pay a dividend of 6% per
year and are convertible into the Company's common stock at a fixed rate of
$4.75 per share. The Company expects to file for registration of the common
stock later this year.
The Company plans to use the proceeds from this transaction to enhance its
position in the application service provider (ASP) market as well as to deliver
revenue-generating Internet Protocol (IP)-based applications to business and
individual customers on Coyote's own branded network.
"This transaction significantly improves our ability to grow a branded network
that will deliver applications right to the desktop," said James R. McCullough,
chief executive officer, Coyote Network Systems. "Specifically, we will be
delivering IP-based interactive software, from simple applications such as
e-mail and voice over IP to more complex applications involving secure
e-commerce to large and small businesses and residential customers. Our
competitive local exchange carrier, INET Interactive Network System, currently
has more than 20,000 customers. This gives us a substantial advantage in
incubating and testing cutting- edge applications before deploying them on a
larger scale."
About Coyote Network Systems
Based in Westlake Village, CA, the Company provides telecom switching equipment,
network carrier services, and applications primarily to emerging and
entrepreneurial carriers. The Company delivers revenue-generating solutions that
enable carriers to bundle local, long distance and Internet services. The
Company is positioned to take advantage of high growth opportunities in Voice
over Internet Protocol (VoIP), next generation networks and application
services. For more information, please visit the Company's Web site:
www.cyoe.com, or call 1-800-588-3000.
The statements in this news release may be considered "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve known and unknown risks and uncertainties, which may cause
the Company's actual results in future periods to be materially different from
any future performance suggested in this news release. Readers are cautioned not
to place undue reliance on these forward-looking statements that speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. For more complete information, please refer
to the Company's Form 10-K, Form 10-Q and other filings with the SEC.
