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Exhibit 10.3

                                                               February 14, 2000



By EMAIL
--------

Edward C. Callahan, Jr.
515 Day Spring Lane
West Chester, PA 19382-8554

         Re: Separation Agreement
             --------------------

Dear Ed:

         This letter is to confirm your voluntary resignation from your position
as President and Chief Executive Officer and as a director of Neoware Systems,
Inc. (the "Company") effective as of the date hereof, your agreement to remain
as a non-officer employee of the Company for the period from February 14, 2000
until April 30, 2000, and your termination of employment with the Company
effective on April 30, 2000 (the "Termination Date").

         In an effort to provide you with certain benefits relating to your
voluntary resignation from your position as President and Chief Executive
Officer, the Company proposes the following agreement ("Agreement"), which
includes a general release:

         1. In consideration for your general release and your fulfillment of
the various undertakings set forth in this Agreement, the Company agrees as
follows:

                  (a) During the period from February 14, 2000 until April 30,
2000, the Company will employ you as a non-officer employee of the Company and
will pay you your current base salary and benefits, at regular pay intervals and
less taxes and other deductions required by law to be withheld. In addition, as
previously agreed, the Company will pay you a total of $10,500, for the
reduction in your 1999 wages, payable in two equal payments of $5,250 on March
31, 2000 and June 30, 2000.

                  (b) During the period from May 1, 2000 until the earlier of
(i) April 30, 2001 and (ii) the date you first become eligible for group health
plan coverage not maintained by the Company, the Company will pay you $518.90
per month toward your payment for personal health care insurance.


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Edward C. Callahan, Jr.
February 14, 2000
Page 2


                  (c) The Company has previously granted to you options to
acquire a total of 385,000 shares of the Company's common stock. Notwithstanding
the release set forth in paragraph 2(a), and subject to your agreement in
paragraph 2(d), the Company acknowledges that the provisions of the Company's
1995 Stock Option Plan and your option agreement (including the vesting
schedule) will continue to apply to your options in accordance with the terms of
the Plan and your option agreement.

                  (d) The Company agrees that you may keep the following
property that was provided to you for use: pager, Toshiba Portege laptop
computer and its ethernet adaptor, and the two refurbished NeoStations that you
keep at home.

                  (e) The Company, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby releases and
forever discharges you from any and all claims or causes of action of any type
or nature whatsoever, known or unknown, the Company now has or hereafter can or
shall have against you or may have arising out of or relating to your employment
relationship and position as a director of the Company and the termination
thereof.

         2. In consideration for the Company's promises in paragraph 1, and
intending to be legally bound, you represent, warrant and agree as follows:

                  (a) You agree that you hereby voluntarily resign as President
and Chief Executive Officer and as a director of the Company effective as of the
date hereof.

                  (b) Subject to paragraph 3, you agree that from and after
February 14, 2000 until April 30, 2000 you will serve as an employee of the
Company, and will provide such services as may be reasonably requested by the
Company. You agree that in such position, you will no longer be an officer of
the Company.

                  (c) By your signature on this Agreement, you release and
forever discharge the Company and its affiliates, and the past, present and
future officers, directors, attorneys, employees, shareholders and agents of
each of the foregoing, as well as their respective heirs, legal representatives,
successors and assigns (collectively "Released Parties"), jointly and severally,
from any and all actions, charges, causes of action or claims of any kind
(collectively "claims"), know or unknown, which you, your heirs, legal
representatives, agents, or anyone claiming by or through you, ever had, now
have or hereafter may have against any of the Released Parties arising out of
any matter, occurrence or event existing or occurring prior to the date you
execute this Agreement; whether known or unknown, asserted or not, regarding any
alleged violation of any statute or common law, now existing or hereafter
recognized and including but not limited to any claims for attorneys' fees. The
general release provided for in this paragraph 2(a) does not apply to (i) any
claims to enforce this Agreement; any rights to indemnification by the Company
for acts or matters occurring prior to the Termination Date to the extent
required pursuant to the Company's Bylaws or the Delaware General Corporation
Law, in each case as in effect on the Termination Date; or your rights, if any,
under any directors and officers insurance policy purchased by the Company and
in effect in respect of periods on or prior to February 14, 2000.

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Edward C. Callahan, Jr.
February 14, 2000
Page 3

                  (d) You agree that your options to purchase 192,500 shares of
the Company's common stock are hereby canceled and that you will have no further
rights to such options.

                  (e) You shall not at any time after the date of this letter
disparage or deprecate the Company or its affiliates or any of their officers,
directors, employees, stockholders or principals, or any of their operations,
assets, services, work product, character, motives or financial standing.
Further, you agree to keep the terms and conditions of this Agreement secret and
confidential and not to disclose them voluntarily to any third party, except to
the extent required by law, to enforce the Agreement or to obtain confidential
legal, tax or financial advice. You shall maintain the confidentiality of and
not reveal to any third parties any information (including but not limited to
financial information, pricing information, customer lists or information),
documents, plans, programs, policies or other material of the Company which are
confidential or secret to the Company or in which the Company has a proprietary
interest. In making this agreement, you acknowledge that any violation or breach
of this commitment by you will cause immediate, irreparable and substantial harm
to the Company and that the Company will be entitled to appropriate injunctive
and other relief, including monetary damages, against you in a court of
competent jurisdiction. This undertaking to preserve confidential information is
not intended to serve as a covenant against competition.

                  (f) You agree that you will return to the Company on the
Termination Date all memoranda, notes, records, reports, manuals, drawings and
other documents (and all copies thereof whether in written form or on computer
disk or tape) relating to the business of the Company and/or its affiliates and
all property associated therewith, which you possess or have under your control
on the Termination Date. Without limiting the generality of the foregoing, you
agree to return to the Company all copies of all data bases containing
information about the Company and/or its affiliates, regardless of whether such
information is in hard copy or stored electronically or on tape. You agree that
on and after the Termination Date, you will not seek to access the information
systems of the Company or its affiliates for any purpose whatsoever.

                  (g) (i) Until April 30, 2001, you shall not, unless acting
with the prior written consent of the board of directors of the Company,
directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, adviser, employee, partner, principal,
agent, representative, consultant or otherwise with or use or permit your name
to be used in connection with, any of the Company's Competitors (as hereinafter
defined). You recognize that the Company's business is and will continue to be
international in scope, and that geographical limitations on this
non-competition covenant (and the non-solicitation covenant set forth in
paragraph 2(g) hereof) are therefore not appropriate. For purposes of this
Agreement, the term "Competitors" shall be defined as WYSE Technology, Inc.,
Network Computing Devices, Inc., Boundless Technologies and the network computer
division of International Business Machines Corporation.

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Edward C. Callahan, Jr.
February 14, 2000
Page 4


                      (ii) The foregoing restriction shall not be construed to
prohibit your ownership of not more than 5% of any class of securities of any of
the Competitors having a class of securities registered pursuant to the
Securities Exchange Act of 1934 as amended (the "Exchange Act"), provided that
such ownership represents a passive investment and that neither you nor any
group of persons including yourself in any way, either directly or indirectly,
manages or exercises control of any such corporation, guarantees any of its
financial obligations, otherwise takes any part in its business other than
exercising your rights as a shareholder, or seeks to do any of the foregoing.

                  (h) Until April 30, 2001, you shall not, either directly or
indirectly, (i) call on or solicit any person, firm, corporation or other entity
who or which at any time during the period from the date hereof to April 30,
2001 was a customer of the Company or any of its subsidiaries or affiliates with
respect to the business conducted by or anticipated to be conducted by the
Company on February 14, 2000 or (ii) solicit the employment of any person who
was employed by the Company or any of its subsidiaries or affiliates on a full
or part-time basis at anytime during the period from the date hereof to April
30, 2001.

                  (i) You agree that the release set forth in paragraph 2(a)
above specifically includes a release of any and all claims arising under the
Age Discrimination in Employment Act of 1967, as amended ("ADEA"), and any state
or local discrimination laws. You acknowledge that you are being given
twenty-one (21) days in which to consider whether you wish to sign this
Agreement and to decide whether to enter it to it. Once you sign this Agreement,
you shall then have seven (7) days in which to change your mind and revoke it.
If you choose to revoke this Agreement, you must send your revocation in writing
by facsimile or overnight mail to Vincent T. Dolan, Vice President-Finance and
Administration, 400 Feheley Drive, King of Prussia, Pennsylvania 19406

                  (j) You and your attorneys, accountants and other advisers
have been provided with full and free access and opportunity to inspect, review,
examine and inquire about all books, records and information of the Company and
your options, and the shares issuable upon exercise of the options, and you and
your advisers have made such inspection, review, examination and inquiry as you
have deemed appropriate.

                  (k) You and your advisers have been offered the opportunity to
ask such questions and obtain additional information concerning the Company, its
business and affairs, and the options, and the shares issuable upon exercise of
the options, as you have requested so as to understand the consequences of the
exercise of the options, and the shares issuable upon exercise of the options,
and to verify the accuracy of the information obtained as a result of your
investigation.

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Edward C. Callahan, Jr.
February 14, 2000
Page 5


         3. If you terminate your employment with the Company prior to April 30,
2000, your salary and benefits will continue from the date of termination until
April 30, 2000 (the "Consulting Term"), provided that during the Consulting
Term, you will be available to provide consulting services to the Company, as
reasonably requested by the Company. You will have complete discretion to select
the specific date and times for performance of such consulting services. During
the Consulting Term, the Company will pay you your compensation at such times as
the Company pays its executive officers. In addition, you understand that if you
terminate your employment on or before March 3, 2000, you will only be entitled
to exercise options to acquire 96,250 shares of the Company's common stock.

         4. The Company's obligations under paragraph 1 above will cease if you:
(1) initiate an action against any of the Released Parties with respect to a
claim that has been released pursuant to paragraph 2(c) above; or (2) breach any
of the representations, warranties or agreements set forth in paragraph 2.

         5. You acknowledge and agree that the benefits you will receive under
paragraph 1 above exceed the money and benefits to which you otherwise would be
entitled, and that such excess is sufficient consideration to support the grant
of the general release in paragraph 2(c) above and to support your other
undertakings set forth in paragraph 2 above. More specifically, if you do not
execute this Agreement, which includes a general release, or if you revoke your
acceptance, your employment will be deemed to be terminated on February 14, 2000
and you will only be entitled to receive your base salary and standard Company
benefits for a period of one year.

         6. Consistent with Company policy, and notwithstanding anything to the
contrary in this Agreement, you understand that your final regular paycheck will
include payment for all accrued and unused vacation.

         7. This Agreement sets forth our complete understanding and agreement
and supersedes all prior agreements between us, oral or written, express or
implied.

         8. This Agreement is being offered for the purpose of assisting you in
your transition. This Agreement should not be construed as an admission or
concession of liability or wrongdoing by the Company or by you.

         9. If any provision of this Agreement is deemed unlawful or
unenforceable by a court of competent jurisdiction, the remaining provisions
shall continue in full force and effect.

         10. By your execution of this Agreement, your represent, warrant and
agree that:
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Edward C. Callahan, Jr.
February 14, 2000
Page 6

                  (a) You have read carefully the terms of this Agreement,
including the general release.

                  (b) You have had an opportunity to and have been encouraged to
review this Agreement, including the general release, with an attorney.

                  (c) You understand the meaning and effect of the terms of this
Agreement, including the general release.

                  (d) You were given sufficient time to determine whether you
wished to enter into this Agreement, including the general release.

                  (e) The entry into and execution of this Agreement, including
the general release, is your own free and voluntary act without compulsion of
any kind.

                  (f) No promise or inducement not expressed herein has been
made to you.

         You have from February 14, 2000 through and including March 6, 2000 to
consider this offer. You are encouraged to review this Agreement with an
attorney. If you agree with the proposed terms as set forth above, please sign
this Agreement indicating your understanding and agreement and the attached
Acknowledgment of Rights under the Older Workers Benefit Protection Act and
return them to me on or before the close of business on March 6, 2000. The
additional copies are for your records.

         Please note that if you sign this Agreement, you will retain the right
to revoke it for seven (7) days. The Agreement will not be effective until the
revocation period has expired. To revoke the Agreement, you must send a
certified letter to my attention. This letter must be post-marked within seven
(7) days of you execution of this Agreement.

         If I do not receive a signed copy of this Agreement by the close of
business on March 6, 2000, I will assume that you have rejected this offer. If
this offer is rejected, your employment shall nevertheless be deemed to have
terminated effective February 14, 2000.

         We wish you the best in the future.

                                              Sincerely,


Understood and Agreed,
intending to be legally bound:

Edward C. Callahan, Jr.

_____________________________________

Date:________________________________

Witness:_____________________________

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                         ACKNOWLEDGMENT OF RIGHTS UNDER
                      OLDER WORKERS BENEFIT PROTECTION ACT

         I, ___________________, acknowledge that I have read and understand the
attached separation and consulting agreement ("Agreement"). I further understand
that this Agreement is revocable by me for a period of seven (7) days following
execution thereof, and that this Agreement shall not become effective or
enforceable until this seven-day revocation period has ended.

         I understand that if I sign the attached Agreement and accept the
agreed-upon payments described herein, I am giving up my right to file or pursue
a complaint with the Equal Employment Opportunity Commission, the Department of
Labor, state civil rights agencies and federal and state courts with respect to
any claims relating to age discrimination arising under the Age Discrimination
in Employment Act of 1967, as amended, or under any state or local
discrimination laws.

         I acknowledge that I have been encouraged to discuss the release
language in the Agreement with an attorney prior to executing the agreement and
that I have thoroughly reviewed and understand the effect of the release. I
further acknowledge that I have been given twenty-one (21) days in which to
consider the Agreement and that, if I sign the Agreement before the end of the
twenty-one day period, I am doing so freely, voluntarily and after having had
full and fair opportunity to consult with my retained counsel.


__________________________________          Date:  ________________________
Edward C. Callahan, Jr.