EMPLOYMENT AGREEMENT

     THIS AGREEMENT,  is made as of April 1, 1998, by and between COYOTE NETWORK
SYSTEMS, INC., a Delaware corporation (the "Company"), and DANIEL W. LATHAM (the
"Executive").

                                 R E C I T A L S

     WHEREAS, Executive is willing to be employed by Company, and the Company is
willing to employ the Executive, upon the terms and conditions set forth in this
Agreement.

     NOW,  THEREFORE,  in  order  to set  forth  the  terms  and  conditions  of
Executive's  employment with Company and in  consideration  of the covenants and
agreements of the parties herein contained, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

1.   Employment  Services.   Subject  to  the  terms  and  upon  the  conditions
     hereinafter  set forth,  the Company hereby employs  Executive as President
     and Chief Operating  Officer.  Executive accepts such employment and agrees
     to devote  his full time and use his best  efforts  to  perform  his duties
     pursuant  to this  Agreement  and to further the  business of the  Company.
     Executive  shall not,  without the prior written  consent of the Company as
     authorized  by the  Company's  Board of Directors  ("Board of  Directors"),
     engage  directly or indirectly in any other  business or occupation  during
     his employment  under this Agreement.  Subject to the foregoing,  Executive
     shall be  permitted to manage his own personal  investments  and,  with the
     consent of the Board of Directors,  sit on the board of directors (or other
     governing body) of other companies.

2.   Term and Termination.

2.1  Term. Subject to Section 2.2 hereof, the employment of Executive under this
     Agreement  shall be  deemed  to have  commenced  on April 1,  1998 and will
     continue until the occurrence of the first of the following:

     (a)  March 31, 2003 (i.e., a term of five years);

     (b)  Executive's death; or

     (c)  Executive's illness, physical or mental disability or other incapacity
          resulting  in  Executive's   inability  to  effectively   perform  the
          essential   functions   of  his  job,   with  or  without   reasonable
          accommodation, for a cumulative period of twenty-six (26) weeks during
          any period of twenty-six  (26)  consecutive  months.  

     The term of this Agreement may only be extended by the written agreement of
both the Company (as approved by the Board of Directors) and the  Executive,  as
provided in Section  11.1.  The term of  Executive's  employment  by the Company
under this Agreement is referred to herein as the "Term."

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<PAGE>
2.2  Termination.  The employment of Executive  under this Agreement may also be
     terminated at the option of the Board of Directors  upon the  occurrence of
     any of the following:

     (a)  Executive's  civil  adjudication  or criminal  conviction  of fraud or
          Executive's dishonesty involving Company's business,

     (b)  Executive's  chronic absence from work other than by reason of illness
          or injury,

     (c)  Executive's conviction of any felony,

     (d)  Executive's  conviction  of any  misdemeanor  which  is  substantially
          related to Executive's services hereunder,  

     (e)  Executive's continuing use of illegal drugs or other illegal substance
          (whether or not on the job) after  receiving a written notice from the
          Company  to halt  such  usage  or  Executive's  conviction  of a crime
          involving illegal drugs or other illegal substance,

     (f)  Executive's  continuing  abuse of alcohol  (whether or not on the job)
          after  receiving a written  notice from the Company to halt such usage
          or Executive's  conviction of a crime involving alcohol, which impairs
          Executive's ability to perform Executive's duties under this Agreement
          or has an adverse effect (other than an  insignificant  effect) on the
          reputation  of the Company or its  relationship  with any  customer or
          supplier of the Company, 

     (g)  Executive's  illegal  conduct  either  within or outside  the scope of
          Executive's  employment  which has an adverse  effect  (other  than an
          insignificant  effect)  on  the  reputation  of  the  Company  or  its
          relationship with any customer or supplier of the Company,

     (h)  Executive's  breach of his  obligations  under  Sections  6, 7, 8 or 9
          hereof, or

     (i)  Executive's  breach of any other provision of this  Agreement.  

     If the  Board of  Directors  terminates  the  employment  of the  Executive
without  any such  reason as  aforesaid,  which  Executive  agrees  the Board of
Directors  is entitled to do since  Executive  serves at the  discretion  of the
Board of  Directors,  then  Executive  shall  nevertheless  be  entitled  to the
Guaranteed  Minimum Salary (defined below) hereunder until the date specified in
Section 2.1 and to deferred  compensation  for the duration of the Deferred Term
(defined  below),  and no more.  In the  case of any  other  termination  of the
Executive's  employment,  the salary and benefits hereunder will terminate as of
the date of such  termination,  except as provided in Section 3.2.  Reference is
made to Section 11.1 of this  Agreement  regarding the authority of the Board of
Directors to make  determinations  on behalf of the Company for purposes of this
Agreement.

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<PAGE>
2.3  Effect of Termination.  Executive's  obligations in Sections 6, 7, 8, and 9
     hereof, and the Company's  obligations under Section 3.2, shall survive the
     termination of Executive's employment hereunder for any reason.

3.   Annual and Deferred Compensation.

3.1  Annual  Compensation.  The Company  agrees to pay  Executive  for each full
     fiscal year of the Term (a) a guaranteed minimum annual salary, payable not
     less frequently than  semi-monthly,  at a rate of $300,000 (the "Guaranteed
     Minimum  Salary")  or (b)  the  Variable  Salary  Amount  (defined  below),
     whichever is greater,  not to exceed fifteen times the  Guaranteed  Minimum
     Salary.  The  Variable  Salary  Amount  shall be: for the first year of the
     Term, 10% of the first $6.0 million of pre-tax income of the Company and 5%
     of pre-tax  income in excess of $6.0  million;  for the second  year of the
     Term, 7-1/2% of the first $6.0 million of pre-tax income of the Company and
     5% of pre-tax income in excess of $6.0 million;  and for the third,  fourth
     and  fifth  fiscal  years of the  Term,  5% of the  pre-tax  income  of the
     Company.  The Company's  pre-tax  income shall be its  consolidated  income
     after all expenses,  adjustments  and deductions  except income taxes,  but
     shall  not  include  the  effects,  if  any,  of  extraordinary  items  and
     accounting  changes, as set forth in the Company's  consolidated  financial
     statements  as included  in its annual  report on Form 10-K for such fiscal
     year as filed with the Securities  and Exchange  Commission (in the absence
     of such filing, to be based on the Company's financial statements otherwise
     prepared).  Any amounts due Executive in excess of the  Guaranteed  Minimum
     Salary shall be paid within  fifteen days after the Company  determines its
     pre-tax income for the applicable fiscal year. All payments hereunder shall
     be  subject to  withholding  and other  deductions  by reason of federal or
     state law.

     Examples of the calculation of Executive's salary are set forth below:

     Year     Pre-Tax Income             Calculation              Annual Salary
     ----     --------------      -------------------------       -------------
      1                   0       10% x $0 = $0                       $300,000
                                  (minimum salary $300,000)

      2          $7,000,000       7-1/2% x $6.0 million +             $500,000
                                  5% x $1.0 million =
                                  $500,000

      3         $12,000,000       5% x $12.0 million =                $600,000
                                  $600,000

      4         $20,000,000       5% x $20.0 million =              $1,000,000
                                  $1,000,000

      5        $100,000,000       5% x $100,000,000 =               $4,500,000
                                  $5,000,000
                                 (maximum salary of 15 x $300,000)

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<PAGE>
3.2. Deferred  Compensation.  As further  compensation  for the  services  to be
     performed  by  Executive  hereunder,  for a period  of five  years (or such
     shorter  duration equal to the number of full years of the Term)  following
     the Term (the "Deferred Term"), the Company shall pay Deferred Compensation
     to Executive as follows. The Deferred  Compensation shall be: for the first
     year of the Deferred Term, 10% of the pre-tax income of the Company for the
     first year of the Term; for the second year of the Deferred Term, 7-1/2% of
     pre-tax  income of the Company for the second year of the Term; and for the
     third, fourth and fifth years of the Deferred Term, 5% of pre-tax income of
     the Company for the corresponding year of the Term; provided,  however, the
     Deferred  Compensation  for  any  year  shall  not  exceed  two  times  the
     Guaranteed Minimum Salary for the corresponding year of the Term. The first
     year of the Deferred  Term shall  correspond  to the first year of the Term
     and each  subsequent  year of the Deferred  Term shall  correspond  to each
     subsequent year of the Term. Such Deferred Compensation shall be payable in
     equal installments,  not less frequently than monthly, and shall be subject
     to withholding  and other  deductions by reason of federal or state law. If
     Executive  should die during the Deferred  Term, the Company shall continue
     to make the  payments  required by this  Section 3.2 for the balance of the
     Deferred Term to such  beneficiary  as the Executive may designate for that
     purpose in written  notice given to the  Secretary of the Company  prior to
     his  death  or,  in the  absence  of  such  designation,  to  his  personal
     representatives.

     Examples of the calculation of Deferred Compensation are set forth below:
<TABLE>
<CAPTION>
               Corresponding
                 Deferred
               Compensation
              Year (starting        Pre-Tax                                        Deferred
  Contract     after the 5th     Income During                                   Compensation
    Year       Contract Year     Contract Year            Calculation               Amount
  --------    --------------     -------------    ----------------------------   ------------
 <S>                <C>          <C>              <C>                             <C>   
      1              1           $           0    10% x 0 = $0                          0

      2              2           $   4,000,000    7-1/2% x $4,000,000 = $300,000  $  300,000

      3              3           $   6,000,000    5% x $6,000,000 = $300,000      $  300,000

      4              4           $  10,000,000    5% x $10,000,000 = $500,000     $  500,000

      5              5           $  20,000,000    5% x $20,000,000 = $1,000,000   $  600,000
                                                  (maximum of double minimum
                                                   salary or 2 x $300,000)
</TABLE>
4.   Reimbursement for Expenses.  Company agrees to reimburse  Executive for all
     reasonable  business  expenses  incurred  by him  in  connection  with  the
     performance of his obligations under this Agreement, subject to established
     reimbursement policies of the Company in effect from time-to-time regarding
     expense reimbursement.

5.   Fringe  Benefits.  Executive  shall be  entitled  to the  following  fringe
     benefits  during  the term of his  employment  under  this  Agreement.  The
     Executive  understands that he will recognize income to the extent provided
     by law in  respect of certain  of the  benefits  hereunder,  and that these
     benefits shall be subject to withholding and other  deductions by reason of
     federal or state law.



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<PAGE>
5.1  Vacation.  Executive  shall be allowed four (4) weeks of vacation per year,
     with full pay and  without  loss of any  other  compensation  or  benefits,
     during the term of this Agreement.  Executive shall coordinate the schedule
     of his vacations with other executives and the personnel of Company and its
     affiliates so as to avoid any adverse effects on the Company's operations.

5.2  Stock  Options.  Executive  shall be  entitled  to receive  ten-year  stock
     options of the  Company  for  450,000  shares of stock,  with  vesting  and
     exercise prices set forth below:

     Number of Shares         Vesting (years)            Exercise Price

            90,000                   1                          $4.00
            90,000                   2                          $8.00
            90,000                   3                         $12.00
            90,000                   4                         $16.00
            90,000                   5                         $20.00

     The options must be exercised  within five (5) years after  termination  of
     employment.

5.3  Medical  Benefits.  During the Term and the Deferred Term, the Company will
     pay or reimburse Executive for all medical expenses for the Executive,  his
     spouse and unemancipated children,  including physician,  hospital, dental,
     optometrical, nursing, nursing home and drug expenses.

5.4  Other Fringe Benefits.  Executive may receive such other additional  fringe
     benefits,  if any, as the Board of  Directors  may from  time-to-time  make
     available to Executive at the Board of Directors' sole discretion.

5.5  Other Benefits.  The Board may, in its sole  discretion,  award  additional
     compensation to Executive,  by way of increased salary,  bonus,  options or
     otherwise,  as a result of the  Company's  operating  performance  or other
     factors.

5.6  Change of Control.  In the event of a Change of Control,  the stock options
     for  all  450,000  shares  of  stock  referred  to  in  Section  5.2  shall
     immediately  vest,  the Company  shall pay to  Executive  in a lump sum all
     accrued but unpaid Deferred  Compensation under Section 3.2 and the Company
     shall pay to Executive  in a lump sum the  Guaranteed  Minimum  Salary that
     would be  earned  over  the  remainder  of the  Term  (in each  case net of
     applicable  withholding  and other taxes).  In addition,  any  subsequently
     earned  Variable Salary Amount and Deferred  Compensation  shall be paid to
     Executive  within  fifteen  days after the Company  determines  its pre-tax
     income for the  applicable  year of the Term.  In the event  that  Employee
     ceases to be an  employee  of the  Company  for any reason  following  such
     Change  of  Control,   whether  upon  voluntary  resignation,   involuntary
     termination  or otherwise  (except if such  employment is terminated by the
     Company  pursuant  to Section  2.2),  then  Executive  shall be entitled to
     receive  Deferred  Compensation  and Variable  Salary  Amount  prorated and
     calculated  through the end of the fiscal quarter of such termination,  and
     all medical benefits set forth in Section 5.3 shall continue to be provided


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<PAGE>
     for the remainder of the  originally-scheduled  Term and the full five year
     originally-scheduled  Deferred  Term.  As used herein,  a Change of Control
     means any transaction in which  substantially all the assets of the Company
     are acquired or 50% or more of the issued and  outstanding  common stock of
     the Company is acquired by a single person, entity or group of such persons
     or entities.  Nothing herein shall limit  Executive's  damages in the event
     Executive  is  terminated  without  cause  following a Change of Control or
     otherwise.

6.   Definitions.

     As used in this Agreement, the following words have the meanings specified:

     (a)  "Proprietary  Ideas" means  ideas,  suggestions,  inventions  and work
          relating in any way to the business and  activities  of Company  which
          may be subjects of protection under applicable laws,  including common
          law, including patents, copyrights, trade secrets, trademarks, service
          marks or other intellectual property rights.

     (b)  "Inventions" means inventions, designs, discoveries,  improvements and
          ideas, whether or not patentable,  including without limitation, novel
          or improved products, processes,  machines, software,  promotional and
          advertising materials,  business data processing programs and systems,
          and other manufacturing and sales techniques,  which either (a) relate
          to (i) the business of Company as conducted from  time-to-time or (ii)
          the  Company's   actual  or  demonstrably   anticipated   research  or
          development,  or (b) result from any work  performed by Executive  for
          Company.

     (c)  "Confidential   Information"   means   Proprietary   Ideas   and  also
          information related to Company's  business,  whether or not in written
          or printed form, not generally known in the trade or industry of which
          Executive has or will become  informed during the period of employment
          by the  Company,  which may  include  but is not  limited  to  product
          specifications,    manufacturing   procedures,   methods,   equipment,
          compositions,  technology, formulas, trade secrets, know-how, research
          and  development  programs,  sales methods,  customer  lists,  mailing
          lists,   customer   usages  and   requirements,   software  and  other
          confidential  technical or business  information  and data;  provided,
          however,   that   Confidential   Information  shall  not  include  any
          information  which  is in  the  public  domain  by  means  other  than
          disclosure by Executive.

     (d)  As used in  Sections  6, 7, 8, and 9 only,  the term  "Company"  shall
          include all entities affiliated with the Company.

7.   Disclosure and Assignment of  Inventions.  Executive  agrees to disclose to
     the Company (and,  if requested to do so, to provide a written  description
     thereof to the Company),  and hereby  assigns to Company all of Executive's
     rights in and to, any  Inventions  conceived  or reduced to practice at any
     time during  Executive's  employment  by Company,  either solely or jointly
     with others and whether or not  developed on  Executive's  own time or with
     Company's  resources.  Executive  agrees that  Inventions  first reduced to


                                       6
<PAGE>
     practice within one (1) year after termination of Executive's employment by
     Company  shall be treated as if  conceived  during such  employment  unless
     Executive can establish specific events giving rise to the conception which
     occurred after such employment.  Further,  Executive disclaims and will not
     assert any rights in Inventions as having been made,  conceived or acquired
     prior to employment by Company  except such as are  specifically  listed at
     the conclusion of this  Agreement.  Executive  shall cooperate with Company
     and shall  execute and deliver  such  documents  and do such other acts and
     things as Company may request, at Company's expense, to obtain and maintain
     letters  patent or  registrations  covering any  Inventions  and to vest in
     Company all rights therein free of all encumbrances and adverse claims.

8.   Confidential Information. Except as required by law or regulatory agencies,
     Executive shall not disclose to Company or induce Company to use any secret
     or  confidential  information  belonging  to persons  not  affiliated  with
     Company,  including any former  employer of  Executive.  In addition to all
     duties of loyalty  imposed on Executive by law,  Executive  shall  maintain
     Confidential  Information in strict confidence and secrecy and shall not at
     any time,  during  or at any time  after  termination  of  employment  with
     Company, directly or indirectly, use or disclose to others any Confidential
     Information,  or use it for the benefit of any person or entity  (including
     Executive)  other than Company,  without the prior  written  consent of any
     duly  authorized  officer of Company  (except  for  disclosures  to persons
     acting on Company's behalf with a need to know such information). Executive
     shall carefully preserve any documents,  records and tangible data relating
     to  Inventions  or  Confidential   Information   coming  into   Executive's
     possession  and shall  deliver  the same and any copies  thereof to Company
     upon request and, in any event, upon termination of Executive's  employment
     by Company.

9.   Non-Competition.

     (a)  At all times during  Executive's  employment  by the Company  (whether
          pursuant to this  Agreement or otherwise)  and, to the fullest  extent
          permitted  by  applicable  law,  for a period  of twelve  (12)  months
          following the termination of such  employment,  Executive will not, in
          any capacity  whatsoever,  in any state in the United States or in any
          other country, directly or indirectly, participate in or assist in the
          ownership, management, operation or control of, or have any beneficial
          interest in, or provide employment,  consulting or other services for,
          any  corporation,  partnership,  association or other person or entity
          ("Competitive   Business")   which  is  engaged  in  the  development,
          manufacture,  marketing, distribution, service and/or sale of voice or
          data switching  equipment,  and which directly competes or is planning
          to directly compete with the Company's products or services (including
          products  and  services  under   development).   If  the  business  is
          multi-faceted,  this restriction  shall apply to only that part of the
          business which is competitive to Company.

     (b)  In furtherance of the foregoing,  but as an independent  obligation of
          Executive,  Executive  agrees that he will not, to the fullest  extent
          permitted by  applicable  law,  during the one-year  period  following
          termination  of his employment  with Company,  be connected in any way
          with the  solicitation  of any then current or potential  customers or
          suppliers  of  Company if such  solicitation  is likely to result in a
          loss of business for Company.

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<PAGE>
     (c)  In furtherance of the foregoing,  but as an independent  obligation of
          the Executive,  Executive agrees that, to the fullest extent permitted
          by applicable  law,  during the one year following  termination of his
          employment  with the  Company,  he will not  solicit  for  employment,
          employ or engage as a  consultant  any person who had been an employee
          of the Company at any time in the one-year period prior to termination
          of Executive's employment with Company.

     (d)  In the event the covenants set forth in this Section 9 are found to be
          unenforceable  or invalid by reason of being overly broad, the parties
          hereto  intend  that such  covenants  shall be limited to such  scope,
          geographic  area and duration as shall make such  covenants  valid and
          enforceable.

10.  Government Laws, Regulations and Contracts. Executive agrees to comply, and
     to do all things necessary for Company to comply, with all federal,  state,
     local and foreign laws and regulations  and government  contracts which may
     be applicable to the business and operations of Company.

11.  Miscellaneous.

11.1 Amendment and  Modification.  Company (by action of its Board of Directors)
     and Executive may amend,  modify and supplement this Agreement only in such
     manner as may be agreed upon by Company  and  Executive  in  writing.  This
     provision  shall  be  applicable  to any  extension  of the  term  of  this
     Agreement  as  provided  in  Section  2.1.  All  determinations,   waivers,
     consents,  approvals  or  other  acts on the part of the  Company  that are
     permitted  or  required  by this  Agreement  shall  similarly  require  the
     approval of the Board of Directors.

11.2 Entire Agreement. This instrument embodies the entire agreement between the
     parties hereto with respect to the employment  relationship  created hereby
     and supersedes and discharges any prior agreements pertaining to employment
     between  Executive and the Company.  There have been and are no agreements,
     representations  or  warranties  between the  parties  other than those set
     forth or provided for herein relating to such employment relationship.

11.3 Assignment.  This  Agreement  shall not be assigned by either party without
     the  written  consent  of the  other  party.  Inasmuch  as  this  Agreement
     contemplates   the  provision  of  personal   services  by  the  Executive,
     ordinarily  this Agreement  shall not be assignable by the Executive.  This
     Agreement  shall  not be  assigned  by the  Company  except  with the prior
     written consent of the Executive, which he shall not unreasonably withhold.
     Any  attempted  assignment  without such written  consent shall be null and
     void and without legal effect.

11.4 Binding Effect; Specific Performance.  Subject to Section 11.3 hereof, this
     Agreement  shall be binding upon and inure to the benefit of the respective
     parties   hereto  and  their   successors,   assigns,   heirs,   executors,
     administrators  and personal  representatives.  The parties hereto shall be
     entitled,  at their option,  to the remedy of specific  performance  to the
     fullest  extent  permitted by applicable law in enforcing the provisions of
     this Agreement.



                                       8
<PAGE>
11.5 Arbitration.  Any dispute,  controversy or claim arising out of or relating
     to this  Agreement,  or the breach hereof,  or the employment  relationship
     hereunder,  shall  be  settled  by  binding  arbitration  in  Los  Angeles,
     California  administered by the American Arbitration  Association under its
     Commercial  Arbitration  Rules,  and judgment on the award  rendered by the
     arbitrators may be entered in any court having jurisdiction thereof.

11.6 Agreement Severable; Waiver. This is a severable Agreement and in the event
     that any part of this  Agreement  shall  be held to be  unenforceable,  all
     other parts of this Agreement  shall remain valid and fully  enforceable as
     if the unenforceable  part or parts had not been included herein. No waiver
     of any  provision of this  Agreement  shall be binding  unless  executed in
     writing  by the party to be bound  hereby.  No waiver of a breach of any of
     the provisions of this Agreement shall be deemed to be or shall  constitute
     a waiver of a breach of any other provision of this  Agreement,  whether or
     not similar,  nor shall such waiver  constitute a continuing waiver of such
     breach  unless  otherwise  expressly  provided.  No  failure  or  delay  in
     exercising any right,  power or remedy  hereunder shall operate as a waiver
     thereof,  nor shall any single or partial exercise of any such right, power
     or remedy preclude any other or further exercise thereof or the exercise of
     any other right, power or remedy.

11.7 Notices.   For   purposes  of  this   Agreement,   notices  and  all  other
     communications  provided for in the Agreement shall be in writing and shall
     be deemed to have been duly given when actually  delivered to the recipient
     or when  mailed by United  States  certified  or  registered  mail,  return
     receipt requested, postage prepaid, addressed as follows:


         If to Executive, to:       James J. Fiedler
                                    4360 Park Terrace Drive    
                                    Westlake Village, CA  91361

         If to Company, to:         Coyote Network Systems, Inc.       
                                    Attn:  Board of Directors
                                    4360 Park Terrace Drive
                                    Westlake Village, CA  91361

     or to such other address as either party may have furnished to the other in
     writing in accordance  herewith  except that notices of a change of address
     shall be effective only upon receipt.

11.8 Governing  Law.  THIS  AGREEMENT  SHALL BE  GOVERNED  BY AND  CONSTRUED  IN
     ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO THE
     CHOICE OF LAW PRINCIPLES THEREOF.

     EXECUTIVE  ACKNOWLEDGES  HAVING READ,  EXECUTED AND RECEIVED A COPY OF THIS
     AGREEMENT, INCLUDING THE FOLLOWING NOTICE, AND AGREES THAT, WITH RESPECT TO
     THE SUBJECT MATTER HEREOF, IT CONSTITUTES EXECUTIVE'S ENTIRE AGREEMENT WITH
     COMPANY,   SUPERSEDING   ANY  PREVIOUS  ORAL  OR  WRITTEN   COMMUNICATIONS,
     REPRESENTATIONS,  UNDERSTANDINGS  OR AGREEMENTS  WITH THE COMPANY OR ANY OF
     ITS OFFICIALS OR REPRESENTATIVES.

                                       9
<PAGE>
     Notwithstanding  anything  to  the  contrary  in  Section  7  hereof,  this
     Agreement does not apply to an Invention for which no equipment,  supplies,
     facility, or trade secret information of the Company was used and which was
     developed  entirely  on  Executive's  own time,  unless  (a) the  Invention
     relates (i) to the business of the Company as conducted  from  time-to-time
     or (ii) to the Company's  actual or  demonstrably  anticipated  research or
     development,  or (b) the Invention  results from any work  performed by the
     Executive for the Company.

     NOTWITHSTANDING  THE FORGOING  PROVISIONS OF SECTION 7, EXECUTIVE IS HEREBY
     NOTIFIED BY THE COMPANY THAT SUCH  PROVISIONS DO NOT APPLY TO ANY INVENTION
     THAT QUALIFIES FULLY UNDER THE PROVISIONS OF SECTION 2870 OF THE CALIFORNIA
     LABOR CODE. BY HIS SIGNATURE BELOW,  EXECUTIVE HEREBY ACKNOWLEDGES  RECEIPT
     OF SUCH NOTIFICATION.

     IN WITNESS  WHEREOF,  the parties have caused this Agreement to be executed
and effective as of the day and year first above written.

         COYOTE NETWORK SYSTEMS, INC. ("Company")


         By:   /s/ Jack E. Donnelly
               -------------------------
                  Jack E. Donnelly


         DANIEL W. LATHAM ("Executive")


         By:   /s/ Daniel W. Latham
               -------------------------
                  Daniel W. Latham


         List of Inventions Excepted From Section 7 Above:

                  None




MW1-130274-3


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