Document:

EMPLOYMENT AGREEMENT

THIS AGREEMENT, made as of this 26th day of January, 2000, is by and between
COYOTE NETWORK SYSTEMS, INC., a Delaware corporation (the "Company"), and JAMES
R. McCULLOUGH (the "Employee").

                                    RECITALS

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

NOW, THEREFORE, in order to set forth the terms and conditions of the Employee's
employment with the 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 conditions hereinafter set forth, the Company
     hereby employees the Employee as Chief Executive Officer commencing on
     January 14, 2000 and ending on the last day of the Term (as defined below).
     The Employee accepts such employment and agrees to perform all duties in a
     conscientious, reasonable and competent manner and to devote his reasonable
     best efforts to perform his duties pursuant to this Agreement and to
     further the business of the Company, as directed by the Board of Directors.
     Without further action of the Company, the Employee may engage in other
     business, consulting, financial and other activities during the employment
     hereunder subject to fulfilling his duties hereunder. The Employee has
     disclosed in Schedule 1 attached hereto the names of his other business
     affiliations as of the date hereof and agrees to promptly notify the
     Company of any additional affiliations.

2.   TERM AND TERMINATION

     2.1  TERM

     Subject to section 2.2 hereof, the employment of the Employee under this
     Agreement will commence on January 14, 2000 (the "Effective Date") and
     continue until the occurrence of the first of the following (the
     "Termination Date"):

          (a)  January 14, 2003 (i.e., a term of three years);

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          (b)  The Employee's death; or

          (c)  The Employee's illness, physical or mental disability or other
               incapacity resulting in the Employee's inability to effectively
               perform his duties under this Agreement for an aggregate of
               thirty (30) days during any period of six (6) consecutive months.

               The period beginning on the Effective Date and ending on the
               Termination Date is referred to herein as the "Term."

     2.2  TERMINATION

          The Employee may be terminated prior to the expiration of the Term
          with or without "Cause" at the sole discretion of the Board of
          Directors. "Cause" shall include any of the following occurrences:

          (a)  The Employee's conduct involving fraud or moral turpitude or the
               Employee's dishonesty involving the Company's business;

          (b)  The Employee's chronic absence from work other than by reason of
               illness, injury, vacation or business- related travel, which
               continues after the Employee has received a written notice from
               the Company to halt such chronic absence;

          (c)  Conviction of any felony;

          (d)  The Employee's conviction of any misdemeanor which is
               substantially related to the Employee's services hereunder;

          (e)  The Employee's abuse of alcohol (whether or not on the job) after
               receiving a written notice from the Company to halt such usage or
               the Employee's conviction of a crime involving alcohol;

          (f)  The Employee's 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 the Employee's conviction of a
               crime involving illegal drugs or other illegal substance, which
               impairs the Employee's ability to perform his duties under this
               Agreement or has an adverse effect (other than an insignificant
               effect) on the Company, its business or its relationship with any
               customer or supplier of the Company;

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          (g)  Conduct either within or outside the scope of the Employee's
               employment which has an adverse effect (other than an
               insignificant effect) on the Company, its business or its
               relationship with any customer or supplier of the Company;

          (h)  A breach by the Employee of his obligations under sections 7, 8
               or 9 hereof; and

          (i)  A material breach of any other provision of this Agreement by the
               Employee, following written notice and failure to cure within a
               reasonable time (which cure period shall be no less than five
               days after Employee's receipt of such notice).

          The Employee may resign and terminate this Agreement on five days
          prior written notice to the Company for no reason or any reason
          ("Voluntary Termination"). In addition, the Employee may terminate
          this Agreement if the Company has materially breached any provision of
          this Agreement and the Company has not cured such breach within a
          reasonable time (but no less than five days) after receipt of written
          notice of such breach ("Termination for Good Cause").

     2.3  EFFECT OF TERMINATION

          If the Employee is terminated for "Cause" as defined above, or the
          Employee effects a Voluntary Termination, then this Agreement shall
          terminate and the Employee shall not be entitled to any unearned
          compensation or benefits under this Agreement as of the date of
          termination and any unvested options as of the date of termination
          granted pursuant to section 3.2 shall be void and cancelled. If the
          Employee is terminated without "Cause" as defined above, or the
          Employee effects a Termination for Good Cause, then this Agreement
          shall terminate and the Employee shall nevertheless be entitled to six
          months of semi-monthly salary installments as set forth in section 3.1
          and the stock options and vesting schedule of section 3.2 shall remain
          in effect. The Employee's obligations in sections 6, 7, 8, 9 and 10
          hereof shall survive the termination of employment hereunder for any
          reason.

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     3. COMPENSATION

     3.1 SALARY

          The Company agrees to pay the Employee for each full fiscal year of
          the term of this Agreement an annual salary, payable in 24 equal
          semi-monthly payments, at a rate equal to $160,000 per year.

     3.2  STOCK OPTIONS

          The Employee shall be entitled to receive five-year stock options of
          the Company for 750,000 shares of the Company's common stock at an
          exercise price of $5.00/share (the "Options"), with vesting as set
          forth below:

          Number of Options/Shares Vesting

           300,000  Immediate

           100,000  January 14, 2001, provided, however, such vesting shall
                    be accelerated if the closing price of the Company's common
                    stock on the Nasdaq National Market is equal to or greater
                    than $8.00/share for 20 consecutive trading days

           150,000  January 14, 2002, provided, however, such vesting shall
                    be accelerated if the closing price of the Company's common
                    stock on the Nasdaq National Market is equal to or greater
                    than $12.00/share for 20 consecutive trading days

           200,000  January 14, 2003, provided, however, such vesting shall
                    be accelerated if the closing price of the Company's common
                    stock on the Nasdaq National Market is equal to or greater
                    than $16.00/share for 20 consecutive trading days

          All Options must be exercised on or before the earlier of (i) January
          14, 2006 or (ii) the date which is three (3) years after termination
          of the Employee's employment with the Company for any reason.

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          Notwithstanding the foregoing, all stock options granted to the
          Employee above shall immediately vest in the event of any transaction
          in which substantially all of 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.

          The Employee hereby acknowledges that the stock options set forth
          above and the shares underlying such stock options have not been
          registered or qualified for sale under the Securities Act of 1933, as
          amended (the "Act"), or any state securities law and may not be sold,
          hypothecated, pledged, assigned or otherwise transferred, nor will any
          assignee, vendee or other transferee be recognized as having an
          interest in such stock options or shares of stock, unless a
          registration statement under the Act and any applicable state
          securities laws is then in effect with respect to such stock options
          or shares of stock or the availability of an exemption from such
          registration is established to the satisfaction of the Company.

          The Employee further acknowledges that the Company must amend its
          Certificate of Incorporation (the "Charter Amendment") to authorize
          the shares underlying such Options to permit the Employee to exercise
          any such Options. The Company will use all commercially reasonable
          efforts to obtain the approval of its stockholders and take such other
          actions as are necessary to effect the Charter Amendment. Subject to
          the effectiveness of the Charter Amendment, the Company shall at all
          times prior to by which all such options must be exercised reserve and
          keep available, solely for issuance and delivery upon the exercise of
          such Options, a number of authorized shares of common stock equal to
          the number of shares of common stock which may be purchased upon
          exercise of such Options.

     3.3  ADJUSTMENT

          The Company and the Employee hereby agree that at the earlier of six
          (6) months from the date hereof or upon vesting of all of the options
          set forth in section 3.2 above, the Employee will meet with the Audit
          Committee of the Board of Directors for the purpose of increasing or
          adjusting the Employee's compensation hereunder. The focus of such
          meeting shall be an assessment of the granting of additional stock
          options and salary to the Employee.

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     3.4  ACKNOWLEDGEMENT

          The Company acknowledges (i) that the Options being granted hereunder
          are granted to the Employee in his individual capacity and not in
          payment of the Employee providing any finder, broker, dealer,
          placement agent or other investment banking or advisory services and
          (ii) the Options as awarded and vested are in no way dependent on the
          Employee introducing or causing any particular person or entity to
          invest in the Company or effect any given transaction with the
          Company.

     4.   REIMBURSEMENT FOR EXPENSES

          The Company agrees to reimburse the Employee 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, including, without limitation,
          reasonable travel, entertainment, cell phone, long distance charges
          and other customary expenses the Employee incurs in the performance of
          his duties hereunder, and to further reimburse the Employee for any
          reasonable legal or accounting fees incurred by Employee in connection
          with his entry into this Agreement or the performance of his duties up
          through the date hereof.

     5.   BENEFITS

          The Employee shall be entitled to the following benefits during the
          term of his employment under this Agreement, and shall be offered any
          additional benefits typically offered or provided any other executive
          officers of the Company.

     5.1  VACATION

          The Employee shall be allowed three (3) weeks of vacation per year
          during the term of this Agreement, with full pay and without loss of
          any other compensation of benefits, in accordance with established
          Company policies. The Employee shall coordinate the schedule of his
          vacations with other executives and the personnel of the Company at
          its affiliates so as to provide sufficient managerial and executive
          coverage for the Company's operations.

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     5.2  MOVING ALLOWANCE

          The Employee shall be entitled to reimbursement from the Company in an
          aggregate amount of $20,000 for expenses relating to his initial
          relocation to the Company's headquarters.

     5.3  OTHER BENEFITS

          The Employee may receive such other benefits, if any, as the Board of
          Directors may from time-to-time make available to the Employee in the
          Board of Directors' sole discretion; provided, however, the Employee
          shall be eligible for any benefits offered to any other member of the
          Company's senior executive team on terms no less favorable that those
          offered to other members of the senior executive team.

     5.4  PAYMENTS

          All cash payments due to the Employee hereunder shall be paid promptly
          (no later than two business days after the due date) in immediately
          available funds to the account specified by the Employee or by check
          made payable to the order of the Employee.

     6.   DEFINITIONS

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

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

          (c)  "Invention" means inventions, designs, discoveries, improvements
               and ideas, whether or not patentable, including without
               limitation, upon the generality of the foregoing, 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 the Company as conducted
               from time-to-time or (ii) the Company's actual or demonstrably

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               anticipated research or development, or (b) result from any work
               performed by the Employee for the Company.

          (d)  "Confidential Information" means Proprietary Ideas and also
               information related to the Company's business, whether or not in
               written or printed form, not generally known in the trade or
               industry of which the Employee 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 usage 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 the
               Employee or which the Employee must disclose by operation of law
               or legal or administrative process.

          (e)  As used in sections 7, 8, 9 and 10 only, the term "the Company"
               shall include all entities affiliated with the Company.

     7.   DISCLOSURE AND ASSIGNMENT OF INVENTIONS

          The Employee agrees to disclose to the Company, and hereby assigns to
          the Company all of the Employee's rights in and, if requested to do
          so, provide a written description of, any Inventions conceived or
          reduced to practice at any time during the Employee's employment by
          the Company, either solely or jointly with others and whether or not
          developed on the Employee's own time or with the Company's resources.
          The Employee agrees that Inventions first reduced to practice within
          one (1) year after termination of the Employee's employment by the
          Company shall be treated as if conceived during such employment unless
          the Employee can establish specific events giving rise to the
          conception which occurred after such employment. Further, the Employee
          disclaims and will not assert any rights in Inventions as having been
          made, conceived or acquired prior to employment by the Company except
          such as are specifically listed at the conclusion of this Agreement.
          The Employee shall cooperate with the Company and shall execute and
          deliver such documents and do such other acts and things as the
          Company may request, at the Company's expense, to obtain and maintain
          letters patent or registrations covering any Inventions and to vest in

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          the Company all rights therein free of all encumbrances and adverse
          claims.

     8.   CONFIDENTIAL INFORMATION

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

     9.   NON-SOLICITATION

          (a)  The Employee agrees that he will not, during the one-year period
               following termination of his employment with the Company, be
               connected in any way with the solicitation of any then current or
               potential (defined as persons or companies with pending quotes to
               or from the Company) customers or suppliers of the Company if
               such solicitation is likely to result in a loss of business for
               the Company.

          (b)  The Employee agrees that he will not, during the one year period
               following termination of his employment with the Company, solicit
               for employment, employ or engage as a consultant any person who
               had been an employee of the Company at any time in the two year
               period prior to the Employee's termination of employment with the
               Company.

          (c)  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

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               such scope, geographic area and duration as shall make such
               covenants valid and enforceable.

     10.  ENFORCEMENT OF SECTION 7, 8 AND 9

          Recognizing that compliance with the provisions of sections 7, 8 and 9
          of this Agreement is necessary to protect the goodwill and other
          proprietary interests of the Company, and that breach of the
          Employee's agreements thereunder will result in irreparable and
          continuing damages to the Company for which there will be no adequate
          remedy at law, the Employee hereby agrees that in the event of any
          breach of such agreements, the Company shall be entitled to seek
          injunctive relief and such other and further relief, including
          damages, as may be proper.

     11.  LAWS, REGULATIONS AND CONTRACTS

          The Employee agrees to comply, and to do all things necessary for the
          Company to comply, with all federal, state, local and foreign laws and
          regulations which may be applicable to the business and operations of
          the Company, and with any contractual obligations, including, without
          limitation, confidentiality obligations, which may be applicable to
          the Company or Executive under any contracts between the Company and
          its customers, suppliers or third parties.

     12.  MISCELLANEOUS

     12.1 AMENDMENT AND MODIFICATION

          The Company (by action of the Board of Directors) and the Employee may
          amend, modify and supplement this Agreement only in such manner as may
          be agreed upon by the Company and the Employee in writing.

     12.2 ENTIRE AGREEMENT

          This instrument embodies the entire agreement between the parties
          hereto with respect to the employment relationship created hereby and
          supersedes and replaces any prior agreements pertaining to employment
          between the Employee 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.

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     12.3 ASSIGNMENT

          This Agreement shall not be assigned by the Employee without the
          written consent of the Company. Any attempted assignment without such
          written consent shall be null and void and without legal effect;
          provided, however, nothing herein shall prevent the Employee from
          assigning and of his rights to payment hereunder to any third company
          in full compliance with all state and federal laws. This Agreement may
          be assigned by the Company to a successor corporation or a good-faith
          purchaser of the Company's stock or assets only in connection with a
          sale of all or substantially all of the Company's assets or as a
          result of a merger or other business combination involving the Company
          and any such assignment shall not terminate or modify this Agreement,
          except that the employing party to which the Employee shall have been
          transferred shall, for the purposes of this Agreement, be construed as
          standing in the same place and stead as the Company as of the date of
          the assignment.

     12.4 BINDING

          Subject to section 12.3 hereof, this Agreement shall be binding upon
          and insure 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 enforce any of the
          provisions of this Agreement.

     12.5 ARBITRATION

          Any dispute, controversy or claim arising out of or relating to this
          Agreement, or the breach hereof, shall be settled by binding
          arbitration in Los Angeles, California administered by the American
          Arbitration Association under its Employment Dispute Resolution, and
          judgment on the award rendered by the arbitrators may be entered in
          any court having jurisdiction thereof.

     12.6 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

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          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.

     12.7 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 delivered or mailed by United States
          certified or registered mail, return receipt requested, postage
          prepaid, addressed as follows:

          If to EMPLOYEE, to:      James R. McCullough
                                   69 Liberty Street
                                   Madison, CT  06943

          If to COMPANY, to:       Coyote Network Systems, Inc.
                                   Attn: President
                                   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.

     12.8 AFFILIATED PARTIES

          The Employee hereby represents to the Company that he has ownership
          interests in the companies or entities listed on Schedule 1 attached
          hereto which may from time to time enter into transactions or other
          business relationships with the Company. The Employee hereby agrees he
          will update Schedule 1 immediately if there are changes. No contract,
          transaction or other business relationship involving the Company and
          any such company or entity affiliated with Employee as of the date of
          such proposed contract, transaction or business relationship may be
          authorized solely by the Employee.

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     12.8 GOVERNING LAW

          This Agreement shall be governed and construed under the laws of the
          State of California.

     12.9 INDEMNIFICATION; INSURANCE

          The Company represents and warrants to the Employee that it has and
          will maintain adequate directors and officers' liability insurance
          coverage and that it will indemnify the Employee to the full extent
          permitted by the General Corporation Law of the State of Delaware, as
          provided in the Certificate of Incorporation of the Company.

     12.10 CORPORATE AUTHORITY; ENFORCEABILITY

          The Company represents and warrants to the Employee that it is a
          corporation duly organized and validly existing under the laws of the
          State of Delaware and that the execution and delivery of this
          Agreement, and the performance by the Company of its obligations
          hereunder, have been duly authorized by proper corporate action on the
          part of the Company. This Agreement is a legal, valid and binding
          obligation of the Company, enforceable against the Company in
          accordance with its terms.

     THE EMPLOYEE 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 THE EMPLOYEE'S ENTIRE AGREEMENT
     WITH THE COMPANY, SUPERSEDING ANY PREVIOUS ORAL OR WRITTEN COMMUNICATIONS,
     REPRESENTATIONS, UNDERSTANDINGS OR AGREEMENTS WITH THE COMPANY OR ANY OF
     ITS OFFICIALS OR REPRESENTATIVES.

     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 the Employee'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
     Employee for the Company.

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

                            COYOTE NETWORK SYSTEMS, INC.

                            BY:  /s/ James J. Fiedler    /s/ Daniel W. Latham
                                 --------------------    --------------------
                                 James J. Fiedler        Daniel W. Latham
                                 Chairman                President

                            /s/ James R. McCullough
                            -----------------------
                            JAMES R. McCULLOUGH

<PAGE>
                                   SCHEDULE 1

                       AFFILIATIONS OF JAMES R. McCULLOUGH
                           IN OTHER BUSINESS VENTURES

A.   Ownership Interests:

               Name of Business                       Ownership Interest

        Renwick Corporate Finance, Inc.                       50%
             First Venture Leasing                            25%
                   KJR, LLC                                 33-1/3%

B.   Directorships: None.

C.   Officer Positions in other Companies: None other than various positions
     with the entities listed in section A above.CONSULTING AGREEMENT

         THIS  AGREEMENT  is made and entered into as of January 26, 2000 by and
between COYOTE NETWORK  SYSTEMS,  INC., a Delaware  corporation (the "Company"),
and KRJ, LLC, a Delaware limited liability company ("Consultant").

     1. Consultant's Duties.

     (a) Since January 14, 2000 ("the "Effective Date") Consultant has performed
services for the benefit of the Company, specifically being instrumental in
advising and assisting the Company on (i) identifying strategic partners and
business opportunities; (ii) introductions to substantial IP Telephony
customers; (iii) introduction of new management; (iv) restructuring of vendor
finance programs; (v) investor relations; (vi) identifying credit facilities;
and (vii) structuring a recapitalization of the Company; (viii) increasing
foreign and domestic sales development; and (ix) seeking to achieve the
continued viability of the Company and sustained earnings growth and shareholder
value through 2000 and beyond;

     (b) From the date hereof, Consultant's duties under this Agreement will
include continuing participation in the activities listed in subsection (a)
above.

     (c) Consultant's duties hereunder have not to date, and shall not
hereinafter, include introducing the Company to investors, promoting the
Company's stock to third parties or placing (or advising on the placement of)
the Company's equity or debt securities to any party. The Company acknowledges
that all such services shall be performed by a registered broker-dealer.

     (d) Consultant agrees to use its reasonable best efforts to performing the
duties set forth in subsection (b) above.

     2. Term of Agreement. The initial term of this Agreement will commence on
the Effective Date and terminate on third anniversary of the date hereof. The
Company may terminate this Agreement for any reason upon 30 days' written notice
to Consultant or Consultant may terminate this Agreement for any reason on 30
days' written notice to the Company, but Consultant shall nevertheless be
entitled to the compensation set forth in section 3 below.

     3. Compensation. As remuneration for Consultant's services set forth in
section 1(a) above, the Company shall issue 2,000,000 shares of the Company's

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Common Stock, par value $1.00 per share (the "Common Stock"), to Consultant and
deliver such shares of the Common Stock to Consultant as follows:

     (a) 750,000 shares of Common Stock within fifteen days of the Effective
Date;

     (b) 1,250,000 shares of Common Stock shall be placed in escrow, to be
automatically delivered to Consultant as follows:

          (i) 416,666 shares of Common Stock within five days after the first
     anniversary of the date of this Agreement provided, however, the escrow
     agent shall accelerate the delivery if the closing price of the Common
     Stock on the Principal Market (as defined below) is equal to or greater
     than $8 per share for 20 consecutive trading days;

          (ii) 416,667 shares of Common Stock within five days after the second
     anniversary of the date of this Agreement provided, however, the escrow
     agent shall accelerate the delivery if the closing price of the Common
     Stock on the Principal Market is equal to or greater than $12 per share for
     20 consecutive trading days;

          (iii) 416,667 shares of Common Stock within five days after the third
     anniversary of the date of this Agreement provided, however, the escrow
     agent shall accelerate the delivery if the closing price of the Common
     Stock on the Principal Market is equal to or greater than $16 per share for
     20 consecutive trading days; or

          (iv) immediately upon any transaction in which substantially all of
     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 (a "Change in Control").

     Under the terms of the escrow agreement, Consultant shall retain all voting
and dividend rights with respect to the shares of Common Stock held in escrow.
The escrow agent shall comply with the delivery schedule set forth above, absent
an order from a court of competent jurisdiction staying the delivery or
otherwise directing delivery to another person.

     For purposes of this section 3, "Principal Market" means the Nasdaq
National Market, the Nasdaq SmallCap Market, the OTC Bulletin Board, the
American Stock Exchange or the New York Stock Exchange, whichever at the time is
the principal trading exchange or market for the Common Stock. The Company and
Consultant hereby agree that at the earlier of six (6) months from the date
hereof or upon delivery to Consultant of all of the Common Stock as set forth

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above, Consultant will meet with the Audit Committee of the Board of Directors
for the purpose of further compensating Consultant for the services provided
from January 26, 2000 to the date of the meeting. The focus of such meeting
shall be an assessment of the granting of additional stock or warrants to
Consultant sufficient to provide Consultant with reasonably equivalent economic
value as set forth on Exhibit A attached hereto.

     4. Trading Restrictions. Notwithstanding any other holding period or
trading restrictions imposed by law, which restrictions Consultant agrees to
follow, Consultant further agrees that it will not sell, pledge, hypothecate or
otherwise transfer any of the shares granted under section 3 until 12 months
from the date of delivery of the Common Stock by the Company or the escrow
agent, as the case may be, to Consultant; provided, however, that in the event
of a Change in Control these trading restrictions shall be lifted.

     5. Status. During the term of this Agreement, the relationship of the
Company and Consultant shall be that of independent contractor. This Agreement
shall not in any way create a relationship of principal and agent or employer
and employee between the Company and Consultant.

     6. Expenses. The Company will reimburse Consultant for any reasonable
business expenses incurred by Consultant in performance of its duties hereunder,
provided that those expenses are approved in advance and in writing by the
Company. The Company agrees to reimburse Consultant for legal and accounting
expenses related to services rendered hereunder, not to exceed $15,000 in the
aggregate. Any additional legal or accounting expenses Consultant incurs in
connection with this Agreement or the performance of its duties hereunder shall
be at Consultant's expense.

     7. Confidential Information. In connection with the performance of its
services under this Agreement, Consultant may receive information concerning the
Company and its affiliates, including, without limitation, descriptive
memoranda, appraisals, financial statements or summaries, correspondence,
records or other specific financial, technical, commercial or other information
regarding their businesses and affairs, whether or not such material is
specifically marked or designated as confidential (the "Confidential
Information"). The parties agree that the Confidential Information has been
acquired, established and maintained at great expense, protected as confidential
information and trade secrets and are of great value and will provide the
Company with a substantial competitive advantage in its business. Therefore,
Consultant agrees that it will not, directly or indirectly, either individually
or as an employee, principal, agent, owner, trustee, beneficiary, distributor,
partner, co-venturer, shareholder, consultant or in any other capacity, use or
disclose, or cause to be used or disclosed, any of the Confidential Information,

                                       3
<PAGE>

whether such information was owned the Company prior to, or developed by the
Company subsequent to, its relationship with Consultant, and regardless of the
fact that Consultant may have participated in the discovery and development of
that information; provided, however, Consultant may disclose such information to
it members, its legal advisors and any other party directly involved in
Consultant rendering its services hereunder so long as Consultant receives from
such individuals or entities (except for Consultant's members, legal advisors
and accountants) and provides to the Company a confidentiality agreement similar
in scope to this Agreement. Nothing contained herein shall be construed as
restricting or creating any liability for the disclosure, communication or use
of the following information:

     (a) information which, at the time of disclosure hereunder, was published
or known publicly or was otherwise in the public domain;

     (b) information which after disclosure hereunder, is published or becomes
publicly known or otherwise in the public domain other than as a result of a
breach of this Agreement;

     (c) information which was disclosed to the recipient in good faith by a
third party who was not, and is not, under any obligation of confidence or
secrecy to the other party hereto at the time of such disclosure; or

     (d) information if for which the disclosure is legally required, in the
opinion of counsel to Consultant, to be made in a judicial, administrative or
governmental proceeding or process. Consultant shall promptly notify the Company
of Consultant being legally required to make such disclosure to allow the
Company to oppose such compelled disclosure.

     8. Consultant's Representations and Warranties. Consultant represents and
warrants to the Company that:

     (a) Consultant is not a registered broker or dealer in securities under any
federal or state securities laws;

     (b) Neither Consultant nor any of its affiliates, agents, officers or
employees is currently subject to disciplinary action of any kind by the U.S.
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., any stock or commodities exchange or any state securities
authority;

     (c) Neither Consultant nor any of its affiliates, agents, officers or
employees has ever been found liable by, or is currently the subject of an
injunction issued by, a court or arbitration board in connection with alleged
securities law violations or improprieties;

                                       4
<PAGE>

     (d) Consultant is acquiring the shares of Common Stock issuable pursuant to
section 3 solely for its own account for investment purposes, and not with a
view to the distribution thereof, and Consultant acknowledges that any
certificate for the Common Stock may contain a legend in the form attached
hereto as Exhibit B;

     (e) Consultant understands that the Common Stock has not been, and will not
be, registered under the Securities Act of 1933, as amended (the "Securities
Act"), or under any state securities laws, and are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering;

     (f) Consultant is an accredited investor within the meaning of Rule 501(a)
of Regulation D under the Securities Act;

     (g) Consultant and each natural person who, directly or indirectly, is a
beneficial owner of an ownership interest in Consultant has received certain
information concerning the Common Stock and the Company, including, without
limitation, copies of the Company's filings with the Securities and Exchange
Commission, and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Common Stock;

     (h) Consultant and each natural person who, directly or indirectly, is a
beneficial owner of an ownership interest in Consultant is able to bear the
economic risk and lack of liquidity inherent in holding the Common Stock;

     (i) Consultant and each natural person who, directly or indirectly, is a
beneficial owner of an ownership interest in Consultant acting on his or its own
behalf or in conjunction with his or its duly authorized legal, financial or
other advisors, has such knowledge and experience in financial and business
matters that he or it is capable of evaluating the merits and risks of the
prospective investment in the Shares; and

     (j) Consultant has relied solely upon its own knowledge and experience and
the advice of its own legal, financial or other advisors with regard to the
legal, investment, tax and other considerations involved in deciding to acquire
the Company's Common Stock as compensation for its services.

     9. The Company's Representations and Warranties. The Company represents and
warrants to Consultant that the shares of Common Stock to be issued pursuant to
this Agreement have been duly authorized and, when the shares of Common Stock

                                       5
<PAGE>

delivered as contemplated hereby, will be validly issued, fully paid and
non-assessable and will not be subject to any preemptive or similar rights. The
Company shall at all times during the term of this Agreement reserve and keep
available, solely for issuance and delivery pursuant to this Agreement, a number
of authorized shares of Common Stock equal to the number of shares of Common
Stock which may issued pursuant to section 3. The Company further represents and
warrants to Consultant that it is a corporation duly organized and validly
existing under the laws of the State of Delaware and that the execution and
delivery of this Agreement, and the performance by the Company of its
obligations hereunder, have been duly authorized by proper corporate action on
the part of the Company and that this Agreement is legal, valid and binding
obligation of the Company, enforceable against the Company according to its
terms.

     10. Additional Covenants of Consultant. Consultant covenants to the Company
that (a) the representations and warranties set forth in section 7(a), (b) and
(c) will be true and correct as of the date of this Agreement and the date that
the Common Stock is issued, and (b) the representations and warranties set forth
in section 7(d), (e), (f), (g), (h), (i) and (j) will be true and correct at any
time that the Company issues Common Stock pursuant to section 3.

     11. Specific Performance. Consultant acknowledges and agrees that
irreparable injury to the Company may result in the event Consultant breaches
any covenant and agreement contained in section 6 and that the remedy at law for
the breach of any such covenant will be inadequate. Therefore, if Consultant
engages in any act in violation of the provisions of section 6, Consultant
agrees that the Company shall be entitled, in addition to such other remedies
and damages as may be available to it by law or under this Agreement, to
injunctive relief to enforce the provisions of section 6; provided, however,
nothing herein shall deprive Consultant of the right to contest the granting of
any injunction.

     12. Governing Law; Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California (regardless of
such State's conflict of laws principles), and without reference to any rules of
construction regarding the party responsible for the drafting thereof. This
Agreement shall be construed without reference to any rules of construction
regarding the party responsible for drafting thereof.

     13. Waiver. The failure of any party to insist, in any one or more
instances, upon performance of any of the terms or conditions of this Agreement,
shall not be construed as a waiver or a relinquishment of any right granted
hereunder for the future performance of any such term, covenant or condition.

     14. Notice. All notices and other communications given or made pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given

                                       6
<PAGE>

or made upon receipt, if delivered personally, on the third business day
following deposit in the U.S. mail if mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or the next business day following electronic transmission
to the telecopier number specified below with receipt acknowledged:

                 If to the Company:     Coyote Network Systems, Inc.
                                        4360 Park Terrace Drive
                                        Westlake Village, CA 91361
                                        Attn:  President
                         Facsimile:     818-735-7633

                 If to Consultant:      KRJ, LLC
                                        c/o Duval & Stachenfeld LLP
                                        Attn: Harsha Murthy, Esq.
                                        300 East 42nd Street, 3rd Floor
                                        New York, NY 10017
                         Facsimile:     212-883-8883

     15. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions of this
Agreement or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision of this
Agreement is invalid or unenforceable, the parties hereto agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration or area of the term or provision, to delete
specific words or phrase or to replace any invalid or unenforceable term or
provision with a term or provision that is valid or enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.

     16. Miscellaneous.

     (a) This Agreement may be amended only by an agreement in writing signed by
all of the parties hereto.

     (b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns and beneficiaries
in interest. Neither party may assign this Agreement without the prior written

                                       7
<PAGE>

consent of the other party; provided, however, nothing herein shall limit the
ability of Consultant to assign its compensation hereunder to any third party
subject to compliance under all applicable securities laws.

     (c) This Agreement may be executed in counterparts, each of which shall be
deemed an original, but both of which taken together shall constitute one and
the same instrument.

     (d) The Company will indemnify Consultant against any third party claims
that might arise as a result of Consultant's authorized use of any information
provided by the Company in connection herewith.

     IN WITNESS WHEREOF, this Agreement has been entered into as of the day and
year first above written.

                                 COYOTE NETWORK SYSTEMS, INC.

                                 BY  /s/ Daniel W. Latham
                                     ---------------------------
                                     Name  Daniel W. Latham
                                     Its   President

                                 KRJ, LLC

                                 BY  /s/ Kevin O. Kelly
                                     ---------------------------
                                     Name   Kevin O. Kelly
                                     Its    Managing Member

                                       8
<PAGE>
                      ESCROW AND INDEMNIFICATION AGREEMENT

          THIS ESCROW AND INDEMNIFICATION AGREEMENT (the "Agreement") is made as
of January 26, 2000 by and among REINHART, BOERNER, VAN DEUREN, NORRIS &
RIESELBACH, P.C., as escrow agent (the "Escrow Agent"), COYOTE NETWORK SYSTEMS,
INC., a Delaware corporation (the "Company") and KRJ, LLC, a Delaware limited
liability company (the "the Consultant").

                                     RECITAL

          The Company and the Consultant are parties to that certain Consulting
Agreement dated as of January 26, 2000 (the "Consulting Agreement") and,
pursuant thereto, the Company has issued to the Consultant, and the Consultant
has agreed to place into escrow, 1,250,000 shares of the Company's Common Stock,
par value $1.00 per share (the "Shares"), with delivery of the Shares to the
Consultant to occur upon the occurrence of certain events set forth in section
3(b) of the Consulting Agreement.

                                   AGREEMENTS

          In consideration of the Recital and the mutual promises and agreements
set forth herein, the parties hereto agree as follows:

          1. Acknowledgment of Receipt of Consulting Agreement. The Escrow Agent
hereby acknowledges receipt of a copy of the Consulting Agreement but, except
for reference thereto for definitions of certain words or terms not defined
herein, the Escrow Agent is not charged with any duties or responsibilities
thereunder. Capitalized terms used herein without definition shall have the
meanings designated for them in the Consulting Agreement unless the context
requires otherwise. This Agreement shall become effective upon receipt by the
Escrow Agent of the Shares.

          2. Escrow. The Shares shall be deposited into escrow on or before
February 10, 2000, and the Escrow Agent agrees to hold the Shares until such
time as it is required to deliver or return the Shares in accordance herewith.
The Escrow Agent shall release from escrow and deliver, by certified mail within
five days, the Shares in whole or in part to the Consultant or its designee upon
receipt by the Escrow Agent of a direction and/or certification signed by a
manager of the Consultant (with a copy provided to the Company) that the

                                       1
<PAGE>

applicable condition(s) of section 3(b) of the Consulting Agreement have been
satisfied. The Escrow Agent shall be under no duty to determine whether
Consultant's certification is accurate, such duty being solely upon the Company
to timely challenge in writing any such certification. The Escrow Agent shall
return any remaining Shares to the Company or its designee upon receipt by the
Escrow Agent of a direction and/or certification of a manager of the Consultant
and an officer of the Company that such Shares shall be so returned to the
Company or upon order of a court of competent jurisdiction.

          3. Voting Rights and Dividends. The Consultant shall be entitled to
exercise, in the Consultant's sole discretion, the voting power with respect to
the Shares in respect of the election of directors and all other matters and to
receive and retain for its own account any and all payments, proceeds,
dividends, distributions, monies, compensation, property, assets, instruments or
rights, paid, issued or distributed from time to time in respect of the Shares.

          4. Provisions Relating to the Escrow Agent.

          (a) Standard of Care. The Escrow Agent shall have the duty to exercise
reasonable care in the custody and preservation of any Shares in its possession,
which duty shall be fully satisfied if the Escrow Agent maintains safe custody
of such Shares.

          (b) Notification of Consultant. The Escrow Agent shall have no further
obligation to ascertain the occurrence of, or to notify the Consultant with
respect to, any events and shall not be deemed to assume any such further
obligation as a result of the establishment by the Escrow Agent of any internal
procedures with respect to any securities in its possession, nor shall the
Escrow Agent shall be deemed to assume any other responsibility for, or
obligation or duty with respect to, any Shares, or the use of any Shares, of any
nature or kind, or any matter or proceedings arising out of or relating thereto,
including any obligation or duty to take any action to collect, preserve or
protect the Consultant's rights in the Shares, but the same shall be at the
Consultant's sole risk and responsibility at all times.

          (c) Liability. In performing any duties under the Escrow Agreement,
the Escrow Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of the
Escrow Agent. The Escrow Agent shall not incur any such liability for (i) any
act or failure to act made or omitted in good faith, or (ii) any action taken or
omitted in reliance upon any instrument, including any written statement or
certification provided for in this Agreement that Escrow Agent shall in good
faith believe to be genuine, nor will Escrow Agent be liable or responsible for

                                       2
<PAGE>

forgeries, fraud, impersonations, or determining the scope of any representative
authority. In addition, Escrow Agent may consult with the legal counsel in
connection with Escrow Agent's duties under this Agreement and shall be fully
protected in any act taken, suffered, or permitted by Escrow Agent in good faith
in accordance with the advice of counsel. Escrow Agent is not responsible for
determining and verifying the authority of any person acting or purporting to
act on behalf of any party to this Agreement.

          (d) Controversies. If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, Escrow Agent will not be required to
determine the controversy or to take any action regarding it. Escrow Agent may
hold all documents and funds and may wait for settlement of any such controversy
by final appropriate legal proceedings or other means as, in Escrow Agent's
discretion, Escrow Agent may be required, despite what may be set forth
elsewhere in this Agreement. In such event, Escrow Agent will not be liable for
interest or damage. Furthermore, Escrow Agent may at its option, file an action
of interpleader requiring the Parties to answer and litigate any claims and
rights among themselves. Escrow Agent is authorized to deposit with the clerk of
the court all documents and funds held in escrow, except all costs, expenses,
charges and reasonable attorney fees incurred by Escrow Agent due to the
interpleader action and which the Parties jointly and severally agree to pay.
Upon initiating such action, Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.

          (e) Release and Indemnification. The Company and the Consultant hereby
release the Escrow Agent, and its officers, directors, employees and agents,
from any claims, causes of action and demands at any time arising out of or with
respect to this Escrow Agreement, the Shares and/or any actions taken or omitted
to be taken by the Escrow Agent with respect thereto (except, in the case of the
Escrow Agent, such claims, causes of action and demands arising from the gross
negligence or willful misconduct of the Escrow Agent), and the Company and the
Consultant hereby jointly and severally agree to hold the Escrow Agent and its
officers, directors, employees and agents harmless from and with respect to any
and all such claims, causes of action and demands (except such claims, causes of

                                       3
<PAGE>

action and demands arising from the gross negligence or willful misconduct of
the Escrow Agent). The right of the Escrow Agent to indemnification hereunder
shall survive its resignation or removal as Escrow Agent and shall survive the
termination of this Agreement for any reason.

          (f) Resignation. Escrow Agent may resign at any time upon giving at
least thirty (30) days' written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, Escrow Agent shall have the right to appoint a
successor escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. Escrow Agent
shall upon such appointment be discharged from any further duties and liability
under this Agreement.

          5. Fees. The Escrow Agent shall not be entitle to receipt of fees for
the services rendered hereunder; provided, however, all out-of-pocket costs and
expenses (excluding costs of litigation) of the Escrow Agent with respect to the
services rendered hereunder shall be paid by the Company. The Escrow Agent shall
invoice the Company directly for such cost and expenses. In the event that the
Escrow Agent renders any service not provided for this Agreement, or if the
parties request a substantial modification of its terms, or if any controversy
arises, or if the Escrow Agent is made a party to, or intervenes in, any
litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, including allocated costs of in-house counsel,
and expenses occasioned by such controversy or litigation and the Escrow Agent
shall have the right to retain all documents and/or other things of value at any
time held by the Escrow Agent pursuant to this Agreement until such
compensation, fees, costs, and expenses are paid.

          6. Termination of Escrow. The Shares shall be retained by the Escrow
Agent until distributed to the appropriate party or parties pursuant to the
terms of this Agreement, at which time this Agreement shall be terminated.

          7. Address for Notices. Any notice or other communication required or
permitted to be given to the parties hereunder shall be in writing and shall be
deemed to have been given if delivered in person by commercial courier, or two
business days after mailing by Federal Express or similar express delivery

                                       4
<PAGE>

service, addressed as follows (or at such other address as the addressed party
may have substituted by notice pursuant to this section):

          If to the Company:        Coyote Network Systems, Inc.
                                    4360 Park Terrace Drive
                                    Westlake Village, CA  91361
                                    Attn:  President
                  Facsimile:        818-735-7633

          If to Consultant:         KRJ, LLC
                                    c/o Duval & Stachenfeld LLP
                                    Attn:  Harsha Murthy, Esq.
                                    300 East 42nd Street, 3rd Floor
                                    New York, NY 10017
                  Facsimile:        212-883-8883

          If to the Escrow Agent:
                                    Reinhart, Boerner, Van Deuren,
                                        Norris & Rieselbach, P.C.
                                    Attn:  Timothy G. Atkinson, Esq.
                                    1775 Sherman Street, Suite 2100
                                    Denver, CO 80203
                  Facsimile:        303-831-4805

          8. Successors and Assigns. This Agreement is binding upon and shall
inure to the benefit of the respective parties hereto and their respective
heirs, executors, administrators, successors and assigns; provided, however,
that any heirs, executors, administrators, successors and assigns shall only be
liable for any liabilities hereunder to the extent of the value of the property
or assets received from their respective predecessor in interest.

          9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to
conflicts of laws principles.

          10. Amendments. Any provision of this Agreement may be amended only by
agreement in writing signed by all of the signatories hereto.

          11. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one instrument.

                                       5
<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                    COYOTE NETWORK SYSTEMS, INC.

                                    BY  ______________________________
                                        Name _________________________
                                        Its  _________________________

                                    KRJ, LLC

                                    BY  ______________________________
                                        Name _________________________
                                        Its  _________________________

                                    REINHART, BOERNER, VAN DEUREN,
                                        NORRIS & RIESELBACH, P.C.

                                    BY  ______________________________
                                        Name _________________________
                                        Its  _________________________

                                       6
<PAGE>

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