8-K

               SECURITIES AND EXCHANGE COMMISSION

                    Washington, D.C.  20549


                            FORM 8-K

                         CURRENT REPORT

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

Date of Report (Earliest Event Reported):  December 22,
1997

Exact name of Registrant
 as specified in its charter:  Coyote Network Systems,
Inc.

State or Other Jurisdiction of Incorporation:  Delaware

Commission File Number:  1-5486

I.R.S. Employer Identification Number:  36-2448698

Address of Principal Executive Office:  4360 Park
Terrace Drive

Westlake Village, CA  91361

Registrant's Telephone Number, Including Area Code:
(818) 735-7600

Registrant's Former Name:  The Diana Corporation

ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS

(c)  Exhibits

     4.1  Form of Subscription Agreement
     4.2  Form of Note
     4.3  Form of Registration Rights Agreement
     4.4  Offshore Warrant Subscription Agreement


ITEM 9.  SALES OF EQUITY SECURITIES PURSUANT TO
REGULATION S

(a)  Securities sold.  On December 22, 1997, the
Registrant sold $5,000,000 in 8% Convertible Notes ("Notes") Due
December 22, 2000.  At any time commencing one year after the
Closing, the Company may, by written notice to the Holder,
prepay the Notes in whole or in part.  The notice shall be given at
least ten (10) days prior to the payment date and on such
date the Company shall pay the outstanding principal and
all accrued interest on the Note, unless prior to such payment
date the Holder has delivered a Notice of Conversion.

(b)  Underwriters and other purchasers.  First Bermuda
Securities Limited, Chevron House, 11 Church Street, Hamilton
HM 11, Hamilton HM NX, Bermuda, acting as placement
agent, distributor and escrow agent, received executed
subscription


                              1


agreements for the purchase of the notes from the
following; Offshore Nominees Limited ($500,000), Buckingham
Global Investors ($600,000), Mid Ocean Capital, S. A.
($1,500,000), CuttyHunk Fund Limited ($400,000), Bronia GmbH
($1,000,000) and Thomson Kernaghan & Co. Limited ($1,000,000).

(c)  Consideration.  The aggregate offering price of
the Notes was $5,000,000.  Commissions totaling $350,000 and
expenses of $15,000 were deducted resulting in net proceeds to
the Company of $4,635,000.  In addition, First Bermuda
Securities Limited received warrants to purchase 48,611
shares of Common Stock at an exercise price of $7.20 per share.
These warrants are exercisable immediately and expire on December 22,
2002.  The holder of the warrants also received so-called
"piggyback" registration rights with respect to the warrant
shares..

(d)  Exemption from registration claimed.  The Company
claims exemption from registration pursuant to Regulation
S under the Securities Act of 1933 as amended.  In so doing,
the Company has relied upon the representations made
by the purchasers of the Notes and First Bermuda
Securities Limited acting as placement agent, distributor and escrow
agent.  These representations include representation as to
the purchasers status as non US persons.

(e)  Terms of conversion or exercise.  The holder of
the Note(s) is entitled, at its option, at any time commencing
forty-five (45) days after the Closing Date (December 22,
1997), until maturity to convert one-third (1/3 rd) or any
lesser portion of the initial principal amount which is a least
$25,000 into shares of Common Stock ("Shares") at a conversion
price for each Share equal to the lesser of $7.00 per share
or eighty percent (80%) of the average closing bid price of
the Common Stock for the five (5) trading days immediately
prior to the Conversion Date with a conversion floor price (the
"Conversion Floor Price") of $4.00 per Share (collectively,
the "Conversion Price"); beginning seventy-five (75)
days after the Closing Date, an additional one third (1/3 rd)
of the initial principal amount which is at least $25,000
may be converted into Shares at the Conversion Price; and
beginning one hundred and five (105) days after the Closing
Date, the remaining one-third (1/3 rd) of the initial
principal amount which is at least $25,000 may be converted into
Shares at the Conversion Price, provided that if the average of
the closing bid price of the Common Stock for the twenty (20)
consecutive trading days immediately prior to a conversion
date is less than $4.00 per share, the Conversion Floor Price
will be adjusted to equal eighty percent (80%) of such
twenty (20) consecutive trading day average of the closing bid
price, provided, however, that in no event shall the
Holder be entitled to convert any portion of the Note in
excess of that portion of the Note upon conversion of which the
sum of (1) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (other than shares of
Common Stock
                             2


which may be deemed beneficially owned through the
ownership of the unconverted portion of this note, as
defined in the Subscription Agreement) and (2) the number of
Shares issuable upon the conversion of the portion of the note
with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the holder and
its affiliates of more than 4.9% of the outstanding
shares.  For purposes of the proviso to the immediately
proceeding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (1) of such
proviso.  In addition, if at any time, there occurs a
transaction in which in excess of 50% of the Company's voting power is
transferred (excluding any public or private offering of
Company equity securities), including any consolidation or merger
of the Company with or into any other corporation or
other entity or person (whether or not the Company is the
surviving corporation), or any other corporate
reorganization or transaction or series of transactions, the holder
of the note then outstanding may participate in any such
transaction as a class with the common stockholders on the same
basis as if the note had been converted one day prior to the
effective date of the transaction; provided, however, that at the
option of the holder of the note, such holder may treat the
effective date of any transaction that occurs prior to December
22, 2000 as a redemption of the note at a price equal to 125% of
the outstanding principal amount of the note, plus
accrued but unpaid interest.  The holder shall be entitled to
make such election at any time up to ten (10) days prior to
the effective date of the transaction.  The Company
has entered into a registration rights agreement with the
Purchasers of the Notes wherein, upon a decision to convert by
the Purchasers of the Notes, and if the Shares are
required to be registered, the Shares will be registered with the
Securities and Exchange Commission pursuant to Securities Act
of 1933, as amended.


                           SIGNATURES

Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.

                          COYOTE NETWORK SYSTEMS, INC.
                                      (Registrant)


Date:  December 31, 1997

                        /s/ Daniel W. Latham
                        President and Chief Operating
                        Officer


                              3

EX-4.1

EXECUTION COPY                  Exhibit 4.1

THE  SECURITIES  SUBSCRIBED FOR HEREBY  HAVE  NOT  BEEN
REGISTERED  UNDER THE UNITED STATES SECURITIES  ACT  OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD  IN THE UNITED STATES (AS DEFINED IN REGULATION  S
UNDER  THE ACT) OR TO OR FOR THE ACCOUNT OR BENEFIT  OF
U.S.  PERSONS  (AS  DEFINED  IN  REGULATION  S)  EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT.

      OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
                           
This  Offshore  Securities Subscription Agreement  (the
"Agreement"), dated December __, 1997, is entered  into
by  and between Coyote Network Systems, Inc., a company
incorporated in the state of Delaware (the  "Company"),
and ___________________ (the "Buyer").

The  Company  has offered for sale outside  the  United
States  (as  that  term  is  defined  in  Regulation  S
("Regulation S") under the Act up to $6,000,000  of  an
8%   Convertible  Note  due  December  __,  2000   (the
"Securities")  convertible into  common  stock  of  the
Company.   Buyer  has  been offered  $_____________  in
principal  amount of the Securities.  Interest  on  the
Securities will be payable as provided in the  form  of
Convertible Note attached hereto as Annex A.  The terms
on which the Securities may be converted into shares of
the  Company's common stock (such shares underlying the
Securities  being referred to herein as  "Shares")  and
the  other terms of the Securities are set forth in the
Form   of   Convertible  Note  attached  as  Annex   A.
Capitalized  terms used herein and not  defined  herein
shall  have the meanings given to them in Regulation  S
as the same may be amended from time to time.

The parties hereto agree as follows:

1.    Purchase and Sale of Securities.  Upon the  basis
of  the representations and warranties, and subject  to
the  terms and conditions, set forth in this Agreement,
the  Company covenants and agrees to sell to the  Buyer
on   the   Closing   Date   (as  hereinafter   defined)
$______________ in principal amount of  the  Securities
at  a  price of 100% of the original principal  amount,
and   upon   the  basis  of  the  representations   and
warranties,  and  subject to the terms and  conditions,
set  forth  in this Agreement, the Buyer covenants  and
agrees  to  purchase from the Company, on  the  Closing
Date  $__________ in principal amount of the Securities
of  the  Company  at  100%  of the  original  principal
amount.

2.         Closing  Instructions to Escrow Agent.   (a)
The  closing of the purchase and sale of the Securities
pursuant  to  Section 1 hereof shall take place  on  or
before December __, 1997 (the "Closing Date") after the
Company  has delivered to the offices of First  Bermuda
Securities  Limited  (the "Escrow  Agent")  located  at
Chevron  House,  11  Church  Street,  Hamilton,  HM  11
Bermuda,  __  Convertible Notes  (each  a  "Convertible
Note") representing the Securities in denominations  of
not  less than $25,000, registered in the name  of  the
Buyer (representing the maximum amount of Securities to
be purchased by the Buyer hereunder).

     (b)  The Company and the Buyer agree that they shall
instruct the Escrow Agent as provided in Annex B and as



provid in Annex B and as follows:
     
     (i)    On   the  Closing  Date,   for   each
Convertible  Note subscribed for and delivered  to  the
Escrow  Agent  pursuant to paragraph  2(a)  above,  the
Escrow Agent shall, upon confirmation in the form of  a
federal funds wire number that First Bermuda Securities
Limited  has  wired  payment of the aggregate  purchase
price for the Securities (less any fees the Company has
authorized  Escrow  Agent  to  deduct)  in  immediately
available funds to the Company's account as provided in
the  escrow  instructions attached as Annex B,  release
the  Securities described in paragraph 2(a) above.  The
Escrow   Agent   shall  return  to  the   Company   any
Convertible  Notes that the Buyer does not purchase  on
the  Closing Date.  If the closing shall not have taken
place  by  December  __,  1997,  this  Agreement  shall
terminate.

     (ii)  The Escrow Agent will make delivery of
the  number  of Convertible Notes set forth  in  clause
2(a)  above in accordance with the instructions of  the
Buyer  subject to customary settlement procedures  upon
confirmation of the wiring of funds to the  Company  as
described in clause 2(b)(i) above, except that all such
Convertible  Notes  shall be delivered  to  a  location
outside  the  United States and none of the Convertible
Notes  shall be delivered to a U.S. Person (as  defined
in Regulation S).

3.    Representations and Warranties of the Buyer:  The
Buyer  understands and represents and warrants to,  and
agrees with the Company that:

      (a)   The  Buyer understands that no  federal  or
state  agency has passed on, or made any recommendation
or endorsement of the Securities.

      (b)   The Buyer acknowledges that, in making  the
decision  to  purchase the Securities,  it  has  relied
solely  upon independent investigations made by it  and
not  upon any representations made by the Company  with
respect  to  the Company or the Securities, except  for
the  representations and warranties in this  Agreement,
the Convertible Note, the Registration Rights Agreement
and  the  Officer's  Certificate  (as  defined  below),
except that the Buyer has received, reviewed and relied
upon  the  Opinion  of Counsel (as defined  below)  and
copies of the report on Form 10-Q for the quarter ended
September  30, 1997, the report on Form  10-K  for  the
year  ended  March  30,  1997,  filed  by  the  Company
pursuant  to  the Securities Exchange Act of  1934,  as
amended  (the  "Exchange Act"), and all other  filings,
including  filings on Form 8-K, under the Exchange  Act
since  March 30, 1997, which, together with any filings
by Company after the date hereof and prior the Closing,
are defined as "Exchange Act Reports".

     (c)  The Buyer understands that the Securities are
being  offered and sold to it in reliance  on  specific
exemptions  from or non-application of the registration
requirements of federal and state securities  laws  and
that the Company is relying upon the truth and accuracy
of   the   representations,   warranties,   agreements,
acknowledgments  and understandings of  the  Buyer  set
forth herein in order to determine the applicability of
such  exemptions and the suitability of  the  Buyer  to
acquire the Securities.

     (d)  The Buyer is not a U.S. Person (as defined in
Regulation  S) and is not and will not be an  affiliate
(as  defined  in the Exchange Act) of the Company.   To
enable the Company to avoid withholding interest  paid,
the Buyer certifies under penalty of perjury



that it is neither  a citizen nor a resident of the United
States and  that its address set forth in the Escrow Agreement
is correct.

      (e)   No  public  offer or  solicitation  of  the
Securities or the Shares issuable on conversion of  the
Securities  was made to the Buyer and no offer  of  the
Securities or the Shares issuable on conversion of  the
Securities  was made to the Buyer while the  Buyer  was
present in the United States.

      (f)  At the time the buy order for the Securities
was originated the Buyer was located outside the United
States and is outside the United States on the date  of
the  execution and delivery of this agreement and  will
be outside the United States on the Closing Date.

      (g)   The Buyer is aware that the Securities  and
the  Shares issuable upon exercise of conversion rights
have not been and will not be registered under the  Act
(except  as  may  be  required under  the  Registration
Rights  Agreement)  and may only  be  offered  or  sold
pursuant  to registration under the Act or an available
exemption  therefrom and Buyer has not, and  will  not,
engage  in any public offering or distribution  of  the
Securities or the Shares.

      (h)   The  Buyer (i) will not, during the  period
commencing on the Closing Date and ending 40 days after
the  Closing Date (the "Restricted Period"),  offer  or
sell  or  agree  to sell the Securities in  the  United
States,  to a U.S. Person or for the account or benefit
of  a U.S. Person or other than in accordance with Rule
903  or  904, as applicable, of Regulation S, and  (ii)
will,  after  the expiration of the Restricted  Period,
offer,   sell,   pledge  or  otherwise   transfer   the
Securities  or  the  common  stock  issuable  upon  the
exercise   of   conversion  rights  only  pursuant   to
registration  under  the Act or an available  exemption
therefrom   and,  in  any  case,  in  accordance   with
applicable federal and state securities laws.

      (i)   The  Buyer  and  its affiliates  have  been
advised  of  and are familiar with, have complied,  and
will  comply, with the offering restrictions,  and  any
other requirements, of Regulation S.

       (j)    The  transactions  contemplated  by  this
Agreement  (i) have not been pre-arranged by the  Buyer
with a purchaser located in the United States which  is
a  U.S.  Person, and (ii) are not part  of  a  plan  or
scheme   by   the  Buyer  to  evade  the   registration
provisions of the Act.

      (k)   The  Buyer is an "accredited  investor"  as
defined   in  the  Act  and  will  be  purchasing   the
Securities   for  its  account  for  the   purpose   of
investment and not (i) with a view to, or for  sale  in
connection with, any distribution thereof or  (ii)  for
the account or on behalf of any U.S. Person.

      (l)   Neither the Buyer nor any of its affiliates
has  entered,  has the intention of entering,  or  will
during  the  Restricted Period, directly or indirectly,
enter into, with any U.S. Person, any put option, short
position   or  other  similar  instrument  or  position
(including  hedging  positions)  with  respect  to  the
Securities or securities into which the Securities  are
convertible   or  participate  in  any  other   attempt
designed  to lower the trading prices of the  Company's
common stock.



     (m)  The Buyer shall indemnify the Company against
any   loss,   cost  or  damages  (including  reasonable
attorney's fees and expenses) incurred as a  result  of
the  Buyer's  breach  of any representation,  warranty,
covenant or agreement in this Agreement.

4.    Registration Rights.  On or prior to the  Closing
Date,  the  Company  and  Buyer  agree  to  execute   a
Registration Rights Agreement (the "Registration Rights
Agreement") in the form substantially set out in  Annex
C attached hereto, respectively.

5.    Conversion of Securities  The Securities  may  be
converted  into the Shares, as herein defined,  at  the
option of the holder thereof under the terms set  forth
in  the  Form of Convertible Note, attached  hereto  as
Annex A.

6.    Representations and Warranties  of  the  Company.
The  Company  represents and warrants  to,  and  agrees
with, the Buyer that:

     (a)  The Company has been duly incorporated and is
validly  existing  as a corporation  in  good  standing
under the laws of Delaware.

      (b)   This  Agreement has been  duly  authorized,
executed  and delivered by the Company and is  a  valid
and  binding  agreement enforceable in accordance  with
its   terms,   subject   to   bankruptcy,   insolvency,
fraudulent  transfer,  reorganization,  moratorium  and
similar  laws of general applicability relating  to  or
affecting  creditors' rights generally and  to  general
principles  of  equity;  and  the  Company   has   full
corporate  power and authority necessary to enter  into
this   Agreement   and  to  perform   its   obligations
thereunder.

      (c)  No consent, approval, authorization or order
of any court, governmental agency or body or arbitrator
having  jurisdiction over the Company  or  any  of  its
affiliates is required for execution of this Agreement,
including, without limitation, the issuance and sale of
the  Securities, or the performance of its  obligations
hereunder.

      (d)  Neither the sale of Securities pursuant  to,
nor  the  performance  of  its obligations  under  this
Agreement  by  the  Company will (i) violate,  conflict
with,  result in a breach of, or constitute  a  default
(or  an  event which with the giving of notice  or  the
lapse  of  time or both would be reasonably  likely  to
constitute  a  default) under (A)  the  certificate  of
incorporation, charter or by-laws of the Company or any
of  its  affiliates, (B) any decree,  judgment,  order,
law,   treaty,   rule,  regulation   or   determination
applicable  to the Company or any of its affiliates  of
any  court,  governmental agency or body, or arbitrator
having  jurisdiction over the Company  or  any  of  its
affiliates  or  over the properties or  assets  of  the
Company or any of its affiliates, (C) the terms of  any
bond,   debenture,  note  or  any  other  evidence   of
indebtedness, or any material agreement,  stock  option
or other similar plan, indenture, lease, mortgage, deed
of  trust  or  other material instrument to  which  the
Company  or any of its affiliates is a party, by  which
the  Company or any of its affiliates is bound,  or  to
which  any of the properties of the Company or  any  of
its  affiliates  is subject, or (D) the  terms  of  any
"lock-up"  or similar provision of any underwriting  or
similar  agreement to which the Company or any  of  its
affiliates  is  a  party  to; or  (ii)  result  in  the
creation   or  imposition  of  any  lien,   charge   or
encumbrance upon the Securities or any of the assets of
the Company or any of its affiliates.



      (e)  The Company has an authorized capitalization
consisting  of 15,000,000 shares of common  stock,  par
value  $1.00  per  share  (the  "Common  Stock"),   and
5,000,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock").  The Company has issued  and
outstanding __________ shares of Common Stock  and  nil
shares of Preferred Stock as of December __, 1997.  All
of  the  issued shares of capital stock of the  Company
have  been duly and validly authorized and issued,  are
fully  paid  and non-assessable; prior to  the  Closing
Date,  the authorized capitalization shall include  the
Shares  to be issued upon conversion of the Securities.
The shares of Common Stock issuable upon conversion  of
the Securities, when issued and delivered in accordance
with  the  terms of the Securities, will  be  duly  and
validly  issued,  fully paid and  non-assessable.   The
issuance of the Shares will not be in violation of  any
preemptive  or  similar rights of the  holders  of  any
securities of the Company.  The Securities (i) are free
and  clear of any security interests, liens, claims  or
other  encumbrances, (ii) have been  duly  and  validly
authorized  and on the Closing Date will  be  duly  and
validly  issued,  fully paid and non assessable,  (iii)
will  not  have  been, individually  and  collectively,
issued or sold in violation of any preemptive or  other
similar rights of the holders of any securities of  the
Company  and (iv) will not subject the holders  thereof
to  personal liability by reason of being such holders.
The  Common Stock underlying the Securities  is  quoted
on,  and  will  be,  following the  completion  of  the
Restricted  Period  (if  sold in  accordance  with  the
provisions of this Agreement, applicable securities law
and  Regulation  S  as  then in effect),  eligible  for
trading  on,  The  National Association  of  Securities
Dealers Inc. Electronic Bulletin Board ("NASDAQ").

     (f)  The Company is a Reporting Issuer (as defined
in  Regulation S) because it has a class of  securities
registered  pursuant to Section 12(g) of  the  Exchange
Act and has filed all the material required to be filed
pursuant  to Section 13(a) of the Exchange  Act  for  a
period  of  at  least twelve (12) months preceding  the
date of this Agreement.  The Common Stock is quoted  on
NASDAQ and the Company has received no notice, oral  or
written, with respect to its continued eligibility  for
such  listing.   The  Company hereby  agrees,  promptly
following  the Closing of the transactions contemplated
by  this Agreement, to take such action as is necessary
to  cause the Shares issued upon exercise of conversion
rights  under  the Convertible Notes to  be  quoted  on
NASDAQ upon such conversion following expiration of the
Restricted Period (subject, if required, to  notice  to
NASDAQ  of  the actual number of shares  issued).   The
Company further agrees, if the Company applies to  have
the  Common  Stock traded on any other principal  stock
exchange or market, it will include in such application
the  Shares  and  will take such  other  action  as  is
necessary or desirable to cause the Shares to be listed
on such other exchange or market upon expiration of the
Restricted Period.

     (g)  The Exchange Act Reports are the only filings
made  by  the Company since March 31, 1997 pursuant  to
Sections  13(a),  13(c), 14 and 15(d) of  the  Exchange
Act,  and  the Company will cause its Common  Stock  to
continue to be registered under Section 12(g) or  12(b)
of  the Securities Exchange Act of 1934, will comply in
all  respects with its reporting and filing obligations
under  said Act, and will not take any action  or  file
any  document (whether or not permitted by said Act  or
the  rules  thereunder) to terminate  or  suspend  such
registration  or to terminate or suspend its  reporting
and  filing  obligations under said Act.   The  Company
will  take all action necessary to continue the quoting
and  trading  of  its Common Stock on NASDAQ  and  will
comply  in  all respects with the Company's  reporting,
filing and other obligations under the by-laws or rules
of the NASD and NASDAQ.



     (h)  The Company has the requisite corporate power
to  own its properties and to carry on its business  as
now being conducted.  The Company is duly qualified  as
a  foreign  corporation to do business and is  in  good
standing  in every jurisdiction in which the nature  of
the  business conducted or property owned by  it  makes
such  qualification necessary other than those in which
the  failure  so to qualify would not have  a  Material
Adverse  Effect.  "Material Adverse Effect"  means  any
adverse effect on the business, operations, properties,
prospects,  or financial condition of the  entity  with
respect  to  which  such term  is  used  and  which  is
material to such entity.

      (i)   The Company has furnished or made available
to  the  Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on  the  date
hereof  (the "Certificate of Incorporation"),  and  the
Company's By-Laws, as in effect on the date hereof (the
"By-Laws").

      (j)   The Company has delivered or made available
to  the  Buyer true and complete copies of the Exchange
Act   Reports  (including,  without  limitation,  proxy
information  and solicitation materials  excluding  any
preliminary  proxy not distributed).  The  Company  has
not  provided  to  the  Buyer  any  information  which,
according to applicable law, rule or regulation, should
have  been disclosed publicly by the Company but  which
has  not  been  so  disclosed.  As of their  respective
dates,  the  Exchange  Act  Reports  complied  in   all
material respects with the requirements of the Exchange
Act   and   the  rules  and  regulations  of  the   SEC
promulgated  thereunder and other  federal,  state  and
local  laws, rules and regulations applicable  to  such
Exchange  Act  Reports, and none of  the  Exchange  Act
Reports  contained any untrue statement of  a  material
fact or omitted to state a material fact required to be
stated  therein  or  necessary in  order  to  make  the
statements therein, in light of the circumstances under
which  they  were made, not misleading.  The  financial
statements of the Company included in the Exchange  Act
Reports comply as to form in all material respects with
applicable  accounting requirements and  the  published
rules  and  regulations of the SEC or other  applicable
rules  and  regulations  with  respect  thereto.   Such
financial  statements have been prepared in  accordance
with  generally accepted accounting principles  applied
on  a  consistent  basis during  the  periods  involved
(except  (i)  as  may be otherwise  indicated  in  such
financial  statements or the notes thereto or  (ii)  in
the case of unaudited interim statements, to the extent
they  may not include footnotes or may be condensed  or
summary  statements) and fairly present in all material
respects  the financial position of the Company  as  of
the  dates  thereof and the results of  operations  and
cash flows for the periods then ended (subject, in  the
case  of unaudited statements, to normal year-end audit
adjustments).

       (k)   Except  as  set  forth  in  the  financial
statements  and  other documents filed by  the  Company
under the Exchange Act, the Company has no liabilities,
contingent  or  otherwise, other than  (i)  liabilities
incurred  in the ordinary course of business subsequent
to  September  30,  1997  and  (ii)  obligations  under
contracts  and  commitments incurred  in  the  ordinary
course  of business, which in either case are  required
under  generally accepted accounting principles  to  be
reflected   in   such   financial   statements,   which
individually or in the aggregate, are material  to  the
financial  condition  or  operating  results   of   the
Company.  The Company has not provided to the Buyer any
information which, according to applicable law, rule or
regulation, should have been disclosed publicly by  the
Company but which has not been so disclosed.



      (l)   Since September 30, 1997 there has been  no
material   adverse  change  and  no  material   adverse
development  in  the business, properties,  operations,
financial condition, results of operations or prospects
of  the Company, except as disclosed in accordance with
the Exchange Act Reports.

       (m)    There   is  no  material  action,   suit,
proceeding, inquiry or to the knowledge of the  Company
or  any of its subsidiaries, investigation before or by
any  court,  public  board,  government  agency,  self-
regulatory  organization or body  pending,  or  to  the
knowledge  of  the Company or any of its  subsidiaries,
threatened against or affecting the Company or  any  of
its  subsidiaries  other  than  as  set  forth  in  the
Exchange Act Reports.

       (n)   Neither  the  Company,  nor  any  or   its
affiliates,  nor  any person acting  on  its  or  their
behalf has, directly or indirectly, made any offers  or
sales  of any security or solicited any offers  to  buy
any  security,  under circumstances that would  require
registration of the Securities under the Act.

      (o)   The Company has taken no action which would
give  rise  to  any claim by any person  for  brokerage
commissions, finder's fees or similar payments  by  the
Buyer  relating  to this Agreement or the  transactions
contemplated  hereby, except for  dealings  with  First
Bermuda Securities Limited, whose commissions and  fees
will be paid for by the Company.

      (p)   As  of  the  date hereof, the  Company  has
reserved and the Company shall continue to reserve  and
keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling  the
Company  to satisfy any obligation to issue  shares  of
its  Common  Stock upon conversion of  the  Securities;
provided,  however,  that  the  number  of  shares   so
reserved  shall at all times be at least  1,250,000  in
aggregate for purposes of conversion of the Securities.
On  the Closing Date, such shares of Common Stock, with
restrictive legend, shall be deposited with the  Escrow
Agent  (as  herein defined).  The number of  shares  so
reserved  may  be  reduced  by  the  number  of  shares
actually  delivered pursuant to the conversion  of  the
Securities (provided that in no event shall the  number
of  shares so reserved be less than the number required
to  satisfy  the  remaining conversion  rights  on  the
unconverted  Securities) and the number  of  shares  so
reserved shall be increased to reflect stock splits and
stock dividends and distributions.

      (q)  No legend has been or shall be placed on the
Securities  or  share  certificates  representing   the
Securities  or  Shares and no note  or  stock  transfer
instructions  have  been  or  shall  be  given  to  the
Company's  transfer  agent with respect  thereto  other
than as set forth in Section 10.

      (r)   Based  upon the truth and accuracy  of  the
representations and warranties made by the  Buyer,  the
sale  of the Securities pursuant to this Agreement will
be   made   in  accordance  with  the  provisions   and
requirements of Regulation S and applicable state law.

      (s)  No offer to sell the Securities was made  by
the Company to any person in the United States.

      (t)   None of the Company, any affiliate  of  the
Company, or any person acting



on behalf of the  Company or  any such affiliate has
engaged, or will engage,  in any Directed Selling Efforts
as that term is defined in Regulation  S  with respect
to the Securities  nor  any general solicitation of the
Securities.

       (u)    The  transactions  contemplated  by  this
Agreement  (i)  have  not  been  pre-arranged  with   a
purchaser  who is in the United States  or  is  a  U.S.
Person,  and (ii) are not part of a plan or  scheme  to
evade the registration provisions of the Act.

     (v)  The Company undertakes and agrees to make all
necessary  filings in connection with this offering  as
required by the laws and regulations of all appropriate
jurisdictions  and securities exchanges in  the  United
States of America.

      (w)   The  Company  shall  indemnify  the  Holder
against any loss, cost or damages (including reasonable
attorney's fees and expenses) incurred as a  result  of
the  Company's breach of any representation,  warranty,
covenant or agreement in this Agreement.

7.    Offering  Materials.  All offering materials  and
documents used in connection with the offers and  sales
of  the  Securities  prior to  the  expiration  of  the
Restricted  Period  shall  include  statements  to  the
effect that the Securities and the Shares issuable upon
the   exercise  of  conversion  rights  have  not  been
registered  under the Act and that the Buyer,  may  not
directly or indirectly offer or sell the Securities  or
such  shares in the United States or to a U.S.  Persons
(other  than  distributors) unless  the  Securities  or
shares  are  registered under the Act, or an  exemption
from  the  registration  requirements  of  the  Act  is
available.   Such statements shall appear  (1)  on  the
cover  of any prospectus or offering circular  used  in
connection with the offer or sale of the Securities and
(2)  in  the  placement section of  any  prospectus  or
offering circular used in connection with the offer  or
sale  of  the  Securities.  Buyer represents  that  all
offering  materials and documents  received  by  it  in
connection  with the offers and sales of the Securities
prior  to  the Closing of the transactions contemplated
herein  have  complied  with  the  foregoing.   Nothing
contained  in  this Section 7 shall negate  or  detract
from   any  of  the  representations,  warranties   and
agreements of Buyer contained in Section 3 above.

8.    Covenants  of  the  Company.   (a)   The  Company
covenants  and agrees that during the period  beginning
on  the  date  hereof and ending 90 days following  the
Closing  Date, the Company will not, without the  prior
written  consent  of  a "Majority-in-interest"  of  the
Buyers, negotiate or contract with any party to  obtain
additional  equity financing (including debt  financing
with  an  equity component) pursuant to  the  exemption
from the registration requirements of Regulation S (the
"Future Offerings").  In addition, the Company will not
conduct   any  Future  Offerings  during   the   period
beginning on the 90th day following the date hereof and
ending  180 days following the Closing Date  unless  it
shall  have first delivered to the Buyer at  least  ten
(10)  business days prior to the closing of such Future
Offering, written notice describing the proposed Future
Offering,  including the terms and conditions  thereof,
and  providing the Buyer an option during such ten (10)
day  period to purchase all or any portion of its "pro-
rata"  share  of  the securities being offered  in  the
Future  Offerings on the same terms as contemplated  by
such  Future Offering (the limitations referred  to  in
this   and  the  immediately  preceding  sentence   are
collectively  referred  to  as  the  "Capital   Raising
Limitation").  The Capital Raising Limitation shall not
apply   to  any  transaction  involving  the  Company's
commercial   banking  arrangements  or



issuances  of securities  in  connection with a merger,
consolidation or  sale of assets, or in connection with
any strategic partnership  or joint venture (the primary
purpose  of which is not to raise equity capital), or in
connection with  the  disposition or acquisition  of  a
business, product  or  license by the Company  (so  long
as  the securities so issued are "restricted securities"
within the  meaning of Rule 144 under the 1933 Act and do
not carry  registration or piggy back rights for  at  least
360 days from the date of this Agreement), the issuance
of  securities  to  settle securities  litigation,  the
exercise of outstanding warrants or exercise of options
or  conversion  of Coyote Technologies  LLC  membership
units  by  or  the  grant  of  performance  shares   to
employees,  consultants or directors.   The  terms  (i)
"majority-in-interest" means Holders of 8%  Convertible
Notes  holding  more  than  50%  of  the  Common  Stock
underlying  the Securities (treating the Securities  on
an  as converted basis) and (ii) "pro-rata share" means
the   principal  amount  of  the  Securities  initially
purchased divided by the aggregate principal amount  of
all Securities sold hereunder.

      (b)   The  parties shall use their  best  efforts
timely  to satisfy each of the conditions described  in
Section 9 of this Agreement.

     (c)  So long as the Buyer beneficially owns any of
the  Securities,  the  Company shall  timely  file  all
reports  required to be filed with the SEC pursuant  to
the  Exchange Act, and the Company shall not  terminate
its  status as an issuer required to file reports under
the  Exchange Act even if the Exchange Act or the rules
and    regulations   thereunder   would   permit   such
termination,   except  in  the  event  of   a   merger,
consolidation  or sale of all or substantially  all  of
the  Company's  assets, as long  as  the  surviving  or
successor  entity in such transaction (i)  assumes  the
Company's   obligations   hereunder   and   under   the
agreements  and instruments entered into in  connection
herewith  and  (ii)  is a publicly  traded  corporation
whose  Common Stock is listed for trading on the  AMEX,
the NYSE or the NASDAQ.

      (d)   At  Buyer's request, the Company agrees  to
send   the  following  reports  to  Buyer  until  Buyer
transfers, assigns, or sells all of the Securities: (i)
within  ten (10) days after the filing with the SEC,  a
copy  of  its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-
K; and (ii) within two (2) business days after release,
copies  of all press releases issued by the Company  or
any of its subsidiaries.

       (e)    The  Company  shall  at  all  times  have
authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to  provide
for  the  full conversion of the outstanding Securities
and  issuance  of  the  Shares in connection  therewith
(based  on  the  conversion price of the Securities  in
effect  from  time to time).  In that  regard,  on  the
Closing Date, the Company shall have at least 1,250,000
shares  reserved  for issuance upon conversion  of  the
Securities  (subject to adjustment in order  to  comply
with the immediately preceding sentence); provided that
the  Company shall not reduce the number of  shares  of
Common  Stock reserved for issuance upon conversion  of
the  Securities  without the consent of a  majority-in-
interest of the buyers of the Securities, which consent
will not be unreasonably withheld.

      (f)   So long as the Buyer beneficially owns  any
Securities,  the Company shall maintain  its  corporate
existence,   except   in  the  event   of   a   merger,
consolidation  or sale of all or substantially  all  of
the  Company's  assets, as long  as  the  surviving  or
successor  entity



in such transaction (i)  assumes  the Company's   obligations
hereunder   and   under   the agreements  and instruments
entered into in  connection herewith  and  (ii)  is a publicly
traded  corporation whose  Common Stock is listed for trading
on the  AMEX, the NYSE or the NASDAQ.

      (g)   The  Company and the Buyer agree  that  the
Closing  Date, when certified by Escrow  Agent  as  the
Closing  shall  be  deemed to be a  conclusion  of  the
offering  of  the Securities contemplated hereby.   The
Company  acknowledges and agrees that, for purposes  of
clarifying  and  specifying the  applicable  Restricted
Period under Regulation S, the Buyer intends to observe
as  the Restricted Period (as defined in Regulation  S)
for the Securities, the period of 40 days commencing on
the Closing Date and ending 40 days thereafter.

      (h)   The  Shares issued upon conversion  of  the
Securities  and  the certificates evidencing  the  same
shall  at  all  times  be free of  legends  (except  as
provided   in   Section  10  below),  "stock   transfer
restrictions,"   or  other  restrictions,   except   as
expressly   set  forth  in  this  Agreement   and   the
Convertible Note.

9.    Conditions  Precedent to the Buyer's  Obligation.
The  obligations of the Buyer hereunder are subject  to
the   performance  by  the  Company  of  the  following
additional conditions precedent:

     (a)  The Buyer shall receive, on the Closing Date,
an opinion of counsel to the Company, dated the Closing
Date, as to the representations made by the Company  in
Sections  6(a)  through  and  including  6(f)  and   in
Sections  6(m) and 6(n) hereof, and such other  matters
as   Buyer   reasonably  requests  (collectively,   the
"Opinion  of  Counsel").  The form of  the  Opinion  of
Counsel shall be as set forth in Exhibit 1 hereof.

      (b)   Delivery  of  the  notes  representing  the
Securities with restrictive legend to the Escrow  Agent
as set forth herein.

     (c)  The Company shall have delivered to the Buyer
a  certificate (the "Officer Certificate") in form  and
substance   reasonably  satisfactory  to   the   Buyer,
executed by an executive officer of the Company, to the
effect  that  all the conditions to the  Closing  shall
have   been  satisfied  and  the  representations   and
warranties  of the Company herein are true and  correct
as  of  the date when made and as of the Closing  Date,
and  certifying  as  to  the Company's  Certificate  of
Incorporation,    By-Laws,   resolutions    authorizing
transaction, and incumbency of Company officers.

      (d)  The Company and the Buyer shall have entered
into  the Registration Rights Agreement as contemplated
by Section 4.

10.   Legends.  (a)  The certificates representing  the
Securities, and the Shares issued during the Restricted
Period, shall bear the following legend (the "Legend"):

     "The   securities  represented  hereby  have  been
     issued pursuant to Regulation S promulgated  under
     the  Securities Act of 1933, as amended (the "1933
     Act"), and have not been registered under the 1933
     Act.   Such  securities may  not  be  transferred,
     offered or sold prior to the end of the forty (40)
     day period (the "Restricted Period") commencing on
     December  __, 1997 unless such transfer,



     offer  or sale is made in an "offshore transaction"
     and  not to  or  for the account of or benefit of
     a  "U.S. Person"  (as such terms are defined in 
     Regulation S)   and  is  otherwise  in  accordance
     with  the requirements  of  Regulation  S.   Following
     the  expiration   of   the   Restricted   Period,   the
     securities represented hereby may not be  offered,
     sold or otherwise transferred in the United States
     or  to  a  U.S.  Person unless the securities  are
     registered under the 1933 Act and applicable state
     securities  laws,  or  such  offers,   sales   and
     transfers   are  made  pursuant  to  an  available
     exemption  or  safe-harbor from  the  registration
     requirements of those laws."

      (b)   Following the expiration of the  Restricted
Period, and subject to Section 10(d) below, the Company
will  remove  or  will promptly instruct  its  transfer
agent  to  remove  the Legend from  the  Shares  issued
during  the  Restricted Period (and will  instruct  its
transfer agent to issue without the Legend, the  Shares
issuable  upon  any  conversion or  exercise  occurring
after the Restricted Period), if the Buyer holding such
Securities  or  any  other person  in  whose  name  the
certificates have been or are to be validly and legally
issued  shall have delivered a certificate (a  "Removal
Certificate") to the Company to the following effect:

     "The  undersigned acknowledges that the securities
     to  which  this certificate relates have not  been
     registered  under  Securities  Act  of  1933,   as
     amended (the "1933 Act") and that offers, sales or
     other transfer of such securities must be made  in
     compliance with Regulation S promulgated under the
     1933  Act,  pursuant to an effective  registration
     statement  under the 1933 Act or  pursuant  to  an
     available  exemption  from registration,  and  the
     undersigned certifies that the undersigned has not
     made, nor will the undersigned make or cause to be
     made,  any offer, sale or other transfer  of  such
     securities,  in violation of the 1933  Act,  other
     applicable  securities  laws  or  the  rules   and
     regulations   of  the  Securities   and   Exchange
     Commission."

      (c)   Upon the submission, at any time after  the
expiration  of  the Restricted Period, by  Buyer  of  a
written request for legend removal for the purpose of a
bona fide pledge or deposit of the Shares with a margin
account,  together with the certificates for which  the
legend   removal  is  being  requested  and  a  Removal
Certificate signed by both the Buyer and the pledgee or
other holder of the Shares, the Company will reissue or
will  promptly instruct its transfer agent  to  reissue
the  certificates  representing the  Shares  to  be  so
pledged or deposited without the Legend.

       (d)   Notwithstanding  the  provisions  of  this
Section 10, if with respect to the Company's receipt of
a  Removal  Certificate from any person, prior  to  any
removal of the Legend, there shall have been after  the
date hereof any amendment to the Act or Regulation S or
any  no action letter, interpretative release or  other
advice  from  the  Securities and  Exchange  Commission
after  the date hereof, which disallows the removal  of
the Legend under the circumstances in which the request
that it be removed is being made or otherwise indicates
that  the  Securities  would be  restricted,  then  the
Company  shall  have  no obligation  to  remove  or  to
instruct  its  transfer  agent to  remove  the  Legend,
unless  the Company shall have received from the person
requesting such removal a written letter of counsel  to
such  person  reasonably acceptable to the Company  and
its  counsel  confirming that  the  Legend  may  be  so
removed  or share certificates may be so issued without
the Legend without violation of the Act.  If the person
requesting a removal of the Legend is unable to  supply



the  legal  opinion referred to above then the  Company
shall,  upon  demand of such person,  be  obligated  to
register  the Common Stock for resale pursuant  to  the
terms of the Registration Rights Agreement.

11.    Transfer  Agent  Instructions.   The   Company's
transfer  agent  will  be  instructed  to  reserve  for
issuance such number of shares of the Company's  Common
Stock  as  would  be issuable if the Convertible  Notes
were  converted on the Closing Date and such additional
number  of  shares  as, from time  to  time,  shall  be
necessary  to provide for the issuance of  Shares  upon
the conversion of the Convertible Notes.  Additionally,
the   Company  shall  deliver  to  its  transfer  agent
promptly   after   closing   irrevocable   instructions
substantially in the form set forth in Annex E attached
hereto,  pursuant to which the transfer agent shall  be
instructed  to  issue  upon conversion  the  number  of
shares  provided  for  in  the Convertible  Note  being
converted  on  the terms provided for  therein  without
restrictive legend, registered in the names provided by
the  Holders,  subject to the terms and  conditions  in
this  Agreement  and  in  the  Convertible  Note.   The
Company  warrants  and covenants that  no  instructions
restricting  the  transferability of the  Shares  other
than  the  instructions  in the  immediately  preceding
sentence   and  instructions  for  a  "stop   transfer"
instruction until the end of the Restricted Period have
been  given, or shall be given, to the transfer  agent,
and   that   the  Shares  shall  otherwise  be   freely
transferable  on the books and records of the  Company,
subject  to the restrictions in this Agreement  and  in
the   Convertible  Note.   Nothing  in  this   section,
however,  shall  affect in any way the obligations  and
agreement  of  the Buyer to comply with all  applicable
federal, state and foreign securities laws upon  resale
of the Securities.

12.    Miscellaneous.   (a)   This  Agreement  may   be
executed  in  one or more counterparts and  it  is  not
necessary that signatures of all parties appear on  the
same  counterpart, but such counterparts together shall
constitute but one and the same agreement.

            (b)    Notices.    Any  notice   or   other
communication  given or permitted under this  Agreement
shall  be  in writing and shall be deemed to have  been
duly   given  if  personally  delivered  or   sent   by
registered or certified mail, return receipt requested,
postage prepaid or by air courier, (a) if to Buyer,  at
its  address  hereinabove set  forth,  (b)  if  to  the
Company, at its address hereinabove set forth, and  (c)
if to a holder other than Buyer, at the address thereof
furnished by like notice to the Company, or (d) to  any
such  addresses at such other address or  addresses  as
shall  be  so  furnished to the other parties  by  like
notice..

      (c)  This agreement shall inure to the benefit of
and   be   binding  upon  the  parties  hereto,   their
respective  successors, and no other person shall  have
any  right  or  obligation hereunder.   This  Agreement
shall  not  be assignable by either party  without  the
prior  written consent of the other, and any assignment
in violation hereof shall be void.  Notwithstanding the
foregoing,  the  Buyer may assign its  rights  in  this
Agreement subject to the terms and conditions  of  this
Agreement  and the Convertible Note, and the provisions
of  this Agreement shall then inure to the benefit  of,
and  be  enforceable by, any transferee of any  of  the
Securities or Shares.

      (d)  This Agreement together with the Convertible
Note  and the Registration Rights Agreement constitutes
the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior oral  or
written proposals or agreements related



thereto.   This Agreement  may  not be amended or any
provision  hereof waived,  in  whole  or  in part, except
by  a  written amendment signed by both of the parties hereto.

           IN  WITNESS WHEREOF, the parties hereto have
duly  executed and delivered this Agreement, all as  of
the day and year above written.

COYOTE NETWORK SYSTEMS, INC.

By: _____________________________________________
  James J. Fiedler, Chairman & Chief Executive Officer

[BUYER]

By: _____________________________________________

EX-4.2

EXECUTION COPY                  Exhibit 4.2

                                            NOTE NO. __

THE  SECURITIES REPRESENTED HEREBY AND ANY  SHARES  (AS
DEFINED  BELOW) ISSUED UPON THE EXERCISE OF  CONVERSION
RIGHTS  HEREUNDER HAVE BEEN AND WILL BE ISSUED PURSUANT
TO REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF
1933,  AS  AMENDED (THE "1933 ACT"), AND HAVE NOT  BEEN
REGISTERED UNDER THE 1933 ACT.  SUCH SECURITIES MAY NOT
BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE
FORTY   (40)  DAY  PERIOD  (THE  "RESTRICTED   PERIOD")
COMMENCING  ON DECEMBER 22, 1997 UNLESS SUCH  TRANSFER,
OFFER OR SALE IS MADE IN AN "OFFSHORE TRANSACTION"  AND
NOT  TO  OR  FOR THE ACCOUNT OF OR BENEFIT OF  A  "U.S.
PERSON" (AS SUCH TERMS ARE DEFINED IN REGULATION S) AND
IS  OTHERWISE  IN  ACCORDANCE WITH THE REQUIREMENTS  OF
REGULATION  S.   THIS NOTE MAY NOT  BE  CONVERTED  INTO
SHARES  BY  OR ON BEHALF OF ANY U.S. PERSON.  FOLLOWING
THE EXPIRATION OF THE RESTRICTED PERIOD, THE SECURITIES
REPRESENTED  HEREBY  AND  ANY SHARES  ISSUED  UPON  THE
EXERCISE OF CONVERSION RIGHTS MAY NOT BE OFFERED,  SOLD
OR  OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO  A
U.S.  PERSON UNLESS THE SECURITIES ARE REGISTERED UNDER
THE  1933 ACT AND APPLICABLE STATE SECURITIES LAWS,  OR
SUCH  OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT  TO
AN   AVAILABLE  EXEMPTION  OR  SAFE-HARBOR   FROM   THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.


             COYOTE NETWORK SYSTEMS, INC.
                           
       8% CONVERTIBLE NOTE DUE DECEMBER 22, 2000

THIS  NOTE  is  one  of  a  duly  authorized  issue  of
Convertible  Notes of COYOTE NETWORK SYSTEMS,  INC.,  a
Corporation duly organized and existing under the  laws
of  the state of Delaware (the "Company") designated as
its  8% Convertible Note Due December 22, 2000,  in  an
aggregate  principal amount of up  to  $6,000,000  (the
"Notes").

FOR  VALUE  RECEIVED, the Company promises  to  pay  to
[BUYER] or the permitted registered holder hereof  (the
"Holder"),  the  principal sum of  $__________  (United
States  Dollars)  (the "Initial Principal  Amount")  or
such  lesser  principal amount as is indicated  on  the
table  (the "Table") below following the conversion  or
conversions of this Note in accordance with Paragraph 4
(the  "Outstanding Principal Amount") on  December  22,
2000 (the "Maturity Date"), and to pay interest on  the
Outstanding  Principal Amount from time to time,  semi-
annually  in  arrears  on the first  day  of  June  and
December (the "Interest Payment Dates"), at the rate of
8%  per  annum  accruing  from the  date  of  issuance.
Accrual  of  interest  shall  commence  on  the   first
business  day  to  occur after the  date  hereof  until
repayment in full of the principal sum has been made or
duly  provided for.  Accrued and unpaid interest  shall
bear interest at the same rate from the due date of the
interest  payment, until paid. The interest so  payable
will  be  paid in shares of the Company's common  stock
(the  "Common Stock") at the then applicable conversion
price  (computed as described in Paragraph 4 below)  on
June  1st and December 1st to the person in whose  name
this  Note  (or  one  or  more  predecessor  Notes)  is
registered  on  the  records of the  Company  regarding
registration  and  transfers of the  Notes  (the  "Note
Register")  on  the  tenth day prior  to  the  Interest
Payment Date.  The principal of this Note is payable in
such  coin or currency of the United States of  America
as  at  the time of payment is legal tender for payment
of  public  and  private debts,  at  the  address  last
appearing  on  the  Note Register  of  the  Company  as
designated in writing by the Holder from time to  time.
The Company will pay the principal of and interest upon
this  Note on the due



date, free of any withholding  or deduction  of  any kind
(subject to the  provisions  of Paragraph  2 below), to
the registered Holder  of  this Note as of the due date
and addressed to such Holder at the last address appearing
on the Note Register.   The forwarding  of such check or
shares shall constitute a payment  of principal and
interest hereunder and  shall satisfy  and discharge the
liability for principal and interest  on  this  Note  to
the  extent  of  the  sum represented by such check or shares.

                           TABLE

                              Outstanding    
 Conversion     Conversion     Principal      Authorized
    Date          Amount         Amount       Signature
                                             
                                             
                              


This  Note  is  subject  to  the  following  additional
provisions:

1.   The  Notes  are originally issuable in amounts  of
     not less than $25,000 and integral multiples thereof.

2.   All  payments on account of the principal  of  and
     interest  on  this  Note  and  all  other  amounts
     payable  under  this  Note (whether  made  by  the
     Company or any other person) to or for the account
     of  the  Holder hereunder shall be made  free  and
     clear  of and without reduction by reason  of  any
     present and future income, stamp, registration and
     other  taxes,  levies, duties, costs  and  charges
     whatsoever imposed, assessed, levied or  collected
     by  the United States or any political subdivision
     or  taxing authority thereof or therein,  together
     with  interest thereon and penalties with  respect
     thereto,  if  any, on or in respect of  this  Note
     (all such taxes, levies, duties, costs and charges
     being  herein  collectively called "United  States
     Taxes").   Should any such payment be  subject  to
     any  United States Tax and the provisions  of  the
     preceding  sentence  of this  Paragraph  2  either
     cannot  be effected or do not result in the Holder
     actually  receiving free and clear of  all  United
     States  Taxes an amount equal to the  full  amount
     provided under this Note, the Company shall pay to
     the  Holder  such


     additional amounts  as  may  be necessary to ensure
     that the Holder receives a net amount equal to the
     full amount that it would have received had such
     payment not been made subject to United States Taxes
     unless withholding arises because holder has failed
     to furnish the data described below in this Paragraph 2.
     In addition to  the United States Taxes paid by the
     Company or additional amounts paid to the Holder,in each
     case  pursuant to the preceding provisions of this
     Paragraph  2 ("Additional Payments"), the  Company
     shall  also  pay  to the Holder upon  demand  such
     additional   amounts  as  may  be   necessary   to
     compensate the Holder, on an after-tax basis,  for
     any  tax  or  levy  imposed  or  assessed  by  any
     jurisdiction  on  or  with  respect  to  any  such
     Additional  Payments (including any  income  taxes
     payable  by  the Holder with respect to Additional
     Payments  pursuant to the income tax laws  of  the
     jurisdiction  of its principal office  or  lending
     office  or  any  political subdivision  or  taxing
     authority  thereof).   Holder  agrees  to  provide
     Company  a Form W-8, a certification under penalty
     of  perjury,  or  a certificate from  a  financial
     institution  described in Section 871(h)(4)(B)  of
     the  Internal  Revenue Code of 1986  demonstrating
     that the Holder is not a United States person.

3.   If at any time there occurs a transaction in which
     in  excess of 50% of the Company's voting power is
     transferred  (excluding  any  public  or   private
     offering  of Company equity securities), including
     any consolidation or merger of the Company with or
     into  any  other  corporation or other  entity  or
     person   (whether  or  not  the  Company  is   the
     surviving  corporation), or  any  other  corporate
     reorganization or transaction or series of related
     transactions,  the  Holder  of  this   Note   then
     outstanding   may   participate   in   any    such
     transaction as a class with common stockholders on
     the  same basis as if this Note had been converted
     one  day  prior  to  the effective  date  of  such
     transaction; provided, however, that at the option
     of  the Holder of this Note, such Holder may treat
     the  effective date of any transaction that occurs
     prior  to  December 22, 2000 as a redemption  date
     and  shall be entitled to have the Company  redeem
     this  Note  at  a  price  equal  to  125%  of  the
     Outstanding  Principal Amount of this  Note,  plus
     accrued but unpaid interest.  Such holder shall be
     entitled to make such election at any time  up  to
     ten  (10) days prior to the effective date of  the
     transaction.   The Company shall  not  effect  any
     stock  split, subdivision or combination  with  an
     effective  date  within  three  (3)  trading  days
     preceding  the  effective  date  of  a  merger  or
     consolidation.  The Company shall not make, or fix
     a  record date for the determination of holders of
     Common  Stock entitled to receive, a  dividend  or
     other distribution payable in additional shares of
     Common Stock, with an effective date within  three
     (3) trading days prior to the effective date of  a
     merger or consolidation.

4.   The  Holder  of  this  Note is  entitled,  at  its
     option,  at  any  time commencing forty-five  (45)
     days  after  the  Closing Date as defined  in  the
     Subscription  Agreement (as defined  below)  until
     maturity  hereof to convert one-third  (1/3rd)  or
     any lesser portion of the Initial Principal Amount
     which  is  at least $25,000 into shares of  Common
     Stock  ("Shares") at a conversion price  for  each
     Share  equal to the lesser of $7.00 per  share  or
     eighty  percent (80%) of the average  closing  bid
     price of the Common Stock for the five (5) trading
     days immediately prior to the Conversion Date with
     a  conversion  floor price (the "Conversion  Floor
     Price")  of  $4.00  per share  (collectively,  the
     "Conversion  Price"); beginning seventy-five  (75)
     days  after  the Closing Date, an additional  one-
     third  (1/3rd)  of  the Initial  Principal  Amount
     which  is  at least $25,000 may be converted  into
     Shares at the Conversion Price; and beginning  one
     hundred  and  five  (105) days after  the  Closing
     Date,  the  remaining  one-third  (1/3rd)  of  the
     Initial Principal Amount which is at least $25,000
     may  be  converted



     into Shares at the Conversion Price, provided that
     if the average of the closing bid  price of the Common
     Stock for the twenty (20) consecutive trading days
     immediately prior to a conversion date is less than
     $4.00 per share, the Conversion Floor Price will be
     adjusted to equal eighty percent (80%) of such twenty (20)
     consecutive trading day average of the closing bid
     price,  provided, however, that in no event  shall
     the  Holder be entitled to convert any portion  of
     this  Note in excess of that portion of this  Note
     upon conversion of which the sum of (1) the number
     of  shares of Common Stock beneficially  owned  by
     the  Holder and its affiliates (other than  shares
     of  Common  Stock which may be deemed beneficially
     owned  through  the ownership of  the  unconverted
     portion   of   this  Note,  as  defined   in   the
     Subscription  Agreement) and  (2)  the  number  of
     Shares issuable upon the conversion of the portion
     of   this   Note   with  respect  to   which   the
     determination of this proviso is being made, would
     result  in beneficial ownership by the Holder  and
     its   affiliates  of  more  than   4.9%   of   the
     outstanding  Shares.  For purposes of the  proviso
     to  the immediately preceding sentence, beneficial
     ownership  shall be determined in accordance  with
     Section  13(d) of the Securities Exchange  Act  of
     1934,   as   amended,  and  Regulations   13   D-G
     thereunder, except as otherwise provided in clause
     (1)  of  such proviso.  In the event of any  stock
     split,  dividend,  combination  or  similar  event
     occurring after the Conversion Date and  prior  to
     the issuance of the respective stock certificates,
     the   conversion   price  will   be   subject   to
     appropriate  adjustment.   For  purposes  of  this
     section, the closing bid price of the Common Stock
     shall be the closing bid price as reported by  The
     Nasdaq  Stock Market, or the closing bid price  in
     the  over-the-counter market  or,  if  the  Common
     Stock  is listed on a stock exchange, the  closing
     bid price on such exchange as reported in The Wall
     Street   Journal.    Such  conversion   shall   be
     effectuated  by  surrendering  the  Notes  to   be
     converted  to  the  Company,  with  the  form   of
     conversion notice attached to the Note as  Exhibit
     A,  executed by the Holder of the Note  evidencing
     such Holder's intention to convert this Note,  and
     accompanied, if required by the Company, by proper
     assignment  hereof in blank.  Interest accrued  or
     accruing from the date of issuance to the date  of
     conversion  on  the amount so converted  shall  be
     paid  in  shares of common stock of  the  Company,
     calculated  at  the  same  conversion  price   (as
     determined   above),  as  would   apply   on   the
     conversion  date  of  the principal  amount  being
     converted   but  using  the  discount   percentage
     applicable  as  of such date and shall  constitute
     payment  in full of any such interest on the  same
     terms  as  would otherwise apply to the conversion
     of  the  principal amount hereof.   No  fractional
     Shares  or scrip representing fractions of  Shares
     will  be  issued on conversion, but the number  of
     Shares  issuable shall be rounded to  the  nearest
     whole   Share.   The  date  on  which  notice   of
     conversion is given (the "Conversion Date")  shall
     be  deemed  to  be  the date on which  the  Holder
     notifies  the Company of its intention to  convert
     by   delivery,   by   facsimile  transmission   or
     otherwise, of a copy of the Conversion Notice  (as
     defined  below).  Notice may be given by facsimile
     to  the  Company  at (818) 735-7633.   This  Note,
     together  with the original executed copy  of  the
     Notice  of Conversion, shall be delivered  to  the
     Company as soon as practicable following the  date
     on   which  notice  of  conversion  is  given   as
     described above.  Any unconverted principal amount
     and accrued interest thereon shall at the maturity
     date  be  paid, at the option of the  Company,  in
     either  (a) cash or (b) Shares valued at  a  price
     equal  to  the  average closing bid price  of  the
     Common  Stock  for  the  five  (5)  trading   days
     immediately preceding the maturity date.

     Upon the surrender of this Note, accompanied by  a
     Notice  of Conversion of Convertible Note  in  the
     form   attached  hereto  as  Exhibit  A,  properly
     completed  and  duly executed  by  the  Holder  (a
     "Conversion Notice"), the Company shall issue and,
     within  five  (5)  business



     days (the  "Deadline") after  actual  delivery  of
     this Note with the Conversion Notice, deliver to or
     upon the order of the  Holder (1) that number of
     Shares for the portion of the Note converted as shall be
     determined  in accordance herewith  and  (2)  this
     Note with the appropriate notation to the Table by
     an  authorized officer of the Company  to  account
     for  the remaining balance of the principal amount
     hereof  following conversion, if any.  Without  in
     any  way  limiting the Holder's  right  to  pursue
     other  remedies, including actual  damages  and/or
     equitable  relief,  the  parties  agree  that   if
     delivery of the Shares issuable upon conversion of
     this  Note is more than one (1) business day after
     the  Deadline the Company shall pay to the  Holder
     $250  per  each $25,000 principal amount Note  per
     day in cash, for the first day beyond the Deadline
     and  $500  per each $25,000 principal amount  Note
     per  day  for each day thereafter that the Company
     fails  to  deliver the Shares.  Such  cash  amount
     shall  be paid to Holder by the fifth day  of  the
     month  following the month in which it has accrued
     or, at the option of the Holder (by written notice
     to  the  Company  by the first day  of  the  month
     following  the  month in which  it  has  accrued),
     shall  be  added to the principal amount  of  this
     Note, in which event interest shall accrue thereon
     in accordance with the terms of this Note and such
     additional  principal amount shall be  convertible
     into  Shares in accordance with the terms of  this
     Note.

     Furthermore,  in  addition to any  other  remedies
     which may be available to the Holder, in the event
     that  the  Company fails for any reason to  effect
     delivery  of  such shares of Common  Stock  within
     five days after the Delivery Date, the Holder will
     be  entitled  to  revoke the  relevant  Notice  of
     Conversion  by delivering a notice to such  effect
     to  the  Company  whereupon the  Company  and  the
     Holder  shall each be restored to their respective
     positions  immediately prior to delivery  of  such
     Notice of Conversion.

     The  number of shares of Common Stock to be issued
     upon  each  conversion  of  this  Note  shall   be
     determined  by dividing (i) the sum  of  (A)  that
     portion of the principal amount of the Note to  be
     converted  plus (B) the "Conversion Date Interest"
     (as  defined below), by (ii) the conversion  price
     in  effect  on the date the Conversion  Notice  is
     delivered   to   the  Company   by   the   Holder.
     Conversion Date Interest means the product of  (i)
     the  principal amount of the Note to be converted,
     multiplied by (ii) a fraction (A) the numerator of
     which  is  the  number of days elapsed  since  the
     later of (x) the date of issuance of this Note  or
     (y)  the date through which interest on this  Note
     has been paid and (B) the denominator of which  is
     365, multiplied by (iii) .08.

5.   At any time commencing one year after the Closing,
     Company  may,  by  written  notice  to  Holder  at
     Holder's registered address, prepay this  Note  in
     whole  or in part.  Such notice shall be given  at
     least  ten (10) business days prior to the payment
     date  and  on  such  date Company  shall  pay  the
     outstanding principal and all accrued interest  on
     this  Note,  unless  prior to  such  payment  date
     Holder has delivered a Notice of Conversion.  Upon
     delivery of a Notice of Conversion, the provisions
     of paragraph 4 shall apply, except that no further
     interest  shall accrue after the proposed  payment
     date.

6.    Not used.

7.   No  provision of this Note shall alter or impair
     the  obligation of the Company, which is  absolute
     and  unconditional, to pay the principal  of,  and
     interest  on,  this Note at the time,  place,  and
     rate,  and  in  the  coin or currency  or  Shares,
     herein prescribed.  This Note and all



     other Notes now or hereafter issued on similar terms are
     direct  obligations  of the  Company.   This  Note
     ranks   equally  with  all  other  Notes  now   or
     hereafter issued under the terms set forth herein.
     In  the  event of any liquidation, reorganization,
     winding  up or dissolution repayment of this  Note
     shall  be subordinate in all respects to any other
     indebtedness  for borrowed money of  the  Company,
     whether outstanding as of the date of this Note or
     hereafter  incurred.   Such  subordination   shall
     extend  without  limiting the  generality  of  the
     foregoing,  to all indebtedness of the Company  to
     banks,   financial  institutions,  other   secured
     lenders,  equipment lessors and equipment  finance
     companies, but shall exclude trade debts; and  any
     warrants,  options or other securities convertible
     into  stock  of the Company shall rank pari  passu
     with the Notes in all respects.
     
8.   The  Company hereby expressly waives demand  and
     presentment  for  payment, notice  of  nonpayment,
     protest,  notice of protest, notice  of  dishonor,
     notice  of  acceleration or intent to  accelerate,
     bringing  of  suit  and diligence  in  taking  any
     action to collect amounts called for hereunder and
     shall  be  directly and primarily liable  for  the
     payment  of all sums owing and to be owing hereon,
     regardless  of and without any notice,  diligence,
     act   or  omission  as  or  with  respect  to  the
     collection of any amount called for hereunder.
     
9.   If  the Company at any time or from time to time
     after  the Closing Date makes, a dividend or other
     distribution to holders of Common Stock payable in
     securities of the Company other than Shares,  then
     and in each such event provision shall be made  so
     that  the Holder shall receive upon conversion  of
     this  Note  pursuant  to Paragraph  4  hereof,  in
     addition   to  the  number  of  Shares  receivable
     thereupon, the amount of such other securities  of
     the  Company  to which the Holder on the  relevant
     record  or  payment  date, as applicable,  of  the
     number  of  Shares so receivable  upon  conversion
     would  have  been entitled, plus any dividends  or
     other distributions which would have been received
     with  respect  to such securities had  the  Holder
     thereafter,  during the period from  the  date  of
     such  event  to and including the Conversion  Date
     retained  such securities, subject  to  all  other
     adjustments  called for during such  period  under
     this  Note  with  respect to  the  rights  of  the
     Holder.
     
10.  If  at  any time or from time to time after  the
     Closing  Date, the Common Stock issuable upon  the
     conversion of the Note is changed into the same or
     different number of shares of any class or classes
     of    stock,    whether    by   re-capitalization,
     reclassification  or  otherwise  (other   than   a
     subdivision  or  combination of  shares  or  stock
     dividend  or reorganization provided for elsewhere
     in   this  Note  or  a  merger  or  consolidation,
     provided  for in Paragraph 3), then  and  in  each
     such   event  the  Holder  shall  have  the  right
     thereafter  to convert the Note into the  kind  of
     stock   receivable  upon  such  re-capitalization,
     reclassification  or other change  by  holders  of
     shares  of  Common Stock, all subject  to  further
     adjustment as provided herein.  In such event, the
     formulae  set  forth  herein  for  conversion  and
     redemption shall be equitably adjusted to  reflect
     such change in number of shares or, if shares of a
     new  class  of  stock are issued, to  reflect  the
     market  price  of  the class or classes  of  stock
     issued  in  connection with  the  above  described
     transaction.
     
11.  If  at  any time or from time to time after  the
     Closing Date there is a capital reorganization  of
     the  Common Stock (other than a re-capitalization,
     subdivision,     combination,     reclassification
     exchange of shares provided for elsewhere in  this
     Note)  then,  as  a  part of such  reorganization,
     provision  shall be made so that the Holder  shall
     thereafter  be entitled to receive upon conversion
     of  this  Note the number of shares  of  stock  or
     other securities or



     property to which a holder of the number of Shares
     deliverable upon conversion would have been entitled
     on such capital reorganization.  In any such case,
     appropriate adjustment shall be made in the application
     of the provisions of this Note with respect to the rights
     of  the Holder after the reorganization to the end
     that   the  provisions  of  this  Note  shall   be
     applicable  after  that event  and  be  as  nearly
     equivalent  as  may be practicable, including,  by
     way   of  illustration  and  not  limitation,   by
     equitably adjusting the formulae set forth  herein
     for  conversion  and  redemption  to  reflect  the
     market  price of the securities or property issued
     in    connection   with   the   above    described
     transaction.
     
12.  If  one  or  more of the "Events of Default"  as
     described in Paragraph 13 shall occur, the Company
     agrees  to  pay all costs and expenses,  including
     reasonable attorneys' fees, which may be  incurred
     by  the Holder in collecting any amount due  under
     this Note.
     
13.   If one or more of the following described "Events
     of Default" shall occur:

           (a) The Company shall default in the payment
           of principal or interest on this Note; or

           (b) Any  of the representations or warranties
           made  by the Company herein, in the Offshore
           Securities Subscription Agreement  dated  as
           of  December  22, 1997 between  the  Company
           and    the    Holder   (the    "Subscription
           Agreement"),   or  in  any  certificate   or
           financial or other statements heretofore  or
           hereafter furnished by or on behalf  of  the
           Company  in  connection with  the  execution
           and   delivery   of   this   Note   or   the
           Subscription  Agreement shall  be  false  or
           misleading  in any material respect  at  the
           time made; or
      
           The  Company fails to issue shares of  Common
           Stock   to  the  Holder  or  to  cause   its
           Transfer  Agent  to issue shares  of  Common
           Stock  upon  exercise by the Holder  of  the
           conversion   rights   of   the   Holder   in
           accordance  with  the terms  of  this  Note,
           fails  to  transfer or to cause its Transfer
           Agent   to  transfer  any  certificate   for
           shares  of Common Stock issued to the Holder
           upon   conversion  of  this  Note  and  when
           required  by  this Note or the  Registration
           Rights  Agreement, or fails  to  remove  any
           restrictive legend or to cause its  Transfer
           Agent to transfer on any certificate or  any
           shares  of Common Stock issued to the Holder
           upon  conversion of this Note  as  and  when
           required by this Note, the Agreement or  the
           Registration  Rights and  any  such  failure
           shall   continue  uncured   for   five   (5)
           business days.
        
           (c)  The  Company shall fail to  perform  or
           observe any other covenant, term, provision,
           condition,  agreement or obligation  of  the
           Company  under  this Note and  such  failure
           shall  continue  uncured  for  a  period  of
           thirty  (30)  days  after  notice  from  the
           Holder of such failure; or

           (d)  The Company shall (1) become insolvent;
           (2)  admit in writing its inability  to  pay
           its  debts  as  they  mature;  (3)  make  an
           assignment  for the benefit of creditors  or
           commence proceedings for its dissolution; or
           (4)  apply for or consent to the appointment
           of  a trustee, liquidator or receiver for it
           or for a substantial part of its property or
           business; or

           (e)  A trustee, liquidator or receiver shall
           be  appointed  for  the  Company  or  for  a


           substantial part of its property or business
           without  its  consent  and  shall   not   be
           discharged  within thirty  (30)  days  after
           such appointment; or

           (f) Any governmental agency or any court  of
           competent  jurisdiction at the  instance  of
           any governmental agency shall assume custody
           or  control  of the whole or any substantial
           portion of the properties or assets  of  the
           Company  and  shall not be dismissed  within
           thirty (30) days thereafter; or

           (g)  Any money judgment, writ or warrant  of
           attachment,   or   similar  process   except
           mechanics  and materialmen's liens  incurred
           in the ordinary course of business in excess
           of  Five Hundred Thousand Dollars ($500,000)
           in  the aggregate shall be entered or  filed
           against the Company or any of its properties
           or    other   assets   and   shall    remain
           unsatisfied, unvacated, unbonded or unstayed
           for  a  period  of thirty (30) days  (unless
           such order provides for delayed payment,  or
           is  covered  by insurance) or in  any  event
           later  than five (5) days prior to the  date
           of any proposed sale thereunder; or

           (h)  Bankruptcy, reorganization,  insolvency
           or    liquidation   proceedings   or   other
           proceedings for relief under any  bankruptcy
           law  or  any  law for the relief of  debtors
           shall  be  instituted  by  or  against   the
           Company  and,  if  instituted  against   the
           Company,  shall not be dismissed, stayed  or
           bonded  within  sixty (60) days  after  such
           institution  or  the Company  shall  by  any
           action or answer approve of, consent to,  or
           acquiesce in any such proceedings  or  admit
           the  material allegations of, or default  in
           answering  a  petition  filed  in  any  such
           proceeding; or

           (i)  The Company shall have its common stock
           delisted  from  an exchange  or  The  Nasdaq
           Stock Market.

            Then, or at any time thereafter, and in each
     and  every such case, unless such Event of Default
     shall  have been waived in writing by the  holders
     of a majority of all Notes then outstanding (which
     waiver  shall not be deemed to be a waiver of  any
     subsequent  default) at the option of the  holders
     of  a  majority  of all Notes outstanding  and  in
     their  discretion,  the Holder may  consider  this
     Note   immediately   due  and   payable,   without
     presentment,  demand, protest  or  notice  of  any
     kind,  all  of which are hereby expressly  waived,
     anything   herein  or  in  any   note   or   other
     instruments    contained    to    the     contrary
     notwithstanding,  and the Holder may  immediately,
     and  without  expiration of any period  of  grace,
     enforce  any  and all of the Holder's  rights  and
     remedies  provided herein or any other  rights  or
     remedies  afforded by law.  In  such  event,  this
     Note  shall  be  redeemed  by  the  Company  at  a
     redemption price per Note equal to (i) the  lesser
     of  (a)  125% of the Outstanding Principal  Amount
     due   hereunder  or  (b)  the  maximum  redemption
     premium  which may be permitted under the laws  of
     Delaware  (including any provision of law relating
     to usury) and (ii) accrued and unpaid interest.
     
14.  If  at any time on or after the date hereof  and
     prior  to  the  first anniversary of  the  Closing
     Date, trading in the shares on the Common Stock is
     suspended on the principal market or exchange  for
     such  shares (including The Nasdaq Stock  Market),
     for a period of five (5) consecutive trading days,
     other  than  as  a  result of  the  suspension  or
     trading  in  securities in  general,  or  if  such
     Shares are delisted, then, at the Holder's option,
     the  Company shall



     redeem the Note at a redemption date designated by Holder,
     and for the redemption price provided in Paragraph 13.
     
15.  Notwithstanding anything to the contrary contained
     herein,  each  Conversion Notice shall  contain  a
     representation that, after giving  effect  to  the
     Shares  to  be issued pursuant to such  conversion
     notice,   the   total  number  of  Shares   deemed
     beneficially  owned by the Holder,  together  with
     all   Shares  deemed  beneficially  owned  by  the
     Holder's  "affiliates" as defined in Rule  144  of
     the  Act, will not exceed 4.9% of the total issued
     and outstanding Shares.
     
16.  The  Holder may, subject to compliance with  the
     Subscription  Agreement  and  the  provisions   of
     Regulation  S,  without notice, transfer,  assign,
     mortgage  or  encumber  this  Note,  any  interest
     herein  or  any part hereof integral multiples  of
     $25,000  or the entire outstanding balance  to  an
     "accredited investor" as defined in the  1933  Act
     (other  than  to a U.S. Person or on behalf  of  a
     U.S.  Person) that will be acquiring the  Note  or
     interest herein for its account for the purpose of
     investment and not with a view to, or for sale  in
     connection with any distribution hereof and,  each
     assignee,  transferee  and  mortgagee  (which  may
     include  any affiliate of the Holder)  shall  have
     the  right  to  transfer or  assign  its  interest
     subject  to  the  same  limitations.   Each   such
     assignee, transferee and mortgagee shall have  all
     of  the rights of the Holder under this Note.  The
     Company  may condition registrations of  transfers
     on the receipt of a certificate from the assignee,
     transferee  or  mortgagee in a form acceptable  to
     the  Company  that  contains  representations  and
     warranties   similar  to  those  of   the   Holder
     contained   in   Section  3  of  the  Subscription
     Agreement,  and  IRS  Form W-8  or  an  equivalent
     certification   under  penalty   of   perjury   in
     compliance  with  Section  871(h)(4)(B)   of   the
     Internal Revenue Code of 1986.
     
17.  For so long as any amount payable under this Note
     remains unpaid, the Company shall furnish  to  the
     Holder,  upon request by the Holder, the following
     information:
     
           (a)   No later than one hundred five (105) days
     following  the end of each fiscal year,  beginning
     with  the  fiscal  year  ending  March  31,  1998,
     consolidated   balance   sheets,   statements   of
     operations  and  statements  of  cash   flow   and
     shareholders'  equity  of  the  Company  and   its
     subsidiaries, if any, prepared in accordance  with
     generally  accepted  accounting  principles,   and
     audited   by   a   firm   of  independent   public
     accountants.    The  Company  may   satisfy   this
     requirement by delivering its report on Form  10-K
     for each such year.
     
           (b)   Within fifty-one (51) days after the end of
     each  quarter (except the fourth quarter) of  each
     fiscal    year,   consolidated   balance   sheets,
     statements  of operations and statements  of  cash
     flow  and shareholders' equity of the Company  and
     its  subsidiaries.  The Company may  satisfy  this
     requirement by delivering its report on Form  10-Q
     for each such quarter.
     
18.  The Company covenants and agrees that until  all
     amounts  due  under this Note have  been  paid  in
     full,  by  conversion  or  otherwise,  unless  the
     Holder  waives compliance in writing, the  Company
     shall:
     
           (a)   Give prompt written notice to the Holder of
     any  Event of Default or of any other matter which
     has  resulted in, or could reasonably be  expected
     to  result in, a materially adverse change in  its
     financial condition or operations.
    
 
           (b)   Give prompt notice to the Holder of any
     claim, action or proceeding which, in the event of
     any unfavorable outcome, would or could reasonably
     be  expected to have a Material Adverse Effect (as
     defined  in  the  Subscription Agreement)  on  the
     financial condition of the Company.
     
           (c)   At all times reserve and keep available out
     of  its  authorized but unissued  stock,  for  the
     purpose  of effecting the conversion of this  Note
     such number of its duly authorized Shares as shall
     from  time  to  time be sufficient to  effect  the
     conversion of the outstanding principal balance of
     this  Note into Shares.  If the Company  does  not
     have  a  sufficient number of Shares available  to
     satisfy  the Company's obligations to  the  Holder
     upon   receipt  of  a  Conversion  Notice  or   is
     otherwise   unable  to  issue   such   Shares   in
     accordance  with  the  terms  of  this   Note   (a
     "Conversion  Default"), from and after  the  fifth
     (5th)  day  following a Conversion Default  (which
     for  all purposes shall be deemed to have occurred
     upon  the  Company's  receipt  of  the  applicable
     conversion  notice),  the Holder  shall  have  the
     right   to   demand  from  the  Company  immediate
     redemption  of this Note in cash at  a  redemption
     price  equal to 125% of the Outstanding  Principal
     Amount,  plus accrued but unpaid interest  on  the
     Note; provided, however, that no Redemption Notice
     may  be delivered by the Holder subsequent to  the
     Holder's receipt of notice from the Company  (sent
     by  overnight or 2-day courier with a copy sent by
     facsimile) of availability of sufficient Shares to
     permit conversion (a "Post-Default Conversion") of
     the  Note; provided further that such right  shall
     be reinstated if the Company shall thereafter fail
     to   perfect   such  Post-Default  Conversion   by
     delivery   of   Common   Stock   certificates   in
     accordance   with  the  applicable  provision   of
     Paragraph 4 hereof and payment of all accrued  and
     unpaid  interest  in  cash  with  respect  thereto
     within  five  business days  of  delivery  of  the
     notice of Post-Default Conversion.  In addition to
     the foregoing, upon a Conversion Default, the rate
     of  interest  on  the Note shall, to  the  maximum
     extent  of  the law, be increased by  two  percent
     (2%) (i.e., from 8% to 10% commencing on the first
     day  of  the  thirty  (30)  day  period  (or  part
     thereof)   following  a  Conversion  Default;   an
     additional  two  percent (2%)  commencing  on  the
     first  day  of each of the second and  third  such
     thirty  (30)  day  periods (or part  thereof);  an
     additional  one percent (1%) on the first  day  of
     each  consecutive thirty (30) day period (or  part
     thereof)  thereafter  until such  securities  have
     been   duly   converted  or  redeemed  as   herein
     provided.   Any such interest which  is  not  paid
     when due shall, to the maximum extent permitted by
     law,  accrue interest until paid at the rate  from
     time to time applicable to interest on the Note as
     to which the Conversion Default has occurred.
     
           (d)   Upon receipt by the Company of evidence
     reasonably satisfactory to it of the loss,  theft,
     destruction or mutilation of this Note and
     
                  (i)  in  the case of loss,  theft  or
     destruction,    upon   provision   of    indemnity
     reasonably satisfactory to it and/or its  transfer
     agent, or

                 (ii)     in the case of mutilation, upon
     surrender and cancellation of this Note,

     the Company at its expense will execute and
     deliver  a  new Note, dated the date of the  lost,
     stolen, destroyed or mutilated Note.
     
19.  The  Holder of this Note, by acceptance  hereof,
     agrees  that  this  Note  is  being  acquired  for
     investment  and that such Holder will  not  offer,
     sell  or  otherwise dispose of this  Note  or  the



     Shares issuable upon exercise thereof except under
     circumstances which will not result in a violation
     of the 1933 Act or any applicable state securities
     laws.
     
20.  In case any provision of this Note is held by  a
     court of competent jurisdiction to be excessive in
     scope or otherwise invalid or unenforceable,  such
     provision shall be adjusted rather than voided, if
     possible, so that it is enforceable to the maximum
     extent    possible,   and   the    validity    and
     enforceability of the remaining provisions of this
     Note  will not in any way be affected or  impaired
     thereby.
     
21.  This  Note,  the  Subscription Agreement  and  the
     Registration Rights Agreement (as defined  in  the
     Subscription Agreement) between the Company and the
     Holder constitute the full and entire understanding and
     agreement between the Company and the Holder  with
     respect to the subject hereof.  Neither this Note nor
     any term hereof may be amended, waived, discharged or
     terminated other than by a written instrument signed by
     the Company and the Holder.

22.  This Agreement and the validity and performance of
     the terms hereof shall be governed by and construed in
     accordance with the laws of the State of Delaware.  The
     parties  hereto hereby consent to, and  waive  any
     objection to the exercise of, personal jurisdiction in
     the State of Delaware with respect to any action or
     proceeding arising out of this Agreement.

     
            IN  WITNESS WHEREOF, the Company has caused
     this  instrument to be duly executed by an officer
     thereunto duly authorized.

COYOTE NETWORK SYSTEMS, INC.

Dated:       ____________________________

     By:     ______________________________
             Name: James J. Fiedler
             Title:  Chairman  & Chief Executive Officer

[BUYER]

Dated:       ____________________________ 
     By:     ______________________________
             Name:
             Title:   Authorized Signatory

     Buyer  certifies  under penalty  of  perjury  that
     Buyer  is neither a citizen nor a resident of  the



     United  States  and  that Buyer's  full  name  and
     address are as set out below:


                       EXHIBIT A
                           
                 NOTICE OF CONVERSION
                           
 (To be Executed by the Registered Holder in order to
                   Convert the Note)
                           
 Re: a 8% Convertible Note of Coyote Network Systems, Inc.
     in the principal amount outstanding of $6,000,000

The undersigned hereby irrevocably elects to convert
$__________________ of the outstanding principal  amount
of  the above referenced Note No._________ (the "Note")
into  shares of common stock of Coyote Network Systems,
Inc.   (the  "Company")  according  to  the  conditions
hereof,  as of the date written below.  The undersigned
represents   and   warrants  that  (i)   all   of   the
requirements  of  Regulation S  promulgated  under  the
Securities  Act  of 1933, as amended  (the  "Securities
Act")  applicable to the undersigned have been complied
with by the undersigned, (ii) the undersigned is not  a
"U.S.  Person" as defined in Regulation S and the  Note
is  not being converted on behalf of any "U.S. Person,"
(iii)   the   undersigned  has  not  engaged   in   any
transaction or series of transactions that is a part of
or   a   plan  or  scheme  to  evade  the  registration
requirements of the Securities Act, (iv) on the date of
the  conversion the undersigned was located outside the
United  States  and (iv) the undersigned  has  complied
with  the  terms  and conditions of the  Note  and  the
Subscription  Agreement  (as  defined  in   the   Note)
pertaining  to  conversion of the Note.   Further,  the
undersigned  represents and warrants that after  giving
effect   to   the  conversion  hereby  requested,   the
undersigned  will not beneficially own,  together  with
its  affiliates, more than 4.9% of the Company's issued
and outstanding common stock.


                         -----------
                         Date of Conversion*


                         -----------
                         Applicable Conversion Price


                         ----------
                         Signature


                         ----------
                         Name

                         Address:

                         -----------
                         -----------



*  The original Note and this Notice of Conversion must
be  received  by the Company by the fifth business  day
following  the  Date of Conversion (as defined  in  the
Note).

EX-4.3

EXECUTION COPY                            Exhibit 4.3

                 REGISTRATION RIGHTS AGREEMENT


           THIS  REGISTRATION  RIGHTS  AGREEMENT  (this
"Agreement"), entered into as of December __,  1997  by
and   between  [BUYER],  c/o  First  Bermuda  Financial
Services  Limited,  Chevron House,  11  Church  Street,
Hamilton  HM  NX,  Bermuda (the  "Buyer"),  and  COYOTE
NETWORK  SYSTEMS,  INC.,  a Delaware  corporation  with
offices  at 4360 Park Terrace Drive, Westlake  Village,
CA 91361, U. S. A. (the "Company").

                      W I T N E S S E T H:

          WHEREAS, pursuant to a Convertible Securities
Subscription  Agreement, dated as of  the  date  hereof
(the  "Subscription  Agreement"), by  and  between  the
Company  and the Buyer, the Company has agreed to  sell
and  the  Buyer has agreed to purchase U.S. $__________
of  the Company's 8% Convertible Notes due December __,
2000  (the  "Notes")  convertible into  shares  of  the
Company's common stock, $1.00 par value (the "Shares");

           WHEREAS,  pursuant to the terms of,  and  in
partial  consideration for, the  Buyer's  agreement  to
enter into the Subscription Agreement, the Company  has
agreed  to  provide the Buyer with certain registration
rights with respect to the Shares as set forth in  this
Agreement;

           NOW,  THEREFORE,  in  consideration  of  the
mutual promises, representations, warranties, covenants
and  conditions  set  forth in the Agreement  and  this
Registration  Rights  Agreement, the  Company  and  the
Buyer agree as follows:

           1.    Certain Definitions.  As used in  this
Agreement, the following terms shall have the following
respective meanings:

           "Commission"  shall mean the Securities  and
Exchange Commission or any other federal agency at  the
time administering the Securities Act.

            "Registrable  Securities"  shall  mean  the
Shares  issued to Buyer or its designee upon conversion
of  the  Notes or upon any stock split, stock dividend,
recapitalization or similar event with respect to  such
Shares;  provided, however, that Registrable Securities
shall cease to be Registrable Securities when they  may
be  sold pursuant to Rule 144 under the Securities Act.
Registrable Securities shall not include the Notes.

            The  terms  "register",  "registered"   and
"registration"  shall refer to a registration  effected
by  preparing  and filing a registration  statement  in
compliance with the Securities Act and applicable rules
and  regulations  thereunder, and  the  declaration  or
ordering  of  the  effectiveness of  such  registration
statement.

            "Registration  Expenses"  shall  mean   all
expenses  to  be incurred by the Company in  connection
with  Buyer's exercise of its registration rights under
this  Agreement,  including,  without  limitation,  all
registration  and filing fees, printing expenses,  fees
and  disbursements of



counsel for the Company, blue sky fees and expenses,
reasonable fees and disbursements of one counsel to Holders
participating in the registration for a review of the
Registration Statement and related documents, and the
expense of any special audits incident to or required by
any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in
any event by the Company).

             "Selling   Expenses"   shall   mean    all
underwriting   discounts   and   selling    commissions
applicable  to  the sale of Registrable Securities  and
all  fees  and disbursements of counsel for Holder  not
included with "Registration Expenses".

           "Holder"  shall include the  Buyer  and  any
permitted  transferee of Notes, Shares  or  Registrable
Securities  which have not been sold to the  public  to
whom   the  registration  rights  conferred   by   this
Agreement  have  been transferred  in  compliance  with
Section 11 herein.

            "Registration  Statement"  shall  have  the
meaning set forth in Section 3(a) herein.

           "Regulation  S" shall mean Regulation  S  as
promulgated  pursuant  to the Securities  Act,  and  as
subsequently amended.

           "Rule  144"  shall mean Rule 144  under  the
Securities Act, as such rule may be amended  from  time
to  time,  or any similar rule or regulation  hereafter
adopted by the Commission.

          "Securities Act" shall mean the United States
Securities Act of 1933, as amended.

           2.   Conditions to Registration Requirement.
The   Company's   obligation  hereunder   to   register
Registrable  Securities shall arise in the  event  that
Company  receives a written opinion of counsel for  the
Holder   (which  counsel  shall  be  of  a   law   firm
experienced   in  United  States  securities   matters)
indicating that there has been an amendment or material
change to the Securities Act or Regulation S after  the
date  hereof, or the promulgation by the Commission  of
an  interpretative release or other statement after the
date  hereof, which prohibits or restricts or otherwise
materially   affects   the   Holder   from    reselling
Registrable Securities without registration  under  the
Securities   Act  (a  "Registration  Trigger   Event").
Notwithstanding the foregoing, it will not be deemed  a
"Registration Trigger Event" to the extent that  Holder
desires  to engage in a distribution of the Registrable
Securities which otherwise requires registration  under
the Securities Act or in activity which otherwise deems
Holder to be a statutory underwriter under Section 5 of
the  Securities Act.  In the event that a  Registration
Trigger  Event  has  occurred,  then  Holder  shall  be
entitled  to  require the Company to  register  all  of
Holder's Registrable Securities in accordance with this
Agreement.

          3.   Request for Registration.

                 (a)    Upon   the  occurrence   of   a
Registration  Trigger  Event,  if  the  Company   shall
receive  from a Holder (or, in the event there is  more
than  one  Holder  as a result of the issuance  by  the
Company of the Notes, the Company shall receive written
notice  from such Holders acting with respect to  their
rights  under this Agreement according to a vote  of  a
majority-in-interest of the Holders) a written  request
that  the Company effect any registration



with respect to any Registrable Securities, the Company
shall use its commercially reasonable efforts to effect such
registration   (including,  without   limitation,   the
execution  of  an  undertaking to  file  post-effective
amendments, appropriate qualification under  applicable
state  securities laws and appropriate compliance  with
applicable regulations issued under the Securities Act)
as   may  be  so  requested  and  as  would  permit  or
facilitate  the sale and distribution of  all  or  such
portion of such Registrable Securities as are specified
in  such  request  in  the  states  specified  in  such
request.   Notwithstanding the foregoing,  the  Company
shall  not  be  obligated  hereunder  to  effect   such
registration unless the proposed public offering  price
of  the  securities to be included in such registration
shall   be   at   least   $250,000  (before   deducting
underwriting  discounts  and  commissions).    If   the
registration   request  pertains  to  any   Registrable
Securities   not  yet  outstanding  because  conversion
rights  have not been exercised, Company may  condition
the  registration of such securities on an  irrevocable
undertaking  to  pay  all  expenses  incident  to  such
registration   if  such  conversion  rights   are   not
exercised   prior  to  the  effective   date   of   the
registration statement.

            Subject  to  the  previous  paragraph,  the
Company  shall  file (i) a registration statement  with
the   Commission  pursuant  to  Rule  415   under   the
Securities Act on Form S-3 under the Securities Act (or
in the event that the Company in ineligible to use such
form, such other form as the Company is eligible to use
under  the Securities Act) covering at least __________
of  the  Registrable  Securities  so  requested  to  be
registered ("Registration Statement"); (ii) such  state
securities filings as shall have been requested by  the
Holder; and (iii) any required filings with The  Nasdaq
Stock  Market,  Inc. or exchange where the  Shares  are
traded,  as soon as practicable, after receipt  of  the
request  of  the Holder.  Thereafter the Company  shall
use  its  commercially reasonable efforts to have  such
Registration  Statement  and  other  filings   declared
effective.

                (b)   (i)   Subject to  the  conditions
contained  in Section 3(a) above, if the Company  fails
to  file  a Registration Statement complying  with  the
requirements of this Agreement within 45 days from  the
date  of receipt by the Company of the Holder's written
request    (provided,   however,   that    under    the
circumstances described in 3(e) below the  Company  may
have  an  additional 45 days thereafter  to  file  such
Registration Statement by providing written  notice  to
the  Holders  requesting  such registration  indicating
that  the Company is diligently pursuing the filing  of
such  Registration  Statement) or if such  Registration
Statement has not become effective within 90 days  from
the  date of filing thereof, the Holder shall have,  in
addition  to and without limiting any other  rights  it
may  have  at  law, in equity or under the  Notes,  the
Subscription  Agreement, or this  Agreement  (including
the  right  to  specific  performance),  the  right  to
receive,   as  liquidated  damages,  the  payments   as
provided in subparagraph (ii) of this section.

                    (ii) If after ninety (90) days from
the  date of filing of the Registration Statement,  the
Registration Statement has not been declared  effective
by  the  Commission, then the Company shall pay to  the
Buyer  an  amount equal to 3% of the Initial  Principal
Amount  (as defined in the Note) in cash, for each  30-
day  period after the ninety (90) day period that  such
Registration Statement is not effective (which  payment
shall be pro rata for any period of less than 30 days).
In  addition to the foregoing, if after 180  days  from
the  date of filing of the Registration Statement,  the
Registration Statement has not been declared  effective
by  the  Commission, then at the option of such Holder,
the  Company shall be required to redeem all the  Notes
held by such Holder at a redemption price equal to 125%
of  the  Outstanding Principal Amount of the Note  plus
accrued  interest  thereon,  together  with  all  other
payments  due



under this paragraph and under  the  Note
and the Agreement.

                     (iii)     The Company acknowledges
that its failure to register the Registrable Securities
in accordance with this Agreement will cause the Holder
to  suffer  damages in an amount that will be difficult
to  ascertain.  Accordingly, the parties agree that  it
is  appropriate to include in this Registration  Rights
Agreement  a  provision  for liquidated  damages.   The
parties  acknowledge  and  agree  that  the  liquidated
damages  provisions  set  forth  above  represent   the
parties'  good  faith effort to quantify  such  damages
and,  as  such, agree that the form and amount of  such
liquidated   damages  are  reasonable  and   will   not
constitute a penalty.

                     (iv) In computing the time periods
provided  in  this paragraph 3(b), any  delays  arising
from  the  failure or refusal of any Holder to  provide
information   which  the  Company's  counsel   or   the
Commission states in writing is required for  inclusion
on the Registration Statement within ten (10) days of a
written   request  by  the  Company  to  provide   such
information, shall increase the number of days for  the
Company to act by a corresponding number.

                (c)   If there is more than one Holder,
such  Holders  shall act with respect to  their  rights
under  this  Agreement  according  to  the  vote  of  a
majority-in-interest of the Holders.

                (d)   The  Company shall make available
for  inspection  by a representative or representatives
of  the Holder, and any attorney or accountant retained
by   such  Holder,  all  financial  and  other  records
customary   for  such  purposes,  pertinent   corporate
documents and properties of the Company, and cause  the
Company's  officers, directors and employees to  supply
all   information  reasonably  requested  by  any  such
representative,  attorney or accountant  in  connection
with  such  Registration Statement.   The  Holder  will
agree to keep all non-public information supplied to it
confidential  until such information is included  in  a
Registration  Statement which has  been  made  publicly
available.

                (e)  The Company shall not be obligated
to   keep   such  Registration  Statement  continuously
effective for a period of more than two years from  the
date  it  is  declared  effective  by  the  Commission;
provided, however, that if so requested by the  holders
of a majority-in-interest of the Registrable Securities
the  Company shall agree to extend the period for which
the  Registration  Statement remains effective  to  the
same  extent  that  "suspension  periods"  are  imposed
pursuant to the next paragraph, but only so long as the
then  unsold  Registrable Securities  covered  by  such
Registration  are  too numerous to be  sold  under  the
volume limitations of Rule 144 in any applicable three-
month period by any holder.

                     Following the effectiveness of the
Registration Statement pursuant to this Agreement,  the
Company may, at any time, suspend the effectiveness  of
such Registration Statement and sales thereunder for up
to   twenty  (20)  business  days,  as  appropriate  (a
"Suspension  Period"), by giving notice to each  holder
(or  underwriter,  if any) selling thereunder,  if  the
Board  of Directors shall have determined in good faith
that  the  Company  may  be required  to  disclose  any
material corporate development which disclosure (i) may
have a material adverse effect on the Company, (ii) may
have  a  material adverse affect on the transaction  or
matter  to  be disclosed, or (iii) would be detrimental
to  the  Company  or its stockholders.  Notwithstanding
the  foregoing,  no  more than two  Suspension  Periods
(i.e.,  forty



(40) business days) may occur in any twelve (12) month
period, and the Company shall use its commercially
reasonable efforts to limit the duration and number of
any suspension periods.  Holder agrees (and  shall require
that any underwriter agree) that, upon  receipt of any
notice from the Company of any Suspension Period, Holder
shall forthwith discontinue disposition of shares covered
by the Registration Statement and related prospectus or
other offering materials (the "Prospectus") until such
Holder (i) is advised in writing by the Company that the use
of the applicable Prospectus may be resumed, (ii) has received
copies  of  a  supplemental or omitted  Prospectus,  if
applicable,  and  (iii)  has  received  copies  of  any
additional   or   supplemental   filings   which    are
incorporated or deemed to be incorporated by  reference
in  such  Prospectus.  Holder acknowledges that receipt
of  notice  of  a Suspension Period could,  itself,  be
considered  material nonpublic information  and  agrees
not  to  trade on (or tip others with respect to)  such
information.

            4.     Expenses   of   Registration.    All
Registration Expenses incurred in connection  with  any
registration,   qualification   or   compliance    with
registration pursuant to this Agreement shall be  borne
by the Company, and all Selling Expenses shall be borne
by  the  Holder, except for a legal fee not  to  exceed
$3,500  of  Counsel  to the Holder for  review  of  the
Registration Statement.

           5.   Registration on Form S-3.  Although the
Company  shall use its commercially reasonable  efforts
to   qualify  for  registration  on  Form  S-3  or  any
comparable or successor form or forms, or in the  event
that  the Company is ineligible to use such form,  such
form  as  the  Company is eligible  to  use  under  the
Securities  Act, nothing in the Subscription  Agreement
or this Agreement is intended to require the Company to
pay dividends in order to use Form S-3.

          6.   Registration Procedures.  In the case of
each  registration effected by the Company pursuant  to
this  Agreement,  the  Company  will  keep  the  Holder
advised  in  writing  as  to  the  initiation  of  each
registration and as to the completion thereof.  At  its
expense,   the   Company  will  use  its   commercially
reasonable efforts to:

                (a)   Keep  such Registration Statement
effective for the period ending twenty-four (24) months
after  the registration has been declared effective  by
the  Commission or until the Holder has  completed  the
distribution  described  in the Registration  Statement
relating thereto, whichever first occurs.

               (b)  Furnish such number of Prospectuses
and other documents incident thereto as the Holder from
time to time may reasonably request.

          7.   Indemnification.

                (a)   Company Indemnity.   The  Company
will  indemnify  the  Holder,  each  of  its  officers,
directors  and  partners, and each  person  controlling
Holder,  within  the  meaning  of  Section  15  of  the
Securities Act and the rules and regulations thereunder
with  respect  to which registration, qualification  or
compliance   has   been  effected  pursuant   to   this
Agreement,  against  all claims,  losses,  damages  and
liabilities (or actions in respect thereof) arising out
of  or based on any untrue statement (or alleged untrue
statement)  of  a  material  fact  contained   in   any
Prospectus,   (including   any   related   Registration
Statement,  notification or the like) incident  to  any
such  registration,  qualification  or  compliance,  or
based  on  any omission (or alleged omission) to



state therein a material fact required to be stated therein
or   necessary  to  make  the  statements  therein  not
misleading,  or  any violation by the  Company  of  the
Securities Act or any state securities law or in either
case,  any rule or regulation thereunder applicable  to
the Company and relating to action or inaction required
of   the   Company   in  connection   with   any   such
registration,  qualification or  compliance,  and  will
reimburse  the Holder, each of its officers,  directors
and  partners, and each person controlling such Holder,
for   any  legal  and  any  other  expenses  reasonably
incurred in connection with investigating and defending
any  such  claim,  loss, damage, liability  or  action,
provided  that  the Company will not be liable  in  any
such  case  to  the extent that any such  claim,  loss,
damage, liability or expense arises out of or is  based
on  any untrue statement or omission based upon written
information  furnished  to the Company  by  Holder  and
stated  to  be  specifically  for  use  therein.    The
indemnity  agreement  contained in  this  Section  7(a)
shall  not apply to amounts paid in settlement  of  any
such  loss, claim, damage, liability or action if  such
settlement  is  effected without  the  consent  of  the
Company   (which  consent  will  not  be   unreasonably
withheld).

               (b)  Holder Indemnity.  The Holder will,
if  Registrable Securities held by it are  included  in
the   securities   as   to  which  such   registration,
qualification   or   compliance  is   being   effected,
indemnify the Company, each of its directors, officers,
partners,  and  each  underwriter,  if  any,   of   the
Company's  securities covered by  such  a  registration
statement, each person who controls the Company or such
underwriter  within the meaning of Section  15  of  the
Securities   Act   and   the  rules   and   regulations
thereunder,  each other Holder (if any),  and  each  of
their officers, directors and partners, and each person
controlling  such  other  Holder  against  all  claims,
losses,  damages and liabilities (or actions in respect
thereof)  arising  out  of  or  based  on  any   untrue
statement  (or alleged untrue statement) of a  material
fact  contained  in  any  such registration  statement,
prospectus, offering circular or other document, or any
omission  (or  alleged omission)  to  state  therein  a
material   fact  required  to  be  stated  therein   or
necessary to make the statement therein not misleading,
and  will reimburse the Company and such other  holders
and    their    directors,   officers   and   partners,
underwriters  or control persons for any legal  or  any
other  expenses reasonably incurred in connection  with
investigating  and  defending  any  such  claim,  loss,
damage,  liability  or action,  in  each  case  to  the
extent,  but  only  to  the extent,  that  such  untrue
statement (or alleged untrue statement) or omission (or
alleged   omission)   is  made  in  such   registration
statement,  prospectus,  offering  circular  or   other
document  in  reliance  upon  and  in  conformity  with
written information furnished to the Company by  Holder
and  stated  to  be specifically for use  therein,  and
provided  that the maximum amount for which the  Holder
shall  be liable under this indemnity shall not  exceed
the  net proceeds received by the Holder from the  sale
of the Registrable Securities.  The indemnity agreement
contained  in  this  Section 7(b) shall  not  apply  to
amounts  paid in settlement of any such claims, losses,
damages  or liabilities if such settlement is  effected
without the consent of Holder (which consent shall  not
be unreasonably withheld).

                (c)  Procedure.  Each party entitled to
indemnification under this Section 7 (the  "Indemnified
Party")  shall  give notice to the  party  required  to
provide   indemnification  (the  "Indemnifying  Party")
promptly   after  the  Indemnified  Party  has   actual
knowledge  of  any claim as to which indemnity  may  be
sought,  and  shall  permit the Indemnifying  Party  to
assume  the defense of any such claim in any litigation
resulting  therefrom,  provided that  counsel  for  the
Indemnifying  Party, who shall conduct the  defense  of
such claim or any litigation resulting therefrom, shall
be  approved  by the Indemnified Party (whose  approval
shall   not   be   unreasonably  withheld),   and   the
Indemnified  Party may participate in such defense at
such



party's  expense, and provided further  that  the
failure  of  any  Indemnified Party to give  notice  as
provided  herein  shall  not relieve  the  Indemnifying
Party of its obligations under this Section 7 except to
the  extent  that the Indemnifying Party is  materially
and  adversely  affected  by such  failure  to  provide
notice.  No Indemnifying Party, in the defense  of  any
such  claim  or  litigation,  shall,  except  with  the
consent of each Indemnified Party, consent to entry  of
any  judgment or enter into any settlement  which  does
not include as an unconditional term thereof the giving
by  the claimant or plaintiff to such Indemnified Party
of  a  release  from all liability in respect  to  such
claim  or  litigation.   Each Indemnified  Party  shall
furnish such information regarding itself or the  claim
in  question  as  an Indemnifying Party may  reasonably
request  in writing and as shall be reasonably required
in  connection  with  the defense  of  such  claim  and
litigation resulting therefrom.

           8.    Contribution.  If the  indemnification
provided for in Section 7 herein is unavailable to  the
Indemnified  Parties in respect of any losses,  claims,
damages  or liabilities referred to herein (other  than
by  reason  of  the exceptions provided therein),  then
each  such  Indemnifying Party, in lieu of indemnifying
the  Indemnified Party, shall contribute to the  amount
paid or payable by the Indemnified Party as a result of
such  losses,  claims, damages or  liabilities  (i)  as
between the Company and the Holder on the one hand  and
the underwriters on the other, in such proportion as is
appropriate  to reflect the relative benefits  received
by  the  Company  and the Holder on  the  one  hand  or
underwriters, as the case may be, on the other from the
offering  of  the Registrable Securities,  or  if  such
allocation is not permitted by applicable law, in  such
proportion as is appropriate to reflect not  only  such
relative  benefits but also the relative fault  of  the
Company   on  the  one  hand  and  of  the  Holder   or
underwriters,  as  the case may be,  on  the  other  in
connection  with  the  statements  or  omissions  which
resulted   in   such   losses,   claims,   damages   or
liabilities,  as  well as any other relevant  equitable
considerations and (ii) as between the Company  on  the
one   hand  and  the  Holder  on  the  other,  in  such
proportion  as is appropriate to reflect  the  relative
fault  of  the Company and of the Holder in  connection
with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as  any
other relevant equitable considerations.

          The relative benefits received by the Company
on  the one hand and the Holder or the underwriters, as
the case may be, on the other shall be deemed to be  in
the  same  proportion as the proceeds from the offering
(net  of  underwriting discounts  and  commissions  but
before deducting expenses) received by the Company from
the  initial  sale of the Notes which can be  converted
into  Registrable  Securities by  the  Company  to  the
Holder  pursuant  to the Subscription  Agreement  which
corresponds to this Agreement bear to the gain realized
by  such Holder or the total underwriting discounts and
commissions received by the underwriters as  set  forth
in  the  table on the cover page of the prospectus,  as
the case may be.  The relative fault of the Company  on
the  one hand and of the Holder or underwriters, as the
case  may  be,  on  the other shall  be  determined  by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to
information supplied by the Company, by the  Holder  or
by the underwriters.

           In  no  event  shall the obligation  of  any
Indemnifying Party to contribute under this  Section  8
exceed  the  amount that the Indemnifying  Party  would
have been obligated to pay by way of indemnification if
the indemnification provided for under Section 7(a)  or
7(b) hereof had been available under the circumstances.



           The  Company  and the Holder agree  that  it
would   not  be  just  and  equitable  if  contribution
pursuant to this Section 8 were determined by pro  rata
allocation (even if the Holder or the underwriters were
treated as one entity for such purpose) or by any other
method of allocation which does not take account of the
equitable considerations referred to in the immediately
preceding paragraphs.  The amount paid or payable by an
Indemnified  Party as a result of the  losses,  claims,
damages  and liabilities referred to in the immediately
preceding  paragraphs  shall  be  deemed  to   include,
subject  to the limitations set forth above, any  legal
or   other   expenses  reasonably   incurred   by   the
Indemnified  Party in connection with investigating  or
defending  any  such action or claim.   Notwithstanding
the   provisions  of  this  Section,   no   Holder   or
underwriter shall be required to contribute any  amount
in excess of the amount by which (i) in the case of the
Holder,  the  net proceeds received by the Holder  from
the  sale of Registrable Securities or (ii) in the case
of  an  underwriter,  the  total  price  at  which  the
Registrable  Securities purchased by it and distributed
to  the  public were offered to the public exceeds,  in
any  such  case,  the amount of any  damages  that  the
Holder  or  underwriter has otherwise been required  to
pay   by  reason  of  such  untrue  or  alleged  untrue
statement  or omission or alleged omission.  No  person
guilty  of  fraudulent  misrepresentation  (within  the
meaning  of Section 11(f) of the Securities Act)  shall
be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.

             9.      Survival.    The   indemnity   and
contribution agreements contained in Sections 7  and  8
shall  remain  operative and in full force  and  effect
regardless  of (i) any termination of the  Subscription
Agreement  or  any  underwriting  agreement,  (ii)  any
investigation  made by or on behalf of any  Indemnified
Party  or by or on behalf of the Company and (iii)  the
consummation of the sale or successive resales  of  the
Registrable Securities.

          10.  Information by Holder.  The Holder shall
furnish to the Company such information regarding  such
Holder and the distribution proposed by such Holder  as
the  Company may reasonably request in writing  and  as
shall  be  reasonably required in connection  with  any
registration, qualification or compliance  referred  to
in this Agreement.

           11.   Transfer or Assignment of Registration
Rights.   The  rights, granted to Buyer by the  Company
under this Registration Rights Agreement, to cause  the
Company  to  register Registrable  Securities,  may  be
transferred or assigned to a transferee or assignee  of
not  less  than $250,000 in principal amount of  Notes,
provided  that the Company is given written  notice  by
Holder at the time of or within a reasonable time after
said  transfer  or  assignment, stating  the  name  and
address  of said transferee or assignee and identifying
the  securities with respect to which such registration
rights  are being transferred or assigned, and provided
further that the transferee or assignee of such  rights
is not deemed by the board of directors of the Company,
in  its reasonable judgment, to be a competitor of  the
Company;  and  provided further that the transferee  or
assignee  of  such rights agrees to be  bound  by  this
Agreement.

           Buyer  is  one  of  a group  of  holders  of
Registrable Securities issued or issuable pursuant to a
total  aggregate  amount of up to $3,000,000  of  Notes
purchased by Buyer and others in a transaction designed
to  qualify  as  an offering pursuant to Regulation  S.
Any action to be taken under this Agreement or any term
of  this  Agreement may be amended or waived only  with
written  action by the Company and the  holders  of  at
least  a  majority-in-interest  of  the  total  of  the
Registrable  Securities.   Any  action,  amendment   or
waiver effected in accordance with this paragraph shall
be   binding   upon  each  of  the  other  holders   of
Registrable Securities at the time



then outstanding.

          12.  Miscellaneous.

                (a)   Entire Agreement.  This Agreement
contains the entire understanding and agreement of  the
parties,  and may not be modified or terminated  except
by a written agreement signed by both parties.

                (b)   Notices.   Any  notice  or  other
communication  given or permitted under this  Agreement
shall  be  in writing and shall be deemed to have  been
duly   given  if  personally  delivered  or   sent   by
registered or certified mail, return receipt requested,
postage prepaid or by air courier, (a) if to Buyer,  at
its  address  hereinabove set  forth,  (b)  if  to  the
Company, at its address hereinabove set forth, and  (c)
if to a holder other than Buyer, at the address thereof
furnished by like notice to the Company, or (d) to  any
such  addresses at such other address or  addresses  as
shall  be  so  furnished to the other parties  by  like
notice.

                (c)   Gender of Terms.  All terms  used
herein shall be deemed to include the feminine and  the
neuter, and the singular and the plural, as the context
requires.

                 (d)    Governing   Law;   Consent   of
Jurisdiction.   This  Agreement and  the  validity  and
performance  of the terms hereof shall be  governed  by
and  construed in accordance with the laws of the State
of Delaware.  The parties hereto hereby consent to, and
waive  any  objection  to  the  exercise  of,  personal
jurisdiction in the State of Delaware with  respect  to
any action or proceeding arising out of this Agreement.

                (e)   Titles.  The titles used in  this
Agreement are used for convenience only and are not  to
be   considered  in  construing  or  interpreting  this
Agreement.

                (f)   Prospectus Delivery Requirements.
Holder  agrees, on Holder's behalf, and  shall  require
any transferee or assignee pursuant to Section 11 above
to  agree,  to comply with all applicable  federal  and
state securities laws, including without limitation all
prospectus delivery requirements applicable to  resales
of   the   securities  pursuant  to  the   Registration
Statement  and  Regulation M and Rule 10b-5  under  the
Securities Exchange Act of 1934, as amended.

                (g)  Termination.  The rights of Holder
to  require  the  Company  to  request  a  registration
pursuant to this Agreement shall terminate on the  date
which  is  five  (5)  years  from  the  date  of   this
Agreement.



           IN  WITNESS WHEREOF, the parties hereto have
caused  this Agreement to be duly executed  as  of  the
date first above written.


[BUYER]                    COYOTE NETWORK  SYSTEMS, INC.
                           a Delaware Corporation


By:                           By:
Name:                         Name:  James J. Fiedler
Title: Authorized Signatory   Title:  Chairman &  Chief
                                      Executive Officer

EX-4.4

                                          Exhibit 4.4 

            OFFSHORE WARRANT SUBSCRIPTION AGREEMENT

           This  Warrant  Subscription  Agreement  (the
"Agreement"), dated as of December 22, 1997, is entered
into  by  and  between Coyote Network Systems  Inc.,  a
Delaware corporation (the "Issuer"), and First  Bermuda
Securities Limited. (the "Purchaser").


           The  Issuer has offered to sell outside  the
United States (as that term is defined in Regulation  S
("Regulation S") under the United States Securities Act
of  1933,  as  amended (the "Act")) to the Purchaser  a
warrant  to purchase 48,611 shares of its common  stock
("Common Stock"), $1.00 par value, at a price of  $7.20
per  share.   Capitalized terms  used  herein  and  not
defined herein shall have the meanings given to them in
Regulation S.

          The parties hereto agree as follows:

           1.   Sale of Warrant.  Upon the basis of the
representations  and warranties,  and  subject  to  the
terms and conditions, set forth in this Agreement,  the
Issuer covenants and agrees to sell to the Purchaser on
the Closing Date (as hereinafter defined), a warrant in
the  form  of  Exhibit  A  hereto  (the  "Warrant")  to
purchase 48,611 shares of its Common Stock (such shares
of   Common  Stock  and  other  securities  issued  and
issuable  upon  any exercise of the Warrant  or  a  New
Warrant (as defined below), the "Warrant Shares"), at a
price  equal  to  $7.20  per  share,  in  exchange  for
services already rendered in full by the Purchaser in a
capital-raising transaction for the Issuer and upon the
basis  of  the  representations  and  warranties,   and
subject to the terms and conditions, set forth in  this
Agreement, the Purchaser covenants and agrees to accept
from  the  Issuer on the Closing Date  the  Warrant  as
payment for said services.


          2.   Closing.  The closing of the sale of the
Warrant  pursuant to Section 1 hereof shall take  place
on or before December 22, 1997 (the "Closing Date"), at
the   offices  of  First  Bermuda  Securities  Limited,
located  at 11 Church Street, Chevron House,  Hamilton,
Bermuda HM11.  The Warrant shall be delivered by, or on
behalf of, the Issuer at the above-mentioned offices of
First  Bermuda  on the Closing Date.  Delivery  of  the
Warrant shall be in accordance with the instructions of
the Purchaser, and in such names as the Purchaser shall
instruct, subject to customary settlement procedures.


          3.   Description of the Warrant

                 (a)   Execution  and  Delivery.    The
Warrant  shall be executed by the Issuer and  delivered
to the Purchaser on the Closing Date.

               (b)  Exercise. (i)  The Issuer covenants
that  procedures will be implemented ("Procedures")  to
ensure  that  the  Warrant and any new  warrant  issued
pursuant to Section 2(a) or Section 4 of the Warrant or
otherwise (a "New Warrant") may not be exercised within
the  United  States and that no Warrant  Share  may  be
delivered  within  the  United  States  upon  any  such
exercise,  other  than in an offering  that  meets  the
definition   of  "offshore  transaction"  pursuant   to
paragraph  (i)(3) of Rule 902 of Regulation  S,  unless
registered  under  the Act or an  exemption  from  such
registration  is  available.   The  Purchaser  and  any
subsequent  transferee pursuant to the  terms  of  this
Agreement  and  the  Warrant or any  New  Warrant  (the
Purchaser   and  each  such  transferee,  a   "Holder")
covenant not to



exercise the Warrant or any New Warrant except in compliance
with the Procedures and the terms of this Agreement and the
Warrant or such New Warrant.

                      (ii)    Each  Holder  agrees   to
deliver,  prior to any exercise of the Warrant  or  any
New  Warrant, a certificate in the form of Schedule Two
to  Exhibit  A hereto or a written opinion  of  counsel
that  the Warrant, or New Warrant, as the case may  be,
and  the  Warrant  Shares delivered upon  any  exercise
thereof  have  been registered under  the  Act  or  are
exempt from registration thereunder.

                    (iii)     The Issuer need not issue
or  deliver  Warrant Shares unless  and  until  in  the
opinion of the Issuer's counsel (such counsel's fees to
be  paid by the Issuer) all applicable requirements  of
federal and state securities laws and registration  (or
exemption  from registration) of such shares under  the
Act,  and  all applicable listing requirements  of  any
national  securities exchange on which  shares  of  the
same class are then listed, have been complied with.

                (c)   Transferability of Warrant.  Each
Holder   will   not   sell,  assign,  convey,   pledge,
hypothecate,  grant  security interests  in,  encumber,
give  away  or  in  any  other  manner  dispose  of  or
transfer, whether voluntarily or by operation  of  law,
any  of  the  Warrant, any New Warrant or  the  Warrant
Shares  to  any person or entity that, to the knowledge
of  such  Holder, competes directly or indirectly  with
the  Issuer  without the prior written consent  of  the
Issuer.   Any  attempted transfer of the  Warrant,  the
Warrant  Shares  or any New Warrant not  in  accordance
with this Section 3(c) shall be null and void, and  the
Issuer  shall not in any way be required to give effect
to  such transfer.  No transfer of the Warrant  or  any
New   Warrant  shall  be  effective  for  any   purpose
hereunder unless and until (i) written notice  of  such
transfer  and of the name and address of the transferee
has  been  received by the Issuer, (ii) the  transferee
shall  first  agree  in a writing  deposited  with  the
Secretary  of  the  Issuer  to  be  bound  by  all  the
provisions of this Agreement, and (iii) in the  opinion
of the Issuer's counsel (such counsel's fees to be paid
by  the  Issuer)  all requirements of applicable  state
securities  laws and any requirement to  register  such
transfer under the Act have been complied with.

                (d)   Successors to the  Issuer.   This
Agreement  shall  be  binding upon  and  inure  to  the
benefit of any successor or successors of the Issuer.

                (e)  Legends.  The Warrant and each New
Warrant shall bear a legend stating:

     This  warrant and the shares of common  stock
     of  Coyote Network Systems Inc. to be  issued
     upon  any  exercise of the Warrant  have  not
     been  registered under the Securities Act  of
     1933, as amended (the "Act") and this warrant
     may  not be exercised by or on behalf of  any
     U.S. person (as defined in Regulation S under
     the  Act) unless registered under the Act  or
     an   exemption  from  such  registration   is
     available.

     In  addition,  this  Warrant  is  subject  to
     restrictions on sale, assignment, conveyance,
     pledge,   hypothecation,  grant  of  security
     interest,  encumbrance,  gift  or  any  other
     manner  of  disposition or transfer,  whether
     voluntarily  or by operation of law,  as  set
     forth  in  an  Offshore Warrant  Subscription
     Agreement, dated as of December 22, 1997,  by
     and between First Bermuda Securities Limited,
     and  Coyote Network Systems Inc., a  copy  of
     which  is  available for  inspection  at  the
     offices of Coyote Network Systems Inc..

Further, unless the Warrant Shares have been registered
under  the  Act, upon any exercise of any part  of  the
Warrant   or   any   New  Warrant,   all   certificates
representing  Warrant Shares shall  bear  on  the  face
thereof substantially the following legend:

     The shares of common stock represented hereby
     have  not  been registered under the  Federal
     Securities  Act  of  1933,  as  amended  (the
     "Act")  or the securities laws of any



     state, and may be offered or sold only if registered
     under   the  Act  and  all  other  applicable
     securities laws or if Coyote Network  Systems
     Inc.  receives  a  satisfactory  opinion   of
     counsel   that   an   exemption   from   such
     registration is available.

           4.    Representations and Warranties of  the
Purchaser.   The Purchaser understands, and  represents
and warrants to, and agrees with, the Issuer, that:

                (a)  The Purchaser understands that  no
federal  or  state agency has passed  on  or  made  any
recommendation or endorsement of the Warrant.

               (b)  The Purchaser acknowledges that, in
making  the  decision to purchase the Warrant,  it  has
relied  solely upon independent investigations made  by
it  and not upon any representations made by the Issuer
with respect to the Issuer or the Warrant.

                (c)  The Purchaser understands that the
Warrant is being offered and sold to it in reliance  on
specific   exemptions  or  non-application   from   the
registration   requirements  of   federal   and   state
securities laws and that the Issuer is relying upon the
truth  and accuracy of the representations, warranties,
agreements, acknowledgments and understandings  of  the
Purchaser  set  forth herein in order to determine  the
applicability of such exemptions and the suitability of
the Purchaser to acquire the Warrant.

                (d)  The Purchaser is not a U.S. Person
(as defined in Regulation S) and is not an affiliate of
the Issuer.

               (e)  No offer of the Warrant was made to
the Purchaser in the United States.

                (f)  At the time the buy order for  the
Warrant   was  originated  the  Purchaser  was  located
outside the United States.

                 (g)    None  of  the  Purchaser,   its
affiliates  or  any  person acting  on  behalf  of  the
Purchaser  or any such affiliate has engaged,  or  will
engage, in any Directed Selling Efforts with respect to
the Warrant, any New Warrant or the Warrant Shares; and
the  Purchaser  and its affiliates have  complied,  and
will  comply, with the Offering Restrictions,  and  any
other requirements, of Regulation S.

                (h)   The  Purchaser is aware that  the
Warrant,  any New Warrant and the Warrant  Shares  have
not  been and will not be registered under the Act  and
may  only  be  offered or sold pursuant to registration
under the Act or an available exemption therefrom,  and
subject to the terms and conditions set forth herein.

               (i)  The Purchaser:

                     (i)   will not, during the  period
commencing on the Closing Date and ending on the day 40
days  after the Closing Date (the "Restricted Period"),
offer  or  sell  the Warrant, any New  Warrant  or  any
Warrant  Shares in the United States, to a U.S.  Person
or for the account or benefit of a U.S. Person or other
than  in  accordance  with Rule  903  or  Rule  904  of
Regulation S; and

                     (ii) will, after the expiration of
the Restricted Period, offer, sell, pledge or otherwise
transfer  the Warrant, any New Warrant or  any  Warrant
Shares  only pursuant to registration under the Act  or
an  available exemption therefrom and, in any case,  in
accordance with applicable state securities laws.



                (j)   If the Purchaser offers and sells
the  Warrant,  any  New Warrant or any  Warrant  Shares
during  the Restricted Period, then it will do so  only
in  accordance with the provisions of Regulation  S  or
pursuant to registration under the Act.

                (k)   The transactions contemplated  by
     this Agreement:

                     (i)   have  not been  pre-arranged
with  a purchaser located in the United States or is  a
U.S. Person; and

                     (ii)  are  not part of a  plan  or
scheme to evade the registration provisions of the Act.

                (l)   The  Purchaser is purchasing  the
Warrant  for  its  own  account  for  the  purpose   of
investment and not (i) with a view to, or for  sale  in
connection with, any distribution thereof or of any New
Warrant or Warrant Shares or (ii) for the account or on
behalf of any U.S. Person.

                (m)   The Purchaser has consulted  with
the Issuer with respect to the transactions pursuant to
this Agreement, and no objection has been raised by the
Issuer.

                (n)   Neither  the  Purchaser  nor  any
affiliate thereof has entered, or will enter or has the
intention  of  entering, into  any  put  option,  short
position  or other similar instrument or position  with
respect to the Warrant Shares or securities of the same
class   as   the  Warrant  Shares  purchased   in   any
transaction.

           5.    Representations and Warranties of  the
Issuer.    The Issuer represents and warrants  to,  and
agrees with, the Purchaser that:

                 (a)    The   Issuer  has   been   duly
incorporated  and is validly existing as a  corporation
in good standing under the laws of Delaware.

                 (b)   This  Agreement  has  been  duly
authorized, executed and delivered by the Issuer and is
a valid and binding agreement enforceable in accordance
with  its  terms,  subject  to bankruptcy,  insolvency,
fraudulent  transfer,  reorganization,  moratorium  and
similar  laws of general applicability relating  to  or
affecting  creditors' rights generally and  to  general
principles of equity; and the Issuer has full corporate
power  and  authority  necessary  to  enter  into  this
Agreement and to perform its obligations hereunder.

               (c)  No consent, approval, authorization
or  order of any court, governmental agency or body  or
arbitrator having jurisdiction over the Issuer  or  any
of  its  affiliates is required for execution  of  this
Agreement, including, without limitation, the  issuance
and  sale of the Warrant or any exercise of the Warrant
or  the  issuance  of shares upon any exercise  of  the
Warrant,   or   the  performance  of  its   obligations
hereunder.

                (d)  Neither the sale of the Warrant or
any  exercise  of the Warrant, any New Warrant  or  the
issuance  of  Warrant Shares upon any exercise  of  the
Warrant,  pursuant  to,  nor  the  performance  of  its
obligations under, this Agreement by the Issuer will:

                    (i)  violate, conflict with, result
in  a  breach of, or constitute a default (or an  event
which with the giving of notice or the lapse of time or
both  would  be  reasonably  likely  to  constitute   a
default)  under  (A)  the  articles  of  incorporation,
charter  or  by-laws  of  the  Issuer  or  any  of  its
affiliates,  (B)  any  decree,  judgment,  order,  law,
treaty, rule, regulation or determination applicable to
the  Issuer  or  any of its affiliates  of  any  court,
governmental  agency  or  body,  or  arbitrator  having
jurisdiction  over the Issuer or any of its  affiliates
or  over the properties or assets of the Issuer or  any
of   its  affiliates,



(C) the terms of any bond, debenture, note or any other
evidence of indebtedness, or any agreement, stock option
or other similar plan, indenture, lease, mortgage, deed of
trust or other instrument to which the Issuer or any of its
affiliates is a party, by which the Issuer or any of its
affiliates  is bound, or to which any of the properties
of  the Issuer or any of its affiliates is subject,  or
(D) the terms of any "lock-up" or similar provision  of
any  underwriting  or similar agreement  to  which  the
Issuer or any of its affiliates is a party; or

                     (ii)  result  in the  creation  or
imposition of any lien, charge or encumbrance upon  the
Warrant, any New Warrant or any Warrant Shares  or  any
of the assets of the Issuer or any of its affiliates.

               (e)  The Warrant (except for clauses iii
and vi below) and all Warrant Shares upon issuance:

                     (i)   are,  or will be,  free  and
clear of any security interests, liens, claims or other
encumbrances;

                     (ii)  have been, or will be,  duly
and  validly  authorized and will be duly  and  validly
issued;

                    (iii)     shall be duly authorized,
validly  issued, fully paid and nonassessable, and  the
Holder  will  have  full  legal  and  equitable   title
thereto,  free  and  clear of all liens,  encumbrances,
claims  and rights of others created by or through  the
Issuer.  The Issuer shall use its best efforts to  list
such  Warrant Shares prior to such delivery  upon  each
securities exchange, if any, upon which such  class  of
security is listed at the time of such delivery;

                     (iv) will not have been issued  or
sold  in  violation of any preemptive or other  similar
rights of the holders of any securities of the Issuer;

                     (v)   will not subject the holders
thereof  to personal liability by reason of being  such
holders; and

                     (vi)  are quoted on, and will  be,
following  the completion of the Restricted Period  (if
sold   in  accordance  with  the  provisions  of   this
Agreement),  eligible  for  trading  on,  the  National
Association of Securities Dealers Automated  Quotations
system ("NASDAQ").

                (f)   The Issuer is a Reporting  Issuer
and  has  filed  all reports required to  be  filed  by
Section  13(a) or 15(d) of the Securities and  Exchange
Act  of  1934 (the "Exchange Act") during the preceding
12   months  and  has  been  subject  to  such   filing
requirements for the past 90 days.

               (g)  There is no pending or, to the best
knowledge  of  the  Issuer,  threatened  action,  suit,
proceeding   or   investigation   before   any   court,
governmental  agency  or  body,  or  arbitrator  having
jurisdiction  over the Issuer or any of its  affiliates
that  would  materially affect  the  execution  by  the
Issuer  of,  or  the performance by the Issuer  of  its
obligations  under, this Agreement other  than  as  set
forth in the Exchange Act Reports, public announcements
made  by  the  Company prior to the  Closing  Date  and
information  submitted to the Purchaser in  the  letter
dated September 30, 1997.

               (h)  The Issuer, any person representing
the  Issuer, and, to the best knowledge of the  Issuer,
any  other  person  selling or  offering  to  sell  the
Warrant in connection with the transaction contemplated
by  this  Agreement, have not made, at any time through
and  including  the date hereof, any oral communication
in  connection  with the offer or sale of  the  Warrant
which contained any untrue statement of a material fact
or  omitted  to  state any material fact  necessary  in
order  to  make  the statements, in the  light  of  the
circumstances   under  which  they   were   made,   not
misleading.



               (i)  The sale of the Warrant pursuant to
this  Agreement  will  be made in accordance  with  the
provisions  and requirements of Regulation  S  and  any
applicable state law.

                (j)   No  offer to buy the Warrant  was
made to the Issuer by any person in the United States.

                (k)   None of the Issuer, any affiliate
of  the  Issuer, or any person acting on behalf of  the
Issuer  or  any  such affiliate has  engaged,  or  will
engage, in any Directed Selling Efforts with respect to
the Warrant, any New Warrant or the Warrant Shares.

                (l)   The transactions contemplated  by
this Agreement:

                     (i)   have  not been  pre-arranged
with  a purchaser who is in the United States or  is  a
U.S. Person; and

                     (ii)  are  not part of a  plan  or
scheme to evade the registration provisions of the Act.

                (m)   The  Issuer has not  issued,  and
after  the  Closing  Date  will  not  issue,  any  stop
transfer  order or other order impeding  the  sale  and
delivery of the Warrant, any New Warrant or any Warrant
Shares except for a stop order restricting the sale  of
the Warrant, any New Warrant or any such Warrant Shares
into  the  United States or to, or for the  account  or
benefit  of, U.S. Persons during the Restricted Period,
and  a  stop order restricting the sale of the  Warrant
and any New Warrant pursuant to Section 3(c) hereof.

           6.    Covenants of the Issuer.   The  Issuer
covenants and agrees with the Purchaser to:

                 (a)   continue  to  comply  with   all
applicable reporting requirements of the Exchange Act;

                 (b)    refrain   from  publishing   or
disseminating  any  material  in  connection  with  the
offering of the Warrant, any New Warrant or the Warrant
Shares  except  as required by regulatory  or  judicial
order  or  request  or as deemed by the  Issuer  to  be
advisable in complying with SEC or Nasdaq reporting  or
listing requirements.

                  (c)    ensure   that   all   Offering
Restrictions applicable to the sale of Warrant, any New
Warrant  and  the  Warrant  Shares  pursuant  to   this
Agreement are thoroughly complied with and satisfied;

                (d)   refrain from engaging, and insure
that  none  of  its  affiliates  will  engage,  in  any
Directed  Selling Efforts with respect to the  Warrant,
any New Warrant and the Warrant Shares; and

               (e)  notify the Purchaser promptly if at
any  time  during the period beginning on the  date  of
this  Agreement and ending on the Closing Date (i)  any
event shall have occurred as a result of which any oral
communication   made   by  the   Issuer,   any   person
representing  the Issuer, or, to the best knowledge  of
the  Issuer, by any other person in connection with the
transactions  contemplated  by  this  Agreement   would
include an untrue statement of a material fact or  omit
to  state any material fact necessary in order to  make
the   statements   therein,  in  the   light   of   the
circumstances   under  which  they   were   made,   not
misleading,  or (ii) there is any public disclosure  of
material  information  regarding  the  Issuer  or   its
financial condition or results of operation.



           7.   Conditions Precedent to the Purchaser's
Obligations.    The   obligations  of   the   Purchaser
hereunder are subject to the performance by the  Issuer
of its obligations hereunder and to the satisfaction of
the following additional conditions precedent:

                (a)  The representations and warranties
made  by  the  Issuer in this Agreement  shall,  unless
waived by the Purchaser, be true and correct as of  the
date  hereof  and at the Closing Date,  with  the  same
force and effect as if they had been made on and as  of
the Closing Date.


           8.    Conditions Precedent to  the  Issuer's
Obligations.   The obligations of the Issuer  hereunder
are  subject to the performance by the Purchaser of its
obligations  hereunder and to the satisfaction  of  the
following additional conditions precedent:

                (a)  The representations and warranties
made  by the Purchaser in this Agreement shall,  unless
waived  by  the Issuer, be true and correct as  of  the
date  hereof  and at the Closing Date,  with  the  same
force and effect as if they had been made on and as  of
the Closing Date.

                (b)   The  Purchaser will  execute  and
deliver to the Issuer, and retain in the records of the
Purchaser, a certificate in the form attached hereto as
Exhibit B.


            9.     Fees  and  Expenses.   Each  of  the
Purchaser and the Issuer agrees to pay its own expenses
incident   to   the  performance  of  its   obligations
hereunder,  including, but not limited  to,  the  fees,
expenses and disbursements of such party's counsel.

          10.  Indemnification.

                (a)  In the event the Purchaser becomes
involved  in any capacity in any action, proceeding  or
investigation in connection with any matter referred to
in  or  relating to this Agreement (except as expressly
provided for in paragraph (c) of this Section 10),  the
Issuer  will reimburse the Purchaser for its reasonable
legal  and  other expenses (including the cost  of  any
investigation  and preparation) incurred in  connection
therewith,  as  such  expenses are incurred,  and  will
indemnify  and  hold the Purchaser  harmless  from  and
against  any losses, claims, damages or liabilities  to
which it may become subject in connection with any such
action,  proceeding, investigation  or  matter,  unless
such loss, claim, damage or liability results primarily
from the Purchaser's gross negligence, recklessness  or
bad  faith  in  performing the services which  are  the
subject of this Agreement.

                (b)   In  the  event  that  the  Issuer
becomes   involved  in  any  capacity  in  any  action,
proceeding  or  investigation in  connection  with  any
matter  referred  to in or relating to  this  Agreement
(except as expressly provided for in paragraph  (c)  of
this  Section  10),  the Purchaser will  reimburse  the
Issuer  for  its  reasonable legal and  other  expenses
(including   the   cost   of  any   investigation   and
preparation) incurred in connection therewith, as  such
expenses are incurred, and will indemnify and hold  the
Issuer  harmless  from and against any losses,  claims,
damages  or liabilities to which it may become  subject
in   connection  with  any  such  action,   proceeding,
investigation  or  matter,  unless  such  loss,  claim,
damage or liability results primarily from the Issuer's
gross   negligence,  recklessness  or  bad   faith   in
performing the services which are the subject  of  this
Agreement.

                 (c)   Promptly  after  receipt  by  an
indemnified  party under this Section 10 of  notice  of
the  commencement of any action, such indemnified party
shall  notify the indemnifying party in writing of  the
commencement thereof; but the omission so to notify the
indemnifying  party shall not relieve the  indemnifying
party from any liability which it may have pursuant  to
this  Section 10 unless,



due to the failure to be so notified, the indemnifying
party is unable to contest the losses or claims indemnified
against, and such omission shall in no event relieve the
indemnifying party from any liability which it may have to
any indemnified party otherwise than under this Section 10.
In  case  any such action shall be brought against  any
indemnified  party and it shall notify the indemnifying
party  of  the  commencement thereof, the  indemnifying
party shall be entitled to participate therein and,  to
the   extent  that  it  may  elect  by  written  notice
delivered  to  such  indemnified party  promptly  after
receiving  the  aforesaid notice from such  indemnified
party,  to  assume  the  defense thereof  with  counsel
reasonably satisfactory to such indemnified party, (who
shall  not,  except with the consent of the indemnified
party,   which   consent  shall  not  be   unreasonably
withheld,  be  counsel  to  the  indemnifying   party);
provided, however, that if the defendants in  any  such
action  include  both  the indemnified  party  and  the
indemnifying party and the indemnified party shall have
reasonably  concluded that there may be legal  defenses
available to it and/or other indemnified parties  which
are different from or additional to those available  to
the  indemnifying  party,  the  indemnified  party   or
parties shall have the right to select separate counsel
to   assert  such  legal  defenses  and  otherwise   to
participate in the defense of such action on behalf  of
such  indemnified party or parties.   Upon  receipt  of
notice  from the indemnifying party to such indemnified
party of its election so to assume the defense of  such
action  and  approval  by  the  indemnified  party   of
counsel,  the indemnifying party will not be liable  to
such  indemnified party under this Section 10  for  any
legal  or other expenses subsequently incurred by  such
indemnified  party  in  connection  with  the   defense
thereof  unless  (i) the indemnified party  shall  have
employed  separate  counsel  in  connection  with   the
assertion  of  legal  defenses in accordance  with  the
proviso  to  the  next  preceding  sentence  (it  being
understood, however, that the indemnifying party  shall
be  liable for only the reasonable expenses of  counsel
and  shall not be liable for the expenses of more  than
one  separate counsel for each indemnified party), (ii)
the  indemnifying party shall not have employed counsel
reasonably  satisfactory to the  indemnified  party  to
represent  the  indemnified party within  a  reasonable
time  after  notice of commencement of  the  action  or
(iii)   the  indemnifying  party  has  authorized   the
employment of counsel for the indemnified party at  the
expense  of  the indemnifying party; provided  further,
however,  that,  if clause (i) or (iii) is  applicable,
such  liability shall be only in respect of the counsel
referred to in such clauses (i) or (iii).

            11.    Survival   of  the  Representations,
Warranties,    etc.    The    respective    agreements,
representations,  warranties,  indemnities  and   other
statements made by or on behalf of the Issuer  and  the
Purchaser,  respectively, pursuant to  this  Agreement,
shall  remain in full force and effect for the term  of
the Warrant, regardless of any investigation made by or
on  behalf of the other party to this Agreement or  any
officer, director or employee of, or person controlling
or  under  common  control with, such  party  and  will
survive delivery of any payment for the Warrant.

           12.   Notices.  All communications hereunder
shall  be  in  writing, and, if sent to  the  Purchaser
shall be sufficient in all respects if delivered,  sent
by registered mail, or by telecopy and confirmed to the
Purchaser at:

               First  Bermuda  Securities Limited
               11 Church Street, Chevron House
               Hamilton, Bermuda  HM11
               Attention: Maxwell R. Roberts
               Telephone: (441) 295-1330
               Telecopy:  (441) 292-9471

or, if sent to the Issuer, shall be delivered, sent  by
registered  mail  or by telecopy and confirmed  to  the
Issuer at:

               Coyote Network Systems Inc.


               4360 Park Terrace Drive
               Westlake  Village, California  91361
               Attention: James Fiedler
               Telephone: (818) 735-7600
               Telecopy:  (818) 735-7633

          13.  Miscellaneous.

                (a)  This Agreement may be executed  in
one  or more counterparts and it is not necessary  that
signatures   of  all  parties  appear   on   the   same
counterpart,  but  such  counterparts  together   shall
constitute but one and the same agreement.

                (b)  This Agreement shall inure to  the
benefit  of  and  be binding upon the  parties  hereto,
their  respective  successors  and,  with  respect   to
Section   10   hereof,  the  officers,  directors   and
controlling  persons  thereof  and  each  person  under
common  control  therewith, and no other  person  shall
have any right or obligation hereunder.

                (c)   This Agreement shall be  governed
by,  and construed in accordance with, the laws of  the
state of Delaware.

                (d)   The  headings of the sections  of
this  document  have been inserted for  convenience  of
reference only and shall not be deemed to be a part  of
this Agreement.

           IN  WITNESS WHEREOF, the parties hereto have
duly  executed and delivered this Agreement, all as  of
the day and year first above written.


BY: COYOTE NETWORK SYSTEMS INC.

Signature:

Name:     James Fiedler
Title:    Chief Executive Officer


BY: FIRST BERMUDA SECURITIES LIMITED

Signature:

Name:     Maxwell R. Roberts, CPA
Title:    Chief Operating Officer
          

                 EXHIBIT A


          THIS WARRANT AND THE SHARES OF
          COMMON   STOCK  OF  COYOTE  NETWORK
          SYSTEMS INC. TO BE ISSUED UPON  ITS
          EXERCISE  HAVE NOT BEEN  REGISTERED
          UNDER  THE SECURITIES ACT OF  1933,
          AS  AMENDED  (THE "ACT")  AND  THIS
          WARRANT MAY NOT BE EXERCISED BY  OR
          ON  BEHALF  OF ANY U.S. PERSON  (AS
          DEFINED  IN REGULATION S UNDER  THE
          ACT)  UNLESS REGISTERED  UNDER  THE
          ACT   OR  ON  EXEMPTION  FROM  SUCH
          REGISTRATION IS AVAILABLE.

                IN ADDITION, THIS WARRANT  IS
          SUBJECT  TO RESTRICTIONS  ON  SALE,
          ASSIGNMENT,   CONVEYANCE,   PLEDGE,
          HYPOTHECATION,  GRANT  OF  SECURITY
          INTEREST, ENCUMBRANCE, GIFT OR  ANY
          OTHER  MANNER  OF  DISPOSITION   OR
          TRANSFER, WHETHER VOLUNTARILY OR BY
          OPERATION OF LAW, AS SET  FORTH  IN
          AN  OFFSHORE  WARRANT  SUBSCRIPTION
          AGREEMENT, DATED AS OF DECEMBER 22,
          1997,  BY AND BETWEEN FIRST BERMUDA
          SECURITIES,   LTD.,   AND    COYOTE
          NETWORK    SYSTEMS    INC.     (THE
          "AGREEMENT"), A COPY  OF  WHICH  IS
          AVAILABLE  FOR  INSPECTION  AT  THE
          OFFICES  OF COYOTE NETWORK  SYSTEMS
          INC..

                        WARRANT
                           
               to Purchase 48,611 Shares
                           
                          of
                           
            Common Stock ($1.00 par value)
                           
                          of
                           
              COYOTE NETWORK SYSTEMS INC.

           This  certifies  that, for  value  received,
First  Bermuda  Securities Limited and  any  subsequent
transferee  pursuant to the terms of the Agreement  and
this   Warrant  (each,  a  "Holder")  is  entitled   to
purchase,  subject to the provisions of  this  Warrant,
from   Coyote   Network  Systems   Inc.,   a   Delaware
corporation (the "Issuer"), at any time or from time to
time  on  or  after the date hereof and  on  or  before
December 22, 2002 (the "Expiration Date"), 48,611 fully
paid  and  nonassessable shares of common stock,  $1.00
par  value  (the "Common Stock"), of the  Issuer  at  a
price   equal   to  $7.20  per  share  (the   "Exercise
Price")(such   shares  of  Common   Stock   and   other
securities  issued and issuable upon exercise  of  this
Warrant, the "Warrant Shares").

      Section  1.   Definitions.  Except  as  otherwise
specified herein, terms defined herein shall  have  the
meanings assigned to them in the Agreement.



      Section 2.  Exercise of Warrant.  (a)  Subject to
the  provisions hereof, this Warrant may be  exercised,
in  whole or in part, but not as to a fractional share,
at  any time or from time to time on or after the  date
hereof  and  on  or  before  the  Expiration  Date,  by
presentation and surrender hereof to the Issuer at  the
address  which,  in accordance with the  provisions  of
Section 10 hereof, is then effective for notices to the
Issuer,  with  the  Election to Purchase  Form  annexed
hereto  as  Schedule One, duly executed and accompanied
by  payment to the Issuer as further set forth below in
this  Section 2, for the account of the Issuer, of  the
Exercise  Price  for  the  number  of  Warrant   Shares
specified  in  such  form.  If this Warrant  should  be
exercised   in  part  only,  the  Issuer  shall,   upon
surrender of this Warrant for the cancellation, execute
and  deliver a new Warrant evidencing the rights of the
Holder  hereof to purchase the balance of  the  Warrant
Shares   purchasable  hereunder.   The   Issuer   shall
maintain  at its principal place of business a register
for  the  registration of this Warrant and registration
of  transfer for this Warrant.  The Exercise Price  for
the  number of Warrant Shares specified in the Election
to  Purchase  Form  shall be payable in  United  States
dollars by certified or official bank check payable  to
the  order  of  the  Issuer  or  by  wire  transfer  of
immediately available funds to an account by the Issuer
for that purpose.

           (b)  Prior to the delivery of any securities
which  the  Issuer shall be obligated to  deliver  upon
exercise of this Warrant, the Issuer shall use its best
efforts  to comply with all Federal and state laws  and
regulations  thereunder, including without  limitation,
Regulation  S under the Act, requiring the registration
of  such securities with, or any approval of or consent
to the delivery thereof by, any governmental authority,
provided,  however,  that  the  Issuer  shall  have  no
obligation  to register the Warrant Shares  beyond  its
obligation  set forth in Section 9 below.   The  Issuer
need  not issue or deliver such shares of Common  Stock
unless and until in the opinion of the Issuer's counsel
(such  counsel's  fees to be paid by  the  Issuer)  all
applicable  requirements of state securities  laws  and
registration  of  such shares under the  Act,  and  all
applicable   listing  requirements  of   any   national
securities  exchange on which shares of the same  class
are then listed, have been complied with.

           (c)   The  Issuer covenants that  procedures
will  be implemented ("Procedures") to ensure that this
Warrant  may not be exercised within the United  States
and that the Warrant Shares may not be delivered within
the  United  States upon such exercise, other  than  in
offerings   that  meet  the  definition  of   "offshore
transaction" pursuant to paragraph (i)(3) of  Rule  902
of  Regulation S under the Act, unless registered under
the  Act  or  an  exemption from such  registration  is
available.   The Holder covenants not to exercise  this
Warrant  except  in compliance with the Procedures  and
the terms of the Agreement.  The Purchaser or any other
Holder  of  this  Warrant must deliver,  prior  to  any
exercise of this Warrant, (i) a certificate in the form
attached  hereto  as Schedule Two  or  (ii)  a  written
opinion of counsel that this Warrant and the securities
delivered   upon   any  exercise  thereof   have   been
registered   under   the  Act  or   are   exempt   from
registration thereunder.

           (d)   All  Warrant Shares, when issued  upon
exercise  of  this  Warrant, shall be duly  authorized,
validly  issued, fully paid and nonassessable, and  the
Holder  will  have  full  legal  and  equitable   title
thereto,  free  and  clear of all liens,  encumbrances,
claims  and rights of others created by or through  the
Issuer.  The Issuer shall use its best efforts to  list
such  Warrant Shares prior to such delivery  upon  each
securities exchange, if any, upon which such  class  of
security is listed at the time of such delivery.

           (e)   Unless  the Warrant Shares  have  been
registered under the Act, upon any exercise of any part
of  this Warrant, all certificates representing Warrant
Shares shall bear on the face thereof substantially the
following legend:

     The shares of common stock represented hereby
     have  not  been registered under the  Federal
     Securities  Act  of  1933,  as  amended  (the
     "Act")  or the securities laws of any  state,
     and may be offered or sold only if registered
     under   the  Act  and  all  other  applicable


     securities  laws  or Coyote  Network  Systems
     Inc.  receives  a  satisfactory  opinion   of
     counsel   that   an   exemption   from   such
     registration is available.

          (f)  This Warrant may not be exercised to any
extent by anyone after the end of the Warrant term.

     Section 3.  Reservation of Shares; Preservation of
Rights  of  Investor.  The Issuer  hereby  agrees  that
there  shall  be reserved for issuance and/or  delivery
upon  exercise of this Warrant, such number of  Warrant
Shares  as  shall be required for issuance or  delivery
upon exercise of this Warrant.  The Warrant surrendered
upon  exercise shall be cancelled by the Issuer.  After
the Expiration Date, no shares of Common Stock shall be
subject to reservation in respect of this Warrant.  The
Issuer  further  agrees  (i)  that  it  will  not,   by
amendment  of its Articles of Incorporation or  through
reorganization, consolidation, merger,  dissolution  or
sale of assets, or by any other voluntary act, avoid or
seek to avoid the observation or performance of any  of
the   covenants,  stipulations  or  conditions  to   be
observed  or  performed hereunder by the  Issuer,  (ii)
promptly to take all action as may from time to time be
required in order to permit the Holder to exercise this
Warrant  and the Issuer duly and effectively  to  issue
shares  of  its  Common Stock or  other  securities  as
provided  herein  upon the exercise hereof,  and  (iii)
promptly  to  take all action required or provided  for
herein  to  protect  the rights of the  Holder  granted
hereunder  against  dilution other  then  issuances  on
conversion   of  options,  offerings  or  acquisitions.
Without  limiting  the  generality  of  the  foregoing,
should the Warrant Shares at any time consist in  whole
or  in  part  of shares of capital stock having  a  par
value,  the Issuer agrees that before taking any action
which  would cause an adjustment of the Exercise  Price
so  that the same would be less than the then par value
of  such  Warrant  Shares, the Issuer  shall  take  any
corporate  action  which may, in  the  opinion  of  its
counsel,  be  necessary in order that  the  Issuer  may
validly  and legally issue fully paid and nonassessable
shares of such Common Stock at the Exercise Price as so
adjusted.  The Issuer further agrees that it  will  not
establish  a par value for its Common Stock while  this
Warrant  is outstanding in an amount greater  than  the
Exercise Price.

     Section 4.  Exchange, Transfer, Assignment or Loss
of  Warrant.  The Holder will not sell, assign, convey,
pledge,  hypothecate,  grant  security  interests   in,
encumber,  give away or in any other manner dispose  of
or  transfer,  whether voluntarily or by  operation  of
law, any of this Warrant, the Warrant Shares or any new
Warrant  to any person or entity that, to the knowledge
of  such  Holder, competes directly or indirectly  with
the  Issuer  without the prior written consent  of  the
Issuer.   Any  attempted transfer of this Warrant,  the
Warrant  Shares  or any new Warrant not  in  accordance
with  this  Section  shall be null and  void,  and  the
Issuer  shall not in any way be required to give effect
to such transfer.  No transfer of this Warrant shall be
effective  for any purpose hereunder until (i)  written
notice of such transfer and of the name and address  of
the  transferee has been received by the  Issuer,  (ii)
the transferee shall first agree in a writing deposited
with the Secretary of the Issuer to be bound by all the
provisions  of this Agreement and (iii) in the  opinion
of the Issuer's counsel (such counsel's fees to be paid
by  the  Issuer), all requirements of applicable  state
securities  laws and any requirement to  register  such
transfer  under the Act have been complied with.   Upon
surrender  of  this  Warrant  to  the  Issuer  by   any
transferee  authorized  under the  provisions  of  this
Section  4, and subject to the terms and conditions  of
the  Securities Act, the Issuer shall, without  charge,
execute  and  deliver a new Warrant registered  in  the
name  of  such  transferee at the address specified  by
such  transferee,  and this Warrant shall  promptly  be
cancelled.    The  Issuer  may  deem  and   treat   the
registered holder of any Warrant as the absolute  owner
thereof for all purposes, and the Issuer shall  not  be
affected  by any notice to the contrary.  Any  Warrant,
if  presented  by  an  authorized  transferee,  may  be
exercised by such transferee without prior delivery  of
a new Warrant issued in the name of the transferee.



           Upon  receipt  by  the  Issuer  of  evidence
reasonably  satisfactory to  it  of  the  loss,  theft,
destruction or mutilation of this Warrant, and (in  the
case  of  loss,  theft  or destruction)  of  reasonably
satisfactory  indemnification, and upon  surrender  and
cancellation of this Warrant, if mutilated, the  Issuer
will  execute and deliver a new Warrant of  like  tenor
and  date.  Any such new Warrant executed and delivered
shall  constitute a separate contractual obligation  on
the  part of the Issuer, whether or not the Warrant  so
lost,  stolen, destroyed or mutilated shall be  at  any
time    enforceable   by   anyone,    provided,    such
indemnification  obligation may be used  as  an  offset
against this new Warrant.

      Section  5.   Rights of the  Holder.   Neither  a
Holder  nor  his transferee by devise or  the  laws  of
descent and distribution or otherwise shall be, or have
any  rights  or  privileges of, a  shareholder  of  the
Issuer  with respect to any Warrant Shares, unless  and
until  certificates  representing such  Warrant  Shares
shall have been issued and delivered thereto.

      Section  6.   Adjustments in Exercise  Price  and
Warrant Shares.  The Exercise Price and Warrant  Shares
shall  be  subject to adjustment from time to  time  as
provided in this Section 6.

           (a)   If the Issuer is recapitalized through
the  subdivision  or  combination  of  its  outstanding
shares  of Common Stock into a larger or smaller number
of  shares,  the number of shares of Common  Stock  for
which  this Warrant may be exercised shall be increased
or   reduced,   as  of  the  record   date   for   such
recapitalization,  in  the  same  proportion   as   the
increase  or  decrease  in the  outstanding  shares  of
Common  Stock, and the Exercise Price shall be adjusted
so  that  the aggregate amount payable for the purchase
of  all  Warrant Shares issuable hereunder  immediately
after  the record date for such recapitalization  shall
equal  the  aggregate  amount  so  payable  immediately
before such record date.

           (b)   If  the Issuer declares a dividend  on
Common  Stock,  or makes a distribution to  holders  of
Common  Stock,  and  such dividend or  distribution  is
payable   or   made  in  Common  Stock  or   securities
convertible into or exchangeable for Common  Stock,  or
rights   to   purchase  Common  Stock   or   securities
convertible into or exchangeable for Common Stock,  the
number of shares of Common Stock for which this Warrant
may  be  exercised shall be increased, as of the record
date  for  determining which holders  of  Common  Stock
shall   be   entitled  to  receive  such  dividend   or
distribution,  in  proportion to the  increase  in  the
number  of  outstanding shares (and  shares  of  Common
Stock  issuable upon conversion of all such  securities
convertible  into Common Stock) of Common  Stock  as  a
result  of  such  dividend  or  distribution,  and  the
Exercise  Price shall be adjusted so that the aggregate
amount  payable  for the purchase of  all  the  Warrant
Shares  issuable hereunder immediately after the record
date for such dividend or distribution shall equal  the
aggregate  amount  so payable immediately  before  such
record date.

           (c)   If  the Issuer declares a dividend  on
Common   Stock  (other  than  a  dividend  covered   by
subsection (b) above) or distributes to holders of  its
Common Stock, other than as part of its dissolution  or
liquidation  or  the  winding up or  its  affairs,  any
shares  of  its stock, any evidence of indebtedness  or
any  cash  or  other of its assets (other  than  Common
Stock  or  securities convertible into or  exchangeable
for  Common Stock), the Holder shall receive notice  of
such event as set forth in Section 8 below.

           (d)   In  case of any consolidation  of  the
Issuer  with, or merger of the Issuer into,  any  other
corporation  (other than a consolidation or  merger  in
which  the Issuer is the continuing corporation and  in
which  no  change  occurs  in  its  outstanding  Common
Stock),  or in case of any sale or transfer of  all  or
substantially  all of the assets of the Issuer,  or  in
the  case of any statutory exchange of securities  with
another corporation (including any exchange effected in
connection  with  a merger of a third corporation  into
the  Issuer,  except where the Issuer is the  surviving
entity  and no change occurs in its outstanding



Common Stock), the corporation formed by such consolidation
or the corporation  resulting from  such  merger  or  the
corporation  which shall have acquired such  assets  or
securities  of  the Issuer, as the case may  be,  shall
execute   and  deliver  to  the  Holder  simultaneously
therewith  a  new  Warrant, satisfactory  in  form  and
substance  to  the  Holder, together  with  such  other
documents   as  the  Holder  may  reasonably   request,
entitling  the Holder thereof to receive upon  exercise
of  such Warrant the kind and amount of shares of stock
and  other securities and property receivable upon such
consolidation,  merger, sale, transfer or  exchange  of
securities, or upon the dissolution following such sale
or  other transfer, by a holder of the number of shares
of  Common  Stock  purchasable upon  exercise  of  this
Warrant   immediately  prior  to  such   consolidation,
merger,  sale, transfer, or exchange, provided that  if
the  kind  or  amount  of  securities,  cash  or  other
property  receivable  upon such consolidation,  merger,
statutory exchange, sale or conveyance is not the  same
for  each  share  of Common Stock in respect  of  which
rights of election shall not have been exercised ("non-
electing  share"),  then  for  the  purpose   of   this
paragraph  (d) the kind and amount of securities,  cash
or  other  property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the  kind  and
amount  so receivable per share by a plurality  of  the
non-electing  shares.  Such new Warrant  shall  contain
the  same  basic  other terms and  conditions  as  this
Warrant  and shall provide for adjustments  which,  for
events subsequent to the effective date of such written
instrument,  shall be as nearly equivalent  as  may  be
practicable  to the adjustments provided  for  in  this
Section 6.  The above provisions of this paragraph  (d)
shall  similarly  apply  to successive  consolidations,
mergers,  exchanges, sales or other  transfers  covered
hereby.

           (e)  If the Issuer shall, at any time before
the expiration of this Warrant, dissolve, liquidate  or
wind up its affairs, the Holder shall, upon exercise of
this Warrant have the right to receive, in lieu of  the
shares  of  Common Stock of the Issuer that the  Holder
otherwise would have been entitled to receive, the same
kind  and  amount of assets as would have been  issued,
distributed  or  paid  to  the  Holder  upon  any  such
dissolution, liquidation or winding up with respect  to
such  shares  of  Common Stock of the  Issuer  had  the
Holder  been  the holder of record of  such  shares  of
Common  Stock receivable upon exercise of this  Warrant
on  the  date for determining those entitled to receive
any   such  distribution.   If  any  such  dissolution,
liquidation   or  winding  up  results  in   any   cash
distribution  in excess of the Exercise Price  provided
by   this  Warrant  for  the  shares  of  Common  Stock
receivable  upon exercise of this Warrant,  the  Holder
may,  at  the  Holder's option, exercise  this  Warrant
without  making payment of the Exercise Price  and,  in
such  case, the Issuer shall, upon distribution to  the
Holder,  consider the Exercise Price to have been  paid
in  full and, in making settlement to the Holder, shall
obtain  receipt of the Exercise Price by  deducting  an
amount  equal to the Exercise Price for the  shares  of
Common  Stock receivable upon exercise of this  Warrant
from the amount payable to the Holder.  For purposes of
this paragraph, the sale of all or substantially all of
the  assets  of  the  Issuer and  distribution  of  the
proceeds thereof to the Issuer's shareholders shall  be
deemed a liquidation.

           (f)  If an event occurs which is similar  in
nature  to the events described in this Section 6,  but
is not expressly covered hereby, the Board of Directors
of  the  Issuer shall make or arrange for an  equitable
adjustment  to  the number of Warrant  Shares  and  the
Exercise Price.

           (g)  The term "Common Stock" shall mean  the
Common  Stock,  $1.00 par value, of the Issuer  as  the
same exists at the Closing Date or as such stock may be
constituted  from  time to time, except  that  for  the
purpose  of  this  Section 6, the term  "Common  Stock"
shall  include  any stock of any class  of  the  Issuer
which  has no preference in respect of dividends or  of
amounts  payable  in  the event  of  any  voluntary  or
involuntary liquidation, dissolution or winding  up  of
the  Issuer  and which is not subject to redemption  by
the Issuer.



           (h)   The  Issuer  shall retain  a  firm  of
independent  public accountants of recognized  standing
(who  may  be any such firm regularly employed  by  the
Issuer)  to  make any computation required  under  this
Section 6, and a certificate signed by such firm  shall
be  conclusive  evidence  of  the  correctness  of  any
computation made under this Section 6.

          (i)  Whenever the number of Warrant Shares or
the Exercise Price shall be adjusted as required by the
provisions  of  this  Section 6, the  Issuer  forthwith
shall  file  in  the  custody of its  secretary  or  an
assistance  secretary,  at its  principal  office,  and
furnish  to each Holder hereof, a certificate  prepared
in  accordance  with paragraph (h) above,  showing  the
adjusted  number  of Warrant Shares  and  the  Exercise
Price  and  setting  forth  in  reasonable  detail  the
circumstances requiring the adjustment.

           (j)   Notwithstanding any  other  provision,
this  Warrant  shall be binding upon and inure  to  the
benefit of any successor or successors of the Issuer.

           (k)  No adjustment in the Exercise Price  in
accordance with the provisions of this Section  6  need
be  made if such adjustment would amount to a change in
such  Exercise  Price  of  less  than  $.01;  provided,
however, that the amount by which any adjustment is not
made by reason of the provisions of this paragraph  (k)
shall be carried forward and taken into account at  the
time  of  any  subsequent adjustment  in  the  Exercise
Price.

           (l)   If  an  adjustment is made under  this
Section 6 and the event to which the adjustment relates
does not occur, then any adjustments in accordance with
this  Section  6  shall be readjusted to  the  Exercise
Price  and the number of Warrant Shares which would  be
in effect had the earlier adjustment hot been made.


           Section  7.   Taxes on Issue or Transfer  of
Common Stock and Warrant.  The Issuer shall pay any and
all  documentary  stamp or similar  issue  or  transfer
taxes  payable in respect of the issue or  delivery  of
shares  of  Common  Stock or other  securities  on  the
exercise  of  this Warrant.  The Issuer  shall  not  be
required to pay any tax which may be payable in respect
of  any  transfer of this Warrant or in respect of  any
transfers  involved in the issue or delivery of  shares
or  the  exercise of this Warrant in a name other  than
that  of  the  Holder  and the person  requesting  such
transfer,  issue  or delivery shall be responsible  for
the  payment of any such tax (and the Issuer shall  not
be  required to issue or deliver said shares until such
tax has been paid or provided for).

          Section 8.  Notice of Adjustment.  So long as
this  Warrant shall be outstanding, (a) if  the  Issuer
shall  propose  to  pay  any  dividends  or  make   any
distribution  upon  the Common Stock,  or  (b)  if  the
Issuer  shall offer generally to the holders of  Common
Stock  the right to subscribe to or purchase any shares
of  any class of Common Stock or securities convertible
into  Common Stock or any other similar rights, or  (c)
if  there  shall be any proposed capital reorganization
of  the Issuer in which the Issuer is not the surviving
entity,  recapitalization of the capital stock  of  the
Issuer,  consolidation or merger of the Issuer with  or
into another corporation, sale, lease or other transfer
of  all or substantially all of the property and assets
of the Issuer, or voluntary or involuntary dissolution,
liquidation or winding up of the Issuer, or (d) if  the
Issuer  shall  give  to  its stockholders  any  notice,
report   or   other   communication   respecting    any
significant  or special action or event, then  in  such
event,  the Issuer shall give to the Holder,  at  least
thirty days prior to the relevant date described  below
(or  such  shorter period as is reasonably possible  if
thirty  days  is  not  reasonably possible),  a  notice
containing  a  description of the  proposed  action  or
event and stating the date or expected date on which  a
record of the Issuer's stockholders is to be taken  for
any of the foregoing purposes, and the date or expected
date   on   which   any  such  dividend,  distribution,
subscription,     reclassification,     reorganization,
consolidation,  combination,



merger, conveyance, sale, lease or transfer, dissolution,
liquidation or winding up is to take place and the date or
expected date, if any is to be fixed, as of which the
holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or
other property deliverable upon such event.

           Section 9.  Registration Rights.  (a)  Right
to   Piggyback.   Whenever  the  Company  proposes   to
register  any of its shares of Common Stock  under  the
Securities  Act  of 1933, as amended  (the  "Securities
Act")  and the registration form to be used  is  not  a
Form S-8 or Form S-4 and otherwise may be used for  the
registration  of  any  Warrant  Shares  (a   "Piggyback
Registration"),  the Company will give  prompt  written
notice  to all holders of the Warrant Shares for  which
the  registration form may be used of its intention  to
effect  such  a registration and will include  in  such
registration all Warrant Shares (in accordance with the
priorities  set  forth  in Subsections  9(b)  and  9(c)
below)  with respect to which the Company has  received
written  requests for inclusion therein within  fifteen
(15) days after the receipt of the Company's notice  or
such shorter time as the Company may deem necessary  or
advisable  due to the anticipated filing date  of  such
registration.   Inclusion  of  Warrant  Shares  in  any
secondary  registration on behalf  of  holders  of  the
Company's  securities will be subject to any rights  of
approval  and other rights which such holders may  have
and conditions which such holders may impose.

          (b)  Priority on Primary Registrations.  If a
Piggyback  Registration  is  an  underwritten   primary
registration on behalf of the Company and the  managing
underwriters  advise the Company  in  writing  that  in
their opinion the number of securities requested to  be
included in such registration exceeds the number  which
can  be sold in such offering, the Company will include
in such registration (i) first, the securities that the
Company  proposes to sell and (ii) second, the  Warrant
Shares  requested  to be included in such  registration
and  other securities requested to be included in  such
registration pro rata among the holders of the  Warrant
Shares  and  the other securities on the basis  of  the
number  of  securities  so  requested  to  be  included
therein.

          (c)  Priority on Secondary Registrations.  If
a  Piggyback Registration is an underwritten  secondary
registration  on  behalf of holders  of  the  Company's
securities  and  the managing underwriters  advise  the
Company in writing that in their opinion the number  of
securities   requested   to   be   included   in   such
registration exceeds the number which can  be  sold  in
such   offering,  the  Company  will  include  in  such
registration (i) first, the securities requested to  be
included   therein  by  the  holders  requesting   such
registration and such other securities as may have  the
right   to   be  included  on  a  priority  with   such
securities,  pro  rata  based on  the  number  of  such
securities   requested   to   be   included   in   such
registration  and (ii) second, the Warrant  Shares  and
other  securities  requested to  be  included  in  such
registration, pro rata based on the number  of  Warrant
Shares and other securities so requested to be included
therein.

           (d)   Selection  of  Underwriters.   If  any
Piggyback Registration is an underwritten offering, the
selection  of  investment banker(s) and manager(s)  for
the  offering  will  be in the sole discretion  of  the
Company.

           Section  10.   Notices.  All  communications
hereunder  shall be in writing, and,  if  sent  to  the
Holder   shall  be  sufficient  in  all   respects   if
delivered, sent by registered mail, or by telecopy  and
confirmed to the Holder at:

               First Bermuda Securities Limited
               11 Church Street, Chevron House
               Hamilton, Bermuda  HM11
               Attention: Maxwell R. Roberts
               Telephone: (441) 295-1330
               Telecopy:  (441) 292-9471



or  it to any other Holder, addressed to such Holder at
such  address as it shall have specified to the  Issuer
in  writing,  or,  if  sent to  the  Issuer,  shall  be
delivered,  sent by registered mail or by telecopy  and
confirmed to the Issuer at:

               Coyote Network Systems Inc.
               4360 Park Terrace Drive
               Westlake  Village, California 91361
               Attention: James Fiedler
               Telephone: (818) 735-7600
               Telecopy:  (818) 735-7633

           Section  11.   Governing Law.  This  Warrant
shall  be  governed by, and interpreted  in  accordance
with, the laws of the State of Delaware.


Dated:  December 22, 1997

COYOTE NETWORK SYSTEMS INC.


BY:_______________________________

Name:
Title:


ATTEST:

__________________________________
          Secretary



                                          Schedule One

                      ELECTION TO PURCHASE

           The undersigned hereby irrevocably elects to
exercise  this  Warrant  and to  purchase  ____________
shares  of  Coyote  Network Systems Inc.  Common  Stock
issuable  upon  the  exercise  of  this  Warrant,   and
requests  that  certificates for such shares  shall  be
issued in the name of:

________________________________________________________
                             (Name)


________________________________________________________
                           (Address)


________________________________________________________
        (United States Social Security or other taxpayer
               identifying number, if applicable)

and, if different from above, be delivered to:

________________________________________________________
                             (Name)

________________________________________________________
                           (Address)

and,  if the number of Warrant Shares so purchased  are
not all of the Warrant Shares issuable upon exercise of
this Warrant, that a Warrant to purchase the balance of
such  Warrant Shares be registered in the name of,  and
delivered  to,  the undersigned at the  address  stated
below.

Date:________________________, 19___

Name of Registered Owner: _____________________________

Address: _____________________________________________
______________________________________________________

Signature: ___________________________________________



                                                Schedule Two

[Warrant Agent]

Dear Sir/Madam

      In  connection with the warrant of Coyote Network
Systems   Inc.  issued  to  First  Bermuda   Securities
Limited, on December 22, 1997, and attached hereto, the
undersigned  certifies,  represents  and  warrants   as
follows:

          1.     I/We   hereby  exercise  the  warrants
          identified  above.   [Give  details  of   how
          payment  is  being made, in  accordance  with
          terms of warrants.]

          2.   I/We hereby certify that I am/we are not
          a  U.S.  person (as that term is  defined  in
          Regulation S under the Securities  Act);  nor
          am  I/we  acting for or on behalf of  a  U.S.
          person.

          3.    At the time of exercise of the warrants
          I  am/we are and any person for whom  we  are
          acting is located outside the United States.

          4.    Please  deliver  the  common  stock  of
          Coyote Network Systems Inc. as follows:

               ______________
               ______________
               ______________

          [specify address outside the United States]


                                   Very truly yours,


                                   [WARRANTHOLDER]

                                   By:________________
                                        Name:
                                        Title:


                           EXHIBIT B

Coyote Network Systems Inc.
4360 Park Terrace Drive
Westlake Village, California 91361
U. S. A.

Attention: Mr. James Fiedler


Dear Sirs:

      In  connection with the Warrant of Coyote Network
Systems   Inc.,  issued  to  First  Bermuda  Securities
Limited, on December 22, 1997, and attached hereto, the
undersigned   performed  the  functions   of   managing
underwriter  in  connection with the offering  of  such
warrants  and  certifies, represents  and  warrants  as
follows:

      We  hereby certify that the distribution  of  the
warrants identified above was completed on December 22,
1997.

                          Very truly yours,

                          FIRST BERMUDA SECURITIES LIMITED

                          By:_____________________________
                               Name:  Maxwell R. Roberts, CPA
                               Title: Chief Operating Officer