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                                                                    EXHIBIT 10.7
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                              EMPLOYMENT AGREEMENT


                                     between


                       GREYSTONE TECHNOLOGY, INCORPORATED


                            a California corporation


                                    (Company)


                                       and


                                RICHARD A. SMITH


                                   (Executive)


                             Dated: August 16, 1997


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                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of August 16, 1997, by and between GREYSTONE TECHNOLOGY,
INCORPORATED, a California corporation (the "Company") and RICHARD A. SMITH
("Executive"). The Company and Executive are hereinafter collectively referred
to as the "Parties," and individually referred to as each or any "Party".

                                    RECITALS:

        A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on the
terms and conditions set forth in this Agreement.

        B. Executive desires to be in the employ of the Company, and is willing
to accept such employment on the terms and conditions set forth in this
Agreement.

                                   AGREEMENT:

        In consideration of the foregoing premises and the mutual covenants
herein contained, and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:

1.   Employment.

     1.1 The Company hereby employs Executive, and Executive hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement.

     1.2 Executive shall be the President and Chief Executive Officer of the
Company and shall serve in such other capacity or capacities as the Board of
Directors of the Company may from time to time prescribe.

     1.3 Executive shall do and perform all services, acts or things necessary
or advisable to manage and conduct the business of the Company; provided,
however, that at all times during his employment Executive shall be subject to
the direction and policies from time to time established by the Board of
Directors of the Company.

     1.4 Unless the Parties otherwise agree in writing, during the employment
term, Executive shall perform the services he is required to perform pursuant to
this Agreement at the Company's offices, located at 4950 Murphy Canyon Rd., San
Diego, California 92123, or at any other place at which the Company maintains an
office; provided, however, that the Company may from time to time require
Executive to travel temporarily to other locations in connection with the
Company's business. The Company also authorizes Executive to have a home office
as may be required by the Company and Executive to accomplish the duties placed
on Executive by the Board of Directors; provided, however, the Company shall not
be obligated for any expenses related to such home office unless specifically
approved by the Company.

2.   Loyal and Conscientious Performance; Noncompetition.

     2.1 During his employment by the Company, Executive shall devote his full
energies, interest, abilities and productive time to the proper and efficient
performance of this Agreement and shall not,


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without the prior written consent of the Board of Directors of the Company,
directly or indirectly, render services of a business, professional or
commercial nature to any other person or entity, whether for compensation or
otherwise, which is competitive with or adverse to the Company's business or
welfare, whether alone, as a partner, or as a shareholder, officer or director
of any other corporation, or as a trustee, fiduciary or in a similar
representative capacity; provided, however, this Section 2.1 shall not prohibit
Executive from purchasing or holding an aggregate equity interest of up to 5% in
any other company.

     2.2 During his employment by the Company, Executive shall use professional
conduct conforming to the applicable standards of his occupation.

3.   Term of Employment.

     3.1 Subject to earlier termination as provided in this Agreement, Executive
shall be employed for a three (3) year term beginning upon the effective date
hereof. After the expiration of such term, this Agreement shall continue for an
additional two (2) years in accordance with this Agreement in the absence of
written notice to the contrary from either Party to the other.

4.   Compensation of Executive.

     4.1 During each fiscal year during the term of this Agreement, the Company
shall pay Executive a salary in accordance with the provisions herein.
Commencing upon the date hereof, the Company shall pay Executive a salary of
$250,000.00 per year, payable semi-monthly on the first and sixteenth day, of
each month (the "Base Salary"), prorated for any partial employment on the basis
of a 365-day fiscal year; provided, however, the Company shall accrue and defer
the difference between $190,000 and such Base Salary until November 16, 1997,
unless otherwise extended by mutual written agreement. In addition to the Base
Salary, Executive shall be entitled to a bonus of five percent (5%) of pre-tax
earnings of the Company, provided the pre-tax earnings exceed $500,000 after the
bonus expense is charged against earnings, with a cap that the annual bonus
shall not exceed five hundred percent (500%) of the Base Salary of Executive in
the year of determination.

     4.2 Executive's compensation may be changed from time to time by mutual
agreement of Executive and the Board of Directors of the Company. Any such
agreement shall be evidenced by a written amendment of this Agreement, which,
among other things, shall specify with particularity any change in Executive's
compensation and the date or dates when each such change shall become effective.

     4.3 Executive's performance shall be reviewed by the Board of Directors of
the Company on a periodic basis (but not less than once in each fiscal year
during the term of this Agreement) and the Board of Directors shall award such
bonuses to Executive as shall be appropriate or desirable based on Executive's
performance.

     4.4 All of Executive's compensation shall be subject to withholding taxes
and any other employment taxes which are required by law to be collected or
withheld by the Company.

     4.5 In addition to the stock options granted to Executive prior to the date
hereof, Executive shall receive options for 250,000 shares with an exercise
price of $4.95 per share, which options shall vest thirty-three and 1/3 percent
(33 1/3%) per year commencing upon the expiration of the first anniversary of
this Agreement, with the options for the aggregate of the 250,000 shares being
fully vested upon the expiration of three (3) years from the date hereof. All
such options shall automatically vest in the event the Company terminates the
employment of Executive other than for cause (as defined in Section 8.2 below).


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5.   Other Benefits.

     5.1 Executive shall be eligible to participate in and be covered by any
pension and profit sharing, group term life insurance, accident insurance,
health insurance, hospitalization, dental insurance, group disability, medical
reimbursement or other plan(s) maintained from time to time by the Company for
its employees.

     5.2 During each fiscal year of the term of this Agreement, Executive shall
be entitled to vacations not to exceed the greater of that which is provided in
the Company's Standard Policies and Procedures or fifteen (15) working days in
each such fiscal year at full salary. It is understood that all vacations shall
be taken during the year earned, or may be accrued and taken during the next
successive year. Executive agrees that such vacation shall be taken only at such
times as the Company shall from time to time determine. Executive shall be
entitled to a reasonable time off, also at full salary, for sickness or matters
of personal emergency up to a maximum permitted by the Company's Standard
Policies and Procedures. Executive shall also be entitled to all health
benefits, insurance, and other similar benefits in accordance with the Company's
Standard Policies and Procedures.

     5.3 The Company shall pay on Executive's behalf, or reimburse Executive
for, expenses incurred in connection with his employment, including any
professional license fees, dues and professional journals, and shall reimburse
Executive for reasonable tax preparation charges and estate tax planning legal
fees. Executive agrees to submit receipts and other documentation to support the
above expenses as a condition of reimbursement therefor.

     5.4 The Company shall provide to Executive an automobile allowance of
$1,500 per month. Executive shall be responsible for all expenses of operating
the vehicle, including without limitation, gasoline, maintenance, repairs,
insurance, and all applicable federal and state income taxes.

6.   Restoration of Disallowed Expenses.

     6.1 If the Internal Revenue Service finally disallows (including any
disallowance to which the Company voluntarily accedes), in whole or in part, as
a deductible expense for federal income tax purposes, any payment of salary,
bonus or other compensation, or any reimbursement of expense to Executive,
Executive shall reimburse the Company to the full extent of such disallowance by
payment to the Company of an amount equal to such disallowed amount within
twelve (12) months after such disallowance. Nothing in this Section 6.1 is
intended to suggest the likelihood of such a disallowance or that any
compensation specified hereunder is unreasonable.

7.   Indemnification by the Company.

     7.1 The Company shall, to the maximum extent permitted by law, indemnify
and hold Executive harmless against expenses, including reasonable attorneys'
fees, judgments, fines, settlements and other amounts actually and necessarily
incurred in connection with any proceeding arising by reason of Executive's
employment by the Company. The Company shall also advance to Executive any
expenses incurred in defending any such proceeding to the maximum extent
permitted by law.


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8.   Termination.

     8.1 Executive may voluntarily terminate this Agreement without cause by
giving not less than fourteen (14) days written notice to the Company. Any such
notice shall specify the exact date of termination (the "Termination Date"). If
Executive's employment under this Agreement is terminated by Executive without
cause before the last day of any fiscal year, Executive shall be entitled to
receive as compensation for such fiscal year only the Base Salary set forth in
Section 4.1 prorated to the date of termination on the basis of a 365-day year.

     8.2 The Company may terminate this Agreement for cause by delivery of
written notice to Executive specifying the cause or causes relied upon for such
termination. If Executive's employment under this Agreement is terminated by the
Company for cause, Executive shall be entitled to receive as compensation for
such fiscal year only the Base Salary set forth in Section 4.1 up to the date of
termination on the basis of a 365-day year. Grounds for the Company to terminate
this Agreement "for cause" shall be the occurrence of any of the following
events:

     8.2.1 Executive's failure or refusal to perform at the usual manner and the
     usual time those duties which he regularly and routinely performs in
     connection with the business of the Company or such other duties reasonably
     related to the capacity in which he is employed hereunder which may be
     assigned to him by the Board of Directors of the Company which has caused a
     material and demonstrable decline in the value of the Company proximately
     caused by Executive's failure or refusal to perform such duties;

     8.2.2 Executive's performance of any action when specifically instructed
     not to do so by the Board of Directors of the Company that has caused
     injury, monetary or otherwise, to the Company;

     8.2.3 Executive's gross negligence in the performance of his duties under
     this Agreement;

     8.2.4 Executive's engaging or in any manner participating in any activity
     which is directly competitive with or intentionally injurious to the
     Company or which violates any provision of Section 2.1;

     8.2.5 Executive's commission of any fraud against the Company or use or
     appropriation for his personal use or benefit of any funds or properties of
     the Company not authorized by the Board of Directors of the Company to be
     so used or appropriated which is of a material amount; or

     8.2.6 Executive's conviction of any felony involving moral turpitude.

Any notice of termination given pursuant to this Section 8.2 shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered.

     8.3 This Agreement shall terminate without notice upon the date of
Executive's death or the date when Executive becomes "completely disabled" as
that term is defined in Section 10.2; provided, however, the provisions of
Section 10 shall survive such termination.

     8.4 If this Agreement is terminated pursuant to Sections 8.1 or 8.2, the
Board of Directors of the company may, in its sole discretion and subject to its
other obligations under this Agreement, relieve


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Executive of his duties under this Agreement and assign Executive other duties
and responsibilities to be performed until the termination becomes effective.

9.   Constructive Termination.

     9.1 If the Company:

     (i) terminates the employment of Executive other than for cause (as defined
     in Section 8.2) or because of the death of Executive or if Executive
     becomes "completely disabled" (as defined in Section 10.2),

     (ii) demotes Executive to a lesser position than as provided in Section
     1.2,

     (iii) decreases Executive's Base Salary below the level provided in Section
     4.1 or reduces the employee benefits and perquisites below the levels
     provided in Section 5 (other than as a result of any amendment or
     termination of any employee and/or group or senior executive benefit plan,
     which amendment or termination is applicable to all executives of the
     Company), or

     (iv) following a "Change of Control of the Company" (as defined in Section
     9.8), does not agree to extend this Agreement and as a result it terminates
     prior to a date that is 3 years following the date of the Change of Control
     of the Company,

then such action by the Company, unless consented to in writing by Executive,
shall be deemed to be a constructive termination by the Company of Executive's
employment ("Constructive Termination").

     9.2 Notwithstanding Section 9.1, a Constructive Termination shall not occur
unless, within sixty (60) days of learning of the action described herein as the
basis for a Constructive Termination, Executive shall advise the Company in
writing that he intends to terminate his employment pursuant to this Section
9.1, and the Company does not, within ten (10) days of receipt of such written
notice, correct such action and provide Executive with a written notice of such
correction.

     9.3 In the event of a Constructive Termination other than a Constructive
Termination following a Change in Control of the Company, Executive shall be
entitled to receive, from the date of Constructive Termination, his Base Salary
(as provided in Section 4.1) in an amount equivalent to Executive's Base Sale
for the thirty-six (36) months immediately prior to the date of the Constructive
Termination payable within thirty (30) days of the date of the Constructive
Termination.

     9.4 In the event of a Constructive Termination following a Change of
Control of the Company, Executive shall be entitled to a payment within thirty
(30) days of the date of Constructive Termination in an aggregate amount equal
to the sum of the following (the "Termination Payment") --

     (i) an amount equivalent to 299% of Executive's Base Salary for the twelve
     (12) months immediately prior to the date of Constructive Termination;

     (ii) an amount equivalent to 299% of the greater of (i) the bonuses
     received by Executive during the twelve (12) months immediately prior to
     the date of Constructive Termination or (ii) the average of the annual
     bonuses received by Executive in respect of employment during the 2-year
     period preceding the year in which the Change of Control occurred; and


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        (iii) an amount in cash (payable within 10 days after the date of
        Constructive Termination) equal to the present value (calculated at a
        discount rate of 10%) of the incremental retirement benefits (including,
        without limitation, any pension, retiree life or retiree medical
        benefits) that would have been payable or available to Executive under
        any qualified plan, or under any other supplemental retirement, life or
        medical plan or arrangement, regardless of whether qualified, that is
        maintained by the Company and is based on the age and service Executive
        would have attained or completed had Executive continued as an employee
        of the Company for an additional two (2) years.

     9.5 The provisions of Section 9.4 with respect to the timing and amounts of
payments to be made in the event of a Constructive Termination following a
Change of Control of the Company shall be controlling over any contrary or
inconsistent provisions contained in any employee and/or group or senior
executive benefit plans and programs of the Company. In the event of the death
of Executive, the amounts set forth in Section 9.3 or Section 9.4 shall continue
to be owing and shall be paid to the estate of Executive.

     9.6 In the event that Executive becomes entitled to the Termination
Payment, if any of the Termination Payment will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the
"Code"), the Company shall pay to Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive, after deduction of any
Excise Tax on the Termination Payment and any federal, state and local income
tax and Excise Tax upon the payment provided for by this paragraph, shall be
equal to the Termination Payment. For purposes of determining whether any of the
Termination Payment will be subject to the Excise Tax and the amount of such
Excise Tax, (i) any other payments or benefits received or to be received by
Executive in connection with the Change in Control of the Company or the
Constructive Termination of Executive (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change in control or any person affiliated with
the Company or such person) shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Company and
acceptable to Executive such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute payments (in whole
or in part) represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code, (ii) the amount of the
Termination Payment which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Termination Payment or (B)
the amount of excess parachute payments within the meaning of Sections
280G(b)(1) and (4) after applying clause (i) above, and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of Executive's
residence on the date of Constructive Termination, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of the
Constructive Termination of Executive's employment, Executive shall repay to the
Company at the time that amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the Constructive
Termination of Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company


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shall make an additional gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.

     9.7 In the event of a Constructive Termination described in Section 9.3 or
Section 9.4, unless otherwise indicated, all other rights and benefits Executive
may have under the employee and/or group or senior executive benefit plans and
programs of the Company, generally, shall be determined in accordance with the
terms and conditions of such plans and programs.

     9.8 Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if (i) any "person", or
persons acting as a "group" (as such terms are used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended, but excluding any
Company employee stock ownership plan and any person that was a stockholder of
the Company as of the date of this Agreement), (a) becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities, or (b)
acquires or obtains the power, whether through share ownership, contract, proxy,
voting agreement or otherwise, to manage or direct the operations of the
Company, or (ii) the Company or its stockholders enter into an agreement to
dispose of all or substantially all of the assets of the Company.

10.  Death or Disability During Term of Employment.

     10.1 Upon termination of Executive's employment pursuant to Section 8.3,
Executive or his estate or personal representative, as the case may be, shall be
entitled to receive Executive's Base Salary set forth in Section 4.1 for a
period of twelve (12) months following the date of death or the date when
Executive becomes completely disabled.

     10.2 The term "completely disabled" as used in this Agreement shall mean
the inability of Executive to perform his duties under this Agreement because he
has become permanently disabled within the meaning of any policy of disability
income insurance covering employees of the Company then in force. In the event
the Company has no policy of disability income insurance covering employees of
the Company in force when Executive becomes disabled, the term "completely
disabled" shall mean the inability of Executive to perform his duties under this
Agreement by reason of any incapacity, physical or mental, which the Board of
Directors of the Company, based upon medical advice or an opinion provided by a
licensed physician acceptable to the Board of Directors of the Company,
determines to have incapacitated Executive from satisfactorily performing all of
his usual services for the Company during the foreseeable future. Based upon
such medical advice or opinion, the action of the Board of Directors of the
Company shall be final and binding and the date such action is taken shall be
the date of such complete disability for purposes of this Agreement.

11.  Duties on Termination; Confidential Information.

     11.1 Upon termination of this Agreement, Executive shall promptly deliver
to the Company all equipment, notebooks, documents, memoranda, reports, files,
books, correspondence, lists or other written or graphic records, and the like,
relating to the Company's business, which are or have been in Executive's
possession or under his control.

     11.2 Executive shall not disclose or use at any time, except as necessary
to perform his duties under this Agreement, either during or subsequent to his
employment, any secret or confidential information or knowledge obtained by
Executive while employed by the Company from either the Company, its other
employees or its customers.


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     11.3 Executive agrees that he will promptly and fully inform and disclose
to the Company from time to time all inventions, designs, improvements and
discoveries which he now has, or may hereafter have, during the term of this
Agreement which pertain or relate to the business of the Company or to any
experimental work carried on by the Company, whether conceived by the Executive
alone or with others and whether or not conceived during regular working hours.
All such inventions, designs, improvements and discoveries shall be the
exclusive property of the Company. Executive shall assist the Company in
obtaining patents on all such inventions, designs, improvements and discoveries
deemed patentable by the company and shall execute all documents and do all
things necessary to obtain such patents, vest the Company with full and
exclusive title thereto and protect the same against infringement by others.

12.  Assignment and Binding Effect.

     12.1 This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, administrators and legal
representatives. Neither this Agreement nor any rights or obligations under this
Agreement shall be assignable by Executive. This Agreement shall be binding upon
and inure to the benefit of the Company and its successors, assigns and legal
representatives.

13.  Notices.

     13.1 All notices or demands of any kind required or permitted to be given
by the Company or Executive under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:

     (i)  If to the Company:

          Board of Directors
          GreyStone Technology, Incorporated
          4950 Murphy Canyon Road
          San Diego, California 92123

     (ii) If to Executive:

          Richard A. Smith
          4150 Palisades Road
          San Diego, California  92116

Any such written notice shall be deemed received when personally delivered or
two (2) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.

14.  Choice of Law.

     14.1 This Agreement is made in San Diego, California. This Agreement shall
be construed and interpreted in accordance with the laws of the State of
California.


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15.  Integration.

     15.1 This Agreement (contains the entire agreement of the parties relating
to the subject matter of this Agreement, and supersedes all prior oral and
written employment agreements or arrangements between the Parties. This
Agreement cannot be amended or modified except by a written agreement signed by
Executive and the Company.

16.  Waiver.

     16.1 No term, covenant or condition of this Agreement or any breach thereof
shall be deemed waived, except with the written consent of the Party against
whom the waiver is claimed, and any waiver of any such term, covenant, condition
or breach shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other term, covenant, condition or breach.

17.  Severability.

     17.1 If, for any reason, any provision contained in this Agreement should
be held invalid in part by a court of competent jurisdiction, then it is the
intent of each of the parties hereto that the balance of the Agreement be
enforced to the fullest extent permitted by applicable law. Accordingly, should
a court of competent jurisdiction determine that the scope of any covenant is
too broad to be enforced as written, it is the intent of each of the parties
that the court should reform such covenant to such narrower scope as it
determines enforceable.

18.  Interpretation; Construction.

     18.1 The headings set forth in this Agreement are for convenience only and
shall not be used in interpreting this Agreement. This Agreement has been
drafted by legal counsel representing the Company, but Executive has been
encouraged, and has had the opportunity to consult with, his own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised, or
had the opportunity to review and revise, this Agreement, and the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.

19.  Representations and Warranties.

     19.1 Executive represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other agreement
between Executive and any other person or entity.

20.  Attorneys' Fees.

     20.1 If any legal action is necessary to enforce the terms and conditions
of this Agreement, the prevailing party shall be entitled to recover all costs
of suit and reasonable attorneys' fees as determined by the court.

21.  Arbitration.


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     21.1 Any controversy or claim arising out of or relating to this Agreement,
or the breach hereof, or arising out of or relating to the rights, duties or
obligations of the Company or of Executive shall be settled by arbitration
conducted in San Diego, California in accordance with, and by an arbitrator
appointed pursuant to, the Rules of the American Arbitration Association in
effect at the time, and a judgment upon the award rendered pursuant thereto may
be entered in any court having jurisdiction, and all rights or remedies of the
Company and of the Executive to the contrary are hereby expressly waived. Prior
arbitration pursuant to the provisions of this section, and an award pursuant
thereto, shall be a condition precedent to the bringing of any action, suit or
proceeding by Executive for any form of relief against the Company or any of its
shareholders, directors or officers subject to this Agreement.

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


                             THE COMPANY:

                             GREYSTONE TECHNOLOGY, INCORPORATED
                             a California corporation


                             By:
                                ------------------------------------------------
                                           Thomas D. Aldern,
                                           Director and Vice President


                             EXECUTIVE:


                             ----------------------------------
                             RICHARD A. SMITH


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