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                                                                   Exhibit 10.25

                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of November 6, 2001 by
                                 ---------
and between DAOU Systems, Inc., a Delaware corporation ("Company"), and Daniel
                                                         -------
Malcolm, an individual resident of Pennsylvania ("Employee").
                                                  --------

                                    AGREEMENT

     The parties to this Agreement, intending to be legally bound, agree as
follows:

1.   Commencement of Employment. Employee's employment with the Company
     --------------------------
commenced July 24, 2001 (the "Effective Date"), and the terms of this Agreement
                              --------------
will be effective retroactive to that date.

2.   Employment Terms and Duties.
     ---------------------------

     2.1  Employment. The Company employs Employee, and Employee accepts
          ----------
employment by the Company (the "Employment"), upon the terms and conditions set
                                ----------
forth in this Agreement.

     2.2  At-Will Employment. Employee's employment relationship with the
          ------------------
Company is at-will, terminable by either the Company or Employee at any time and
for or no reason, and with or without "Cause" as defined in Section 7.1 of this
Agreement. Although certain provisions of this Agreement describe events that
could occur at a particular time in the future, nothing in this Agreement may be
construed as a guarantee of Employee's employment for any length of time.

     2.3  Duties. Effective upon his appointment by the Company's Board of
          ------
Directors ("Board"), Employee will serve as President - Technology Services
            -----
Division and Chief Marketing Officer of the Company and will have such
reasonable duties as are assigned or delegated to Employee by the Chief
Executive Officer and the Board. Employee will: (i) devote his entire business
time, attention, skill, and energy exclusively to the business of the Company;
(ii) use his best efforts to promote the success of the Company's business; and
(iii) cooperate fully with the Board in the advancement of the best interests of
the Company. The parties acknowledge that Employee presently serves, and will
continue to serve, as a member of the board of directors of Prophet 21, Inc., a
for-profit company engaged in the distribution industry software business, and
for several not-for-profit organizations. Employee may continue to serve on
these and other boards or advisory committees of other organizations whose
business and activities are not competitive with the Company's.

     2.4  Compliance with the Company's Policies. Employee acknowledges and
          --------------------------------------
agrees that compliance with the Company's policies, practices and procedures is
a term and condition of the Employment. Employee agrees to execute and comply
with the terms and conditions of the Company's Employee Confidentiality and
Inventions Agreement, a copy of which is attached as Exhibit A and is
                                                     ---------
incorporated by this reference.

<PAGE>

3.   Compensation.
     ------------

     3.1  Salary. Employee will be paid salary in the amount of Two Hundred and
          ------
Forty Thousand Dollars ($240,000) per year, less any applicable state and
federal taxes or other payroll deductions ("Base Salary"). Any adjustment to the
                                            -----------
Salary is at the sole discretion of the Company.

     3.2  Benefits. Employee will be permitted to participate in such sick
          --------
leave, pension, profit sharing, life insurance, hospitalization, long term
disability, major medical and other employee benefit plans of the Company
(collectively, the "Benefits"), that may be in effect from time to time for
                    --------
management level employees, to the extent that Employee is eligible under the
terms of those plans.

     3.3  Bonus. On December 31, 2001, Employee will receive a sign on bonus of
          -----
Forty Thousand Dollars ($40,000), less applicable state and federal taxes or
other payroll deductions. In addition, Employee is eligible for future bonus at
the discretion of the Board and in an amount to be determined by the Board, in
accordance with an Incentive Compensation Plan that will be created on behalf of
the Company's senior management staff. The parties currently anticipate that the
future bonus plan will provide for payment as bonus a percentage of Base Salary
to paid upon achievement of stated Employee and Company goals. In order to be
eligible for bonuses under this Section 3.3, Employee must be employed by the
Company on the date that bonuses customarily are distributed by the Company.

     3.4  Interest Amounts. Employer will pay Employee additional compensation
          ----------------
in an amount equal to Employee's interest obligations less applicable taxes
("Interest Amounts") pursuant to the Promissory Note executed by Employee in
  ----------------
favor of Employer, a form of which is attached as Exhibit 2 to Exhibit B of this
                                                               ---------
Agreement.

4.   Equity Interest.
     ---------------

     4.1  Grant of Shares.
          ---------------

          (a) Employer shall offer, and Employee shall purchase, an aggregate of
One Hundred Fifty Thousand (150,000) shares of Employer's common stock, par
value $.001 per share (the "Shares"), at the closing price of the Common Stock
                            ------
on the date this Agreement is executed, substantially in accordance with the
terms of the Restricted Stock Agreement (the "Purchase Agreement"), attached to
                                              ------------------
this Agreement as Exhibit B.
                  ---------

          (b) Employer shall register the Shares for resale on a Form S-1 with
the Securities and Exchange Commission (the "SEC") pursuant to the Registration
                                             ---
Rights Agreement, attached as Exhibit 4 to Exhibit B.
                              ---------    ---------

     4.2  Grant of Options.
          ----------------

          (a) On, or as soon as practicable after, the date this Agreement is
executed, the Company will grant to Employee options to purchase Eight Hundred
and Fifty Thousand (850,000) shares of the Company's Common Stock (the
"Options") which Options shall be issued outside the Company's 1996 Stock Option
 -------
Plan (the "Plan"). The Options will be non-
           ----

                                       2

<PAGE>

qualified options (non-statutory options). The exercise price for the Options
will be the closing price per share of the Company's Common Stock on the date of
grant. In addition to the terms set forth in this Section 4, all of the Options
will be subject to such other terms, conditions and limitations as generally are
included in the Plan and in any related stock option agreement, as well as
applicable state and federal laws including, but not limited to, tax and
securities laws. The Options will vest as set forth below in Section 4.2(b) and
shall terminate under such conditions as generally are included in the Plan and
any related stock option agreement.

     (b)  Vesting of the Options.
          ----------------------

          (i)   125,000 Options will vest on the sooner of (a) the first date
following ten (10) consecutive trading days during which the Common Stock trades
at a value of at least $2.50 per Share as adjusted for any stock combination,
stock dividend, stock split or other recapitalization event occurring with
respect to the Company's Common Stock (a "Recapitalization"); or (b) five (5)
                                          ----------------
years from the date of grant.

          (ii)  125,000 Options will vest on the sooner of (a) the first date
following ten (10) consecutive trading days during which the Common Stock trades
at a value of at least $5.00 per Share as adjusted for any Recapitalization; or
(b) five (5) years from the date of grant.

          (iii) 600,000 Options will vest in thirty-six equal increments on the
monthly anniversary of the Effective Date through July 24, 2004. Any of these
600,000 Options that are unvested at the time of a Change in Control immediately
will vest and become exercisable in the event of a Change in Control. For
purposes of this Section, "Change in Control" is defined to have occurred if,
                           -----------------
and only if:

                (1) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or person, or any syndicate
or group deemed to be a person under Section 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), is or becomes the "beneficial
                              ------------
owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act), directly or indirectly, of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
securities entitled to vote in the election of directors of the Company;

                (2) there occurs a reorganization, merger, consolidation or
other corporate transaction involving the Company ("Transaction"), in each case,
                                                    -----------
with respect to which the stockholders of the Company immediately prior to such
Transaction do not, immediately after the Transaction, own more than fifty
percent (50%) of the combined voting power of the Company or other corporation
resulting from such Transaction; or

                (3) all or substantially all of the assets of the Company are
sold, liquidated or distributed.

     (c) Continued Employment. Except as described in this Section and Section 7
         --------------------
or otherwise in any related option agreement, vesting of the Opions pursuant to
this Agreement is earned only by continuing as an employee of the Company at the
will of the Company (not through the act of being granted the Option or
acquiring shares under this Agreement). This

                                       3

<PAGE>

Agreement, the transactions contemplated under it and the vesting schedule set
forth in this Agreement do not constitute an express or implied promise of
continued engagement for the vesting period, for any period, or at all.

5.   Expenses. The Company will pay on behalf of Employee (or reimburse
     --------
Employee) reasonable expenses incurred by Employee at the request of, or on
behalf of, the Company in the performance of Employee's duties pursuant to this
Agreement, and in accordance with the Company's employment policies, including
reasonable expenses incurred by Employee (a) while attending conventions,
seminars and other business meetings, (b) for appropriate business entertainment
activities and (c) for appropriate promotional expenses. In addition, the
Company will reimburse Employee for the reasonable costs of equipping a home
office (e.g. computer, phone line, printer and facsimile). Employee shall file
expense reports with respect to such expenses in accordance with the Company's
policies.

6.   Vacations and Holidays. Employee will be entitled to paid vacation in an
     ----------------------
amount of four weeks per year. Employee may carry-over from one year to the next
any accrued but unused vacation up to a maximum of six weeks of vacation. Once
Employee accrues the maximum vacation, he will not accrue additional vacation
until he takes enough vacation to bring his accrual below the maximum. Employee
may take vacation at such time or times as approved by the Chief Executive
Officer. Employee is entitled to holidays in accordance with the holiday
policies of the Company in effect for its employees from time to time.

7.   Payment upon Termination of Employment. Upon termination of Employee's
     --------------------------------------
Employment, the Company will be obligated to pay to Employee only such
compensation as is provided in this Section 7.

     7.1  Termination of Employment prior to July 24, 2004 without Cause or with
          ----------------------------------------------------------------------
Good Reason. In the event that prior to July 24, 2004 the Company terminates
-----------
Employee's Employment without "Cause" or Employee terminates Employment with
                               -----
Good Reason, Employee will be eligible for payment of the Salary and accrued but
unused vacation through the date of such termination, plus severance payments
("Severance Payment") in an aggregate amount equal to twelve (12) months' Base
  -----------------
Salary. Further, in the event that prior to July 24, 2004 (a) Employee's
Employment is terminated by the Company without Cause or by Employee for Good
Reason; (b) the Options described in Section 4.2(b)(i) or (ii) of this Agreement
have not vested as of the date on which Employee's employment is terminated
pursuant to this Section, the Options described in Section 4.2(b)(i) or (ii) of
this Agreement will not expire but shall continue in effect and shall expire on
the date set forth in the related stock option agreement; and (c) any unvested
Options among the 600,000 Options described in Section 4.2(b)(iii) immediately
will vest and become exercisable on the date of termination. The Severance
Payment will be paid over a twelve-month period in accordance with the Company's
regular payroll system. Employee's receipt of the termination benefits described
in this section is conditioned upon his execution of a release of all claims
effective as of the termination date, in substantially the form attached to this
Agreement as Exhibit C.

          (a)  Termination for "Cause" occurs if Employee is terminated for any
                                -----
one of the following reasons: (i) Employee's material breach of this Agreement;
(ii) Employee's material failure to adhere to any written policy of the Company
that is legal and generally

                                       4

<PAGE>

applicable to officers of the Company; (iii) the appropriation (or attempted
appropriation) of a material business opportunity of the Company, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Company; (iv) the misappropriation (or
attempted misappropriation) of any of the Company's funds or property; (v) the
conviction of, or the entering of a guilty plea or plea of no contest with
respect to, a felony, the equivalent thereof, or any other crime with respect to
which imprisonment is a possible punishment; (vi) willful misconduct.

          (b)  Termination by Employee for "Good Reason" occurs if Employee
                                            -----------
terminates his employment within three (3) months after the first occurrence of
any of the following events:

               (i)   any reduction in Employee's Base Salary;

               (ii)  any significant reduction in Employee's responsibilities
and authority or a material change in Employee's responsibility or authority
that would be inconsistent or interfere with the duties described in Section 2.3
of this Agreement;

               (iii) a relocation of Employee's place of employment (Exton,
Pennsylvania) without Employee's agreement, outside a fifty (50) mile radius of
Employee's current place of employment;

               (iv)  any failure by Employer to pay Employee's Compensation in a
timely manner.

               An event described in Section 7.1(b)(i) through (iii) will not
constitute Good Reason unless Employee provides written notice to the Company of
his intention to terminate his employment for Good Reason and unless the Company
does not cure the Good Reason within thirty (30) days of Employer's receipt of
the written notice.

     7.2  Termination with Cause or Without Good Reason. If at any time the
          ---------------------------------------------
Company terminates the Employment for Cause or Employee terminates the
Employment without Good Reason (Employee resigns), Employee will be entitled to
receive the portion of Base Salary and vacation accrued and owing to Employee
through the date of such termination. Employee is not entitled to any other
payment at termination except that at the option of the Company in its sole
discretion, Employee may be eligible for the Severance Payments described in
Section 7.1, or some portion thereof, in exchange for his execution of a release
of all claims effective as of the termination date, in substantially the form
attached to this Agreement as Exhibit C or other consideration.
                              ---------

     7.3  Termination without Cause or with Good Reason any reason after July
          -------------------------------------------------------------------
24, 2004. If after July 24, 2004 the Company terminates the Employment without
--------
Cause or Employee terminates the Employment with Good Reason (Employee resigns),
Employee will be entitled to receive the portion of Base Salary and vacation
accrued and owing to Employee through the date of such termination. Employee
also is entitled to Severance Payments in an aggregate amount equal to six (6)
months' Base Salary, to be paid over a six (6) month period, in exchange for
Employee's agreement that for a period of one (1) year after Employee's
Employment with Employer is terminated for the reasons described in this
Section, Employee shall not (a) accept

                                       5

<PAGE>

employment with or consultation for any business whose products or activities
compete in whole or in part with the products or activities of the Technology
Services Division of Employer, anywhere within the United States where Employer
then currently is doing business or is marketing its Technology Services; (b)
directly or indirectly, either for himself or any other person or entity,
solicit the business of any current or prospective customer of Employer who
became known to Employee through his Employment. Employee acknowledges and
agrees that the purpose of this requirement is to protect Employer's
relationship with its customers and its interest in the customer good will
generated by Employee, that Employer currently is performing technology services
in a majority of states and is currently marketing such services throughout the
United States and that this covenant is reasonable with respect to its duration,
geographical area and scope. In the event employee acts in contradiction with
the provisions of Section 7.3, employee is not entitled to any Severance
Payments under this Section. The provisions of this Section 7.3 are in addition
to the requirements described in Exhibit B to this Agreement.

     7.4  Termination of Employment following Death or Disability. Where the
          -------------------------------------------------------
Employment is terminated following Employee's death or where the Employment is
terminated as a result of Employee suffering a disability which cannot be
reasonably accommodated and which renders him unable to perform the essential
functions of his position for 120 days, Employee or his estate will be entitled
to receive the portion of Base Salary and vacation accrued and owing to Employee
only through the date of such termination.

     7.5  Benefits. Employee's accrual of, or participation in plans providing
          --------
for, the Benefits will cease at the effective date of Employee's termination,
and Employee will be entitled to accrued Benefits pursuant to such plans only as
provided in such plans.

8.   General Provisions.
     ------------------

     8.1  Representations and Warranties by Employee. Employee represents and
          ------------------------------------------
warrants to the Company that the execution of this Agreement and the performance
by Employee of his obligations under this Agreement will not: (a) violate any
judgment, writ, injunction, or order of any court, arbitrator, or governmental
agency applicable to Employee; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which Employee is a party or by which Employee is or may be bound.

     8.2  Obligations Contingent on Performance. The obligations of the Company
          -------------------------------------
under this Agreement, including its obligation to pay the compensation provided
for in this Agreement, are contingent upon Employee's performance of Employee's
obligations under this Agreement.

     8.3  Waiver. No waiver of any provision or consent to any exception to the
          ------
terms of this Agreement or any agreement contemplated by this Agreement will be
effective unless in writing and signed by the party to be bound and then only to
the specific purpose, extent, and instance so provided.

     8.4  Binding Effect; Delegation of Duties Prohibited. This Agreement shall
          -----------------------------------------------
inure to the benefit of, and shall be binding upon, the parties to this
Agreement and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Company may merge or
consolidate or to which all or substantially all of its assets may be

                                       6

<PAGE>

transferred. The duties and covenants of Employee under this Agreement, being
personal, may not be delegated.

     8.5  Notices. All notices, amendments, consents, waivers, and other
          -------
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):

          If to the Company:        DAOU Systems, Inc.
                                    5120 Shoreham Place
                                    San Diego, CA 92122
                                    Attention:  James T. Roberto
                                    Facsimile No.: (619) 452-2789

          With a copy to:           Baker & McKenzie
                                    101 W. Broadway, Suite 1200
                                    San Diego, California 92101
                                    Attention:  Abby Silverman, Esq.
                                    ---------
                                    Facsimile No.: (619) 236-0429

          If to Employee:           Daniel J. Malcolm


                                    Facsimile No.:

     8.6  Entire Agreement; Amendments. This Agreement, including its exhibits,
          ----------------------------
contains the entire agreement between the parties with respect to the subject
matter of this Agreement and supersedes all prior agreements and understandings,
oral or written, between the parties with respect to the subject matter of this
Agreement. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties to this Agreement.

     8.7  Governing Law. This Agreement will be governed by the laws of
          -------------
Pennsylvania without regard to conflicts of law principles.

     8.8  Jurisdiction. Any proceeding seeking to enforce any provision of, or
          ------------
based on any right arising out of, this Agreement will be brought against any of
the parties in the United States District Court for Pennsylvania or in any other
state in which the Company has its principal place of business, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
that venue. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.

     8.9  No Undue Influence. This Agreement is executed voluntarily and without
          ------------------
any duress or undue influence. Employee acknowledges that he has read this
Agreement and

                                       7

<PAGE>

executed it with his full and free consent. No provision of this Agreement shall
be construed against any party by virtue of the fact that such party or its
counsel drafted such provision or the entirety of this Agreement.

     8.10 Arbitration. The parties agree that any controversy between the
          -----------
Company and Employee arising from the Employment or termination of the
Employment, including, without limitation, any controversy related to the
construction or application of any of the terms of this Agreement, arbitrability
of this Agreement, claims for statutory violations, including claims for
violation of the Civil Rights Act of 1991 (Title VII), the Age Discrimination in
Employment Act, the Americans with Disabilities Act, any state law equivalent,
or any amendments to those statutes, claims for wages or other compensation, or
other claims arising out of the Employment, shall, on the written request of
Employee or the Company, be submitted to final and binding arbitration.
Arbitration shall be pursuant to the Employment Arbitration Rules (the "Rules")
                                                                        -----
of the American Arbitration Association (the "AAA"). The arbitration will take
                                              ---
place in Exton, Pennsylvania, or in any other city in which the Company has its
principal place of business, at the offices of the AAA. All fees and costs will
be allocated to the parties to the arbitration as determined by the arbitrator;
provided, however, that each party will pay one-half of the estimated
--------  -------
arbitrator's fees up front and, if either party fails to do so, then a default
will be entered against such party solely with respect to such fees. Any
determination of the arbitrator shall be final and binding on the parties.
Nothing in this Agreement will prevent a party from applying to a court that
would otherwise have jurisdiction for provisional or interim injunctive or other
equitable measures.

     8.11 Section Headings, Construction. The section headings in this Agreement
          ------------------------------
are provided for convenience only and will not affect its construction or
interpretation.

     8.12 Severability. If any provision of this Agreement is held invalid or
          ------------
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.

     8.13 Counterparts. This Agreement may be executed in one or more
          ------------
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.

DAOU SYSTEMS, INC.                                   EMPLOYEE:



By: /s/ James T. Roberto                             By: /s/ Daniel J. Malcolm
    --------------------                                 ---------------------
    James T. Roberto                                         Daniel J. Malcolm
    President and Chief Executive Officer

                                       8

<PAGE>

                                    EXHIBIT A
                                    ---------

                EMPLOYEE CONFIDENTIALITY AND INVENTIONS AGREEMENT

     The following confirms the agreement between me and DAOU SYSTEMS, INC., a
Delaware corporation (the "Company"), which is a material part of the
                           -------
consideration for my employment by the Company:

1.   I understand that the Company possesses and will possess Proprietary
Information which is important to its business. For purposes of this Agreement,
"Proprietary Information" is information that was or will be developed, created,
or discovered by or on behalf of the Company, or which became or will become
known by, or was or is conveyed to the Company, which has commercial value in
the Company's business. "Proprietary Information" includes, but is not limited
to, information about trade secrets, computer programs, designs, technology,
ideas, know-how, processes, compositions, data, techniques, improvements,
inventions (whether patentable or not), works of authorship, business and
product development plans, the salaries and terms of compensation of other
employees, customers and other information concerning the Company's actual or
anticipated business, research or development, or which is received in
confidence by or for the Company from any other person. Of particular importance
to the Company is the protecting the confidentiality of its unique manner and
method of integrating and managing health care information networks to increase
productivity and profit and to reduce cost. The particular combination of
network products which the Company utilizes is not used by any other business or
entity and is solely the product of research and development by the Company. I
understand that my employment creates a relationship of confidence and trust
between me and the Company with respect to Proprietary Information.

2.   I understand that the Company possesses or will possess "Company Materials"
which are important to its business. For purposes of this Agreement, "Company
                                                                      -------
Materials" are documents or other media or tangible items that contain or embody
---------
Proprietary Information or any other information concerning the business,
operations or future/strategic plans of the Company, whether such documents have
been prepared by me or by others including but not limited to portions of the
Company's customer lists which have been specially compiled by the Company to
include information not available to the public such as customer preferences and
customer buying history. "Company Materials" also include, but are not limited
                          -----------------
to, blueprints, drawings, photographs, charts, graphs, notebooks, customer
lists, computer disks, tapes or printouts, sound recordings and other printed,
typewritten or handwritten documents.

3.   In consideration of my employment by the Company and the compensation
received by me from the Company I hereby agree as follows:

     (a)  All Proprietary Information and trade secret rights, and other
intellectual property and rights (collectively "Rights") in connection therewith
will be the sole property of the Company. At all times, both during my
employment by the Company and after its termination, I will keep in confidence
and trust and will not use or disclose any Proprietary Information or anything
relating to it without the prior written consent of an officer of the Company
except as

                                       9

<PAGE>

may be necessary and appropriate in the ordinary course of performing my duties
to the Company.

          (b)  All Company Materials will be the sole property of the Company. I
agree that during my employment by the Company, I will not remove any Company
Materials from the business premises of the Company or deliver any Company
Materials to any person or entity outside the Company, except as I am required
to do in connection with performing the duties of my employment. I further agree
that, immediately upon the termination of my employment by me or by the Company
for any reason, or during my employment if so requested by the Company, I will
return all Company Materials, apparatus, equipment and other physical property,
or any reproduction of such property, excepting only (i) my personal copies of
records relating to my compensation; (ii) my personal copies of any materials
previously distributed generally to stockholders of the Company; and (iii) my
copy of this Agreement.

          (c)  During the term of my employment and for two years thereafter, I
will not encourage or solicit any employee or consultant of the Company to leave
the Company for any reason. However, this obligation will not affect any
responsibility I may have as an employee of the Company with respect to the bona
fide hiring and firing of Company personnel.

          (d)  I promptly will disclose in writing to my immediate supervisor,
with a copy to the President of the Company, or to any persons designated by the
Company, all "Inventions", which includes all improvements, inventions, designs,
              ----------
formulas, works of authorship, trade secrets, technology, computer programs,
compositions, ideas, processes, techniques, know-how and data, whether or not
patentable, made or conceived or reduced to practice or developed by me, either
alone or jointly with others, during the term of my employment. I will also
disclose to the President of the Company all things that would be Inventions if
made during the term of my employment, conceived, reduced to practice, or
developed by me within six months after the termination of my employment with
the Company. Such disclosures will be received by the Company in confidence (to
the extent they are not assigned in Section 3(e) below) and do not extend the
                                    ------------
assignment made in Section 3 (e) below. I will not disclose Inventions to any
                   -------------
person outside the Company unless I am requested to do so by management
personnel of the Company.

          (e)  I agree that all Inventions which I make, conceive, reduce to
practice or develop (in whole or in part, either alone or jointly with others)
during my employment will be the sole property of the Company to the maximum
extent permitted by Section 2870 of the California Labor Code, a copy of which
is attached, and hereby assign such Inventions and all Rights therein to the
Company. No assignment in this Agreement will extend to inventions, the
assignment of which is prohibited by Labor Code Section 2870 (attached Exhibit
                                                                       -------
1). The Company will be the sole owner of all Rights in connection therewith.
-

          (f)  I agree to perform, during and after my employment, all acts
deemed necessary or desirable by the Company to permit and assist it, at the
Company's expense, in obtaining, maintaining, defending and enforcing Rights
with respect to such Inventions and improvements in any and all countries. Such
acts may include, but are not limited to, execution of documents and assistance
or cooperation in legal proceedings. I irrevocably designate and appoint the
Company and its duly authorized officers and agents, as my agents and
attorneys-in-fact to act for and in my behalf and instead of me, to execute and
file any documents and to do all other

                                       10

<PAGE>

lawfully permitted acts to further the above purposes with the same legal force
and effect as if executed by me.

     (g) Any assignment of copyright pursuant to this Agreement includes all
rights of paternity, integrity, disclosure and withdrawal and any other rights
that may be known as or referred to as "moral rights" (collectively "Moral
                                                                     -----
Rights"). To the extent such Moral Rights cannot be assigned under applicable
------
law and to the extent the following is allowed by the laws in the various
countries where Moral Rights exist, I hereby waive such Moral Rights and consent
to any action of the Company that would violate such Moral Rights in the absence
of such consent. I will confirm any such waivers and consents from time to time
as requested by the Company.

     (h) I have attached to this Agreement as Exhibit 2 a complete list of all
                                              ---------
existing Inventions or improvements to which I claim ownership as of the date of
this Agreement and that I desire to specifically clarify are not subject to this
Agreement, and I acknowledge and agree that such list is complete. If no such
list is attached to this Agreement, I represent that I have no such Inventions
and improvements at the time of signing this Agreement.    /s/ DM
                                                           ---------------------
[INITIAL HERE]

     (i) I agree that during my employment with the Company I will not engage in
any employment, business, or activity that is in any way competitive with the
business or proposed business of the Company, and I will not assist any other
person or organization in competing with the Company or in preparing to engage
in competition with the business or proposed business of the Company. The
provisions of this paragraph will apply both during normal working hours and at
all other times including, but not limited to, nights, weekends and vacation
time, while I am employed by the Company.

     (j) I represent that my performance of all the terms of this Agreement will
not breach any agreement to keep in confidence proprietary information acquired
by me in confidence or in trust prior to my employment by the Company. I have
not entered into, and I agree I will not enter into, any agreement either
written or oral in conflict herewith or in conflict with my employment with the
Company.

4.   I agree that this Agreement is not an employment contract and that I have
the right to resign and the Company has the right to terminate my employment at
any time, for any reason, with or without cause.

5.   I agree that this Agreement does not purport to set forth all of the terms
and conditions of my employment, and that as an employee of the Company I have
obligations to the Company which are not set forth in this Agreement.

6.   I agree that my obligations under sections 3(a) through 3(h) and section
                                       -------------         ----     -------
3(j) of this Agreement will continue in effect after termination of my
----
employment, regardless of the reason or reasons for termination, and whether
such termination is voluntary or involuntary on my part, and that I will notify
any future client, employer or potential employer or client of my obligations
under this Agreement. I agree that the Company is entitled to communicate my
obligations under this Agreement to any future employer or potential employer of
mine.

                                       11

<PAGE>

7.   I acknowledge and agree I have an obligation to protect the Company's
Propriety Information and Company Materials and that this obligation continues
in effect after termination of my employment, regardless of the reason or
reasons for termination, and whether such termination is voluntary or
involuntary on my part. Therefore, I agree that I will not disclose these
Propriety Information and Company Materials to assist any other person or
organization in competing with the Company or in preparing to engage in
competition with the business or proposed business of the Company.

8.   I agree that the Company has expended substantial efforts to maintain the
confidentiality and proprietary nature of the information described in this
Agreement and would be materially and irreparably injured by an unauthorized
disclosure of any of that information. Any breach of this Agreement will result
in irreparable and continuing damage to the Company for which there can be no
adequate remedy at law, and in the event of any such breach, the Company will be
entitled to immediate injunctive relief and other equitable remedies (without
any need to post any bond or other security) in addition to such other and
further relief as may be proper.

9.   I agree that any dispute in the meaning, effect or validity of this
Agreement will be resolved in accordance with the laws of California without
regard to the conflict of laws provisions to this Agreement. I further agree
that if one or more provisions of this Agreement are held to be illegal or
unenforceable under applicable California law, such illegal or unenforceable
portion(s) will be revised to make them legal and enforceable. The remainder of
this Agreement will otherwise remain in full force and effect and enforceable in
accordance with its terms.

10.  This Agreement will be effective as of the date I execute this Agreement
and will be binding upon me, my heirs, executors, assigns, and administrators
and will inure to the benefit of the Company, its subsidiaries, successors and
assigns.

11.  This Agreement can only be modified by a subsequent written agreement
executed by the President of the Company.

I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS
WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS
HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT
VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE
COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL BE
RETAINED BY ME.


Dated: November 6, 2001                     /s/ Daniel Malcolm
       ----------------                     ------------------------------------
                                            Employee

                                       12

<PAGE>

                                    EXHIBIT 1
                                    ---------

     Section 2870. Application of provision providing that employee will assign
or offer to assign rights in invention to employer.

     (a)  Any provision in an employment agreement which provides that an
employee will assign, or offer to assign, any of his or her rights in an
invention to his or her employer will not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for these
inventions that either:

          (1)  Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer, or

          (2)  Result from any work performed by the employee for the employer.

     (b)  To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

                                       13

<PAGE>

                                    EXHIBIT 2
                                    ---------

DAOU SYSTEMS, INC.
5120 Shoreham Place
San Diego, California 92122

      1. The following is a complete list of inventions or improvements relevant
to the subject matter of my employment by DAOU SYSTEMS, INC. (the "Company")
                                                                   -------
that have been made or conceived or first reduced to practice by me alone or
jointly with others prior to my employment by the Company that I desire to
clarify are not subject to the Company's Proprietary Information and Inventions
Agreement.

___   No inventions or improvements

___   See below:


___   Additional sheets attached



      2. I propose to bring to my employment the following materials and
documents of a former employer:

___   No materials or documents


___   See below:






         /s/ Daniel Malcolm
      ---------------------------------------------
      Employee

                                       14

<PAGE>

                                    EXHIBIT C
                                    ---------

                                 GENERAL RELEASE

THIS GENERAL RELEASE (this "Release") is entered into effective as of
                            -------
_________________ ("Effective Date") by and between DAOU Systems, Inc., a
                    --------------
Delaware corporation (the "Company"), and Daniel J. Malcolm, an individual
                           -------
resident of Pennsylvania ("Employee"), with reference to the following facts:
                           --------

                                    RECITALS

       A.   The parties hereto entered into an Employment Agreement dated as of
November 6, 2001 (the "Agreement"). Pursuant to the terms and conditions of the
                        ---------
Agreement, and contingent upon satisfaction of the conditions described in the
Agreement, Employee would become eligible for severance payments as defined by
the Employment Agreement beginning on the eighth (8th) day following his
execution of this Release Agreement, in exchange for Employee's release of the
Company from all claims which Employee may have against the Company as of the
Separation Date.

       B.   The parties desire to dispose of, fully and completely, all claims
which Employee may have against the Company in the manner set forth in this
Release.

                                    AGREEMENT

1.     Consideration for Release. In exchange for Employee's execution of this
       -------------------------
Release Agreement and releasing all claims against the Company as set forth in
Section 2, Employee will be paid or will be eligible for a Severance Payment in
an amount equal to ___________________ ($___ ) less all applicable federal,
state and local income, social security and other payroll taxes. Payment of this
Severance Payment will be on a bi-monthly basis, consistent with the Company's
regular payroll schedule, beginning the eighth day from Employee's execution of
this Agreement, or if the eighth day falls on a weekend or a holiday, on the
next business day.

2.     Release.
       -------

       2.1  Except for claims under the Workers' Compensation Act and the
Unemployment Insurance Code, in exchange for the consideration described in
Section 1, receipt of which Employee acknowledges, Employee, for himself and his
heirs, successors and assigns, fully releases, and discharges the Company, its
present and former agents, employees, officers, directors, shareholders,
principals, predecessors, alter egos, partners, parents, subsidiaries,
affiliates, attorneys, insurers, successors and assigns, from any and all
claims, demands, grievances, causes of action or suits of any kind arising out
of, or in any way connected with, the dealings between the parties through the
date his employment terminated (the "Separation Date"), including the employment
                                     ---------------
relationship and its termination. Employee also releases and waives any and all
legal or administrative claims arising under any express or implied contract,
law (federal, state or administrative), rule, regulation, or ordinance,
including, but not limited to, Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act, the California Fair

                                       15

<PAGE>

Employment and Housing Act, or the Age Discrimination in Employment Act of 1967,
as amended ("ADEA"), and the Older Workers Benefit Protection Act, as amended
("OWBPA") (except a claim relating to whether this release or waiver is valid
under the ADEA and except for any claims under the ADEA that may arise after the
date this Agreement is executed by Employee).

3.   Section 1542 Waiver. The Release is intended as a full and complete release
     -------------------
and discharge of any and all claims that Employee may have against the Company
through the Separation Date. In making the Release, Employee intends to release
the Company from liability of any nature whatsoever for any claim of damages or
injury or for equitable or declaratory relief of any kind, whether the claim, or
any facts on which such claim might be based, is known or unknown to him.
Employee expressly waives all rights under Section 1542 of the Civil Code of the
State of California, which Employee understands provides as follows:

          A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
          NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
          RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
          SETTLEMENT WITH THE DEBTOR.

     Employee acknowledges that he may discover facts different from or in
addition to those that he now believes to be true with respect to this Release.
Employee agrees that this Release shall remain effective even though Employee
may discover different or additional facts affecting this Release.

4.   Age Discrimination in Employment Claims. The Release set forth in Section 2
     ---------------------------------------
includes a waiver of rights or claims based on age discrimination in violation
of the ADEA and applicable state laws. The ADEA requires the Company to advise
Employee of the following to effectuate his knowing and voluntary waiver of
rights or claims under the ADEA:

     4.1  The Company advises Employee to consult with an attorney prior to
executing this Agreement and Employee acknowledges that the Company has advised
him in writing to do so.

     4.2  Employee acknowledges that he has been given twenty-one (21) days from
the date of this Agreement to consider entering into the waiver of the ADEA
claims, if any. Employee agrees that if he decides to shorten the 21-day period
by executing this Agreement before the expiration of 21 days, he does so
knowingly and voluntarily.

     4.3  Employee acknowledges that by this Agreement he has been informed that
he may revoke his waiver of the ADEA claims for up to 7 days after executing
this Agreement. To be effective, his revocation must be in writing, signed,
dated and delivered to the Company's President no later than 7 days from the
date on which Employee signs this Agreement. If the 7th day falls on a weekend
or holiday, Employee's revocation must be delivered the next business day.
Employee acknowledges his understanding that this Agreement shall not become
effective and enforceable until the revocation period expires and that the
Severance Payment provided for

                                       16

<PAGE>

in Section 2 will not be made until the revocation period expires without
revocation by Employee.

5.   No Undue Influence. This Release is executed voluntarily and without any
     ------------------
duress or undue influence. Employee acknowledges he has read this Release and
executed it with his full and free consent. No provision of this Release shall
be construed against any party by virtue of the fact that such party or its
counsel drafted such provision or the entirety of this Release.

6.   Confidentiality of Agreement and Release. Employee further agrees to keep
     ----------------------------------------
confidential the terms of the Agreement and this Release and to refrain from
disclosing any information regarding the Agreement, this Release and their
respective terms to any third party, unless required to do so (a) by a
regulatory body (e.g. filings with the Securities Exchange Commission); (b) in
financial disclosures to auditors or in audited financial statements; or (c)
under oath, if properly ordered, in a court of competent jurisdiction. Employee
agrees to notify the Company in writing upon first notification that he may be
required by law to disclose any information deemed confidential by the Agreement
or this Release. Notice must be provided in sufficient time for the party
receiving notice to oppose or otherwise respond to the request.

7.   Governing Law. This Release is made and entered into in California and
     -------------
accordingly the rights and obligations of the parties hereunder shall in all
respects be construed, interpreted, enforced and governed in accordance with the
laws of California as applied to contracts entered into by and between residents
of California to be wholly performed within California.

8.   Severability. If any provision of this Release is held to be invalid, void
     ------------
or unenforceable, the balance of the provisions of this Release shall,
nevertheless, remain in full force and effect and shall in no way be affected,
impaired or invalidated.

9.   Counterparts. This Release may be executed simultaneously in one or more
     ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Release may be
executed by facsimile, with originals to follow by overnight courier.

10.  Arbitration. Any dispute or claim arising out of this Release shall be
     -----------
subject to final and binding arbitration. The arbitration will be conducted by
one arbitrator who is a member of the American Arbitration Association (the
"AAA") and will be governed by the Model Employment Arbitration rules of the
 ---
AAA. All fees and costs will be allocated to the parties to the arbitration as
determined by the arbitrator; provided, however, that each party will pay
                              --------  -------
one-half of the estimated arbitrator's fees up front; and, if either party fails
to do so, then a default will be entered against such party solely with respect
to such fees. Any determination of the arbitrator shall be final and binding on
the parties. Nothing in this Release will prevent a party hereto from applying
to a court that would otherwise have jurisdiction for provisional or interim
injunctive or other equitable measures.

11.  Entire Agreement.  This Release constitutes the entire agreement of the
     ----------------
parties with respect to the subject matter of this Release, and supersedes all
prior and contemporaneous negotiations, agreements and understandings between
the parties, oral or written.

                                       17

<PAGE>

12.    Modification; Waivers.  No modification, termination or attempted waiver
       ---------------------
of this Release will be valid unless in writing, signed by the party against
whom such modification, termination or waiver is sought to be enforced.

13.    Amendment.  This Release may be amended or supplemented only by a writing
       ---------
signed by Employee and the Company.


Dated:_________________
                                            ---------------------
                                            Daniel J. Malcolm

                                            DAOU Systems, Inc.


Dated:_________________
                                            --------------------
                                        By: James T. Roberto, President and
                                            Chief Executive Officer

                                       18