MARC M. SELTZER (54534)
          GEORGE A. SHOHET (112697)
          CORINBLIT & SELTZER
          A Professional Corporation
          3700 Wilshire Boulevard, Suite 820
          Los Angeles, CA 90010-3085
          Telephone: (213) 380-4200

          Chairman of the Executive Committee               CALENDAR
             of Counsel for Plaintiffs                      OCT 15 1997
                                                            KAYE, SCHOLER
          ROBERT C. SCHUBERT (62684)
          JUDEN JUSTICE REED (153748)
          SCHUBERT & REED LLP
          Two Embarcadero Center, Suite 1050
          San Francisco, CA 94111
          Telephone: (415) 768-4220

          Member of Executive Committee and
             Attorneys for Derivative Plaintiff

          (Additional Counsel Appear on
          Signature Page)



                             UNITED STATES DISTRICT COURT

                            CENTRAL DISTRICT OF CALIFORNIA

                                   WESTERN DIVISION


          In re COMPUMED, INC.  SECURITIES   )    Master File No.
          LITIGATION                         )    CV-95-7051-MRP(VAPx)
                                             )
          ___________________________________)    CLASS ACTION
                                             )    ------------
          This Document Relates To:          )
                                             )
               ALL ACTIONS.                  )
          ___________________________________)



                          STIPULATION OF SETTLEMENT OF CLASS
                          ----------------------------------

                             ACTION AND DERIVATIVE CLAIMS
                            -----------------------------


               This Stipulation of Settlement (the "Stipulation"), dated as

          of August 12, 1997, is made and entered into by and among the

          following parties (as defined further in Section V hereof) to the

          above-entitled consolidated Class and Shareholder Derivative

          actions (collectively, the "Litigation"): (i) The Class

          Plaintiffs and the Derivative Plaintiff (on behalf of themselves,

          each of the Settlement Class Members, and derivatively on behalf

          of CompuMed, Inc. ("CompuMed" or the "Company"), respectively),

          by and through their counsel of record in the Litigation; and

          (ii) the Defendants, by and through their counsel of record in

          the Litigation.  The Stipulation is intended by the Settling

          Parties to fully, finally and forever resolve, discharge and

          settle the Released Claims (as defined herein), upon and subject

          to the terms and conditions hereof.



               I.   THE LITIGATION.
                    --------------

                    On October 18, 1995, the Class Plaintiffs filed the

          first of several class action lawsuits in the United States

          District Court, Central District of California, Western Division

          (the "Court") against CompuMed and certain of its current and

          former officers and directors, including the Individual Defen-

          dants, as defined below.  On November 3, 1995, the Derivative

          Plaintiff filed a stockholders, derivative suit in the Court

          against the Individual Defendants with the Company named as a

          nominal defendant.  On January 4, 1996, the Court consolidated

          the various Class Action cases with each other and with the

          Derivative Action, defined below, in an action entitled In re
                                                                  -----

          CompuMed.Inc. Securities Litigation, CV-95-7051-MRP(VAPx)
          -----------------------------------

          (collectively, together with the Class Actions and the Derivative

          Action, the "Litigation").  On February 6, 1996, the Class

          Plaintiffs filed a Corrected Consolidated Amended Class Action

          Complaint (the "Class Action Complaint") in the consolidated

          action, which superseded the prior class action complaints on or

          about February 14, 1996, Derivative Plaintiff filed a First

          Amended Derivative Complaint in the Court (the "Derivative

          Complaint"), which superseded the prior derivative complaint.



               II.  PRETRIAL PROCEEDINGS AND SETTLEMENT.
                    -----------------------------------

                    A.   DISCOVERY, INVESTIGATION AND RESEARCH CONDUCTED BY
                         --------------------------------------------------

                          PLAINTIFFS.
                         -----------

                    Counsel for the Class Plaintiffs and the Derivative

          Plaintiff have conducted extensive discovery and investigation

          during the prosecution of the Litigation.  This discovery and

          investigation has included, inter alia, (i) inspection and
                                      ----- ----

          analysis of voluminous documents produced by Defendants and

          others, (ii) Defendants, responses to Class Plaintiffs,

          interrogatories; (iii) consultation with experts; (iv) review of

          CompuMed's public filings, annual reports and other public

          statements; and (v) research of the applicable law with respect

          to the claims asserted in the Class Action Complaint and the

          Derivative Complaint and the potential defenses thereto.

                    B.   BENEFITS OF THE SETTLEMENT.
                         --------------------------

                    The settlement set forth in this Stipulation provides

          for a combined settlement of the Class Action and Derivative

          claims which is intended by the Settling Parties to fully,

          finally and forever resolve any disputes or controversies

          relating to or arising out of the Litigation.  The Settling

          Parties agree and acknowledge that the combined settlement of the

          Class Action and Derivative claims as provided for in this

          Stipulation confers substantial benefits upon the Settlement

          Class and CompuMed and its current shareholders.  The benefits to

          CompuMed include the following: (i) CompuMed has agreed to adopt

          certain corporate governance measures, set forth more fully in

          Paragraph V. 2.2 (b) , below, respecting the trading by insiders

          or other key employees of CompuMed's securities and the approval

          of material contracts entered into by CompuMed (ii) the

          Derivative Action Settlement Fund (less Court approved fees and

          costs) will be made available to pay a substantial portion of the

          amount agreed to settle the Class Action claims; (iii) CompuMed

          will be relieved of any potential liability on the Class Action

          claims; (iv) CompuMed will be relieved of any potential liability

          to the Individual Defendants to indemnify them for any liability

          or expenses incurred in connection with the defense of the Class

          Action claims; (v) CompuMed will be relieved of the further

          expenses and costs of defending the Class Action claims asserted

          against it; and (vi) CompuMed and its management will avoid the

          distraction arising out of continued litigation.

                    C.   JUDICIAL SUPERVISION OF SETTLEMENT
                         ----------------------------------

                         NEGOTIATION PROCESS.
                         -------------------

                    The settlement set forth in this Stipulation was

          negotiated in good faith over a period of many months under the

          supervision and guidance of a Court-appointed mediator, Charles

          A. Bakaly, Esq.  The Court was periodically advised of the pro-

          gress of those negotiations and encouraged the parties to conduct

          such negotiations under the mediator's supervision.  The

          essential terms of the settlement set forth in this Stipulation

          were recommended and approved by the mediator as fair, reasonable

          and adequate to the Class, CompuMed and its current shareholders

          and the Individual Defendants, and as having been entered into in

          good faith.

               III. DEFENDANTS' STATEMENT AND DENIALS OF WRONGDOING
                    -----------------------------------------------

                    AND LIABILITY.
                    -------------

                    The Defendants have denied and continue to deny each

          and all of the claims and contentions alleged by the Class

          Plaintiffs and the Derivative Plaintiff in the Litigation.  The

          Defendants have denied and continue to deny all charges of wrong-

          doing or liability against them arising out of any of the

          conduct, statements, acts or omissions alleged, or that could

          have been alleged, in the Litigation.  The Defendants also have

          denied and continue to deny, inter alia, the allegations that the
                                       ----- ----

          Class Plaintiffs or the Settlement Class have suffered damage, or

          that the Class Plaintiffs or the Settlement Class were harmed by

          the conduct alleged in the Class Action Complaint, or that the

          Derivative Plaintiff, CompuMed or the current holders of CompuMed

          common stock were harmed by the conduct alleged in the Derivative

          Complaint.  Additionally, Defendants assert that they have strong

          factual and legal defenses to all claims against them and that

          all claims and contentions against them are not well-taken. 

          Neither this Stipulation, nor any document referred to herein,

          nor any action taken to carry out this Stipulation is, may be

          construed as, or may be used, directly or indirectly as an

          admission by or against any Defendant of any fault, wrongdoing or

          liability whatsoever.  There has been no determination by any

          Court, administrative agency or tribunal as to the factual

          allegations made against the Defendants.  Entering into or carry-

          ing out this Stipulation, the exhibits hereto, and any negotia-

          tions or proceedings related thereto, shall not, directly or

          indirectly, be construed as, or deem to be evidence of, an

          admission or concession by any of the Defendants.

                    Nonetheless, and without admitting any wrongdoing or

          liability, the Defendants have concluded that the further conduct

          of the Litigation would be protracted and expensive, and that it

          is desirable that the Litigation be fully and finally settled to

          limit further expense, inconvenience and distraction and to dis-

          pose of burdensome and protracted litigation.  The Defendants

          also have taken into account the uncertainty and risks inherent

          in any litigation, especially in complex cases like this Litiga-

          tion.

               IV.  CLAIMS OF THE CLASS PLAINTIFFS AND THE DERIVATIVE
                    -------------------------------------------------

                    PLAINTIFF AND BENEFITS OF SETTLEMENT.
                    ------------------------------------

                    The Class Plaintiffs, the Derivative Plaintiff and

          their counsel believe that the evidence developed to date

          supports the claims asserted in the Litigation.  However, counsel

          for the Class Plaintiffs and the Derivative Plaintiff recognize

          and acknowledge the expense and length of continued proceedings

          necessary to prosecute the Litigation against the Defendants

          through trial and through appeals.  Counsel for the Class

          Plaintiffs and the Derivative Plaintiff also have taken into

          account the uncertain outcome and the risk of any litigation,

          especially in complex actions such as this Litigation, as well as

          the difficulties and delays inherent in such litigation and the

          likelihood of protracted appellate review.  Counsel for the Class

          Plaintiffs and the Derivative Plaintiff also are mindful of the

          inherent problems of proof under and the defenses Defendants have

          asserted and can assert to the federal securities law violations

          and other claims asserted in the Class Action Complaint and the

          Derivative Complaint, including the defenses alleged by the

          Defendants in the pleadings filed in the Litigation.  As a

          consequence of the foregoing investigation and analyses, counsel

          for the Class Plaintiffs and the Derivative Plaintiff have

          engaged in intensive arm's length negotiations with counsel for

          the Defendants with a view to achieving the substantial benefits

          provided by the Settlement on the terms as set forth in this

          Stipulation.  The Class Plaintiffs, the Derivative Plaintiff, and

          their counsel believe that the settlement set forth in the

          Stipulation confers substantial benefits upon the Settlement

          Class, each of the Settlement Class Members and CompuMed.  Based

          on their evaluation, the Class Plaintiffs, the Derivative

          Plaintiff and their counsel have determined that the settlement

          set forth in the Stipulation is fair, reasonable and adequate and

          in the best interests of the Class Plaintiffs, the Settlement

          Class and each of the Settlement Class Members, the Derivative

          Plaintiff, the current holders of CompuMed common stock and

          CompuMed.


               V.   TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT.
                    ------------------------------------------------

                    NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by

          and among the Class Plaintiffs and the Derivative Plaintiff, for

          themselves, the Settlement Class Members, and derivatively on

          behalf of CompuMed, respectively, and the Defendants, by and

          through their respective counsel of record, that, subject to the

          approval of the Court, the Litigation and the Released Claims

          shall be finally and fully compromised, settled and released, and

          the Litigation shall be dismissed on the merits and with

          prejudice, as to all Settling Parties, upon and subject to the

          terms and conditions of the Stipulation, as follows:

                    1.   DEFINITIONS.
                         -----------

                    As used in the Stipulation the following terms have the

          meanings specified below:

                    1.1  "CompuMed" means CompuMed, Inc. and all of its

          predecessors, successors, parents, subsidiaries, divisions and

          related or affiliated entities.

                    1.2  "Authorized Claimant" means any Settlement Class

          Member whose claim for recovery has been allowed pursuant to the

          terms of the Stipulation.

                    1.3  "Claimant" means any Settlement Class Member who

          files a Proof of Claim in such form and manner, and within such

          time, as the Court shall prescribe.

                    1.4  "Class Action Settlement Fund" means the principal

          amount of Nine Hundred Thousand Dollars ($900,000) plus interest

          which has been paid pursuant to Paragraph V.2.1 of this Stipulation,

          the Shares and Warrants to be issued pursuant to Paragraph V.2.1,

          and that portion of the Derivative Action Settlement Fund, as

          defined in Paragraph V.1.29, below, which is transferred to the

          Class Escrow Agent pursuant to Paragraph V.2.2, below.

                    1.5  "Class Counsel" means Corinblit & Seltzer, a

          Professional Corporation, Marc M. Seltzer, Gretchen M. Nelson,

          3700 Wilshire Boulevard, Suite 820, Los Angeles, California 

          90010-3085, telephone 213/380-4200.

                    1.6  "Class Escrow Agent" means the law firm of

          Corinblit & Seltzer, a Professional corporation.

                    1.7  "Class Plaintiffs" means Class Representatives

          Jeffrey Lynn, Dana Bruno, Arthur Shinensky, CPA-Data Systems,

          Inc., JDA Systems Corp., Ronald M. Sherin, Kensington Trading

          Abe-II, Rivie P. Gelman, Richard P. Pogozelski, Arthur Birnbaum,

          Leon Berger, Pano Stephens, Stuart Schachter, Myron S. Kavalgian

          and Reba A. Pressman on behalf of themselves and all others

          similarly situated.

                    1.8  "Court" means the United States District Court for

          the Central District of California, Western Division.

                    1.9  The term "Current Shareholder" of CompuMed means

          those Persons who beneficially owned any shares of CompuMed

          common stock on July 31, 1996, the date the settlement set forth

          in this Stipulation was agreed to in principle, and who continue

          to own such shares through the Effective Date, as defined herein.

                    1.10 "Defendants" means CompuMed and the Individual

          Defendants as  defined in Paragraph V.1.18, below.

                    1.11 "Derivative Action Settlement Fund" means the

          principal amount of Four Hundred Thousand Dollars ($400,000) plus

          interest which has been paid pursuant to Paragraph V.2.2 of this

          Stipulation.

                    1.12 "Derivative Counsel" means Schubert & Reed LLP,

          Robert C. Schubert, Juden Justice Reed, Two Embarcadero Center,

          Suite 1050, San Francisco, California 94111, telephone

          415/788-4220.

                    1.13 "Derivative Escrow Agent" means the law firm of

          Schubert & Reed LLP or their successors.

                    1.14 "Derivative Plaintiff" means Charles Robert Farr,

          derivatively on behalf of CompuMed.

                    1.15 "Effective Date,, means the first date by which

          all of the events and conditions specified in Paragraph V.8.1 of

          the Stipulation have been met and have occurred.

                    1.16 "Final" as used in connection with the Judgment,

          as defined in Paragraph V.1.19, hereof, means that the Court has

          entered the Judgment and means: (i) The date of final affirmance

          on an appeal, the expiration of the time for a petition for a writ

          of certiorari and, if certiorari be granted, the date of final

          affirmance following review pursuant to that grant; or (ii) the

          date of final dismissal of any appeal or the final dismissal of

          any proceeding on certiorari; or (iii) if no appeal is filed, the

          expiration date of the time for the filing or noticing of any

          appeal from the Court's Judgment approving the Stipulation

          substantially in the form of Exhibit B hereto in

          Paragraph V.B.I(d); i.e., thirty days after entry of the
                              - -

          Judgment.  An appeal or petition for a writ of certiorari

          pertaining solely to any plan of allocation and/or application

          for attorneys' fees, costs or expenses, shall not in any way

          delay or preclude the Judgment from becoming final.

                    1.17 "Good Faith Order" means a finding by the Court,

          pursuant to Federal common law and/or California Code of Civil

          Procedure Sections 877 and 877.6, barring any and all claims

          against Defendants for equitable comparative contribution, or

          partial or comparative indemnity, based upon comparative

          negligence or comparative fault, and any and all other claims for

          contribution or indemnity, however denominated, against any

          Defendant, that have been or could have been asserted by any

          Person, based upon, relating to or arising out of the conduct

          alleged in the Litigation, including, but not limited to,

          Montgomery Securities.

                    1.18 "Individual Defendants" means Rod N. Raynovich,

          DeVere B. Pollom, Robert G. Funari, Robert Stuckelman, Howard

          Mark, M.D. and Russell Walker.

                    1.19 "Judgment" means the judgment to be rendered by

          the Court, substantially in the form attached hereto as Exhibit

          B.

                    1.20 "Person" means an individual, corporation,

          partnership, limited partnership, association, joint stock

          company, estate, legal representative, trust, unincorporated

          association, government or any political subdivision or agency

          thereof, and any business or legal entity and their spouses,

          heirs, predecessors, successors, representatives, or assignees.

                    1.21 "Plaintiffs' Settlement Counsel" means Class

          Counsel and Derivative Counsel, collectively.

                    1.22 "Plan of Allocation" means a plan or formula of

          allocation of the Class Action Settlement Fund which shall

          separately be  submitted by Class Counsel to the Court, whereby

          the Class Action Settlement Fund shall be distributed to

          Authorized Claimants after payment of expenses of the Class

          Action notice and administration of the Settlement and such

          attorneys, fees, costs, expenses and interest as may be awarded

          by the Court.  Any Plan of Allocation is not part of the

          Stipulation.

                    1.23 "Related Parties" means each of a Person's past or

          present directors, officers, employees, partners, agents,

          independent contractors, accountants, public relations firms,

          parents, subsidiaries, affiliates, divisions, executors,

          insurers, co-insurers, reinsurers, attorneys, personal or legal

          representatives, joint venturers, assigns, spouses, heirs,

          associates, estates, any entity in which a Person has a

          controlling interest, any members of their immediate families, or

          any trust of which any Individual Defendant is the settlor or

          which is for the benefit of any Individual Defendant and/or

          member(s) of his family.  The foregoing definition of "Related

          Parties" does not include (i) Montgomery Securities, (ii) any

          other securities brokers or dealers, (iii) Merck or, (iv) any of

          their Related Parties.

                    1.24 "Released Claims" with respect to the claims

          asserted on behalf of the Settlement Class means any and all

          claims, actions, causes of action, allegations, rights or

          liabilities, including, but not limited to, claims for

          negligence, gross negligence, professional negligence, breach of

          duty of care, breach of duty of loyalty, fraud,

          misrepresentation, breach of fiduciary duty, mismanagement,

          corporate waste, malpractice, breach of contract, negligent

          misrepresentation, violations of any state or federal statutes,

          rules or regulations, including Unknown Claims as defined in

          Paragraph V.1.30 hereof, that have been or could have been

          asserted by the Class Plaintiffs and the Settlement Class Members,

          or any of them, regardless of the claims, nature (whether the

          claims are individual, class, representative or direct, or

          otherwise) against the Released Persons, as defined in Paragraph

          V.1.25, below, or any of them, in the Litigation by reason of or

          related to (i) the purchase or other acquisition of CompuMed-common

          stock by a Class Plaintiff or a Settlement Class Member during the

          Settlement Class Period, or any loss by reason thereof, or (2)

          with any of the facts, transactions, events, occurrences, acts,

          disclosures, statements, omissions or failures to act, of

          whatever kind or character whatsoever, irrespective of the state

          of mind of the actor performing or omitting to perform the same,

          which were or could have been alleged in the Litigation, the

          Class Action Complaint, any other complaint, pleading, argument,

          motion, brief, report or filing in the Litigation.  "Released

          Claims" with respect to the claims asserted derivatively means

          any and all claims, actions, causes of action, allegations,

          rights or liabilities, including, but not limited to, claims for

          negligence, gross negligence, professional negligence, breach of

          duty of care, breach of duty of loyalty, fraud, misrepresenta-

          tion, breach of fiduciary duty, mismanagement, corporate waste,

          malpractice, breach of contract, negligent misrepresentation,

          violations of any state or federal statutes, rules or regula-

          tions, including Unknown Claims, that have been or could have

          been asserted by the Derivative Plaintiff, regardless of the

          claims' nature (whether the claims are individual, class,

          representative or direct, or otherwise) against the Released

          Persons in the Litigation by reason of or related to (1) the

          purchase or other acquisition of CompuMed common stock by a Class

          Plaintiff or a Settlement Class Member during the Settlement

          Class Period, or any loss by reason thereof, or (2) any of the

          facts, transactions, events, occurrences, acts, disclosures,

          statements, omissions or failures to act, of whatever kind or

          character whatsoever, irrespective of the state of mind of the

          actor performing or omitting to perform the same, which were or

          could have been alleged in the Litigation or which could be

          asserted against the Released Persons relating to the resolution

          of the Litigation, the Derivative Complaint, any other complaint,

          pleading, argument, motion, brief, report or filing in the

          Litigation.

                    1.25 "Released Persons" means each and all of the

          Defendants and their Related Parties.

                    1.26 "Settlement Class" or "Class" means all persons

          who purchased CompuMed common stock between August 11, 1995 and

          October 17, 1995, inclusive, and who suffered damages as a result

          thereof.  Excluded from the Class are the named Defendants,

          members of the immediate families of each defendant, any entity

          in which any defendant has a controlling interest, and the legal

          representatives, heirs, successors, predecessors in interest, or

          assigns of any of the Defendants.  Also excluded from the Settle-

          ment Class are those persons who timely and validly request

          exclusion from the Settlement Class pursuant to the "Notice of

          Pendency and Settlement of Class Action" to be sent to the

          Settlement Class.

                    1.27 "Settlement Class Period" means the period

          commencing on August 11, 1995 through and including October 17,

          1995, inclusive.

                    1.28 "Settlement Class Member" or "Member of the

          Settlement Class" means a Person who falls within the definition

          of the Settlement Class as set forth in Paragraph V.1.26 of the

          Stipulation.

                    1.29 "Settling Parties" means, collectively, each of

          the Defendants and each of the Class Plaintiffs on behalf of

          themselves and the members of the Settlement Class, and the

          Derivative Plaintiff on behalf of himself and derivatively on

          behalf of CompuMed.

                    1.30 "Unknown Claims" means any Released Claims which

          any Class Plaintiff, Settlement Class Member, Derivative

          Plaintiff, CompuMed, or current holder of CompuMed common stock

          does not know or suspect to exist in his, her or its favor at the

          time of the release of the Released Persons which, if known by

          him, her or it, might have affected his, her or its settlement

          with and release of the Released Persons, or might have affected

          his, her or its decision to remain a member of the Settlement

          Class or not to object to this settlement.  With respect to any

          and all Released Claims, the Settling Parties stipulate and agree

          that, upon the Effective Date, each of the Class Plaintiffs, the

          Settlement Class Members, the Derivative Plaintiff, CompuMed, and

          the current holders of CompuMed common stock shall be deemed to

          have, and by operation of the Judgment shall have, expressly

          waived and relinquished, to the fullest extent permitted by law,

          the provisions, rights, and benefits of Section 1542 of the

          California Civil Code, which provides:

                    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.

          Each of the Class Plaintiffs, the Settlement Class Members, the

          Derivative Plaintiff, CompuMed, and the current holders of

          CompuMed common stock, upon the Effective Date, shall be deemed

          to have, and by operation of the Judgment shall have, waived any

          and all provisions, rights and benefits conferred by any law of

          any jurisdiction, including, without limitation, any state or

          territory of the United States, or principle of common law, which

          is similar, comparable or equivalent to Section 1542 of the

          California Civil Code.  Each of the Class Plaintiffs, Settlement

          Class Members, the Derivative Plaintiff, CompuMed, and current

          holders of CompuMed common stock may hereafter discover facts in

          addition to or different from those which he, she or it now knows

          or believes to be true with respect to the subject matter of the

          Released Claims, but each Class Plaintiff, Settlement Class

          Member, Derivative Plaintiff, CompuMed, and current holder of

          CompuMed common stock, upon the Effective Date, shall be deemed

          to have, and by operation of the Judgment shall have, fully,

          finally, and forever settled and released any and all Released

          Claims, known or unknown, suspected or unsuspected, contingent or

          non-contingent, whether or not concealed or hidden, which now

          exist, or heretofore have existed upon any theory of law or

          equity now existing or coming into existence in the future,

          including, but not limited to, conduct which is negligent,

          intentional, with or without malice, or a breach of any duty, law

          or rule, without regard to the subsequent discovery or existence

          of such different or additional facts.

                    2.   THE CLASS ACTION AND DERIVATIVE ACTION SETTLEMENT
                         -------------------------------------------------

                         FUNDS.
                         -----

                    2.1  The Class Action Settlement Fund shall consist of

          the following monetary and non-monetary consideration provided

          for the benefit of Settlement Class Members:

                         (a)  The sum of Nine Hundred Thousand Dollars

          ($900,000) which the Defendants have caused to be paid to the

          Class Escrow Agent.

                         (b)  The Derivative Action Settlement Fund, less

          all fees, costs and expenses which the Court may award out of the

          Derivative Action Settlement Fund, and any interest earned

          thereon.

                         (c)  Promptly after the Judgment becomes Final,

          the Company shall cause its transfer agent to issue a total of

          1,875,000 warrants (the "Warrants") to purchase shares of common

          stock of the Company for the benefit of Authorized Claimants and

          for the purpose of paying the fees, costs and expenses that the

          Court may award counsel for the Class Plaintiffs.  The Warrants

          shall be distributed to Authorized Claimants and counsel for

          Class Plaintiffs in such manner and amount as the Court may

          direct, provided however, that the Warrants will become available
                  -------- -------

          for distribution over time as follows: (i) 625,000 Warrants no

          later than one hundred and eighty (180) days after the Judgment

          has become Final; (ii) 625,000 Warrants no later than two hundred

          and ten (210) days after the Judgment has become Final; and

          (iii) 625,000 Warrants no later than two hundred and forty (240)

          days after the Judgment has become Final.  The Warrants shall

          have a five (5) year term which shall terminate on the fifth

          anniversary of the date that the Judgment becomes Final.  Each

          Warrant shall have an exercise price of three dollars ($3.00).

                         (d)  The Warrants shall be issued pursuant to the

          exemption from registration set forth in section 3 (a) (10) of

          the Securities Act of 1933, 15 U.S.C. Section 77c(a)(10).  The

          Warrants shall be validly issued and shall be freely tradable by

          all recipients.  CompuMed shall use its best efforts to list the

          warrants for trading on the Nasdaq market system or other

          securities exchanges) as CompuMed's common stock and warrants are

          then listed and traded.  CompuMed shall use its best efforts to

          (i) issue the Warrants in compliance with the United States

          securities laws, comply with any applicable state "blue sky"

          securities laws; and (ii) assure that the Warrants will be freely

          tradable and listed, as provided above, without any restriction

          after issuance, other than restrictions applicable to persons who

          may be deemed affiliates of CompuMed, and will be otherwise fully

          paid, and non-assessable and free from all liens and encum-

          brances.  CompuMed shall use its best efforts to (i) issue the

          shares of common stock underlying the Warrants in compliance with

          the United States securities laws, including the Securities Act

          of 1933, 15 U.S.C. Section 77a, et seq. ("1933 Act"), the  
                                          -- ---

           Securities Exchange Act of 1934, 15 U.S.C. Section 78a, et seq.
                                                                   -- ---

          ("1934 Act"), and the rules and regulations of the Securities and

          Exchange Commission ("SEC rules") ; (ii) comply with any

          applicable state "blue sky" securities laws; and (iii) assure

          that the shares of common stock underlying the Warrants will be

          freely tradable and listed, as provided above, without any

          restriction after issuance, other than restrictions applicable to

          persons who may be deemed affiliates of CompuMed, and will be

          otherwise fully paid, except that the exercise price must be paid

          to exercise the Warrants, and non-assessable and free from all

          liens-and encumbrances.  All costs associated with the issuance

          and qualification of the Warrants and the underlying shares of

          common stock shall be borne by CompuMed.

                         (e)  Promptly after the Judgment becomes Final,

          the Company shall cause its stock transfer agent to issue 770,000

          shares of CompuMed stock (the "Shares") for the benefit of

          Authorized Claimants and for the purpose of paying the fees,

          costs and expenses of counsel for the Class Plaintiffs as may be

          awarded by the Court.  The Shares shall be distributed to

          Authorized Claimants and counsel for Class Plaintiffs in such

          manner and amount as the Court may direct, provided however, that
                                                     -------- -------

          the Shares will become available for distribution over time as

          follows:  (i) 257,000 Shares no later than one hundred and eighty

          (180)     days after the Judgment has become Final; (ii) 257,000

          Shares no later than two hundred and ten (210) days after the

          Judgment has become Final; and (iii) 256,000 Shares no later than

          two hundred and forty (240) days after the Judgment has become

          Final.

                    (f)  The Shares shall be issued pursuant to the

          exemption from registration set forth in section 3(a)(10) of the

          1933 Act, 15 U.S.C. Section 77c(a)(10).  The Shares shall be

          validly issued and shall be freely tradable by all recipients. 

          CompuMed shall use its best efforts to list the shares for

          trading on the Nasdaq market system or other securities exchanges

          as CompuMed's common stock and warrants are then listed and

          traded.  CompuMed shall use its best efforts to (i) comply with

          any applicable state "blue sky" securities laws; and (ii) assure

          that the shares will be freely tradable and listed, as provided

          above, without any restriction after issuance, other than

          restrictions applicable to persons who may be deemed affiliates

          of CompuMed, and will be otherwise fully paid, and non-assessable

          and free from all liens and encumbrances.  All costs associated

          with the issuance and qualification of the shares shall be borne

          by CompuMed.

                         (g)  Subject to the provisions of paragraph V.7.4

          of this Stipulation and the approval of the Court, Class Counsel

          shall provide CompuMed or its stock transfer agent with the names

          of counsel for the Class Plaintiffs who are to receive Warrants

          and Shares for payment of fees, costs and expenses and the number

          of Warrants and Shares to be issued to such counsel.  Upon

          completion of the claims administration process, Class Counsel

          shall provide CompuMed or its stock transfer agent with a list

          identifying each Authorized Claimant and the number of Warrants

          and Shares to be issued to such person.  CompuMed shall then

          direct its stock transfer agent to distribute the Warrants and

          Shares within ten (10) business days of receipt of the list to

          the persons and in the amounts shown on said list.

                         (h)  The Defendants hereby assign to the Class

          Plaintiffs for the benefit of themselves and the Settlement

          Class, any rights or claims the Defendants may have against

          Montgomery Securities.  The insurer for the Company's directors

          and officers shall agree to waive its rights to subrogation as

          against Montgomery Securities.  A copy of the insurer's letter

          stating its intentions regarding the waiver of subrogation rights

          is attached hereto as Exhibit D.  All amounts, if any, realized

          pursuant to the assignment shall be deposited in the Class Action

          Settlement Fund or into another escrow account as may be

          established by Class Counsel for the benefit of the Settlement

          Class.  Nothing in this paragraph or in the Stipulation shall be

          deemed to be a claim or allegation that Montgomery Securities or

          any other person acted improperly or has any liability for the

          alleged acts or omissions that underlie the Litigation.

                         2.2  The Derivative Action Settlement Fund shall

          consist of the following monetary consideration:

                              (a)  The Individual Defendants have caused

          the sum of Four Hundred Thousand Dollars ($400,000) paid to the

          Derivative Escrow Agent, and such funds have been deposited into

          an interest-bearing escrow account for the benefit of CompuMed. 

          After distribution of Derivative Plaintiff's counsels fees and

          costs, described below (upon the terms and conditions of this

          Stipulation), the balance of the Derivative Settlement Fund shall

          be transferred by the Derivative Escrow Agent to the Class

          Settlement Fund, described in paragraph V.2.1 above, and be

          available for further distribution in accordance with the terms

          and conditions of this Stipulation.

                         (b)  As further consideration for the proposed

          settlement of the Derivative Action, CompuMed has adopted new

          policies pertaining to (a) trading by insiders or other key

          employees in the Company's securities; and (b) the approval of

          material contracts.  Copies of these policies are attached hereto

          as Exhibits E and F. CompuMed has agreed to keep the essential

          provisions of these policies in force for at least five (5) years

          from the date of the Court's approval of the settlement, except

          as changes may be required by changes in the law or regulation or

          may be approved by the Court, which shall retain jurisdiction for

          this purpose.

                    2.3  The Settling Parties will submit to the Court in

          support of their application for final approval of the settlement

          set forth in this Stipulation such evidence as may be necessary

          and appropriate upon which the Court may find that the settlement

          of the Released Claims on the terms and conditions set forth

          herein is fair, reasonable and adequate and constitutes

          reasonably equivalent value for the release of the Released

          Claims and is a good faith transfer for value within the meaning

          of the United States Bankruptcy Code and the California version

          of the Uniform Fraudulent Transfer Act and any other similar law

          of any other jurisdiction.

                    2.4  Plaintiffs' Settlement Counsel, as Escrow Agents,

          shall invest the cash portion of the Class and Derivative Action

          Settlement Funds in short term treasury bills or money market

          funds backed by the full faith and credit of the United States

          Government or fully insured by the United States Government or an

          agency thereof and shall reinvest the proceeds of these short

          term treasury bills or money market funds as they mature in

          similar instruments at their then current market rates.

                    2.5  Except as otherwise provided in the Stipulation,

          Plaintiffs' Settlement Counsel shall not disburse either the

          Class Action Settlement Fund or the Derivative Action Settlement

          Fund unless the Judgment has become Final.

                    2.6  Subject to further orders and/or directions as may

          be made by the Court, Plaintiffs' Settlement Counsel are

          authorized to execute such transactions on behalf of the

          Settlement Class Members and CompuMed as are consistent with the

          terms of the Stipulation.

                    2.7  All funds held by the Escrow Agents shall be

          deemed and considered to be in custodia legis of the Court, and
                                         -------- -----

          shall remain subject to the jurisdiction of the Court, until such

          time as such funds shall be distributed pursuant to the

          Stipulation and/or further order(s) of the Court.

                    2.8  (a) The Defendants and Plaintiffs, Settlement

          Counsel agree to treat the Class Action and Derivative Action

          Settlement Funds (hereinafter the "Settlement Funds") as being at

          all times "qualified settlement funds" within the meaning of

          Treas. Reg. Section 1.468B-1.  In addition, Plaintiffs,

          Settlement Counsel and, as required, the Defendants shall jointly

          and timely make such elections as necessary or advisable to carry

          out the provisions of this Paragraph V.2.8, including the

          "relation-back election" (as defined in Treas. Reg. Section

          1.468B-1) back to the earliest permitted date.  Such elections

          shall be made in compliance with the procedures and requirements

          contained in such regulations.  It shall be the responsibility of

          Plaintiffs, Settlement Counsel or their designated agent to

          timely and properly prepare, and deliver the necessary

          documentation for signature by all necessary parties, and

          thereafter to cause the appropriate filing to occur.

                         (b)  For the purpose of Section 468B of the

          Internal Revenue Code of 1986, as amended, and the regulations

          promulgated thereunder, the "administrator" shall be Plaintiffs,

          Settlement Counsel.  Plaintiffs, Settlement Counsel shall timely

          and properly file all informational and other tax returns

          necessary or advisable with respect to the Settlement Funds

          (including without limitation the returns described in Treas.

          Reg. Section 1.468B-2(k)).  Such returns (as well as the election

          described in Paragraph V.2.8(a)) shall be consistent with this

          Paragraph V.2.8 and in all events shall reflect that all taxes

          (including any interest or penalties) on the income earned by the

          Settlement Funds shall be paid out of the Settlement Fund as

          provided in Paragraph V.2.8(c) hereof.

                         (c)  All (a) taxes (including any interest or

          penalties) arising with respect to the income earned by the

          Settlement Funds, including any taxes or tax detriments that may

          be imposed upon the Defendants with respect to any income earned

          by the Settlement Funds for any period during which the Settle-

          ment Funds do not qualify as a "qualified settlement fund" for

          Federal or state income tax purposes ("Taxes") and (b) expenses

          and costs incurred in connection with the operation and imple-

          mentation of this Paragraph V.2.8 (including, without limitation,

          expenses of tax attorneys and/or accountants and mailing and

          distribution costs and expenses relating to filing (or failing to

          file) the returns described in this Paragraph V.2.8) ("Tax

          Expenses"), shall be paid out of the Settlement Funds; in all

          events the Released Persons shall have no liability or

          responsibility for the Taxes or the Tax Expenses.  Counsel for

          the Class Plaintiffs and Derivative Counsel shall indemnify and

          hold the Released Persons harmless for Taxes and Tax Expenses

          (including, without limitation, taxes payable by reason of any

          such indemnification).  Further, Taxes and Tax Expenses shall be

          treated as, and considered to be, a cost of administration of the

          Settlement and shall be timely paid by Plaintiffs, Settlement

          Counsel out of the Settlement Funds without prior order from the

          Court and the Escrow Agents shall be obligated (notwithstanding

          anything herein to the contrary) to withhold from distribution to

          class members any funds necessary to pay such amounts including

          the establishment of adequate reserves for any Taxes and Tax

          Expenses (as well as any amounts that may be required to be

          withheld under Treas. Reg. Section 1.468B-2(1)(2)); the Released

          Persons are not responsible and shall have no liability therefor. 

          The parties hereto agree to cooperate with Plaintiffs, Settlement

          Counsel, each other, and their tax attorneys and accountants to

          the extent reasonably necessary to carry out the provisions of

          this Paragraph V.2.8.

                         (d) For the purpose of this Paragraph

          V.2.8, references to the Settlement Funds shall include both the

          Class Action Settlement Fund and the Derivative Settlement Fund

          and the Class Notice and Administration Fund and shall also

          include any earnings thereon.

                    2.9  In the event that the Stipulation is not approved,

          or is terminated, canceled, or fails to become effective for any

          reason, the Class Action and Derivative Action Settlement Funds

          (including accrued interest) less expenses reasonably and

          necessarily incurred in connection with the settlement provided

          for herein, shall be refunded as described in Paragraph V.8.6 below.

                    3.   NOTICE AND ADMINISTRATION FUND.
                         ------------------------------

                    3.1  Plaintiffs' Settlement Counsel shall establish a

          "Notice and Administration Fund," and may withdraw up to $50,000,

          in the aggregate, from the Class Action and Derivative Action

          Settlement Funds to pay costs and expenses reasonably and

          necessarily incurred in connection with providing notice to the

          Class, mailing and publishing the derivative notice, locating

          Class members, soliciting Class claims, assisting with the filing

          of claims, administering the Class Action and Derivative Action

          Settlement Funds, distributing the Class Action Settlement Fund

          to the members of the Settlement Class, processing Proofs of

          Claim and Release and paying escrow fees and costs, if any.  The

          Notice and Administration Fund may also be invested and earn

          interest as provided for in Paragraph V.2.4 of this Stipulation.

                    3.2  Subject to Paragraph V.3.1 above, all reasonable

          and necessary costs of providing notice and administering the

          settlement of the Derivative Action, including mailing and

          publishing Derivative Notice, shall be charged against the

          Derivative Action Settlement Fund.  Subject to the limitations

          and conditions of Paragraph V.3.1 above, all reasonable and

          necessary costs of providing notice and administering the

          settlement of the Class Action, including mailing and publishing

          Class Notice, shall be charged against the Class Action

          Settlement Fund.  Defendants shall have no responsibility or

          liability for any such costs, except contributions to the two

          Funds which have been made on their behalf.

                    4.   NOTICE ORDER AND SETTLEMENT HEARING.
                         -----------------------------------

                    4.1  Promptly after execution of the Stipulation, the

          Settling Parties shall submit the Stipulation together with its

          Exhibits to the Court and shall jointly apply for entry of an

          order (the "Notice Order"), substantially in the form of

          Exhibit A hereto.  The Notice Order shall specifically include

          provisions that, among other things, will:

                         (a)  Conditionally certify the Settlement Class,

          as defined in Paragraph V.1.25 above, for the purpose of the

          settlement contained herein and for the purpose of providing

          notice to members of the Settlement Class;

                         (b)  Preliminarily approve the Stipulation and the

          settlement set forth herein as being fair, just, reasonable and

          adequate to the Settlement Class and as to CompuMed and its

          current holders of common stock;

                         (c)  Approve the form of Notice of Pendency and

          Settlement of Class Action ("Class Notice") (substantially in the

          form of Exhibit A-1 hereto) and the Notice of Hearing on

          Settlement of Derivative Action ("Derivative Notice")

          (substantially in the form of Exhibit A-4 hereto) (Collectively,

          the "Notices") for mailing to members of the Settlement Class and

          current holders of CompuMed common stock, respectively;

                         (d)  Approve the form of Proof of Claim and

          Release ("Proof of Claim and Release") (substantially in-the form

          of Exhibit A-2 hereto) for mailing to members of the Settlement

          Class;

                         (e)  Approve a summary notice of the proposed

          settlement of the Class and Derivative Actions for publication

          (the "Summary Notice") (substantially in the form of Exhibit A-3

          hereto);

                         (f)  Direct Plaintiffs, Settlement Counsel to mail

          or cause to be mailed by first class mail the Class Notice and

          the Proof of Claim and Release to those Persons in the Settlement

          Class who can be identified through reasonable effort, and the

          Derivative Notice to all current holders of CompuMed common

          stock, on or before the date specified in the Notice Order;

                         (g)  Request that nominees who purchased CompuMed

          common stock during the Settlement Class Period send the Class

          Notice and Proof of Claim and Release form to all beneficial

          owners of such CompuMed stock within ten days after receipt of

          the Class Notice or send a list of the names and addresses of

          such beneficial owners to Class Counsel within ten days of

          receipt of the Class Notice and direct that nominees who are

          current holders of CompuMed common stock send the Derivative

          Notice to all beneficial owners for whom they currently hold

          CompuMed common stock within ten days after receipt of the

          Derivative Notice or send a list of the names and addresses of

          such beneficial owners to Derivative Counsel within ten days of

          receipt of the Derivative Notice;

                         (h)  Direct Plaintiffs, Settlement Counsel to

          cause the Summary Notice to be published once in the national

          edition of The Wall Street Journal on or before the date
                     -----------------------

          specified in the Notice Order;

                         (i)  Provide that Settlement Class Members who

          wish to participate in the settlement provided for in this

          Stipulation shall complete and file Proof of Claim and Release

          forms pursuant to the instructions contained therein and that no

          portion of the Settlement Fund may be allocated to any claimant

          unless such claimant has executed and delivered to Class Counsel

          or their authorized representative a release substantially in the

          form of paragraph 5, below;

                         (j)  Find that the notice given pursuant to

          subparagraphs (c) - (h) above, constitutes the best notice

          practicable under the circumstances, including individual notice

          to all Persons in the Settlement Class and current holders of

          Compumed common stock who can be identified upon reasonable

          effort, and constitutes valid, due and sufficient notice to all

          Persons in the Settlement Class and all current holders of

          CompuMed common stock, complying fully with the requirements of

          Rules 23 and 23.1 of the Federal Rules of Civil Procedure, the

          Constitution of the United States, and any other applicable law;

                         (k)  Schedule a hearing or hearings (the

          "Settlement Hearing") to be held by the Court to consider and

          determine whether the proposed settlement of the Litigation as

          contained in the Stipulation should be approved as fair,

          reasonable and adequate to the Settlement Class, the current

          holders of CompuMed common stock and CompuMed derivatively and

          whether the Judgment approving the settlement should be entered;

                         (l)  Provide that Class Members who so desire may

          exercise the right to exclude themselves from the Settlement

          Class but only if they comply with the requirements for so doing

          as set forth in the Notice of Pendency and Settlement of Class

          Action;

                         (m)  Provide that at or after the Settlement

          Hearing, the Court shall determine whether the proposed Plan of

          Allocation should be approved;

                         (n)  Provide that at or after the Settlement

          Hearing, the Court shall determine and enter an order regarding

          whether and in what amount attorneys' fees and reimbursement of

          expenses should be awarded to counsel for Class Plaintiffs and

          the Derivative Plaintiff;

                         (o)  Provide that pending final determination of

          whether the settlement contained in the Stipulation should be

          approved, neither the Class Plaintiffs, nor any Settlement Class

          Member, nor the Derivative Plaintiff, nor CompuMed, nor any

          current holder of CompuMed common stock either directly,

          representatively, derivatively, or in any other capacity shall

          commence or prosecute any action or proceeding in any court or

          tribunal asserting any of the Released Claims against the

          Defendants;

                         (p)  Provide that any objections to (i) the

          proposed settlement contained in the Stipulation; (ii) entry of

          the Judgment approving the settlement; (iii) the proposed Plan of

          Allocation; or (iv) the Fee and Expense Applications of counsel

          for Class Plaintiffs and the Derivative Plaintiff, shall be heard

          and any papers submitted in support of said objections shall be

          received and considered by the Court at the Settlement Hearing

          only if, on or before the date specified in the Notice Order, the

          Class Notice and Derivative Notice, Persons making objections

          shall file and serve written notice of their intention to appear

          (which shall set forth each objection and the basis therefor) and

          copies of any papers in support of their position as set forth in

          the Notice Order, the Class Notice and Derivative Notice;

                         (q)  Provide that the Settlement Hearing may, from

          time to time and without further notice to the Settlement Class

          or current holders of CompuMed common stock, be continued or

          adjourned by Order of the Court; and

                         (r)  Provide that, whether or not the Effective

          Date occurs, any Settlement Class Member who does not properly

          and timely request exclusion from the Settlement Class shall be

          bound by any and all judgments or settlements entered or approved

          by the Court, whether favorable or unfavorable to the Settlement

          Class, whether or not the Settlement Class Member submits a Proof

          of Claim, and whether or not the Settlement Class Member's claim

          is approved for payment from the Settlement Fund.

                    5.   RELEASES.
                         --------

                    5.1  Upon the Effective Date, as defined in Paragraph

          V.1.15, each of the Settlement Class Members and the Class

          Plaintiffs shall be deemed to have, and by operation of the

          Judgment shall have, fully, finally and forever released,

          relinquished and discharged all Released Claims against the

          Released Persons, whether or not a Settlement Class Member

          executes and delivers the Proof of Claim and Release.

                    5.2  Upon the Effective Date, each of the Current

          Shareholders of CompuMed common stock, the Derivative Plaintiff

          and CompuMed shall each be deemed to have, and by operation of

          the Judgment shall have, fully, finally and forever released,

          relinquished and discharged all Released Claims of a derivative

          nature against the Released Persons.

                    5.3  Upon the Effective Date, each of Defendants,

          except Howard Mark, M.D., shall be deemed to have, and by

          operation of the Judgment shall have, fully, finally, and forever

          released, relinquished and discharged each and all of the Class

          Plaintiffs, Settlement Class Members, the Derivative Plaintiff,

          the current holders of CompuMed common stock, their counsel and

          each of their Related Parties, from all claims (including

          "Unknown Claims"), based on, arising out of, relating to, or in

          connection with the institution, prosecution, assertion,

          settlement or resolution of the Litigation, including the

          settlement set forth in this Stipulation, except for the right to

          enforce the terms of this Stipulation.

                    5.4  Upon the Effective Date, the Class Plaintiffs and

          the Settlement Class acknowledge full and complete satisfaction

          of, and do hereby fully, finally and forever settle, release and

          discharge the Released Persons with respect to the Released

          Claims, whether or not any such member or the Settlement Class

          executes and delivers a Proof of Claim and Release or

          participates in the Plan of Allocation.

                    6.   ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL
                         -----------------------------------------------

                         AWARDS AND SUPERVISION AND DISTRIBUTION OF
                         ------------------------------------------

                          SETTLEMENT FUND.
                         ----------------

                    6.1  Class Counsel, or their authorized agents, acting

          on behalf of the Settlement Class, and subject to such

          supervision and direction of the Court as may be necessary or as

          circumstances may require, shall administer and calculate the

          claims submitted by Settlement Class Members and shall oversee

          distribution of the Net Settlement Fund (defined below) to

          Authorized Claimants.

                    6.2  The Class Action Settlement Fund shall be applied

          as follows:

                         (a)  Subject to Paragraph V.7, to pay the

          attorneys, fees, costs and expenses of counsel to the Class

          Plaintiffs (the "Fee and Expense Award"), if and to the extent

          allowed by the Court;

                         (b)  Subject to Paragraph V.3, to pay all the

          costs and expenses reasonably and actually incurred in connection

          with providing notice to the Class, locating Class members,

          soliciting Class claims, assisting with the filing of claims,

          administering and distributing the Net Settlement Fund to the

          Settlement Class, processing Proofs of Claim and Release and

          paying escrow fees and costs, if any;

                         (c)  To pay the Taxes and Tax Expenses owed by the

          Class Action Settlement Fund; and

                         (d)  To distribute the balance of the Class Action

          Settlement Fund (the "Net Settlement Fund") to Authorized

          Claimants as allowed by the Stipulation, the Plan of Allocation

          and the Court.

                    6.3  Upon the Effective Date and thereafter, and in

          accordance with the terms of the Stipulation, the Plan of

          Allocation, or such further approval and further order(s) of the

          Court as may be necessary or as circumstances may require, the-

          Net Settlement Fund shall be distributed to Authorized Claimants,

          subject to and in accordance with the following:

                         (a)  within ninety days after the mailing of the

          Notice or such other time as may be set by the Court, each Person

          claiming to be an Authorized Claimant shall be required to submit

          to the claims administrator retained by Class Counsel a completed

          Proof of Claim and Release supported by such documents as

          specified in the Proof of Claim and Release and as are reasonably

          available to the Authorized Claimant.

                         (b)  Except as otherwise ordered by the Court, all

          Settlement Class Members who fail to timely submit a Proof of

          Claim and Release within such period, or such other period as may

          be ordered by the Court, or otherwise allowed, shall be forever

          barred from receiving any payments pursuant to the Stipulation

          and the settlement set forth herein, but will in all other

          respects be subject to and bound by the provisions of the

          Stipulation, the Settlement and releases contained herein, and

          the Judgment.

                         (c)  The Net Settlement Fund shall be distributed

          to the Authorized Claimants substantially in accordance with a

          Plan of Allocation to be described in the Notice and approved by

          the Court.  Class Counsel and the claims administrator intend to

          seek an order from the Court authorizing the distribution of the

          Net Settlement Fund to Authorized Claimants (the "Distribution

          Order").  Promptly following the filing of the Court's

          Distribution order, Class Counsel or the claims administrator

          shall (i) instruct CompuMed or its transfer agent as to the total

          number of Shares and Warrants to be issued to each Authorized

          Claimant, and (ii) provide CompuMed or its transfer agent with

          the names and addresses of the Authorized Claimants to whom such

          Shares and Warrants are to be issued.  If the Court's

          Distribution Order is filed prior to the date for the initial

          distribution of the Shares and Warrants (as set forth in

          paragraph V.2.1(c) and (e) above), then Class Counsel and

          CompuMed shall cooperate in causing the Shares and Warrants to be

          promptly distributed to Authorized Claimants as such Shares and

          Warrants become available for distribution.  If some or all of

          the Shares and Warrants become available for distribution prior

          to the filing of the Court's Distribution Order, then Class

          Counsel and Compumed shall cooperate in issuing to Authorized

          Claimants such Shares and Warrants as are then available for

          distribution promptly following the filing of the Distribution

          Order.

                    6.4  The Released Persons shall have no responsibility

          for, interest in, or liability whatsoever with respect to the

          investment or distribution of the Net Settlement Fund, the Plan

          of Allocation, the determination, administration, calculation or

          payment of claims, the payment or withholding of taxes, or any

          losses incurred in connection therewith.  However, nothing herein

          is intended to release the Defendants from their obligation to

          cooperate with Class Counsel or their designated agent in causing

          the Shares and Warrants to be issued by the Company's transfer

          agent as provided in Paragraphs V.2.1(c) and (e), above.

                    6.5  No Person shall have any claim against any

          Released Persons, Class Counsel, Derivative Counsel, any claims

          administrator or other agent designated by Class Counsel based on

          the distributions made substantially in accordance with the

          Stipulation and the settlement contained herein, the Plan of

          Allocation, or further orders of the court.

                    6.6  It is understood and agreed by the Settling

          Parties that any proposed Plan of Allocation of the Net

          Settlement Fund including, but not limited to, any adjustments to

          an Authorized Claimant's Claim set forth therein, is not a part

          of the Stipulation and is to be considered by the Court

          separately from the Court's consideration of the fairness,

          reasonableness and adequacy of the settlement set forth in the

          Stipulation, and any order or proceedings relating to the Plan of

          Allocation shall not operate to terminate or cancel the

          Stipulation or affect the finality of the Court's Judgment

          approving the Stipulation and the settlement set forth herein, or

          any other orders entered pursuant to the Stipulation.

                    7.   ATTORNEY'S FEES AND REIMBURSEMENT OF EXPENSES. 
                         ---------------------------------------------

                    7.1  The Class Plaintiffs or their counsel may submit

          an application or applications (the "Class Fee and Expense

          Application") for distributions to them from the Class Action

          Settlement Fund for: (i) an award of attorneys' fees of up to 33-

          1/3 percent of the aggregate total of the Class Action Settlement

          Fund, including the cash value of the Fund, the Shares, the

          Warrants and any interest earned on the Fund; plus (ii)

          reimbursement of actual expenses and costs, including the fees of

          any experts or consultants incurred in connection with

          prosecuting the Litigation.  Class Counsel reserve the right to

          make additional applications for fees and expenses incurred in

          connection with the giving of Notice to the Settlement Class,

          administering the Class Action Settlement Fund or addressing

          other claims administration matters.

                    7.2  The Derivative Plaintiff or his counsel may submit

          an application (the "Derivative Fee and Expense Application") for

          distributions to Derivative Counsel from the Derivative Action

          Settlement Fund for: (i) an award of attorneys' fees of up to 33-

          1/3 percent of the Derivative Action Settlement Fund (including

          interest from such fund); plus (ii) reimbursement of actual

          expenses and costs, including the fees of any experts or

          consultants incurred in connection with prosecuting and settling

          the Litigation.

                    7.3  Nothing in the Stipulation shall be construed to

          provide the Defendants with standing to challenge or question any

          Fee and Expense Application by counsel for Class Plaintiffs and

          the Derivative Plaintiff, or any Fee and Expense Award to counsel

          for Class Plaintiffs and the Derivative Plaintiff or to their

          experts or consultants, and the Defendants agree not to object or

          take any position with regard to the Class Fee and Expense

          Application or Derivative Fee and Expense Application.

                    7.4  Derivative Counsel shall be entitled to receive

          the payment of attorneys, fees and costs in the full amount

          approved by the Court solely from the Derivative Settlement Fund

          within five (5) business days after entry of the Court order

          approving such fees and costs and approving the Settlement set

          forth herein, whether or not objections to the amount of fees or

          costs are lodged with the Court, subject to written assurances

          and security satisfactory to Defendants as to repayment thereof

          by Derivative Counsel in the event of a reduction or reversal of

          the fees or costs awarded after appeal.  Counsel for the Class

          Plaintiffs shall be entitled to receive the payment of a certain

          portion (to be determined by the Court) of their attorneys, fees

          and costs approved by the Court solely from Class Settlement Fund

          within five (5) business days after entry of the Court order

          approving such fees and costs and approving the settlement set

          forth herein, whether or not objections to the amount of fees or

          costs are lodged with the Court, subject to written assurances

          and security satisfactory to Defendants as to repayment thereof

          by counsel for the Class in the event of a reduction or reversal

          of the fees or costs awarded after appeal.  The remainder of the

          Plaintiffs' fees and costs of counsel for the Class Plaintiffs,

          including fees and costs for which such counsel shall be

          compensated from the Shares and Warrants, shall be paid out to

          counsel for the Class Plaintiffs promptly upon their issuance as

          provided in paragraph V.2.1 above.  Prior to the date of the

          initial distribution of Shares and Warrants (as set forth in

          paragraphs V.2.1(c) and (e) above), Class Counsel shall instruct

          CompuMed or its transfer agent as to the total amount of Shares

          and Warrants to be issued to counsel for the Class Plaintiffs and

          provide the names and addresses of the Persons to whom such

          Shares and Warrants are to be issued.  Thereafter, CompuMed or

          its transfer agent shall use such instructions or any modified

          instructions that Class Counsel may furnish to promptly issue the

          Shares and Warrants to counsel for the Class Plaintiffs as such

          Shares and Warrants become available for distribution.

                    7.5  The procedure for and the allowance or

          disallowance by the Court of any applications by any of the

          counsel to the Class Plaintiffs and the Derivative Plaintiff for

          attorneys' fees, costs and expenses, including the fees of

          experts and consultants, to be paid out of the Settlement Fund,

          are not part of the Settlement set forth in the Stipulation, and

          are to be considered by the Court separately from the Court's

          consideration of the fairness, reasonableness and adequacy of the

          settlement set forth in the Stipulation, and any order or

          proceedings relating to the Fee and Expense Applications, or any

          appeal from any order relating thereto or reversal or

          modification thereof, shall not operate to terminate, modify or

          cancel the Stipulation, or affect or delay the finality of the

          Judgment approving the Stipulation and the settlement of the

          Litigation set forth herein.

                    8.   CONDITIONS OF SETTLEMENT, EFFECT OF DISAPPROVAL, 
                         ------------------------------------------------

                         CANCELLATION OR TERMINATION.
                         ---------------------------

                    8.1  The Effective Date of the Stipulation shall be

          conditioned on the occurrence of all of the following events:

                         (a)  CompuMed and the Individual Defendants have

          fully complied with Paragraphs V.2.1 and V.2.2 above;

                         (b)  The Court has entered the Notice Order, as

          required by Paragraph V.4, above;

                         (c)  The Potential Claim Amount of Class Members

          who file valid and timely Requests for Exclusion from the

          Settlement Class is less than the amount set forth in Exhibit C

          hereto, or, in the alternative, the Defendants have not exercised

          their option to withdraw from the settlement in accordance with

          the procedures set forth in Exhibit C or as provided for in

          paragraph V.8.4., below;

                         (d)  The Court has entered the Judgment in the

          form of Exhibit B, or such other form of judgment as is agreed

          upon by counsel for Settling Parties, which includes, among other

          provisions, the Good Faith Order and a finding by the Court that

          the Shares and Warrants issued pursuant to paragraphs V.2.1(c)

          and (e), above, are exempt from the registration requirements of

          the 1933 Act, pursuant to Sections 3(a)(10) and 4(l) thereof;

                         (e)  The Judgment has become Final, as defined in

          V.1.16, above.

                    8.2  Upon the occurrence of all of the events

          referenced in Paragraph V.8.1 above, any and all remaining

          interest or right of the Defendants and the Insurer in or to the

          Settlement Fund, if any, shall be absolutely and forever

          extinguished and the Defendants and the Insurer shall have no

          further liability or obligation whatsoever with respect to the

          payments made by them to the Settlement Fund.

                    8.3  If prior to the Settlement Hearing, Persons who

          otherwise would be members of the Settlement Class have filed

          with the Court timely requests for exclusion ("Requests for

          Exclusion") from the Settlement Class in accordance with the

          provisions of the Notice Order and the Class Notice given

          pursuant thereto, and such Persons in the aggregate have a

          Potential Claim Amount (as that term is defined in Exhibit C) in

          an amount greater than the sum specified in Exhibit C, the

          Defendants shall have, in their sole and absolute discretion, the

          option to terminate this Stipulation in accordance with the

          procedures set forth in Exhibit C.  Copies of all Requests for

          Exclusion received, together with copies of all written

          revocations of Requests for Exclusion shall be delivered to

          counsel for Defendants promptly after they are received by

          Plaintiffs' counsel and, in any event, no later than five court

          days before the Settlement Hearing(s).

                    8.4  Defendants shall also have the right to withdraw

          from the proposed settlement set forth in this Stipulation, if,

          on the date five days prior to the Settlement Hearing, the

          average trading price of CompuMed common stock during the

          immediately preceding ten trading days is less than $1 per share.

                    8.5  If all of the conditions specified in Paragraph

          V.8.1 are not met, then the Stipulation shall be canceled and

          terminated at the election of any party hereto, thirty days after

          written notice is served on counsel for the remaining parties

          unless after receipt of such notice, Class Counsel, Derivative

          Counsel and counsel for the Defendants mutually agree in writing

          to proceed with the Stipulation.

                    8.6  Unless otherwise ordered by the Court, in the

          event the Stipulation shall terminate, or be canceled, or shall

          not become effective for any reason, within five business days

          after written notification of such event is sent by counsel for

          Defendants to the Class Counsel and Derivative Counsel, the Class

          Action Settlement Fund and Derivative Action Settlement Fund

          (including accrued interest), less expenses reasonably and

          necessarily incurred in connection with the settlement provided

          for herein, shall be refunded to the Defendants and/or their

          insurer by the Escrow Agent.  In such event, the Defendants

          and/or their insurer in proportion to their respective

          contributions to the Class Action and Derivative Action

          Settlement Funds shall also be entitled to any tax refund owing

          to such Settlement Funds.  At the request of the Defendants,

          and/or their insurer, the Escrow Agent, claims administrator or

          their designee shall apply for any such refund and pay the

          proceeds, after deduction of any fees or expenses incurred in

          connection with such applications for refund, to the Defendants

          and/or the insurer in proportion to their respective

          contributions.

                    8.7  In the event that the Stipulation is not approved

          by the Court or the settlement set forth in the Stipulation is

          terminated or fails to become effective in accordance with its

          terms, all Persons and the Settling Parties shall be restored to

          their respective positions in the Litigation as of July 31, 1996. 

          In such event, the terms and provisions of the Stipulation, with

          the exception of Paragraphs V.2.4-2.9, 6.4, 6.5, 7.5, 8.5-8.7,

          9.3, 9.8-9.12 herein, shall have no further force and effect with

          respect to the Settling Parties and shall not be used in this

          Litigation or in any other proceeding for any purpose and any

          Judgment or order entered by the Court in accordance with the

          terms of the Stipulation shall be treated as vacated, nunc pro  
                                                                ---- ---

          tunc.
          ----

                    8.8  In the event that the Stipulation is not approved

          by the Court or the settlement set forth in the Stipulation is

          terminated or fails to become effective in accordance with its

          terms, the Settling Parties shall, within two weeks of such

          occurrence, jointly move for a status conference with the Court

          to be held on the Court's first available date.  At such status

          conference, the Settling Parties shall ask for the Court's

          assistance in scheduling continued proceedings in the Litigation

          as between the Settling Parties.  None of the Settling Parties

          shall file or serve any further motions (except as may be

          necessary to exercise their rights under the settlement set forth

          in this Stipulation) or discovery requests on any of the other

          Settling Parties or their Related Parties in connection with this

          Litigation pending such status conference, nor shall any response

          be due by any Settling Party or its Related Parties to any

          outstanding discovery by any other Settling Party pending such

          status conference.

                    9.   MISCELLANEOUS PROVISIONS.
                         ------------------------

                    9.1  The Settling Parties (a) acknowledge that it is

          their intent to consummate this agreement; and (b) agree to

          cooperate to the extent necessary to effectuate and implement all

          terms and conditions of the Stipulation and to exercise their

          best efforts to accomplish the foregoing terms and conditions of

          the Stipulation.

                    9.2  The Settling Parties intend this settlement to be

          a final and complete resolution of all disputes between them with

          respect to the Litigation and the Released Claims and intend to

          be bound by the Stipulation regardless of any intervening change

          in the law that might affect the rights of the Plaintiffs or the

          Defendants in the Litigation.  The Settling Parties agree that

          the terms of the Stipulation reflect a good faith settlement of

          the claims asserted by the Class Plaintiffs and the Derivative

          Plaintiff, reached voluntarily after consultation with legal

          counsel.

                    9.3  Neither the Stipulation nor the settlement, nor

          any act performed or document executed pursuant to or in

          furtherance of the Stipulation or the settlement: (i) is or may

          be deemed to be or may be used as an admission of, or evidence

          of, the validity of any Released Claim, or of any wrongdoing or

          liability of the Released Persons, including, but not limited to,

          any assertions in connection with or arising from the resolution

          of the Litigation; or (ii) is or may be deemed to be or may be

          used as an admission of, or evidence of, any fault or omission of

          any of the Released Persons in any civil, criminal or

          administrative proceeding in any court, administrative agency or

          other tribunal.  Notwithstanding the foregoing, the Stipulation

          may be used to consummate or enforce the Stipulation, the

          settlement or the Judgment, and the Released Persons may file the

          Stipulation and/or the Judgment in any action that may be brought

          against them in order to support a defense or counterclaim based

          on principles of res judicata, collateral estoppel, release, good
                           --- --------

          faith settlement, judgment bar or reduction or any other theory

          of claim preclusion or issue preclusion or similar defense or

          counterclaim.

                    9.4  All of the Exhibits to the Stipulation are

          material and integral parts hereof and are fully incorporated

          herein by this reference.

                    9.5  The Stipulation may be amended or modified only by

          a written instrument signed by or on behalf of all Settling

          Parties or their respective successors-in-interest.

                    9.6  The Stipulation and the Exhibits attached hereto

          constitute the entire agreement among the parties hereto and no

          representations, warranties or inducements have been made to any

          party concerning the Stipulation or its Exhibits other than the

          representations, warranties and covenants contained and

          memorialized in such documents.

                    9.7  Class Counsel, on behalf of the Settlement Class,

          and Derivative Counsel, on behalf of the current holders of

          CompuMed common stock, are expressly authorized by the Class

          Plaintiffs and the Derivative Plaintiff to take all appropriate

          action required or permitted to be taken by the Settlement Class

          and the current holders of CompuMed common stock pursuant to the

          Stipulation to effectuate its terms and also are expressly

          authorized to enter into any modifications or amendments to the

          Stipulation on behalf of the Settlement Class and the current

          holders of CompuMed common stock which they deem appropriate.

                    9.8  Each counsel or other Person executing the

          Stipulation or any of its Exhibits on behalf of any party hereto

          hereby warrants that such Person has the full authority to do so. 

          Each of the Settling Defendants, the Class Plaintiffs and the

          Derivative Plaintiff, represent and warrant that he, she or it is

          entering into this settlement free of any duress or coercion of

          any kind, is properly authorized to enter into this settlement,

          has not voluntarily assigned any right with respect to any matter

          encompassed by any Release and will hold all other parties

          harmless as a result of any voluntary assignment of such matter.

                    9.9  The Stipulation may be executed in one or more

          counterparts.  All executed counterparts and each of them shall

          be deemed to be one and the same instrument.  Counsel for the

          parties to the Stipulation shall exchange among themselves

          original signed counterparts and a complete set of original

          executed counterparts shall be filed with the Court.

                    9.10 The Stipulation shall be binding upon, and inure

          to the benefit of, the successors, heirs, executors,

          administrators, legal representatives and assigns of the parties

          hereto or their Related Parties.

                    9.11 The Court shall retain jurisdiction with respect

          to implementation and enforcement of the terms of the

          Stipulation, and all parties hereto submit to the jurisdiction of

          the Court for purposes of implementing and enforcing the

          settlement embodied in the Stipulation.

                    9.12 The Stipulation and the Exhibits hereto shall be

          considered to have been negotiated, executed and delivered, and

          to be wholly performed, in the State of California, and the

          rights and obligations of the parties to the Stipulation shall be

          construed and enforced in accordance with, and governed by, the

          internal, substantive laws of the State of California without

          giving effect to that State's choice of law principles.



                    IN WITNESS WHEREOF, the parties hereto have caused the

          Stipulation to be executed, by their duly authorized attorneys,

          as of August 7, 1997.



                                        MARC M. SELTZER (54534)
                                        GEORGE A. SHOHET (112697)
                                        CORINBLIT & SELTZER
                                        A Professional Corporation
                                        3700 Wilshire Boulevard, Suite 820
                                        Los Angeles, CA 90010-3085
                                        Telephone:  (213) 380-4200

                                        Chairman of Executive Committee
                                        of Counsel for Plaintiffs

                                        KEVIN P. RODDY (128283)
                                        MILBERG WEISS BERSHAD
                                           HYNES & LERACH LLP
                                        355 South Grand Avenue,
                                        Suite 4170
                                        Los Angeles, CA 90071
                                        Telephone: (213) 617-9007

                                        -and-

                                        WILLIAM S. LERACH (68581) HENRY
                                        ROSEN (156963)
                                        MILBERG WEISS BERSHAD
                                           HYNES & LERACH LLP
                                        600 West Broadway, Suite 1800 San
                                        Diego, CA 92101

                                        ARTHUR N. ABBEY
                                        JOSHUA N. RUBIN
                                        ABBEY, GARDY & SQUITIERI, LLP
                                        212 East 39th Street
                                        New York, NY 10016
                                        Telephone:  (212) 889-3700

                                        Members ofthe Executive Committee
                                        of Counselfor Plaintiffs


                                        By /s/ Marc M. Seltzer
                                          ---------------------------------
                                                 Marc M. Seltzer
                                            Attorneys for Class Plaintiffs


                                        ROBERT C. SCHUBERT (62684)
                                        JUDEN JUSTICE REED (153748)
                                        SCHUBERT & REED LLP
                                        Two Embarcadero Center,
                                           Suite 1050
                                        San Francisco, CA 94111
                                        Telephone:  (415) 788-4220


                                        By /s/ Robert C. Schubert
                                          ---------------------------------
                                               Robert C. Schubert
                                           Member of the Executive
                                           Committee and Attorneys for the
                                           Derivative Plaintiff



                                        DAVID SIEGEL (101355)
                                        PATRICK O. HUNNIUS (174633)
                                        IRELL & MANELLA LLP
                                        1800 Avenue of the Stars,
                                           Suite 900
                                        Los Angeles, CA 90067-4276
                                        Telephone:  (310) 277-1010


                                        By /s/ Patrick O. Hunnius
                                          ---------------------------------
                                          David Siegel (Patrick O. Hunnius)
                                          Attorneys for Outside Director
                                          Defendants Robert Funari,
                                          Robert Stuckelman, and
                                          Russell Walker


                                        JEFFREY S. GORDON (76574)
                                        KAYE, SCHOLER, FIERMAN, HAYS
                                          & HANDLER, LLP
                                        1999 Avenue of the Stars,
                                           Suite 1600
                                        Los Angeles, CA  90067
                                        Telephone:  (310) 788-1000



                                        By /s/ Jeffrey S. Gordon
                                           --------------------------------
                                                 Jeffrey S. Gordon
                                           Attorneys for Defendants
                                           CompuMed, Inc., Rod N. Raynovich
                                           and DeVere B. Pollom