<PAGE>

                                 CONSULTING AGREEMENT

     This Consulting Agreement (this "AGREEMENT") is made as of March 15, 
1999 by and between DAOU Systems, Inc., a Delaware corporation (the 
"COMPANY"), and Larry D. Grandia, an individual resident of the State of Utah 
("CONSULTANT").

                                       RECITALS

     WHEREAS, the Company desires to retain the services of Consultant, and 
Consultant desires to render his services to the Company; and

     WHEREAS, the Company and Consultant desire to set forth in this 
Agreement the terms and conditions under which Consultant is to be engaged by 
the Company.

     NOW, THEREFORE, the Company and Consultant, in consideration of the 
mutual promises set forth herein, hereby agree as follows:.

                                      AGREEMENT

1.    DEFINITIONS.

      For the purposes of this Agreement, the following terms have the 
meanings specified or referred to in this Section 1:

      "AAA" as defined in Section 7.9.

      "AGREEMENT" means this Consulting Agreement, including any exhibits 
hereto, as amended in writing from time to time.

      "BOARD OF DIRECTORS" means the board of directors of the Company.

      "CHANGE IN CONTROL" means a transaction whereby (a) substantially all 
of the outstanding shares of the Company's Common Stock are exchanged for 
cash or the securities (or combination thereof) of another Person , or (b) 
any Person becomes the beneficial owner (as defined in Rule 13d-3 under the 
Securities Exchange Act of 1934, as amended), directly or indirectly, of more 
than fifty percent (50%) of the outstanding shares of the Company's Common 
Stock at such time.

      "COMPANY" as defined in the Preamble.

      "COMPENSATION" as defined in Section 3.

      "CONSULTANT" as defined in the Preamble.

      "CONSULTING PERIOD" means the term of Consultant's engagement set forth 
in Section 2.2.

<PAGE>

      "EFFECTIVE DATE" means the date stated in the first paragraph of this 
Agreement.

      "PERSON" means any individual, corporation (including any non-profit 
corporation), general or limited partnership, limited liability company, 
joint venture, estate, trust, association, organization or governmental body.

      "POST-CONSULTING PERIOD" as defined in Section 6.2.

      "RULES" as defined in Section 7.9.

      "SERVICES" as defined in Section 2.1.

2.    CONSULTING PERIOD AND DUTIES.

      2.1    ENGAGEMENT.  The Company hereby retains Consultant to provide 
certain management services as the Company's Interim President, and services 
acting as a liaison with acquisition candidates, as determined by the Company 
(collectively, the "SERVICES"), and Consultant hereby agrees to provide the 
Services to the Company upon the terms and conditions set forth in this 
Agreement.

      2.2    TERM.  The term of Consultant's engagement under this Agreement 
will begin on the Effective Date and, unless earlier terminated by 
Consultant, will terminate one (1) year after the Effective Date.

      2.3    CONSULTANT'S SERVICES AND DUTIES.  Consultant shall, in addition 
to providing the Services to the Company: (a) observe and conform to the 
policies and directions promulgated from time to time by the Board of 
Directors; (b) serve the Company faithfully, diligently and competently and 
to the best of his ability; and (c) devote the necessary business time, 
energy, ability, attention and skill in rendering the Services to the Company.

      2.4    CHANGE IN CONTROL.  Subject to Section 2.5 below, in the event 
of a Change in Control of the Company during the Consulting Period, 
Consultant will be entitled to receive an aggregate cash payment equal to One 
Million Five-Hundred Thousand Dollars ($1,500,000).

      2.5    EMPLOYMENT AGREEMENT.  Prior to the conclusion of the Consulting 
Period, Consultant may elect to execute and deliver the Employment Agreement 
in the form attached hereto as ATTACHMENT A (the "EMPLOYMENT AGREEMENT").  
Upon such election by Consultant, the Company will be obligated to execute 
and deliver the Employment Agreement.  Notwithstanding the above, the Company 
shall have no obligation to execute and deliver the Employment Agreement, if, 
prior to the date of such election by Consultant (i) the Company has entered 
into an agreement with respect to a merger involving exchange of shares or a 
similar transaction that would contemplate a Change in Control, or (ii) the 
Company is negotiating or engaging in discussions with respect to a merger 
involving exchange of shares resulting in a Change in Control.  Upon final 
execution and delivery of the Employment Agreement, this Agreement shall 
terminate and be of no further force and effect.

3.    COMPENSATION.

                                       2
<PAGE>

      As compensation in full for the Services to be rendered by Consultant 
hereunder, the Company will pay to Consultant monthly consulting fees in the 
amount of Thirty Thousand Dollars ($30,000), or the pro-rata portion thereof 
(the "COMPENSATION").  Consultant will be responsible for the payment of all 
appropriate federal, state and local withholding taxes in connection with any 
and all payments made hereunder.  Consultant will not be entitled to 
participate in any employee benefit plans of the Company; PROVIDED, HOWEVER, 
that during the Consulting Period, Consultant will be reimbursed by the 
Company for (i) insurance premiums paid by Consultant for the period of the 
consultancy resulting from Consultant's election of COBRA coverage relating 
to Consultant's previous employment and (ii) any taxes paid by Consultant 
relating to the Company's reimbursement of such premiums.

4.    FACILITIES AND EXPENSES.

      4.1    OFFICE SPACE, EQUIPMENT, ETC.  The Company will furnish to 
Consultant office space, equipment, supplies and such other facilities and 
personnel as the Company deems necessary or appropriate for the performance 
of Consultant's duties under this Agreement, including the payment of 
reasonable expenses to equip Consultant's home office (e.g., personal 
computer and telephonic access) at Consultant's Utah residence.  Subject to 
the Company's prior written approval, the Company will reimburse Consultant 
for out-of-pocket expenses (a) which are reasonable and necessary for 
Consultant to perform, and were incurred by Consultant in the course of the 
performance of, the Services, and (b) for which Consultant has submitted 
vouchers and completed an expense report in form and substance required by 
the Company.

      4.2    OTHER EXPENSES.  In addition, the Company will: (a) reimburse 
Consultant for the reasonable travel expenses of Consultant's spouse or 
Consultant's children for up to two (2) trips per month (in the aggregate) 
from Salt Lake City, Utah to San Diego, California; (b) provide Consultant 
with membership access to a golf club within reasonable proximity to Del Mar, 
California; and (c) reimburse Consultant for the amount that Consultant pays 
to acquire in his name the equity membership in the golf club to which 
Consultant's previous employer provided him with access, which reimbursement 
shall not exceed Twenty Thousand Dollars ($20,000).  Consultant must file 
expense reports with respect to such expenses and reimbursements in 
accordance with the Company's policies.

      4.3    AUTOMOBILE.  During the Consulting Period, the Company will 
provide to Consultant a leased automobile commensurate with Consultant's role 
as the Interim President of the Company.

      4.4    LODGING.  During the Consulting Period, the Company shall 
provide to Consultant appropriate lodging in a condominium (available to 
Consultant on a full-time basis) reasonably satisfactory to Consultant.

      4.5    COBRA COVERAGE.  Consultant will be reimbursed by the Company 
for (i) insurance premiums paid by Consultant for a period of 18 months 
resulting from Consultant's election of COBRA coverage relating to 
Consultant's previous employment and (ii) any taxes paid by Consultant 
relating to the Company's reimbursement of such premiums.

5.    CONFIDENTIALITY AND INVENTIONS AGREEMENT

                                       3
<PAGE>

      Consultant hereby agrees to comply with the terms and conditions of 
Company's Employee Confidentiality and Inventions Agreement, attached hereto 
as ATTACHMENT B.

6.    NON-COMPETITION AND NON-INTERFERENCE.

      6.1    ACKNOWLEDGMENTS BY CONSULTANT.  Consultant acknowledges that: 
(a) the Services to be performed by him under this Agreement are of a 
special, unique, unusual, extraordinary and intellectual character; (b) the 
Company's business is national in scope and its products and services are 
marketed throughout the United States; (c) the Company competes with other 
businesses that are or could be located in any part of the United States; and 
(d) the provisions of this Section 6 are reasonable and necessary to protect 
the Company's business.

      6.2    COVENANTS OF CONSULTANT.  In consideration of the 
acknowledgments by Consultant, and the Compensation to be paid or provided to 
Consultant by the Company, and in recognition of the confidential information 
that Consultant will obtain related to the Company's business (including its 
customers and employees), Consultant covenants that he will not, directly or 
indirectly:

             (a)    during the Consulting Period, except in the course of his
                    engagement hereunder, engage or invest in, own, manage,
                    operate, finance, control, or participate in the ownership,
                    management, operation, financing, or control of, be employed
                    by, associated with, or in any manner connected with, lend
                    Consultant's name or any similar name to, lend Consultant's
                    credit to or render services or advice to, any business
                    whose products or activities compete in whole or in part
                    with the products or activities of the Company; PROVIDED,
                    HOWEVER, that Consultant may purchase or otherwise acquire
                    up to (but not more than) one percent (1%) of any class of
                    securities of any enterprise  (but without otherwise
                    participating in the activities of such enterprise) if such
                    securities are listed on any national or regional securities
                    exchange or have been registered under Section 12(g) of the
                    Securities Exchange Act of 1934, as amended;

             (b)    whether for Consultant's own account or for the account of
                    any other Person, at any time during the Consulting Period
                    and the Post-Consulting Period, solicit business of the same
                    or similar type being carried on by the Company, from any
                    Person known by Consultant to be a customer of the Company
                    and with whom Consultant had personal contact during and by
                    reason of Consultant's engagement with the Company;

             (c)    whether for Consultant's own account or the account of any
                    other Person, at any time during the Consulting Period and
                    the Post-Consulting Period: (i) solicit, employ, or
                    otherwise engage as an employee, independent contractor, or
                    otherwise, any Person who is or was an employee of the
                    Company at any time during the Consulting Period or in any
                    manner induce or attempt to induce any employee of the
                    Company to terminate his employment with the Company; or
                    (ii) interfere with the Company's relationship with any
                    Person, including any Person who at any 

                                       4
<PAGE>

                    time during the Consulting Period was an employee, 
                    contractor, supplier or customer of the Company; or

             (d)    at any time during or after the Consulting Period, disparage
                    the Company or any of its stockholders, directors, officers,
                    employees or agents.

      For purposes of this Section 6.2, the term "POST-CONSULTING PERIOD" 
means the one (1) year period beginning on the date of termination of 
Consultant's engagement with the Company.

      If any covenant in this Section 6.2 is held to be unreasonable, 
arbitrary or against public policy, such covenant will be considered to be 
divisible with respect to scope, time and geographic area, and such lesser 
scope, time or geographic area, or all of them, as a court of competent 
jurisdiction may determine to be reasonable, not arbitrary and not against 
public policy, will be effective, binding and enforceable against Consultant.

      The period of time applicable to any covenant in this Section 6.2 will 
be extended by the duration of any violation by Consultant of such covenant.

      Consultant will, while the covenant under this Section 6.2 is in 
effect, give notice to the Company, within ten (10) days after accepting 
employment or another consulting engagement, of the identity of the Person 
employing or retaining Consultant.  The Company may notify such Person that 
Consultant is bound by this Agreement and, at the Company's election, furnish 
such Person with a copy of this Agreement or relevant portions thereof.

7.    GENERAL PROVISIONS.

      7.1    INJUNCTIVE RELIEF AND ADDITIONAL REMEDY.  Consultant 
acknowledges that the injury that would be suffered by the Company as a 
result of a breach of the provisions of this Agreement (including any 
provision of Sections 5 and 6) would be irreparable and that an  award of 
monetary damages to the Company for such a breach would be an inadequate 
remedy. Consequently, the Company will have the right, in addition to any 
other rights it may have, to obtain injunctive relief to restrain any breach 
or threatened breach or otherwise to specifically enforce any provision of 
this Agreement, and the Company will not be obligated to post bond or other 
security in seeking such relief. Without limiting the Company's rights under 
this Section 7 or any other remedies of the Company, if Consultant breaches 
any of the provisions of Section 5 or 6, the Company will have the right to 
cease making any payments otherwise due to Consultant under this Agreement.

      7.2    COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT 
COVENANTS.  The covenants by Consultant in Sections 5 and 6 are essential 
elements of this Agreement, and without Consultant's agreement to comply with 
such covenants, the Company would not have entered into this Agreement or 
engaged or continued the engagement of Consultant.  The Company and 
Consultant have independently consulted their respective counsel and have 
been advised in all respects concerning the reasonableness and propriety of 
such covenants, with specific regard to the nature of the business conducted 
by the Company.

                                       5
<PAGE>

      Consultant's covenants in Sections 5 and 6 are independent covenants 
and the existence of any claim by Consultant against the Company under this 
Agreement or otherwise will not excuse Consultant's breach of any covenant in 
Section 5 or 6.

      If Consultant's engagement hereunder expires or is terminated, this 
Agreement will continue in full force and effect as is necessary or 
appropriate to enforce the covenants and agreements of Consultant in Sections 
5 and 6.

      7.3    REPRESENTATIONS AND WARRANTIES BY CONSULTANT.  Consultant 
represents and warrants to the Company that the execution and delivery by 
Consultant of this Agreement do not, and the performance by Consultant of his 
obligations hereunder will not, with or without the giving of notice or the 
passage of time, or both:  (a) violate any judgment, writ, injunction, or 
order of any court, arbitrator, or governmental agency applicable to 
Consultant; or (b) conflict with, result in the breach of any provisions of 
or the termination of, or constitute a default under, any agreement to which 
Consultant is a party or by which Consultant is or may be bound.

      7.4    WAIVER.  The rights and remedies of the parties to this 
Agreement are cumulative and not alternative. Neither the failure nor any 
delay by either party in exercising any right, power, or privilege under this 
Agreement will operate as a waiver of such right, power, or privilege, and no 
single or partial exercise of any such right, power, or privilege will 
preclude any other or further exercise of such right, power, or privilege or 
the exercise of any other right, power, or privilege. To the maximum extent 
permitted by applicable law, (a) no claim or right arising out of this 
Agreement can be discharged by one party, in whole or in part, by a waiver or 
renunciation of the claim or right unless in writing signed by the other 
party; (b) no waiver that may be given by a party will be applicable except 
in the specific instance for which it is given; and (c) no notice to or 
demand on one party will be deemed to be a waiver of any obligation of such 
party or of the right of the party giving such notice or demand to take 
further action without notice or demand as provided in this Agreement.

      7.5    BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED.  This Agreement 
shall inure to the benefit of, and shall be binding upon, the parties hereto 
and their respective successors, assigns, heirs, and legal representatives, 
including any entity with which the Company may merge or consolidate or to 
which all or substantially all of its assets may be transferred.  The duties 
and covenants of Consultant under this Agreement, being personal, may not be 
delegated.

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

             If to the Company:    DAOU Systems, Inc.
                                   5120 Shoreham Place
                                   San Diego, California 92122

                                       6
<PAGE>

                                   ATTENTION: Chief Executive Officer and Chief
                                   Financial Officer
                                   Facsimile No.: (619) 452-2789

             With a copy to:       Baker & McKenzie
                                   101 West Broadway, Twelfth Floor
                                   San Diego, California 92101-3890
                                   ATTENTION:  John J. Hentrich, Esq.
                                   Facsimile No.:  (619) 236-0429

             If to Consultant:     Larry D. Grandia
                                   1934 S. 850 E.
                                   Bountiful, Utah  84010

      7.7    ENTIRE AGREEMENT; AMENDMENTS.  This Agreement and the 
attachments hereto constitute the entire agreement between the parties with 
respect to the subject matter hereof and supersede all prior agreements and 
understandings, oral or written, between the parties hereto with respect to 
the subject matter hereof. This Agreement may not be amended orally, but only 
by an agreement in writing signed by the parties hereto.

      7.8    GOVERNING LAW.  This Agreement will be governed by the laws of 
the State of California without regard to conflicts of laws principles.

      7.9    BINDING ARBITRATION.  Subject to the arbitration provisions set 
forth below, the parties hereto agree that all disputes arising out of or 
related to the terms and conditions of this Agreement or to the performance, 
breach or termination thereof, shall be submitted to binding arbitration 
pursuant to the Expedited Procedures of the Commercial Arbitration Rules (the 
"RULES") of the American Arbitration Association (the "AAA").  The 
arbitration will take place in San Diego, California at the offices of the 
AAA.  The dispute will be resolved by a single arbitrator appointed by the 
AAA in accordance with the list procedure described in Paragraph 13 of the 
Rules, except that the AAA will transmit the list within ten (10) Business 
Days of the filing of the demand for arbitration, and the parties thereto 
will have five (5) Business Days to return the list to the AAA with their 
objections and preferences.  Discovery will be limited to no more than seven 
(7) depositions by each side and written document requests, requesting the 
production of specific documents.  The parties to the dispute will 
voluntarily produce any and all documents that they intend to use at the 
hearing before the close of discovery, subject to supplementation for 
purposes of rebuttal or good cause shown.  The period for taking discovery 
will be sixty (60) Business Days, commencing upon the day that the answer is 
due under the Rules.  The arbitrator will hold a pre-hearing conference 
within three (3) Business Days of the close of discovery and will schedule 
the hearing within thirty (30) Business Days of the close of discovery.  
After the arbitrator is selected, the arbitrator will have sole jurisdiction 
to hear such applications, except that any measure ordered by the arbitrator 
may be immediately and specifically enforced by a court otherwise having 
jurisdiction over the parties. All fees and costs will be allocated to the 
parties to the arbitration as determined by the arbitrator.  Each party will 
pay its own fees and costs associated with the arbitration and each party 
will pay one-half the estimated arbitrator's fees up front and if either 
party fails to do so a default will be entered against such party solely with 
respect to such fees.  Any determination of the arbitrator shall be 

                                       7
<PAGE>

final and binding on the parties hereto.  Nothing in this Agreement will 
prevent a party hereto from applying to a court that would otherwise have 
jurisdiction for provisional or interim injunctive or other equitable 
measures.

      7.10   SECTION HEADINGS, CONSTRUCTION.  The section headings in this 
Agreement are provided for convenience only and will not affect its 
construction or interpretation. All references to "section" or "sections" 
refer to the corresponding section or sections of this Agreement unless 
otherwise specified. All words used in this Agreement will be construed to be 
of such gender or number as the circumstances require. Unless otherwise 
expressly provided, the word "including" does not limit the preceding words 
or terms.

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

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


                     [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]






                                       8
<PAGE>

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

COMPANY:                                   CONSULTANT:
DAOU SYSTEMS, INC.



By:   /s/ Georges J. Daou                  By:   /s/ Larry D. Grandia
    ---------------------------------          ---------------------------------
    Georges J. Daou, Chief Executive                  Larry D. Grandia
    Officer






                                       9
<PAGE>

                                  ATTACHMENT A

                              EMPLOYMENT AGREEMENT






                                       10
<PAGE>

                                  ATTACHMENT B

               EMPLOYEE CONFIDENTIALITY AND INVENTIONS AGREEMENT






                                       11
<PAGE>

                                  ATTACHMENT A

                              EMPLOYMENT AGREEMENT

      This Employment Agreement is made as of [__________], 1999 by DAOU 
Systems, Inc., a Delaware corporation ("EMPLOYER" or the "COMPANY"), and 
Larry D. Grandia, an individual resident of the State of Utah ("EMPLOYEE").

                                    RECITALS

      WHEREAS, Employer desires to obtain the services of Employee, and 
Employee desires to secure employment from Employer; and

      WHEREAS, Employer and Employee desire to set forth in this Agreement 
the terms and conditions under which Employee is to be employed by Employer.

      NOW THEREFORE, Employer and Employee, in consideration of the mutual 
promises set forth herein, hereby agree as follows:

                                   AGREEMENT

1.    DEFINITIONS

      For the purposes of this Agreement, the following terms have the 
meanings specified or referred to in this SECTION 1:

      "AAA" as defined in SECTION 10.10.

      "AGREEMENT" means this Employment Agreement, including any attachments 
hereto, as amended in writing from time to time.

      "BENEFITS" as defined in SECTION 3.2.

      "BOARD OF DIRECTORS" means the board of directors of Employer.

      "CAUSE" means: (a) Employee's material breach of this Agreement; (b) 
Employee's material failure to adhere to any written policy of Employer 
generally applicable to officers of the Company if Employee has been given a 
reasonable opportunity to comply with such policy or cure his failure to 
comply (which reasonable opportunity must be granted during the ten-day 
period preceding termination of this Agreement); (c) the appropriation (or 
attempted appropriation) of a material business opportunity of Employer, 
including attempting to secure or securing any personal profit in connection 
with any transaction entered into on behalf of Employer; (d) the 
misappropriation (or attempted misappropriation) of any of Employer's funds 
or property; (e) the conviction of, or the entering of a guilty plea or plea 
of no contest with respect to, a felony, the equivalent thereof, or any other 
crime with respect to which imprisonment is a possible punishment; (f) 
willful misconduct; (g) physical or mental disability 

<PAGE>

or other inability to perform the essential functions of his position, with 
or without reasonable accommodation; or (h) death.

      "CHANGE IN CONTROL" means a transaction whereby (a) substantially all 
of the outstanding shares of Employer's Common Stock are exchanged for cash 
or the securities (or combination thereof) of another Person, or (b) any 
Person becomes the beneficial owner (as defined in Rule 13d-3 under the 
Securities Exchange Act of 1934, as amended), directly or indirectly, of more 
than fifty percent (50%) of the outstanding shares of Employer's Common Stock 
at such time.

      "CONSULTING AGREEMENT" means the Consulting Agreement, dated as of 
March 1, 1999, by and between Employer and Employee.

      "EFFECTIVE DATE" means the date stated in the preamble of this 
Agreement.

      "EMPLOYEE" as defined in the preamble of this Agreement.

      "EMPLOYER" as defined in the preamble of this Agreement.

      "EMPLOYER'S COMMON STOCK" means Employer's common stock, $0.001 par 
value per share.

      "EMPLOYMENT" as defined in SECTION 2.1.

      "EMPLOYMENT PERIOD" means the term of the Employment under this 
Agreement.

      "FAIR MARKET VALUE" of one Stock Option means the amount equal to (i) 
the closing selling price per share of Employer's Common Stock on the date in 
question, as reported by the National Association of Securities Dealers on 
the Nasdaq National Market or any successor system, LESS (ii) the exercise 
price of such Stock Option.

      "FISCAL YEAR" means Employer's fiscal year, as it exists on the 
Effective Date or as changed from time to time.

      "INCENTIVE COMPENSATION PLAN" means Employer's Incentive Compensation 
Plan, attached hereto as ATTACHMENT A, as modified from time to time.

      "OPTION PLAN" as defined in SECTION 3.4(a).

      "PERFORMANCE BONUS" as defined in SECTION 3.3.

      "PERSON" means any individual, corporation (including any nonprofit 
corporation), general or limited partnership, limited liability company, 
joint venture, estate, trust, association, organization or governmental body.

      "POST-EMPLOYMENT PERIOD" as defined in SECTION 7.2.

      "RULES" as defined in SECTION 10.10.

      "SALARY" as defined in SECTION 3.1.

                                       2
<PAGE>

      "STOCK OPTIONS" as defined in SECTION 3.4(a).

2.    EMPLOYMENT TERMS AND DUTIES

      2.1    EMPLOYMENT. Employer hereby employs Employee, and Employee 
hereby accepts employment by Employer (the "EMPLOYMENT"), upon the terms and 
conditions set forth in this Agreement.

      2.2    AT-WILL EMPLOYMENT.  Employee's Employment relationship with 
Employer is at-will, terminable at any time and for any reason, with or 
without Cause, by either Employer or Employee.  While certain paragraphs of 
this Agreement describe events which could occur at a particular time in the 
future, nothing in this Agreement may be construed as a guarantee of 
Employment of any length.

      2.3    DUTIES.  Employee will serve as the [______________] of Employer 
and have such other duties as are assigned or delegated to Employee by the 
Board of Directors.  Employee will (i) devote his entire business time, 
attention, skill and energy exclusively to the business of Employer (except 
for Employee's reasonable, outside board or professional activities), (ii) 
use his best efforts to promote the success of Employer's business and (iii) 
cooperate fully with the Board of Directors in the advancement of the best 
interests of Employer.  If Employee continues to serve or is elected as a 
director of Employer or as a director or officer of any of its affiliates, 
then Employee will fulfill his duties as such director or officer without 
additional compensation, except as set forth in SECTION 3.4(a).

      2.4    COMPLIANCE WITH EMPLOYER'S POLICIES.  Employee acknowledges and 
agrees that compliance with Employer's policies, practices and procedures is 
a term and condition of the Employment under this Agreement.

3.    COMPENSATION

      3.1    SALARY.  Employee will be paid an annual salary (the "SALARY") 
of Two Hundred Thirty Thousand Dollars ($230,000), which will be payable in 
equal periodic installments according to Employer's customary payroll 
practices.  The Board of Directors (or a committee thereof) will review the 
Salary no less frequently than annually.

      3.2    BENEFITS.  Employee will, during the Employment Period, be 
permitted to participate in such pension, profit sharing, bonus, life 
insurance, hospitalization, major medical and other employee benefit plans of 
Employer that may be in effect from time to time, to the extent Employee is 
eligible under the terms of those plans (collectively, the "BENEFITS").  In 
addition, during the Employment Period, Employer will provide Employee with a 
life insurance policy, providing for payment of One Million Dollars 
($1,000,000) to the named beneficiaries to be specified by Employee.  
Employee hereby represents and warrants that he is in good physical health 
and has not been denied medical or life insurance in the past.

      3.3    ADDITIONAL COMPENSATION.  As additional compensation for the 
services to be rendered by Employee pursuant to this Agreement, Employer will 
pay to Employee an annual performance bonus (the "PERFORMANCE BONUS") in an 
amount up to One Hundred Fifty-Thousand Dollars ($150,000) in accordance with 
the Incentive Compensation Plan.  Upon commencement 

                                       3
<PAGE>

of employment, Employer will pay to Employee a signing bonus in the amount of 
Fifty Thousand Dollars ($50,000), which signing bonus shall constitute a 
non-refundable advance against the Performance Bonus for Fiscal Year 1999.  
Subject to SECTION 8, in order to be eligible to receive the Performance 
Bonus, Employee must be employed by Employer on the date that the Performance 
Bonus is distributed by the Employer.

      3.4    STOCK OPTIONS.

                 (a)     GRANT OF OPTIONS.  Effective on the Effective Date, 
Employer will grant to Employee options representing the right to purchase up 
to Four Hundred Thousand (400,000) shares of Employer's Common Stock 
(collectively, the "STOCK OPTIONS").  Two Hundred Fifty Thousand (250,000) of 
the Stock Options shall be outside of the Company's 1996 Stock Option Plan 
(the "OPTION PLAN"). One Hundred and Fifty Thousand (150,000) of the Stock 
Options shall be pursuant to the Option Plan.  The Stock Options granted 
pursuant to the Option Plan will consist of incentive stock options as 
defined in Internal Revenue Code Section 422(b) to the extent permitted by 
applicable law (generally limited to options with no more than One Hundred 
Thousand Dollars ($100,000) in exercise price in a given year) and the 
balance will be non-qualified options (non-statutory options).  All of the 
Stock Options granted outside of the Option Plan will be 
non-qualified/non-statutory stock options.  The exercise price for the Stock 
Options will be the closing price per share of Employer's Common Stock on the 
Effective Date.  Employee will be entitled to retain and continue to vest his 
existing director stock options as long as he remains a director (the 
"DIRECTOR OPTIONS").  The Company agrees that, if permitted by law, the 
exercise price of the Director Options will be adjusted in the event that the 
exercise price of employee stock options granted under the Option Plan is 
adjusted.

                 (b)     VESTING SCHEDULE.  The Stock Options will vest in 
accordance with the following schedule: (i) 50,000 of the Stock Options on 
the Effective Date, (ii)100,000 of the Stock Options on December 15, 1999, 
(iii) 100,000 of the Stock Options on December 15, 2000, and (iv) 150,000 of 
the Stock Options on December 15, 2001.  However, in the event of a Change in 
Control of the Company, 70% of the then unvested Stock Options will vest 
immediately upon the consummation of such Change in Control, except if such 
Change in Control is initiated within six (6) months of the Effective Date 
and intended to be consummated as a merger through an exchange of equity 
securities.  Furthermore, in the event that Employee is terminated without 
Cause: (i) prior to December 15, 1999, 100,000 of the Stock Options will vest 
immediately upon such termination; (ii) on or after December 15, 1999 but 
prior to December 15, 2000, an additional 100,000 of the Stock Options will 
vest immediately upon such termination; or (iii) on or after December 15, 
2000 but prior to December 15, 2001, all of the remaining unvested Stock 
Options will vest immediately upon such termination.

                 (c)     OTHER TERMS.  The Stock Options granted outside of 
the Option Plan shall contain and be subject to such other terms and 
conditions as are generally included in the Option Plan and the related stock 
option agreement except as set forth herein.  In addition, Employer shall 
register the shares of Employer's Common Stock underlying the Stock Options 
by filing a Registration Statement on Form S-8 (or other available 
registration statement) with the Securities and Exchange Commission.

                                       4
<PAGE>

      3.5    LOAN.  Upon Employee's written request to Employer, Employer 
will, within thirty (30) days after receipt of such written request, loan to 
Employee, at the minimum interest rate permitted under applicable tax 
regulations, Two Hundred Thousand Dollars ($200,000) (the "LOAN").  The Loan 
shall be due and payable by Employee to Employer in the event and on the date 
of a Change in Control which occurs on or before the second anniversary of 
the effective date of the Loan, unless such Change in Control occurs within 
the first six (6) months after the Effective Date.  In the event that a 
Change in Control occurs (i) within the first six (6) months after the 
Effective Date or (ii) does not occur before the second anniversary of the 
effective date of the Loan, the Loan will be forgiven by the Company.  In the 
event that Employee is entitled to receive any payment pursuant to SECTION 
8.2 or SECTION 8.5, Employer shall have the right to deduct from any such 
payment any outstanding balance with respect to the Loan made pursuant to 
this SECTION 3.5.  Employee hereby acknowledges that the Loan and any 
forgiveness thereof will result in imputed income to Employee and Employee 
shall be responsible for payment of all applicable federal and state taxes.

      3.6    MERGER AND ACQUISITION SUCCESS FEE.  In the event that there is 
a Change in Control transaction, Employee will be afforded the opportunity to 
assist in the negotiations related thereto if he is still employed by the 
Company; and Employee will be entitled to a success fee of (i) $750,000 if 
such Change in Control occurs within the first six (6) months after the 
Effective Date or (ii) $500,000 if such Change in Control occurs after the 
date that is six (6) months after the Effective Date.

4.    FACILITIES AND EXPENSES

      Employer will furnish to Employee office space, equipment, supplies and 
such other facilities and personnel as Employer deems necessary or 
appropriate for the performance of Employee's duties under this Agreement, 
including the payment of reasonable expenses to equip Employee's home office 
(e.g., personal computer and telephonic access) at Employee's Utah residence. 
Employer will pay on behalf of Employee (or reimburse Employee for) 
reasonable expenses incurred by Employee at the request of, or on behalf of, 
Employer in the performance of Employee's duties pursuant to this Agreement, 
and in accordance with Employer's employment policies, including reasonable 
expenses incurred by Employee in attending conventions, seminars, and other 
business meetings, in appropriate business entertainment activities, and for 
promotional expenses.  Employee must file expense reports with respect to 
such expenses in accordance with Employer's policies.

      In addition, Employer will: (a) reimburse Employee for the reasonable 
travel expenses of Employee's spouse or Employee's children for up to two (2) 
trips per month (in  the aggregate) from Salt Lake City, Utah to San Diego, 
California; (b) provide Employee with membership access to a golf club within 
reasonable proximity to Del Mar, California; and (c) to the extent not 
previously covered under the Consulting Agreement, reimburse Employee for the 
amount that Employee pays to acquire in his name the equity membership in the 
golf club to which Employee's previous employer provided him with access, 
which reimbursement shall not exceed Twenty Thousand Dollars ($20,000).  
Employee must file expense reports with respect to such expenses and 
reimbursements in accordance with Employer's policies.

5.    VACATIONS AND HOLIDAYS

                                       5
<PAGE>

      Employee will be entitled to four (4) weeks of paid vacation per year 
and holidays in accordance with Employer's policies.  Employee will accrue 
vacation to a maximum of six (6) weeks.  After Employee reaches this maximum 
accrual amount, he will cease to accrue additional vacation until his accrued 
vacation falls below this maximum accrual amount.

6.    CONFIDENTIALITY; EMPLOYEE INVENTIONS

      Employee hereby agrees to comply with the terms and conditions of 
Employer's Employee Confidentiality and Inventions Agreement, attached hereto 
as ATTACHMENT B.

7.    NON-COMPETITION AND NON-INTERFERENCE

      7.1    ACKNOWLEDGMENTS BY EMPLOYEE.  Employee acknowledges that: (a) 
the services to be performed by him under this Agreement are of a special, 
unique, unusual, extraordinary and intellectual character; (b) Employer's 
business is national in scope and its products and services are marketed 
throughout the United States; (c) Employer competes with other businesses 
that are or could be located in any part of the United States; and (d) the 
provisions of this SECTION 7 are reasonable and necessary to protect 
Employer's business.

      7.2    COVENANTS OF EMPLOYEE.  In consideration of the acknowledgments 
by Employee and the Compensation and the Benefits to be paid or provided to 
Employee by Employer, and in recognition of the confidential information that 
Employee will obtain related to Employer's business (including its customers 
and employees), Employee covenants that he will not, directly or indirectly:

                 (a)     during the Employment Period, except in the course 
of the Employment hereunder, engage or invest in, own, manage, operate, 
finance, control, or participate in the ownership, management, operation, 
financing, or control of, be employed by, associated with, or in any manner 
connected with, lend Employee's name or any similar name to, lend Employee's 
credit to or render services or advice to, any business whose products or 
activities compete in whole or in part with the products or activities of 
Employer; PROVIDED, HOWEVER, that Employee may purchase or otherwise acquire 
up to (but not more than) one percent (1%) of any class of securities of any 
enterprise  (but without otherwise participating in the activities of such 
enterprise) if such securities are listed on any national or regional 
securities exchange or have been registered under Section 12(g) of the 
Securities Exchange Act of 1934, as amended;

                 (b)     whether for Employee's own account or for the 
account of any other Person, at any time during the Employment Period and the 
Post-Employment Period, solicit business of the same or similar type being 
carried on by Employer, from any Person known by Employee to be a customer of 
Employer and with whom Employee had personal contact during and by reason of 
the Employment with Employer;

                 (c)     whether for Employee's own account or the account of 
any other Person (i) at any time during the Employment Period and the 
Post-Employment Period, solicit, employ, or otherwise engage as an employee, 
independent contractor, or otherwise, any Person who is or was an employee of 
Employer at any time during the Employment Period or in any manner induce or 
attempt to induce any employee of Employer to terminate his employment 

                                       6
<PAGE>

with Employer; or (ii) at any time during the Employment Period and the 
Post-Employment Period, interfere with Employer's relationship with any 
Person, including any Person who at any time during the Employment Period was 
an employee, contractor, supplier, or customer of Employer; or

                 (d)     at any time during or after the Employment Period, 
disparage Employer or any of its shareholders, directors, officers, employees 
or agents.

      For purposes of this SECTION 7.2, the term "POST-EMPLOYMENT PERIOD" 
means the one (1) year period beginning on the date of termination of the 
Employment with Employer.

      If any covenant in this SECTION 7.2 is held to be unreasonable, 
arbitrary or against public policy, such covenant will be considered to be 
divisible with respect to scope, time and geographic area, and such lesser 
scope, time or geographic area, or all of them, as a court of competent 
jurisdiction may determine to be reasonable, not arbitrary and not against 
public policy, will be effective, binding and enforceable against Employee.

      The period of time applicable to any covenant in this SECTION 7.2 will 
be extended by the duration of any violation by Employee of such covenant.

      Employee will, while the covenant under this SECTION 7.2 is in effect, 
give notice to Employer, within ten (10) days after accepting any other 
employment, of the identity of Employee's employer.  Employer may notify such 
employer that Employee is bound by this Agreement and, at Employer's 
election, furnish such employer with a copy of this Agreement or relevant 
portions thereof.

8.    TERMINATION PAY

      Effective upon the termination of this Agreement, Employer will be 
obligated to pay to Employee (or, in the event of his death, his designated 
beneficiary as defined below) only such compensation as is provided in this 
SECTION 8.

      8.1    TERMINATION WITH CAUSE.  In the event that Employer terminates 
Employee with Cause, Employee only will be entitled to receive the portion of 
the Salary and the Performance Bonus accrued and owing to Employee only 
through the date that such termination is effective, but will not be entitled 
to any compensation during any subsequent Fiscal Year.

      8.2    TERMINATION WITHOUT CAUSE.  In the event that Employer 
terminates Employee without Cause, Employee will be entitled to receive a 
severance payment of One Million Five Hundred Thousand Dollars ($1,500,000).  
Payment of this severance amount will be conditional upon Employee signing a 
standard form general release of claims against the Company and its 
directors, officers, affiliates and agents.  Upon payment of such amount, 
Employee will not be entitled to receive any other payment under this SECTION 
8.

      8.3    [RESERVED.]

                                       7
<PAGE>

      8.4    RESIGNATION.  In the event that Employee resigns from Employer, 
Employee shall not be entitled to any termination pay, other than the portion 
of the Salary and the Performance Bonus accrued and owing to Employee only 
through the date that such resignation is effective.

      8.5    NON-RENEWAL PAYMENT.  In the event that, on or before August 15, 
2001, the Company does not offer an employment agreement to Employee which is 
acceptable to Employee (after reasonable negotiations between Employer and 
Employee lasting for at least thirty (30) days), then Employee will be 
entitled to payment of One Million Five Hundred Thousand Dollars 
($1,500,000); PROVIDED, HOWEVER, that payment of such amount will be 
conditional upon Employee signing a standard form general release of claims 
against the Company and its directors, officers, affiliates and agents.  Upon 
payment of such amount, Employee will not be entitled to receive any other 
payment under this SECTION 8.

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

      8.7    DESIGNATED BENEFICIARY.  For purposes of this SECTION 8, 
Employee's designated beneficiary will be such individual beneficiary or 
trust, located at such address, as Employee may designate by notice to 
Employer from time to time or, if Employee fails to give notice to Employer 
of such a beneficiary, Employee's estate.  Notwithstanding the preceding 
sentence, Employer will have no duty, in any circumstances, to attempt to 
open an estate on behalf of Employee, to determine whether any beneficiary 
designated by Employee is alive or to ascertain the address of any such 
beneficiary, to determine the existence of any trust, to determine whether 
any person or entity purporting to act as Employee's personal representative 
(or the trustee of a trust established by Employee) is duly authorized to act 
in that capacity, or to locate or attempt to locate any beneficiary, personal 
representative or trustee.

      8.8    CHANGE IN CONTROL.  In the event that (i) there is a Change in 
Control of the Company and (ii) the acquiring party in such Change in Control 
does not offer to Employee a position acceptable to Employee, such acquiring 
party will pay to Employee an amount equal to one and one-half (1 1/2) times 
the aggregate of the Salary and the Performance Bonus.  The acquiring party 
will pay to Employee such amount upon the consummation of such Change in 
Control.

9.    RELOCATION AND OTHER BENEFITS

      9.1    AUTOMOBILE.  During the Employment Period, Employer will provide 
to Employee a leased automobile commensurate with Employee's role as the 
[____________] of Employer.

      9.2    LODGING.  During the Employment Period, Employer shall provide 
to Employee appropriate lodging in a condominium (available to Employee on a 
full-time basis) reasonably satisfactory to Employee, until June 30, 2000, or 
longer if Employee is requested by Employer to spend a substantial portion of 
his time in San Diego, California.

      9.3    HOUSING RELOCATION BENEFITS.  Employee will be entitled to the 
housing relocation benefits, including reasonable moving expenses and realtor 
fees and the current house sales price guarantee described in ATTACHMENT C to 
this Agreement.

                                       8
<PAGE>

      9.4    COBRA COVERAGE.  Employee will be reimbursed by the Company for 
(i) insurance premiums paid by Employee for a period of 18 months resulting 
from Employee's election of COBRA coverage relating to Employee's previous 
employment and (ii) any taxes paid by Employee relating to the Company's 
reimbursement of such premiums.

      9.5    CERTAIN ADDITIONAL PAYMENTS.

             (a)    Anything in this Agreement to the contrary 
notwithstanding and except as set forth below, in the event it shall be 
determined that any payment or distribution by Employer or for the benefit of 
Employee (whether paid or payable or distributed or distributable pursuant to 
the terms of this Agreement or otherwise, but determined without regard to 
any additional payments required under this Section 9.5) (a "PAYMENT") would 
be subject to the excise tax imposed by Section 4999 of the Internal Revenue 
Code of 1986, as amended (the "CODE"), or any interest or penalties are 
incurred by Employee with respect to such excise tax (such excise tax, 
together with any such interest and penalties, are hereinafter collectively 
referred to as the "EXCISE TAX"), then Employee shall be entitled to receive 
an additional payment (a "GROSS-UP PAYMENT") in an amount such that, after 
payment by Employee of all taxes (including any interest or penalties imposed 
with respect to such taxes), including, without limitation, any income taxes 
(and any interest and penalties imposed with respect thereto) and Excise Tax 
imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up 
Payment equal to the Excise Tax imposed upon the Payments.

             (b)    Subject to the provisions of Section 9.5(c), all 
determinations required to be made under this Section 9.5, including whether 
and when a Gross-Up Payment is required and the amount of such Gross-Up 
Payment and the assumptions to be utilized in arriving at such determination, 
shall be made by Ernst & Young LLP (the "ACCOUNTING FIRM"), which shall 
provide detailed supporting calculations to Employer and Employee within 
fifteen (15) business days of the receipt of notice from Employee that there 
has been a Payment, or such earlier time as is requested by Employer. In the 
event that the Accounting Firm is serving as accountant or auditor for the 
individual, entity or group effecting Change in Control, Employee shall 
appoint another nationally recognized accounting firm to make the 
determinations required hereunder (which accounting firm shall then be 
referred to as the Accounting Firm hereunder). All fees and expenses of the 
Accounting Firm shall be borne solely by Employer. Any Gross-Up Payment, as 
determined pursuant to this Section 9.5, shall be paid by Employer to 
Employee within five (5) days of the receipt of the Accounting Firm's 
determination. If the Accounting Firm determines that no Excise Tax is 
payable by Employee, it shall furnish Employee with a written opinion that 
failure to report the Excise Tax on the Executive's applicable federal income 
tax return should not result in the imposition of a negligence or similar 
penalty. Any determination by the Accounting Firm shall be binding upon 
Employer and Employee. As a result of the uncertainty in the application of 
Section 4999 of the Code at the time of the initial determination by the 
Accounting Firm hereunder, it is possible that Gross-Up Payments which will 
not have been made by Employer should have been made ("UNDERPAYMENT"), 
consistent with the calculations required to be made hereunder. In the event 
that Employer exhausts its remedies pursuant to Section 9.5(c) and Employee 
thereafter is required to make a payment of any Excise Tax, the Accounting 
Firm shall determine the amount of the Underpayment that has occurred and any 
such Underpayment shall be promptly paid by Employer to or for the benefit of 
Employee.

                                       9
<PAGE>

             (c)    Employee shall notify Employer in writing of any claim by 
the Internal Revenue Service that, if successful, would require the payment 
of the Gross-Up Payment. Such notification shall be given as soon as 
practicable but no later than ten (10) business days after Employee is 
informed in writing of such claim and shall apprise Employer of the nature of 
such claim and the date on which such claim is requested to be paid.  
Employee shall not pay such claim prior to the expiration of the 30-day 
period following the date on which it gives such notice to Employer (or such 
shorter period ending on the date that any payment of taxes with respect to 
such claim is due). If Employer notifies Employee in writing prior to the 
expiration of such period that it desires to contest such claim, Employee 
shall:

                    (i)    give Employer any information reasonably requested 
by Employer relating to such claim;

                    (ii)   take such action in connection with contesting 
such claim as Employer shall reasonably request in writing from time to time, 
including, without limitation, accepting legal representation with respect to 
such claim by an attorney reasonably selected by Employer;

                    (iii)  cooperate with Employer in good faith in order 
effectively to contest such claim; and

                    (iv)   permit Employer to participate in any proceedings 
relating to such claim; PROVIDED, HOWEVER, that Employer shall bear and pay 
directly all costs and expenses (including additional interest and penalties) 
incurred in connection with such contest and shall indemnify and hold 
Employee harmless, on an after-tax basis, for any Excise Tax or income tax 
(including interest and penalties with respect thereto) imposed as a result 
of such representation and payment of costs and expenses. Without limitation 
on the foregoing provisions of this Section 9.5(c), Employer shall control 
all proceedings taken in connection with such contest and, at its sole 
option, may pursue or forgo any and all administrative appeals, proceedings, 
hearings and conferences with the taxing authority in respect of such claim 
and may, at its sole option, either direct Employee to pay the tax claimed 
and sue for a refund or contest the claim in any permissible manner, and 
Employee agrees to prosecute such contest to a determination before any 
administrative tribunal, in a court of initial jurisdiction and in one or 
more appellate courts, as Employer shall determine; PROVIDED, HOWEVER, that 
if Employer directs Employee to pay such claim and sue for a refund, Employer 
shall advance the amount of such payment to Employee, on an interest-free 
basis and shall indemnify and hold Employee harmless, on an after-tax basis, 
from any Excise Tax or income tax (including interest or penalties with 
respect thereto) imposed with respect to such advance or with respect to any 
imputed income with respect to such advance; and FURTHER, PROVIDED, that any 
extension of the statute of limitations relating to payment of taxes for the 
taxable year of Employee with respect to which such contested amount is 
claimed to be due is limited solely to such contested amount.

             Furthermore, Employer's control of the contest shall be limited 
to issues with respect to which a Gross-Up Payment would be payable hereunder 
and Employee shall be entitled to settle or contest, as the case may be, any 
other issue raised by the Internal Revenue Service or any other taxing 
authority.

                                       10
<PAGE>

             (d)    If, after the receipt by Employee of an amount advanced 
by Employer pursuant to Section 9.5(c), Employee becomes entitled to receive 
any refund with respect to such claim, Employee shall promptly pay to 
Employer the amount of such refund (together with any interest paid or 
credited thereon after taxes applicable thereto). If, after the receipt by 
Employee of an amount advanced by Employer pursuant to Section 9.5(c), a 
determination is made that Employee shall not be entitled to any refund with 
respect to such claim and Employer does not notify Employee in writing of its 
intent to contest such denial of refund prior to the expiration of thirty 
(30) days after such determination, then such advance shall be forgiven and 
shall not be required to be repaid and the amount of such advance shall 
offset, to the extent thereof, the amount of Gross-Up Payment required to be 
paid.

10.   GENERAL PROVISIONS

      10.1   INJUNCTIVE RELIEF AND ADDITIONAL REMEDY.  Employee acknowledges 
that the injury that would be suffered by Employer as a result of a breach of 
the provisions of this Agreement (including any provision of SECTIONS 6 and 
7) would be irreparable and that an award of monetary damages to Employer for 
such a breach would be an inadequate remedy. Consequently, Employer will have 
the right, in addition to any other rights it may have, to obtain injunctive 
relief to restrain any breach or threatened breach or otherwise to 
specifically enforce any provision of this Agreement, and Employer will not 
be obligated to post bond or other security in seeking such relief. Without 
limiting Employer's rights under this SECTION 10 or any other remedies of 
Employer, if Employee breaches any of the provisions of SECTION 6 or 7, 
Employer will have the right to cease making any payments otherwise due to 
Employee under this Agreement.

      10.2   COVENANTS OF SECTIONS 6 AND 7 ARE ESSENTIAL AND INDEPENDENT 
COVENANTS; ADVICE OF COUNSEL.  The covenants by Employee in SECTIONS 6 and 7 
are essential elements of this Agreement, and without Employee's agreement to 
comply with such covenants, Employer would not have entered into this 
Agreement or employed or continued the Employment of Employee.  Employer and 
Employee have independently consulted their respective counsel and have been 
advised in all respects concerning the terms of this Agreement, including the 
reasonableness and propriety of the above referenced covenants, with specific 
regard to the nature of the business conducted by Employer.  Employee further 
confirms that he has been advised by counsel and/or tax professionals with 
respect to the income tax effects of the terms of his employment, including, 
but not limited to, potential "golden parachute" tax lability.  Subject to 
the final execution and delivery of this Agreement, Employer will reimburse 
Employee for all reasonable legal and tax consulting fees (not to exceed Five 
Thousand Dollars ($5,000)) associated with Employee's review and negotiation 
of this Agreement.

      Employee's covenants in SECTIONS 6 and 7 are independent covenants and 
the existence of any claim by Employee against Employer under this Agreement 
or otherwise will not excuse Employee's breach of any covenant in SECTION 6 
or 7.

      If Employee's Employment hereunder expires or is terminated, this 
Agreement will continue in full force and effect as is necessary or 
appropriate to enforce the covenants and agreements of Employee in SECTIONS 6 
and 7.

                                       11
<PAGE>

      10.3   REPRESENTATIONS AND WARRANTIES BY EMPLOYEE.  Employee represents 
and warrants to Employer that the execution and delivery by Employee of this 
Agreement do not, and the performance by Employee of his obligations 
hereunder will not, with or without the giving of notice or the passage of 
time, or both: (a) violate any judgment, writ, injunction, or order of any 
court, arbitrator, or governmental agency applicable to Employee; or (b) 
conflict with, result in the breach of any provisions of or the termination 
of, or constitute a default under, any agreement to which Employee is a party 
or by which Employee is or may be bound.

      10.4   OBLIGATIONS CONTINGENT ON PERFORMANCE.  The obligations of 
Employer hereunder, including its obligation to pay the compensation provided 
for herein, are contingent upon Employee's performance of Employee's 
obligations hereunder.

      10.5   WAIVER.  The rights and remedies of the parties to this 
Agreement are cumulative and not alternative. Neither the failure nor any 
delay by either party in exercising any right, power, or privilege under this 
Agreement will operate as a waiver of such right, power, or privilege, and no 
single or partial exercise of any such right, power, or privilege will 
preclude any other or further exercise of such right, power, or privilege or 
the exercise of any other right, power, or privilege. To the maximum extent 
permitted by applicable law, (a) no claim or right arising out of this 
Agreement can be discharged by one party, in whole or in part, by a waiver or 
renunciation of the claim or right unless in writing signed by the other 
party; (b) no waiver that may be given by a party will be applicable except 
in the specific instance for which it is given; and (c) no notice to or 
demand on one party will be deemed to be a waiver of any obligation of such 
party or of the right of the party giving such notice or demand to take 
further action without notice or demand as provided in this Agreement.

      10.6   BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED.  This Agreement 
shall inure to the benefit of, and shall be binding upon, the parties hereto 
and their respective successors, assigns, heirs, and legal representatives, 
including any entity with which Employer may merge or consolidate or to which 
all or substantially all of its assets may be transferred. The duties and 
covenants of Employee under this Agreement, being personal, may not be 
delegated.

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

             If to Employer:       DAOU Systems, Inc.
                                   5120 Shoreham Place
                                   San Diego, CA  92122
                                   Attention: Chairman of the Board and Chief
                                   Financial Officer
                                   Facsimile No.:  (619) 452-2789

                                       12
<PAGE>

             With a copy to:       Baker & McKenzie
                                   101 West Broadway, Twelfth Floor
                                   San Diego, California  92101-3890
                                   ATTENTION:  John J. Hentrich, Esq.
                                   Facsimile No.:  (619) 236-0429

             If to Employee:       Larry D. Grandia
                                   1934 S. 850 E.
                                   Bountiful, UT  84010

      10.8   ENTIRE AGREEMENT; AMENDMENTS.  This Agreement contains the 
entire agreement between the parties with respect to the subject matter 
hereof and supersedes all prior agreements and understandings, oral or 
written, between the parties hereto with respect to the subject matter 
hereof, including the Consulting Agreement.  This Agreement may not be 
amended orally, but only by an agreement in writing signed by the parties 
hereto.

      10.9   GOVERNING LAW.  This Agreement will be governed by the laws of 
the State of California without regard to conflicts of laws principles.

      10.10  BINDING ARBITRATION.  Subject to the arbitration provisions set 
forth below, the parties hereto agree that all disputes arising out of or 
related to the terms and conditions of this Agreement or to the performance, 
breach or termination thereof, shall be submitted to binding arbitration 
pursuant to the Expedited Procedures of the Commercial Arbitration Rules (the 
"RULES") of the American Arbitration Association (the "AAA").  The 
arbitration will take place in San Diego, California, at the offices of the 
AAA.  The dispute will be resolved by a single arbitrator appointed by the 
AAA in accordance with the list procedure described in Paragraph 13 of the 
Rules, except that the AAA will transmit the list within ten (10) Business 
Days of the filing of the demand for arbitration, and the parties thereto 
will have five (5) Business Days to return the list to the AAA with their 
objections and preferences.  Discovery will be limited to no more than seven 
(7) depositions by each side and written document requests, requesting the 
production of specific documents.  The parties to the dispute will 
voluntarily produce any and all documents that they intend to use at the 
hearing before the close of discovery, subject to supplementation for 
purposes of rebuttal or good cause shown.  The period for taking discovery 
will be sixty (60) Business Days, commencing upon the day that the answer is 
due under the Rules.  The arbitrator will hold a pre-hearing conference 
within three (3) Business Days of the close of discovery and will schedule 
the hearing within thirty (30) Business Days of the close of discovery.  
After the arbitrator is selected, the arbitrator will have sole jurisdiction 
to hear such applications, except that any measure ordered by the arbitrator 
may be immediately and specifically enforced by a court otherwise having 
jurisdiction over the parties.  All fees and costs will be allocated to the 
parties to the arbitration as determined by the arbitrator.  Each party will 
pay its own fees and costs associated with the arbitration and each party 
will pay one-half the estimated arbitrator's fees up front and if either 
party fails to do so a default will be entered against such party solely with 
respect to such fees.  Any determination of the arbitrator shall be final and 
binding on the parties hereto.  Nothing in this Agreement will prevent a 
party hereto from applying to a court that would otherwise have jurisdiction 
for provisional or interim injunctive or other equitable measures.

                                       13
<PAGE>

      10.11  SECTION HEADINGS, CONSTRUCTION.  The section headings in this 
Agreement are provided for convenience only and will not affect its 
construction or interpretation. All references to "section" or "sections" 
refer to the corresponding section or sections of this Agreement unless 
otherwise specified. All words used in this Agreement will be construed to be 
of such gender or number as the circumstances require. Unless otherwise 
expressly provided, the word "including" does not limit the preceding words 
or terms.

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

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

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<PAGE>

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

DAOU SYSTEMS, INC.                      EMPLOYEE:



By:                                     By: 
    -------------------------------         ------------------------------
       Georges J. Daou,                        Larry D. Grandia
       Chief Executive Officer





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<PAGE>

                                   ATTACHMENT A

                           INCENTIVE COMPENSATION PLAN






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<PAGE>

                                   ATTACHMENT B

                EMPLOYEE CONFIDENTIALITY AND INVENTIONS AGREEMENT








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                                   ATTACHMENT C

                         HOUSING AND RELOCATION BENEFITS

Employee will be entitled to the following housing and relocation benefits:

1.    In the event that, during the Employment Period, Employee elects to 
relocate his personal residence in Salt Lake City, Utah (the "UTAH 
RESIDENCE") to San Diego, California, Employee shall provide written notice 
of such election to Employer.  Within 15 days of the date of such written 
notice, Employee shall obtain from three (3) licensed real estate appraisers 
in the Salt lake City area three (3) separate appraisals of the fair market 
value of the Utah Residence (collectively, the "APPRAISALS").  To the extent 
that (i) Employee is unable to sell the Utah Residence within 90 days after 
the conclusion of such 15-day period and (ii) Employee subsequently sells the 
Utah Residence during the Employment Period and relocates to San Diego, 
California to continue his employment with Employer, Employer agrees to pay 
to Employee the amount, if any, by which the average value of the Appraisals 
exceeds the actual sales price of the Utah Residence.

2.    Employer will reimburse Employee for standard closing costs relating to 
Employee's sale of the Utah Residence as set forth above in item 1.







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