<PAGE>


Exhibit 10.3


                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made as of September 8,
1999 by and between DAOU Systems, Inc., a Delaware corporation ("EMPLOYER"), and
Donald R. Myll, an individual resident of the State of California ("EMPLOYEE").

                                    AGREEMENT

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

         1.       EFFECTIVE DATE. Employee's employment with Employer will
commence effective as of September 8, 1999 (the "EFFECTIVE DATE").

         2.       EMPLOYMENT TERMS AND DUTIES.

                  2.1      EMPLOYMENT. Employer employs Employee, and Employee
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 by either Employer or Employee. Employer may terminate Employee with
or without Cause (as defined below in Section 7.1). Although certain
provisions of this Agreement describe events that could occur at a particular
time in the future, nothing in this Agreement may be construed as a guarantee
of Employee's employment for any length of time.

                  2.3      DUTIES. Effective upon his appointment by
Employer's Board of Directors, Employee will serve as Executive Vice
President, Chief Financial Officer and Secretary of Employer and will have
such duties as are assigned or delegated to Employee by the President of
Employer (the "PRESIDENT"). Employee will: (i) devote his entire business
time, attention, skill, and energy exclusively to the business of Employer;
(ii) use his best efforts to promote the success of Employer's business; and
(iii) cooperate fully with the President and the Board of Directors of
Employer in the advancement of the best interests of Employer.

                   2.4      PARTICIPATION ON OUTSIDE BOARDS; HEARING SCIENCE.

                           (a)      Notwithstanding the provisions of Section
2.3, Employee shall be permitted to participate as a member of the Board of
Directors of other corporations provided that (i) such participation does not
interfere with or diminish the performance by Employee of his duties set forth
in Section 2.3, and (ii) Employee obtains the prior written consent of the Board
of Directors of Employer (which consent will not unreasonably be withheld).
Employee agrees to resign from any such Boards of Directors at the request of
Employer's Board of Directors if they conclude, in their discretion, that the
participation of Employee on such Board is not in the best interest of Employer.



<PAGE>

                           (b)      Employer acknowledges that it has been
informed by Employee that he is currently serving as Chief Executive Officer of
Hearing Science, which currently occupies less that five hours per month of his
time. As an accommodation to Employee, Employer agrees that Employee may
continue to serve in this capacity until October 31, 1999. In the event that
Employee continues to serve in an executive, employee or consultant capacity to
Hearing Science beyond this date without Employer's prior approval, Employer may
immediately terminate this Agreement for Cause.

                  2.5      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.
Employee agrees to comply with the terms and conditions of Employer's Employee
Confidentiality and Inventions Agreement, a copy of which is attached hereto as
EXHIBIT A and is incorporated herein by this reference.

         3.       COMPENSATION.

                  3.1      SALARY. Employee will be paid an annual salary of
One Hundred and Ninety Thousand Dollars ($190,000) (the "SALARY"), less any
applicable state and federal taxes or other payroll deductions. The Salary will
be payable in equal periodic installments according to Employer's customary
payroll practices. Any adjustment to the Salary is at the sole discretion of
Employer.

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

                  3.3      ADDITIONAL COMPENSATION. As additional compensation
for the services rendered by Employee pursuant to this Agreement, Employee is
eligible for a quarterly bonus of up to $20,000 in accordance with Employer's
Incentive Compensation Plan (the "ADDITIONAL COMPENSATION"). Employee is
eligible for a pro-rated portion of the Additional Compensation for the period
of 1999 after the Effective Date. In order to be eligible for the Additional
Compensation, Employee shall be employed by Employer on the date that the
Additional Compensation, if any, is customarily distributed by Employer.

         4.       GROWTH INCENTIVE.

                  4.1      GRANT OF OpTIONS. On the Effective Date, Employer
will grant to Employee stock options for the right to purchase up to Three
Hundred Thousand (300,000) shares of Employer's Common Stock (the "OPTIONS"), of
which 150,000 options shall be issuable under Employer's 1996 Stock Option Plan
(the "PLAN"), and 150,000 options shall be issuable outside of the Plan. The
Options will consist of 61,536 incentive stock options and 238,464 non-qualified
stock options, each exercisable at a price of $4.875 per share of Common Stock,
which price is the fair market value of Employer's Common Stock on September 8,
1999. In addition to the terms set forth in this Section 4, all of the Options
(whether or not issued pursuant to the Plan) will be subject to such other
terms, conditions and limitations as generally are included in


<PAGE>


the Plan and in any related stock option agreement, as well as applicable
state and federal laws including, but not limited to, tax and securities
laws. The Options will vest as set forth below in Section 4.2.

                  4.2      VESTING OF THE OPTIONS.  The Options will vest as
follows:

                           (a)      61,536 incentive stock options will vest in
three (3) equal annual increments of 20,512 shares of Common Stock on the first,
second and third anniversaries, respectively, of the Effective Date;

                           (b)      138,464 non-qualified options will vest in
two (2) equal increments of 46,155 shares of Common Stock on the first and
second anniversaries, respectively, of the Effective Date and 46,154 shares of
Common Stock will vest on the third anniversary of the Effective Date;

                           (c)      the remaining 100,000 non-qualified options
(the "PERFORMANCE-BASED OPTIONS") will vest on the earlier of: (i) the sixth
anniversary of the Effective Date; or (ii) the achievement of the price targets
of Employer's Common Stock set forth in EXHIBIT B to this Agreement; and

                           (d)      all unvested options will vest and become
exercisable in the event that Employee is terminated without Cause as defined
in Section 7.1(c).

                  4.3       CONTINUED EMPLOYMENT. Except as described in
Section 7.1(e) of this Agreement, vesting of the Options pursuant to this
Agreement is earned only by continuing as an employee of Employer at the will of
Employer (not through the act of being granted the Option or acquiring shares
hereunder). This Agreement, the transactions contemplated under it and the
vesting schedule set forth in this Agreement do not constitute an express or
implied promise of continued engagement for the vesting period, for any period,
or at all.

         5.       FACILITIES AND EXPENSES. 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 (a) while attending
conventions, seminars and other business meetings, (b) for appropriate business
entertainment activities, and (c) for appropriate promotional expenses. In
addition, Employer will reimburse Employee for the reasonable costs of equipping
a home office (e.g. computer, phone line, printer and facsimile). Employee shall
file expense reports with respect to such expenses in accordance with Employer's
policies.

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



<PAGE>


         7.       PAYMENT UPON TERMINATION OF EMPLOYMENT. Upon termination of
Employee's Employment, Employer will be obligated to pay to Employee only such
compensation as is provided in this Section 7.

                  7.1       TERMINATION OF EMPLOYEE WITHOUT CAUSE OR
RESIGNATION BY EMPLOYEE FOR GOOD REASON FOLLOWING A CHANGE IN CONTROL. In the
event of (i) the termination of Employee without Cause or (ii) a Change in
Control Termination (as defined below), Employee will be eligible for payment of
the Salary and accrued but unused vacation through the date of such termination
and severance payments (the "SEVERANCE PAYMENT") in an aggregate amount equal to
(a) the Salary plus (b) an amount equal to the Additional Compensation, if any,
paid to Employee during the twelve (12) month period preceding termination. The
Severance Payment, if any, will be paid in a lump sum within 45 days of
termination. In addition, Employer will reimburse the Employee for COBRA
payments, if COBRA coverage is elected by Employee, for a twelve (12) month
period. Employee's receipt of the Severance Payment and COBRA payment is
conditioned upon his execution of a release of all claims effective as of the
termination date, in substantially the form attached to this Agreement as
EXHIBIT C.

                           (a)      A "CHANGE IN CONTROL TERMINATION" of the
employment relationship occurs if Employee resigns for Good Reason (as defined
below) within twelve (12) months following a CHANGE IN CONTROL (as defined
below).

                           (b)      "CHANGE IN CONTROL" is defined to have
occurred if, and only if:

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

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

                                    (iii)   all or substantially all of the
assets of Employer are sold, liquidated or distributed.

                           (c)      DEFINITION OF CAUSE. A termination for
"CAUSE" occurs if Employee is terminated for any one of the following reasons:
(i) Employee's material breach of this Agreement; (ii) Employee's material
failure to adhere to any written policy of Employer generally applicable to
officers of Employer 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);
(iii) the appropriation (or attempted appropriation) of a material business
opportunity of Employer,



<PAGE>

including attempting to secure or securing any personal profit in connection
with any transaction entered into on behalf of Employer; (iv) the
misappropriation (or attempted misappropriation) of any of Employer's funds
or property; (v) the conviction of, or the entering of a guilty plea or plea
of no contest with respect to, a felony, the equivalent thereof, or any other
crime with respect to which imprisonment is a possible punishment; (vi)
willful misconduct; (vii) physical or mental disability or other inability to
perform the essential functions of his position, with or without reasonable
accommodation; (viii) death; or (ix) as stated in Section 2.4(b).

                           (d)      RESIGNATION BY EMPLOYEE FOR GOOD REASON.
Employee shall have the right to terminate his employment with Employer, and
such termination shall, for purposes of this Agreement, be considered a
resignation by Employee for "GOOD REASON" if Employer: (i) changes Employee's
position and title from Executive Vice President and Chief Financial Officer to
a title and position of decreased responsibility or salary; or (ii) Employee's
place of employment is located more than 50 miles from the current corporate
location in San Diego, California. An event described in this Section 7.1(d)
will not constitute Good Reason unless it is (i) communicated by Employee to
Employer in writing and (ii) not corrected by Employer in a manner which is
reasonably satisfactory to Employee within thirty (30) days of Employer's
receipt of such written notice.

                           (e)      VESTING OF THE OPTIONS UPON A CHANGE IN
CONTROL.  In the event of a Change in Control, seventy percent (70%) of all of
the unvested Options will vest immediately upon the consummation of such Change
in Control.

                  7.2       TERMINATION OF EMPLOYEE FOR CAUSE. In the event that
Employer terminates Employee for Cause, Employee will be entitled to receive the
portion of the Salary accrued and owing to Employee only through the date of
such termination. In addition, at the option of Employer in its sole discretion,
Employee may be eligible for the Severance Payments as described in Section 7.1
in exchange for his execution of a release of all claims effective as of the
termination date, in substantially the form attached to this Agreement as
EXHIBIT C.

                  7.3       TERMINATION OF EMPLOYMENT FOLLOWING DEATH OR
DISABILITY. Where the Employment is terminated following Employee's death or
where the Employment is terminated as a result of Employee suffering a
disability which cannot be reasonably accommodated and which renders him unable
to perform the essential functions of his position for 120 days, Employee is
eligible for payment of the Salary and accrued but unused vacation through the
date of such termination.

                  7.4       TERMINATION FOR ANY OTHER REASON. Except as
provided in this Section 7, if Employee terminates his employment for any other
reason, then Employee only will be entitled to receive the portion of the Salary
accrued and owing to Employee through the date of such termination.

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

         8.       TAX ADJUSTMENT.



<PAGE>


                  8.1       RIGHT TO GROSS-UP PAYMENTS. Notwithstanding
anything in this Agreement to the contrary and except as set forth below, if it
is determined that by reason of any payment or distribution occurring pursuant
to the terms of this Agreement (or otherwise under any other agreement, plan or
program) upon a Change in Control (collectively, the "PAYMENT") Employee becomes
subject to the excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "EXCISE TAX") imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE"),
then Employee shall be entitled to receive from Employer an additional payment
(a "GROSS-UP PAYMENT") in an amount such that, after payment by Employee of all
taxes (including, without limitation, the Excise Tax and any interest or
penalties imposed with respect to such taxes) imposed upon the Gross-Up Payment,
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.

                  8.2       DETERMINATION OF GROSS-UP PAYMENTS. Subject to the
provisions of Section 8.3, all determinations required to be made under this
Section 8, 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 or such other
nationally recognized accounting firm mutually selected by Employer and Employee
(the "ACCOUNTING FIRM"). The Accounting Firm shall provide its preliminary
determination and detailed supporting calculations to Employer and Employee
within fifteen (15) business days of the receipt of notice from Employee that
there has been the Payment, or such earlier time as is requested by Employer.
All fees and expenses of the Accounting Firm shall be borne solely by Employer.
Any Gross-Up Payment determined pursuant to this Section 8 shall be paid by
Employer to Employee within five (5) days of the receipt of the Accounting
Firm's determination, and such determination 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 (the "UNDERPAYMENT"), consistent with the
calculations required to be made hereunder. In the event that Employer exhausts
its remedies pursuant to Section 8.3 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.

                  8.3       GROSS-UP PAYMENT PROCEDURES. Employee shall notify
Employer in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment of a 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, then 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)



<PAGE>


cooperate with Employer in good faith in order to contest effectively 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 limiting the foregoing, Employer shall
control all proceedings taken in connection with such contest (which control
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder) 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, then Employer shall advance, on an interest-free basis, the amount
of such payment to Employee 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 PROVIDED,
FURTHER, 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.

                  8.4       REFUNDS. If, after the receipt by Employee of an
amount advanced by Employer pursuant to Section 8.3, Employee becomes entitled
to receive any refund with respect to such claim, then 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 8.3, 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.

         9.       GENERAL PROVISIONS.

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



<PAGE>

                  9.2       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.

                  9.3       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.

                  9.4       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.

                  9.5       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:  President
                                    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 Employee:   Donald R. Myll
                                    14558 Wildgrove Road
                                    Poway, CA  92064
                                    Facsimile No.:  (858) 486-6678



<PAGE>

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

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

                  9.8       JURISDICTION. Subject to Section 9.10 of this
Agreement, any proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement will be brought against any of the parties
in the courts of the state in which the defendant in such action or proceeding
resides or is domiciled, or, if it has or can acquire jurisdiction, in the
United States District Court for the district of the state in which such
defendant resides or is domiciled, and each of the parties hereto consents to
the jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party hereto anywhere in the world.

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

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

                  9.11      SECTION HEADINGS, CONSTRUCTION.  The section
headings in this Agreement are provided for convenience only and will not affect
its construction or interpretation.


<PAGE>

                  9.12      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.

                  9.13      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.

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


DAOU SYSTEMS, INC.                               EMPLOYEE:



By:       /s/ LARRY D. GRANDIA                   By:     /s/ DONALD R. MYLL
   ----------------------------------------         --------------------------
      Larry D. Grandia,                                   Donald R. Myll
      President and Chief Executive Officer




<PAGE>

                                    EXHIBIT A

                EMPLOYEE CONFIDENTIALITY AND INVENTIONS AGREEMENT






<PAGE>

                                    EXHIBIT B

                                  PRICE TARGETS


If the closing stock price for Daou as reported by NASDAQ averages $7.40 or
higher for a period of 30 trading days prior to October 1, 2000, or Employer
consummates a change of control transaction at or above $7.40 per share before
such date, then 33,000 performance based options become immediately vested.
Prices to be adjusted for stock splits.

If the closing stock price for Daou as reported by NASDAQ averages $10.20 or
higher for a period of 30 trading days prior to October 1, 2001, or Employer
consummates a change of control transaction at or above $10.20 per share before
such date, then 33,000 performance based options become immediately vested.
Prices to be adjusted for stock splits.

If the closing stock price for Daou as reported by NASDAQ averages $13.00 or
higher for a period of 30 trading days prior to October 1, 2002, or Employer
consummates a change of control transaction at or above $13.00 per share before
such date, then 34,000 performance based options become immediately vested.
Prices to be adjusted for stock splits.



<PAGE>

                                    EXHIBIT C

                                 GENERAL RELEASE

THIS GENERAL RELEASE (this "RELEASE") is entered into effective as of
_________________ ("EFFECTIVE DATE") by and between DAOU Systems, Inc., a
Delaware corporation (the "COMPANY"), and Donald R. Myll, an individual resident
of the State of California ("EMPLOYEE"), with reference to the following facts:

                                    RECITALS

         A.       The parties hereto entered into an Employment Agreement dated\
as of September 8, 1999 (the "AGREEMENT"). Pursuant to the terms and conditions
of the Agreement, and contingent upon satisfaction of the conditions described
in the Agreement, Employee would become eligible for severance payments for up
to twelve (12) months beginning on the date of the termination of Employee's
employment relationship (the "SEPARATION DATE"), in exchange for Employee's
release of the Company from all claims which Employee may have against the
Company as of the Separation Date.

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

                                    AGREEMENT

         1.       RELEASE. In exchange for the consideration described in the
Agreement, receipt of which is hereby acknowledged, Employee, for himself and
his heirs, successors and assigns, fully releases, and discharges the Company
and its officers, directors, employees, shareholders, attorneys, accountants,
other professionals, insurers and agents (collectively "AGENTS"), and all
entities related to the Company and its Agents, including, but not limited to,
heirs, executors, administrators, personal representatives, assigns, parent,
subsidiary and sister corporations, affiliates, partners and co-venturers
(collectively, "RELATED ENTITIES"), from all rights, claims, demands, actions,
causes of action, liabilities and obligations of every kind, nature and
description whatsoever, Employee now has, owns or holds or has at anytime had,
owned or held or may have, own or hold against the Company, Agents or Related
Entities from any source whatsoever, whether or not arising from or related to
the facts recited in this Release. Employee specifically releases and waives any
and all claims arising under any express or implied contract, rule, regulation
or ordinance, including, without limitation, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the
California Fair Employment and Housing Act, and the Age Discrimination in
Employment Act, as amended ("ADEA").

         2.       SECTION 1542 WAIVER. This Release is intended as a full and
complete release and discharge of any and all claims that Employee may have
against the Company, Agents or Related Entities through the Separation Date. In
making this release, Employee intends to release the Company, Agents and Related
Entities from liability of any nature whatsoever for any claim of damages or
injury or for equitable or declaratory relief of any kind, whether the claim, or
any facts on which such claim might be based, is known or unknown to him.
Employee expressly



<PAGE>


waives all rights under Section 1542 of the Civil Code of the State of
California, which Employee understands provides as follows:

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

Employee acknowledges that he may discover facts different from or in addition
to those which he now believes to be true with respect to this Release. Employee
agrees that this Release shall remain effective notwithstanding the discovery of
any different or additional facts.

         3.       WAIVER OF CERTAIN CLAIMS. Employee acknowledges that, with
this Release, he has been advised in writing of his right to consult with an
attorney prior to executing the waivers set out in this Release, and that he has
been given a 21-day period in which to consider entering into the release of
ADEA claims, if any. In addition, Employee acknowledges that he has been
informed that he may revoke a signed waiver of the ADEA claims for up to seven
(7) days after executing this Release.

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

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

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

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


<PAGE>


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

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

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

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

         12.      AMENDMENT. This Release may be amended or supplemented only
by a writing signed by Employee and the Company.



Dated:_________________              _____________________________
                                         Donald R. Myll

                                         DAOU Systems, Inc.


Dated:_________________              _____________________________
                                     By: Larry D. Grandia, President and
                                         Chief Executive Officer