Document:

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                                                                    EXHIBIT 10.5

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                     1994 STOCK OPTION AND STOCK BONUS PLAN

                                       OF

                       GREYSTONE TECHNOLOGY, INCORPORATED

                            ADOPTED FEBRUARY 1, 1994

                               AMENDED MAY 6, 1994

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                                TABLE OF CONTENTS
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     1. PURPOSES ..........................................................    1

     2. DEFINITIONS .......................................................    1

     3. ADMINISTRATION ....................................................    4

     4. SHARES SUBJECT TO THE PLAN ........................................    5

     5. ELIGIBILITY .......................................................    6

     6. OPTION AGREEMENT PROVISIONS .......................................    6

     7. STOCK BONUS AGREEMENT PROVISIONS ..................................    8

     8. COVENANTS OF THE COMPANY ..........................................    9

     9. USE OF PROCEEDS ...................................................    9

    10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK ..........................   10

    11. MISCELLANEOUS .....................................................   11

    12. AMENDMENT OF THE PLAN .............................................   11

    13. TERMINATION OR SUSPENSION OF THE PLAN .............................   12

    14. EFFECTIVE DATE OF PLAN ............................................   12
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                                       (i)

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                       GREYSTONE TECHNOLOGY, INCORPORATED

                     1994 STOCK OPTION AND STOCK BONUS PLAN

                            Adopted February 1, 1994

                               Amended May 6, 1994

1.   PURPOSES.

The purposes of the Plan are as follows:

     (a) To provide additional incentive for selected Employees, Directors and
Consultants to further the growth, development and financial success of the
Company by providing a means by which such persons can personally benefit
through the ownership of capital stock of the Company, and to compensate certain
of such persons for their contributions to the growth of the Company; and

     (b) To enable the Company to secure and retain key Employees, Directors and
Consultants considered important to the long-range success of the Company by
offering such persons an opportunity to own capital stock of the Company.

2.   DEFINITIONS.

     (a) "Affiliate," means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.

     (b) "Board" means the Board of Directors of the Company.

     (c) "Bonus Shares" means the shares of Common Stock subject to a Stock
Bonus.

     (d) "Code" means the Internal Revenue Code of 1986, as amended.

     (e) "Committee" means a committee appointed by the Board in accordance with
Section 3(c).

     (f) "Common Stock" means the common stock, without par value, of the
Company; provided, however, that if the Company's articles of incorporation
authorize the issuance of only one class of stock, "Common Stock" shall mean
such class of stock.

     (g) "Company" means GreyStone Technology, Incorporated, a California
corporation.

<PAGE>   4

     (h) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company and/or who are not otherwise
compensated by the Company for their services as Directors except pursuant to
the Plan.

     (i) "Director" means a member of the Board.

     (j) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code and as interpreted by the Board in each case.

     (k) "Disinterested Person" means a Director who (i) was not, during the one
year prior to service as an administrator of the Plan, granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any of its
affiliates entitling the participants therein to acquire equity securities of
the Company or any of its affiliates except as permitted by subsection (c)(2)(i)
of Rule 16b-3, or (ii) is otherwise considered to be a "disinterested person, in
accordance with subsection (c)(2)(i) of Rule 16b-3, or any other applicable
rules, regulations or interpretations of the Securities and Exchange Commission.

     (1) "Employee" means any person, including officers and Directors, employed
by the Company or any Affiliate of the Company; provided, however, that neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.

     (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (n) "Fair Market Value" means, as of any date, the value of the Common
Stock of the Company determined as follows:

        (i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the National Market System
of the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the date of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;

        (ii) If the Common Stock is quoted on the NASDAQ System (but not on the
National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and high asked
prices for the Common Stock on the last market

                                       2.
<PAGE>   5

trading day prior to the date of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable; or

        (iii) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board of Directors
pursuant to Rule 260.140.50 of Title 10 of the California Code of Regulations.

     (o) "Grantee" means an Employee, Director or Consultant who is granted a
Stock Bonus.

     (p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

     (q) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.

     (r) "Option" means a stock option granted pursuant to the Plan.

     (s) "Option Agreement" means a written agreement between the Company and an
Optioned evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan and
any rules and regulations adopted by the Board and incorporated therein.

     (t) "Option Shares" means the shares of Common Stock of the Company subject
to

     (u) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.

     (v) "Plan" means this 1994 Stock Option and Stock Bonus Plan.

     (w) "Rule 16b-3 " means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b- as in effect when discretion is being exercised with respect to the
Plan.

     (x) "Securities Act" means the Securities Act of 1933, as amended.

     (y) "Stock Bonus" means a bonus of shares of Common Stock granted pursuant
to the

     (z) "Stock Bonus Agreement" means a written agreement between the Company
and a Grantee evidencing the terms and conditions of an individual Stock Bonus
grant. Each Stock Bonus Agreement shall be subject to the terms and conditions
of the Plan and any rules and regulations adopted by the Board and incorporated
therein.

                                       3.
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     (aa) "Termination of Employment or Consulting Relationship" means:

        (i) With respect to Options or Stock Bonuses granted to an Optionee or
Grantee in his capacity as an Employee, the time when the employer-employee
relationship between the Optionee and the Company (or an Affiliate) is
terminated for any reason, including without limitation a termination by
resignation, discharge, death or retirement. The Board, in its sole discretion,
may determine whether a Termination of Employment or Consulting Relationship has
occurred in the case of any leave of absence approved by the Board, including
sick leave, personal leave and military leave; provided, however, that any such
leave for purposes of an Incentive Stock Option shall not exceed ninety (90)
days unless (A) the Board determines to extend such period upon the
acknowledgement of the Optionee that such an Option would become a Nonstatutory
Stock Option, or (B) reemployment upon the expiration of such leave is
guaranteed by contract (including by Company policy) or statute;

        (ii) With respect to Options or Stock Bonuses granted to an Optionee or
Grantee in his capacity as a Director, the time when the Optionee or Grantee
ceases to be a Director for any reason, including without limitation a cessation
by resignation, removal, failure to be reelected, death or retirement, but
excluding cessations where there is a simultaneous or continuing employment of
the former Director by the Company or an Affiliate and the Board expressly deems
such cessation not to be a Termination of Employment or Consulting Relationship;
and

        (iii) With respect to Options or Stock Bonuses granted to an Optionee or
Grantee in his capacity as a Consultant, the time when the contractual
relationship between the Optionee or Grantee and the Company (or an Affiliate)
is terminated for any reason, except where there is a simultaneous or continuing
employment of the former Consultant by the Company or an Affiliate and the Board
expressly deems such termination not to be a Termination of Employment or
Consulting Relationship.

The Board, in its absolute discretion, shall determine the effect of all other
matters and questions relating to a Termination of Employment or Consulting
Relationship.

3.   ADMINISTRATION.

     (a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in Section 3(c) below.

     (b) The Board shall have the power, except as otherwise provided in the
Plan:

        (i) To determine from time to time (A) which of the persons eligible
under the Plan shall be granted Options and/or Stock Bonuses, (B) when and how
the Options and Stock Bonuses shall be granted, (C) whether an Option will be an
Incentive Stock Option or a Nonstatutory Stock Option, (D) the provisions of
each Option and each Stock Bonus granted

                                       4.
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(which need not be identical), including the time or times an Option may be
exercised in whole or in part, and (E) the number of shares for which an Option
or Stock Bonus shall be granted to each such person.

        (ii) To construe and interpret the Plan, and Options and Stock Bonuses
granted under it, and to establish, amend and revoke rules and regulations for
the Plan's administration. The Board, in the exercise of its power, may correct
any defect, omission or inconsistency in the Plan or in any Option Agreement or
Stock Bonus Agreement in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.

        (iii) To amend the Plan as provided in Section 12.

        (iv) To place such restrictions on the sale or other disposition of
Option Shares and Bonus Shares as may be deemed appropriate by the Board.

        (v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company.

     (c) The Board may delegate administration of the Plan to a committee of the
Board composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee shall be Disinterested Persons. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in the Plan to the Board shall thereafter be deemed to be references
to the Committee), subject, however, to such resolutions, not inconsistent with
the provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

     (d) Notwithstanding the foregoing Section 3(c), the requirement that an
administrator of the Plan be a Disinterested Person shall not apply if the Board
or the Committee expressly declares that such requirement shall not apply. Any
Disinterested Person shall otherwise comply with the requirements of Rule 16b-3.

4.   SHARES SUBJECT TO THE PLAN.

Subject to the provisions of Section 10 relating to adjustments upon changes in
stock, the stock that may be sold pursuant to the exercise of Options or granted
pursuant to Stock Bonuses shall not exceed in the aggregate two million
(2,000,000) shares of the Company's Common Stock.- If any Option shall for any
reason expire or otherwise terminate without having been exercised in full the
stock not purchased pursuant to such Option shall again become available under
the Plan. If a Grantee to whom a Stock Bonus is granted fails to accept such
Stock Bonus, the Bonus Shares included in such Stock Bonus shall again become
available under the Plan.

                                       5.
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5.   ELIGIBILITY.

     (a) Incentive Stock Options may be granted only to Employees. Nonstatutory
Stock Options and Stock Bonuses may be granted only to Employees, Directors or
Consultants. In the event an Optionee or Grantee is both an Employee and a
Director, or an Optionee or Grantee is both a Director and a Consultant, the
Option Agreement shall specify the capacity in which the Option or Stock Bonus
is granted.

     (b) Notwithstanding subsection (a) above, a Director shall in no event be
eligible for the benefits of the Plan unless, at the time discretion is
exercised in the selection of the Director as a person to whom Options or Stock
Bonuses may be granted or in the determination of the number of shares which may
be covered by Options or Stock Bonuses granted to the Director, (i) the Board
has delegated its discretionary authority under the Plan to a Committee which
consists solely of Disinterested Persons, or (ii) the Plan otherwise complies
with the requirements of Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3. However, this Section 5(b) shall not apply for so
long as the Board or Committee expressly declares that it shall not apply.

     (c) on shall be eligible for the grant of an Option if, at the time of
grant, such person owns (or is deemed to own pursuant to Section 424(d) of the
Code) stock possessing more than ten percent (10 %) of the total combined voting
power of all classes of stock of the Company or of any of its Affiliates unless
the exercise price of such Option is at least one hundred ten percent (110 %) of
the Fair Market Value of such stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.

6.   OPTION AGREEMENT PROVISIONS.

     Each Option shall be granted pursuant to a written Option Agreement, which
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The provisions of separate Option Agreements need not be
identical, but each Option Agreement shall include (through incorporation of the
provisions hereof by reference in the Option Agreement or otherwise) the
substance of each of the following provisions:

     (a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.

     (b) Price. The exercise price of each Option shall be set forth in the
applicable Option Agreement; provided, however, that the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100 %) of the
Fair Market Value of the Common Stock subject to the Option on the date such
Option is granted.

     (c) Consideration. The purchase price of Common Stock acquired pursuant to
an Option shall be paid in cash at the time the Option, or portion thereof, is
exercised; provided,

                                       6.
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however, at the discretion of the Board, the Option Agreement may allow (i) a
delay in payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised, (ii) payment, in whole or in part, through the delivery
of shares of Common Stock owned by the Optionee; (iii) payment, in whole or in
part, through the surrender of Option Shares then issuable upon exercise of the
Option; (iv) payment, in whole or in part, through the delivery of property of
any kind which constitutes good and valuable consideration; or (v) any other
method of "cashless exercise" permitted by the Board.

     (d) Transferability. An Option shall not be transferable except by will or
by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. An
Optionee may, by delivering written notice to the Company in a form satisfactory
to the Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.

     (e) Vesting. The total number of Option Shares subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that, from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the Option Shares allotted to any period, and may be
exercised with respect to some or all of the Option Shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or other times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary but in each case will provide for
vesting of at least twenty percent (20 %) of the total number of shares subject
to the Option per year. During the remainder of the term of the Option (if its
term extends beyond the end of the installment periods), the Option may be
exercised from time to time with respect to any Option Shares then remaining
subject to the Option. The provisions of this Section 6(e) are subject to any
Option Agreement provisions governing the minimum number of Option Shares as to
which an Option may be exercised and any provisions governing the minimum
percentage of the Option Shares which may vest over specified periods of time.

     (f) Securities Law Compliance. The Company may require any Optionee, or any
person to whom an Option is transferred under Section 6d, as a condition of
exercising any such Option to give written assurances satisfactory to the
Company, if any, that are necessary to ensure compliance with federal securities
laws. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if the issuance of the Option Shares upon the
exercise of the Option has been registered under a then currently effective
registration statement under the Securities Act or, as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under then applicable
securities laws.

     (g) Termination of Employment or Consulting Relationship. In the event of
the Termination of Employment or Consulting Relationship of an Optionee for any
reason (other than

                                       7.
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upon the Optionee's death or Disability), the Optionee may exercise his or her
Option, but only within such period of time as is determined by the Board (which
period shall not be less than thirty (30) days from the date of such
termination), and only to the extent that the Optionee was entitled to exercise
the Option at the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). If,
at the date of a Termination of Employment or Consulting Relationship, the
Optionee is not entitled to exercise his or her entire Option, the Option Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after a Termination of Employment or Consulting Relationship, the Optionee does
not exercise his or her Option within the period specified in the Option
Agreement, the Option shall terminate, and the Option Shares covered by such
Option shall revert to the Plan.

     (h) Disability of Option. In the event of a Termination of Employment or
Consulting Relationship of an Optionee as a result of the Optionee's Disability,
the Optionee may exercise his or her Option, but only within such period of time
as is determined by the Board (which period shall not be less than six (6)
months from the date of such termination), and only to the extent that the
Optionee was entitled to exercise the Option at the date of such termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). If, at the date of a Termination of Employment
or Consulting Relationship, the Optionee is not entitled to exercise his or her
entire Option, the Option Shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after a Termination of Employment or
Consulting Relationship, the Optionee does not exercise his or her Option within
the period specified in the Option Agreement, the Option shall terminate, and
the Option Shares covered by such Option shall revert to the Plan.

     (i) Death of Optionee. In the event of the death of an Optionee, the Option
may be exercised within the period specified in the Option Agreement by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, at any time within such period as is determined by
the Board (which period shall not be less than six (6) months following the date
of death) , and only to the extent the Optionee was entitled to exercise the
Option at the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). If, at the time of
death, the Optionee was not entitled to exercise his or her entire Option, the
Option Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after death, the Optionee's estate or a person who acquired the
right to exercise the Option by bequest or inheritance does not exercise the
Option within the time specified in the Option Agreement, the Option shall
terminate, and the Option Shares covered by such Option shall revert to the
Plan.

7.   STOCK BONUS AGREEMENT PROVISIONS.

     Each Stock Bonus shall be granted pursuant to a written Stock Bonus
Agreement which shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate Stock
Bonus Agreements need not be identical, but each

                                       8.
<PAGE>   11

Stock Bonus Agreement shall include (through incorporation of the provisions
hereof by reference in the Stock Bonus Agreement or otherwise) the substance of
each of the following provisions:

     (a) Consideration. The consideration for which a Stock Bonus is granted
shall be services previously rendered by the Grantee to the Company, the value
of which shall be not less than 85 % of the Fair Market Value of the Bonus
Shares to be issued pursuant to the Stock Bonus, provided that the purchase
price shall be 100 % of the fair market value of the stock on the date such
award is made, in the case of any person who owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Applicant. The
Committee, in its absolute discretion, shall determine the value of such
Grantee's services.

     (b) Transferability. The rights of a Grantee to receive Bonus Shares
pursuant to a Stock Bonus shall not be transferable prior to the issuance of
such Bonus Shares, except by will or by the laws of descent and distribution.

     (c) Securities Law Compliance. The Company may require any Grantee, or any
person to whom a Stock Bonus is transferred under Section 7(b), as a condition
of issuance of Bonus Shares to give written assurances satisfactory to the
Company, if any, that are necessary to ensure compliance with federal securities
laws. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if the issuance of the Bonus Shares has been
registered under a then currently effective registration statement under the
Securities Act or, as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under then applicable securities laws.

8.   COVENANTS OF THE COMPANY.

     (a) During the terms of the Options, the Company shall keep available at
all times the number of shares of Common Stock required to satisfy such Options.

     (b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell Option Shares upon exercise of the Options and to grant Stock
Bonuses; provided, however, that this undertaking shall not require the Company
to register under the Securities Act either the Plan, any Option, any Option
Shares or any Bonus Shares. If, after reasonable efforts or without unreasonable
expense, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of Option Shares or the grant of Stock Bonuses under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell Option Shares upon exercise of such Options or to issue Bonus Shares
unless and until such authority is obtained.

9.   USE OF PROCEEDS.

                                       9.
<PAGE>   12

     Proceeds from the sale of Option Shares shall be used for general operating
capital of the Company.

10.  ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

     (a) If any change is made in the Common Stock subject to the Plan (through
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan, all outstanding
Options and all outstanding Stock Bonuses in respect of which Bonus Shares have
not been issued will be appropriately adjusted as to (i) the class and maximum
number of shares subject to the Plan, (ii) the class and number of shares and
price per share of Common Stock subject to outstanding Options, and (iii) the
class and number of shares subject to unissued Bonus Shares.

     (b) In the event the Company is merged or consolidated with another
corporation and the Company is the surviving corporation, each outstanding
Option, whether or not then exercisable, and each outstanding Stock Bonus in
respect of which Bonus Shares have not been issued, shall pertain to and apply
to the securities or other property to which a holder of the number the Option
Shares subject to such Option, or the Bonus Shares subject to such Stock Bonus,
would have been entitled upon such transaction.

     (c) In the event the Company is merged or consolidated with another
corporation and the Company is not the surviving corporation, or in the event
substantially all of the property or stock of the Company is acquired by another
corporation, or in case of a separation, reorganization, or liquidation of the
Company, the Board shall, in its sole discretion as to each outstanding Option
or Stock Bonus in respect of which Bonus Shares have not been issued, either (i)
make appropriate provision for protection of such Option or Stock Bonus by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect of the stock of the Company, or (ii) upon written notice to
the holder of such Option or Stock Bonus, provide that such Option must be
exercised, or such Stock Bonus accepted, within a specified period not exceeding
sixty (60) days of the date of such notice (to the extent, in the case of an
Option, such Option is exercisable on the last day of such specified period) or
it will be terminated. Any portion of such Option which is not exercisable on
the last day of such specified period will be terminated, and any portion of
such Option which is not exercised, or any portion of such Stock Bonus which is
not accepted, on or before said last day shall terminate on said last day. In
the event any surviving corporation refuses to assume or continue such Options,
or to substitute similar options for those outstanding under the Plan, then,
with respect to Options held by persons then performing services as Employees or
Consultants, the time during which such Options may be exercised shall be
accelerated and the Options terminated if not exercised prior to such event.

                                      10.
<PAGE>   13

11.  MISCELLANEOUS.

     (a) Neither an Optionee, Grantee nor any person to whom an Option is
transferred under Section 6(d) or 7(b) shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any Option Shares or
Bonus Shares unless and until such person has satisfied all requirements for
exercise of the Option or the grant of the Stock Bonus, pursuant to its
respective terms, and the Company has duly issued a stock certificate for such
Option Shares or Bonus Shares.

     (b) Throughout the term of any Option or Stock Bonus granted pursuant to
the Plan, the Company shall make available to the holder of such Option, not
later than one hundred twenty (120) days after the close of each of the
Company's fiscal years during the Option or Stock Bonus term, upon request, such
financial and other information regarding the Company as comprises the annual
report to the stockholders of the Company provided for in the bylaws of the
Company.

     (c) Nothing in the Plan, or any instrument executed or Option or Stock
Bonus granted pursuant thereto, shall confer upon any Employee, Consultant,
Director, Grantee or Optionee any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Consultant or Director) or shall
restrict the right of the Company or its shareholders or any Affiliate to
terminate the employment or other relationship of any Employee, Consultant,
Director, Grantee or Optionee with or without cause.

     (d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds One Hundred Thousand Dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

     (e) The Company and the members of the Board shall be relieved from any
liability for the non-issuance or non-transfer, or any delay of issuance or
transfer, of any Option Shares or Bonus Shares which results from the inability
of the Company to comply with, or to obtain, or from any delay in obtaining from
any regulatory body having jurisdiction, all requisite authority to issue or
transfer Option Shares or Bonus Shares if counsel for the Company deems such
authority reasonably necessary for lawful issuance or transfer of any such
shares. Appropriate legends may be placed on the stock certificates evidencing
Option Shares or Bonus Shares to reflect such transfer restrictions.

12.  AMENDMENT OF THE PLAN.

     (a) The Board at any time, and from time to time, may amend the Plan.
However, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:

                                      11.
<PAGE>   14

        (i) Increase the number of shares reserved for Options and Stock Bonuses
under the Plan, except as provided in Section 10 relating to adjustments upon
changes in Common Stock;

        (ii) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires shareholder approval in order for
the Plan to satisfy the requirements of Section 422 of the Code); or

        (iii) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.

     (b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under the Plan
into compliance therewith.

     (c) The rights and obligations under any Option granted before any
amendment of the Plan shall not be altered or impaired by such amendment unless
the Company requests the consent of the person to whom the Option was granted
and such person consents in writing.

13.  TERMINATION OR SUSPENSION OF THE PLAN.

     (a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on December 31, 2003 (which shall be within
ten (10) years from the date the Plan is adopted by the Board or approved by the
shareholders of the Company, whichever is earlier.) No Options or Stock Bonuses
may be granted under the Plan while the Plan is suspended or after it is
terminated.

     (b) Rights and obligations under any Option or Stock Bonus granted while
the Plan is in effect shall not be altered or impaired by suspension or
termination of the Plan, except with the consent of the person to whom the
Option or Stock Bonus was granted.

14.  EFFECTIVE DATE OF PLAN.

     The Plan shall become effective on such date as is determined by the Board,
provided that the shareholders of the Company approve or have approved the Plan
within twelve (12) months of such date. No Options granted under the Plan shall
be exercised, and no Stock Bonuses shall be granted, unless and until the Plan
has been approved by the shareholders of the Company.

                                       12.<PAGE>   1
                                                                    EXHIBIT 10.7
================================================================================

                              EMPLOYMENT AGREEMENT

                                     between

                       GREYSTONE TECHNOLOGY, INCORPORATED

                            a California corporation

                                    (Company)

                                       and

                                RICHARD A. SMITH

                                   (Executive)

                             Dated: August 16, 1997

================================================================================

<PAGE>   2

                              EMPLOYMENT AGREEMENT

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

                                    RECITALS:

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

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

                                   AGREEMENT:

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

1.   Employment.

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

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

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

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

2.   Loyal and Conscientious Performance; Noncompetition.

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

                                       1
<PAGE>   3

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

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

3.   Term of Employment.

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

4.   Compensation of Executive.

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

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

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

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

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

                                       2
<PAGE>   4

5.   Other Benefits.

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

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

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

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

6.   Restoration of Disallowed Expenses.

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

7.   Indemnification by the Company.

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

                                       3
<PAGE>   5

8.   Termination.

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

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

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

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

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

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

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

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

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

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

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

                                       4
<PAGE>   6

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

9.   Constructive Termination.

     9.1 If the Company:

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

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

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

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

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

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

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

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

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

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

                                       5
<PAGE>   7

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

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

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

                                       6
<PAGE>   8

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

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

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

10.  Death or Disability During Term of Employment.

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

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

11.  Duties on Termination; Confidential Information.

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

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

                                       7
<PAGE>   9

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

12.  Assignment and Binding Effect.

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

13.  Notices.

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

     (i)  If to the Company:

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

     (ii) If to Executive:

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

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

14.  Choice of Law.

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

                                       8
<PAGE>   10

15.  Integration.

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

16.  Waiver.

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

17.  Severability.

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

18.  Interpretation; Construction.

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

19.  Representations and Warranties.

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

20.  Attorneys' Fees.

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

21.  Arbitration.

                                       9
<PAGE>   11

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

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

                             THE COMPANY:

                             GREYSTONE TECHNOLOGY, INCORPORATED
                             a California corporation

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

                             EXECUTIVE:

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

                                       10

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