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                                                                    EXHIBIT 10.2

                                 AMENDMENT NO. 5
                                       TO
                               DAOU SYSTEMS, INC.
                             1996 STOCK OPTION PLAN

      1.    PURPOSE. The Plan is intended to provide to officers, directors, key
Employees and Consultants of the Corporation an opportunity to acquire a
proprietary interest in the Corporation, to encourage such key individuals to
remain in the employ of or to contract with the Corporation, and to attract and
retain new Employees, Consultants and directors with outstanding qualifications.
Pursuant to the Plan, the Corporation may grant to officers, directors,
Consultants and key Employees of the Corporation options to purchase shares of
Common Stock upon such terms and conditions as provided herein.

      2.    DEFINITIONS.

            (a) "Affiliate" means any corporation (other than the Corporation)
in an unbroken chain of corporations that includes the Corporation if each of
such corporations, other than the last corporation in the chain, owns at least
50% of the total voting power of one of the other corporations.

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

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

            (d) "Committee" means the committee appointed by the Board to
administer the Plan (as further described in Section 3 hereof), or if no such
committee is appointed, the Board.

            (e) "Common Stock" means the voting common stock of the Corporation.

            (f) "Consultant" means any person who, or any employee of any firm
which, is engaged by the Company or any Affiliate to render consulting services
and is compensated for such consulting services, and any non-employee director
of the Company whether compensated for such services or not.

            (g) "Corporation" means DAOU Systems, Inc., a Delaware corporation.

            (h) "Effective Date" means January 1, 1996.

            (i) "Employee" means any individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or by any Affiliate. For purposes of the Plan and only for purposes
of the Plan, and in regard to Nonstatutory Stock Options but not for Incentive
Stock Options, a Consultant or director of the Corporation or any Affiliate will
be deemed to be an Employee, and service as a Consultant or director with the
Corporation or any Affiliate will be deemed to be employment, but no Incentive
Stock Option will be granted to a Consultant or director who is not an employee
of the Corporation or any Affiliate within the meaning of Section 3401 of the
Code and the regulations

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thereunder. In the case of a non-employee director or Consultant, the provisions
governing when a termination of employment has occurred for purposes of the Plan
will be set forth in the written Stock Option Agreement between the Optionee and
the Corporation, or, if not so set forth, the Committee will have the discretion
to determine when a termination of "employment" has occurred for purposes of the
Plan.

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

            (k) "Exercise Price" means the price per Share at which an Option
may be exercised, as determined by the Committee and as specified in the
Optionee's stock option agreement.

            (l) "Fair Market Value" means the value of each Share as determined
by the Board, subject to the limitations of Section 260.140.50 of Title 10 of
the California Code of Regulations.

            (m) "Incentive Stock Option" means an Option of the type described
in Section 422(b) of the Code.

            (n) "Joint Escrow Instructions" means joint escrow instructions
entered into between an Optionee and the Corporation in such form as may be
approved by the Committee from time to time.

            (o) "Nonemployee Director" shall mean a member of the Board who (i)
is not currently an officer or Employee of the Corporation or a parent or
Subsidiary of the Corporation, (ii) has not received compensation for serving as
a Consultant or in any other non-director capacity or had an interest in any
transaction with the Corporation or a parent or Subsidiary of the Corporation
that would exceed the $60,000 threshold for which disclosure would be required
under Item 404(a) of Regulation S-K, or (iii) has not been engaged through
another party in a business relationship with the Corporation which would be
disclosable under Item 404(b) of Regulation S-K. If the Board determines that
compliance with Section 162(m) of the Code is desirable, then the term
"Nonemployee Director" shall also be interpreted to satisfy the definition of
"outside director" under Section 162(m) and applicable regulations issued
pursuant thereto.

            (p) "Nonstatutory Stock Option" means an Option of the type not
described in Sections 422(b) or 423(b) of the Code.

            (q) "Option" means an option to purchase Common Stock granted
pursuant to the Plan.

            (r) "Optionee" means any person who holds an Option pursuant to the
Plan.

            (s) "Outside Directors" shall mean a member of the Board who
qualifies as an "outside director" pursuant to Internal Revenue Code Section
162(m) and the Regulations promulgated thereunder.

            (t) "Plan" means the DAOU Systems, Inc. 1996 Stock Option Plan, as
amended from time to time.


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            (u) "Purchase Price" means at any particular time the Exercise Price
times the number of Shares for which an Option is being exercised.

            (v) "Share" means one share of authorized Common Stock.

      3. ADMINISTRATION.

            (a) The Committee. The Plan shall be administered by the Committee.
The Committee shall consist only of Nonemployee Directors of the Corporation who
are also Outside Directors and shall have at least two members. The Committee
shall meet such other requirements as may be established from time to time by
the Securities and Exchange Commission for plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act. The Board
may appoint a separate committee of the Board, composed of one or more directors
of the Corporation who need not be Nonemployee Directors, who may administer the
Plan with respect to Employees or Consultants who are not officers or directors
of the Corporation or incoming new directors of the Corporation, may grant
Options under the Plan to such persons and may determine the timing, number of
Shares subject to such Options and other terms of such grants.

            (b) Powers of the Committee. Subject to the provisions of the Plan,
the Committee will have the authority, in its discretion and on behalf of the
Corporation:

                  (i) to grant Options;

                  (ii) to determine the Exercise Price per Share of Options to
be granted;

                  (iii) to determine the Employees to whom, and the time or
times at which, Options will be granted and the number of Shares for which an
Option will be exercisable;

                  (iv) to interpret the Plan;

                  (v) to prescribe, amend, and rescind rules and regulations
relating to the Plan;

                  (vi) to determine the terms and provisions of each Option
granted and, with the consent of the holder thereof, modify or amend each
Option;

                  (vii) to accelerate or defer, with the consent of the
Optionee, the exercise date of any Option;

                  (viii) to authorize any person to execute on behalf of the
Corporation any instrument required to effectuate the grant of an Option
previously granted by the Committee;

                  (ix) with the consent of the Optionee, to reprice, cancel, and
regrant, or otherwise adjust the Exercise Price of an Option previously granted
by the Committee; and


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<PAGE>

                  (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.

            (c) Board's Determination of Fair Market Value. The Board will have
the authority to determine, upon review of relevant information, the Fair Market
Value of the Common Stock, subject to the provisions of the Plan and
irrespective of whether the Board has appointed a Committee to administer the
Plan. The Board may delegate this authority to the Committee.

            (d) Committee's Interpretation of the Plan. The interpretation and
construction by the Committee of any provision of the Plan or of any Option
granted hereunder will be final and binding on all parties claiming an interest
in an Option granted under the Plan. No member of the Committee will be liable
for any action or determination made in good faith with respect to the Plan or
any Option.

            (e) Committee Procedures. The Committee shall designate one of its
members as chairman. The Committee may hold meetings at such times and places as
it shall determine. The acts of a majority of the Committee's members present at
meetings at which a quorum exists, or acts reduced to or approved in writing by
all of the Committee's members, shall be valid acts of the Committee.

      4. PARTICIPATION.

            (a) Eligibility. The Optionees will be such persons as the Committee
may select from among the Employees, provided that Consultants are not eligible
to receive Incentive Stock Options.

            (b) Ten Percent Shareholders. Any Employee who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Corporation or any Affiliate will not be eligible to receive an Option unless:

                  (i) the Exercise Price of the Shares subject to such Option
when granted is at least 110% of the Fair Market Value of such Shares, and

                  (ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.

            (c) Stock Ownership. For purposes of Section 4(b), in determining
stock ownership, an Employee will be considered as owning the stock owned,
directly or indirectly, by or for his or her brothers and sisters, spouse,
ancestors, and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate, or trust will be considered as being
owned proportionately by or for its shareholders, partners, or beneficiaries,
respectively. Stock with respect to which such Employee holds an Option will be
counted in the determination of stock ownership for purposes of the above
Section 4(b).

            (d) Outstanding Stock. For purposes of Section 4(b), the term
"outstanding stock" will include all stock actually issued and outstanding
immediately after the grant of the


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Option to the Optionee but will not include any share for which an Option is
exercisable by any person.

            (e) Maximum Number of Options to One Person. No single Optionee
shall be entitled to receive more than One Hundred Fifty Thousand (150,000)
Options in any year pursuant to this Plan.

      5. SHARES.

            (a) Shares Subject to This Plan. The aggregate number of Shares
which may be issued upon exercise of Options under the Plan will not exceed Five
Million (5,000,000) shares of Common Stock, subject to adjustment pursuant to
Section 9; provided, however, that in no event shall the number of shares of
Common Stock underlying Options granted pursuant to the Plan exceed twenty-five
percent (25%) of the number of the outstanding shares of Common Stock at the end
of the immediately preceding fiscal quarter.

            (b) Options Not to Exceed Shares Available. The number of Shares for
which an Option is exercisable at any time will not exceed the number of Shares
remaining available for issuance under the Plan. If any Option expires or is
terminated, the number of Shares for which such Option was exercisable may be
made exercisable pursuant to other Options under the Plan. The limitations
established by this Section 5(b) will be subject to adjustment in the manner
provided in Section 9 upon the occurrence of an event specified therein.

      6. TERMS AND CONDITIONS OF OPTIONS.

            (a) Stock Option Agreements. Options will be evidenced by written
stock option agreements between the Optionee and the Corporation in such form as
the Committee will from time to time determine. No Option or purported Option
will be a valid and binding obligation of the Corporation unless so evidenced in
writing.

            (b) Number of Shares. Each stock option agreement will state the
number of Shares for which the Option is exercisable and will provide for the
adjustment thereof in accordance with Section 9. Each stock option agreement
will also specify whether the option is a Nonstatutory Stock Option or an
Incentive Stock Option.

            (c) Vesting. An Optionee may not exercise his or her Option for any
Shares until the Option, in regard to such Shares, has vested. Each stock option
agreement will include a vesting schedule which will show when the Option
becomes exercisable, provided each Option will vest at a rate of at least 20%
per year over a period of five years with the first 20% becoming exercisable on
the first anniversary of the date when the Options were granted. The vesting
schedule will not impose upon the Corporation or any Affiliate any obligation to
retain the Optionee in its employ or under contract for any period or otherwise
change the employment-at-will status of an Optionee who is an Employee.

            (d) Lapse of Options. Each stock option agreement will state the
time or times when the Option covered thereby lapses and becomes unexercisable
in part or in full. An Option will lapse on the earliest of the following events
(unless otherwise determined by the Committee and reflected in an option
agreement):


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                  (i) The tenth anniversary of the date of grant of the Option;

                  (ii) The first anniversary of the Optionee's death;

                  (iii) The first anniversary of the date when the Optionee
ceases to be an Employee due to Total and Permanent Disability (within the
meaning of Section 22(e)(3) of the Code);

                  (iv) On the date provided in Section 6(h)(i), unless with
respect to a Nonstatutory Stock Option, the Committee otherwise extends such
period before the applicable expiration date;

                  (v) On the date provided in Section 9 for a transaction
described in such section;

                  (vi) The date the Optionee files or has filed against him or
her a petition in bankruptcy; or

                  (vii) The expiration date specified in the Optionee's stock
option agreement.

            (e) Exercise Price. Each stock option agreement will state the
Exercise Price for the Shares for which the Option is exercisable. Subject to
Section 4(b), the Exercise Price of an Incentive Stock Option and a Nonstatutory
Stock Option will, when granted, be not less than 100% and 85% of the Fair
Market Value of the Shares for which the Option is exercisable, respectively,
and not less than the par value of the Shares.

            (f) Medium and Time of Payment. The Purchase Price will be payable
in full in cash upon the exercise of an Option but the Committee may allow the
Optionee to pay the Purchase Price:

                  (i) by surrendering Shares, in good form for transfer, owned
by the Optionee for more than 12 months and which have a Fair Market Value on
the date of exercise equal to the Purchase Price; or

                  (ii) in any combination of such consideration or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law as long as the sum of the consideration so paid
equals the Purchase Price.

The Committee or a stock option agreement may prescribe requirements with
respect to the exercise of Options, including the submission by the Optionee of
such forms and documents as the Committee may require and the delivery by the
Optionee of cash sufficient to satisfy applicable withholding requirements. The
Committee may vary the exercise requirements and procedures from time to time to
facilitate, for example, the broker-assisted exercise of Options.

            (g) Nontransferability of Options. During the lifetime of the
Optionee, the Option will be exercisable only by the Optionee or the Optionee's
conservator or legal representative and will not be assignable or transferable
except pursuant to a qualified domestic


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relations order as defined by the Code. In the event of the Optionee's death,
the Option will not be transferable by the Optionee other than by will or the
laws of descent and distribution.

            (h) Termination of Employment Other than by Death or Disability.

                  (i) If an Optionee ceases to be an Employee for any reason
other than his or her death or disability, the Optionee will have the right,
subject to the provisions of this Section 6, to exercise any Option held by the
Optionee for 30 days after his or her termination of employment, but not beyond
the otherwise applicable term of the Option and only to the extent that on such
date of termination of employment the Optionee's right to exercise such Option
had vested.

                  (ii) For purposes of this Section 6(h), the employment
relationship will be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Committee. The preceding sentence notwithstanding, in the case
of an Incentive Stock Option, employment will be deemed to terminate on the date
that the Optionee ceases active employment with the Corporation or any
Affiliate, unless the Optionee's reemployment rights are guaranteed by statute
or contract.

            (i) Death of Optionee. If an Optionee dies while an Employee, or
after ceasing to be an Employee but during the period while he or she could have
exercised an Option under Section 6(h), any Option granted to the Optionee may
be exercised, to the extent it had vested at the time of death and subject to
the Plan, at any time within 12 months after the Optionee's death, by the
executors or administrators of his or her estate or by any person or persons who
acquire the Option by will or the laws of descent and distribution, but not
beyond the otherwise applicable term of the Option.

            (j) Disability of Optionee. If an Optionee ceases to be an Employee
due to becoming totally and permanently disabled within the meaning of Section
22(e)(3) of the Code, any Option granted to the Optionee may be exercised to the
extent it had vested at the time of cessation and, subject to the Plan, at any
time within 12 months after the Optionee's termination of employment, but not
beyond the otherwise applicable term of the Option.

            (k) Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, will have no rights as a shareholder of the Corporation with respect
to any Shares for which his or her Option is exercisable until the date of the
issuance of a stock certificate for such Shares. No adjustment will be made for
dividends, ordinary or extraordinary or whether in currency, securities, or
other property, distributions, or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 9.

            (l) Modification, Extension, and Renewal of Options. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or accept the cancellation of outstanding Options for the granting of
new Options in substitution therefor. Notwithstanding the preceding sentence, no
modification of an Option will, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.


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            (m) Rule 16b-3. Options granted to persons who are subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3 promulgated thereunder and shall contain such additional conditions
or restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to the Plan's
transactions; provided, however, that this provision shall not apply if, at the
time of such option grant, the Plan, as it relates to such grant, is not
administered by a Committee consisting solely of Nonemployee Directors.

            (n) Other Provisions. The stock option agreements authorized under
the Plan may contain such other provisions which are not inconsistent with the
terms of the Plan, including, without limitation, restrictions upon the exercise
of the Option, as the Committee will deem advisable.

      7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs. To the extent that the
Fair Market Value of Shares (determined for each Share as of the date of grant
of the Option covering such Share) subject to Options granted under the Plan (or
any other plan of the Corporation or any Affiliate), which are designated as
Incentive Stock Options and which become exercisable by an Optionee for the
first time during a single calendar year, exceeds $100,000, the Options (or
portion thereof) covering such Shares will be recharacterized (to the extent of
such excess over $100,000) as a Nonstatutory Stock Option. In determining which
Option(s) will be treated as Nonstatutory Stock Options under the preceding
sentence, the Options will be taken into account in the order granted, with the
result that a later granted Option will be recharacterized as a Nonstatutory
Stock Option prior to such recharacterization of a previously granted Option.

      8. TERM OF PLAN. Options may be granted pursuant to the Plan until a date
no more than ten (10) years from the date when the Plan is adopted or the date
when the Plan is approved by the shareholders of the Corporation, whichever is
earlier, and all Options which are outstanding on such date will remain in
effect until they are exercised or expire by their respective terms.

      9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.

            (a) Reorganizations. The number of Shares covered by the Plan, as
provided in Section 5, and the number of Shares for which each Option is
exercisable will be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, a reverse stock split, the
payment of a stock dividend, recapitalization, combination or reclassification
of the Corporation's stock or any other event which results in an increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Corporation, and the Exercise Price will be proportionately
increased in the event the number of Shares subject to such Option are decreased
and will be proportionately decreased in the event the number of Shares subject
to such Option are increased. For the purposes of this Section 9(a), the
conversion of any convertible securities of the Corporation will not be deemed
to have been "effected without receipt of consideration." Adjustments will be
made by the Board, whose determination in that respect will be final, binding
and conclusive. Except as expressly provided in the Plan, no issuance by the
Corporation of shares of stock of any class, or securities


                                       8

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convertible into shares of stock of any class, will affect, and no adjustment by
reason thereof will be made with respect to, the number or price of Shares
subject to an Option.

            (b) Liquidation. In the event of the dissolution or liquidation of
the Corporation, each Option will terminate immediately prior to the
consummation of such action. The Committee will notify the Optionee not less
than 15 days prior to the proposed consummation of a pending dissolution or
liquidation, and such Option will be exercisable as to all Shares which are
vested prior to expiration until immediately prior to the consummation of such
action.

            (c) Merger. In the event of (i) a proposed merger of the Corporation
with or into another corporation, as a result of which the Corporation is not
the surviving corporation and (ii) the Option is not assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of the
successor corporation, then in such case the Option will terminate immediately
prior to the consummation of such transaction. The Committee will notify the
Optionee not less than 15 days prior to the proposed consummation of such
transaction, and the Option will be exercisable as to all Shares which are
vested prior to expiration and until immediately prior to the consummation of
such transaction.

            (d) Determination by Committee. All adjustments described in this
Section 9 will be made by the Committee, whose determination will be conclusive
and binding on all persons.

            (e) Limitation on Rights of Optionee. Except as expressly provided
in this Section 9, no Optionee will have any rights by reason of any payment of
any stock dividend, stock split or reverse stock split or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
reorganization, consolidation, dissolution, liquidation, merger, exchange,
split-up or reverse split-up, or spin-off of assets or stock of another
corporation. Any issuance by the Corporation of Shares, Options or securities
convertible into Shares or Options will not affect, and no adjustment by reason
thereof will be made with respect to, the number or Exercise Price of the Shares
for which an Option is exercisable. Notwithstanding the foregoing, if the
Corporation enters into a transaction affecting the Corporation's capital stock
or distributions to the holders of its capital stock for which a revision in the
terms of each Option is not required pursuant to this Section 9, the Committee
will have the right, but not the obligation, to revise the terms of each Option
in a manner that the Committee, in its sole discretion, deems fair and
reasonable given the transaction involved. If necessary or appropriate in
connection with such transaction, the Committee may declare that any Option will
terminate as of a date fixed by the Committee and give each Optionee the right
to exercise his or her Option in whole or in part, including exercise as to
Shares to which the Option would not otherwise be exercisable.

            (f) No Restriction on Rights of Corporation. The grant of an Option
will not affect or restrict in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations, or changes of its capital
or business structure, or to merge or consolidate, or to dissolve, liquidate,
sell, or transfer all or any part of its business or assets.

      10. SECURITIES LAW REQUIREMENTS.


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            (a) Legality of Issuance. No Share will be issued upon the exercise
of any Option unless and until the Corporation has determined that:

                  (i) The Corporation and the Optionee have taken all actions
required to exempt the issuance of the Shares from the registration requirements
under the Securities Act of 1933, as amended (the "Act"), or the Corporation and
the Optionee will determine that the registration requirements of the Act do not
apply to such exercise;

                  (ii) Any applicable listing requirement of any stock exchange
on which the Common Stock is listed has been satisfied; and

                  (iii) Any other applicable provision of state or Federal law
has been satisfied.

            (b) Restrictions on Transfer; Representations of Optionee; Legends.
Regardless of whether the offering and sale of Shares has been registered under
the Act or has been registered or qualified under the securities laws of any
state, the Corporation may impose restrictions upon the sale, pledge, or other
transfer of such Shares, including the placement of appropriate legends on stock
certificates, if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Act, the securities laws of any state, or any other law. If
the sale of Shares is not registered under the Act and the Corporation will
determine that the registration requirements of the Act apply to such sale, but
an exemption is available which requires an investment representation or other
representation, the Optionee will be required, as a condition to purchasing
Shares by exercise of his or her Option, to represent that such Shares are being
acquired for investment, and not with a view to the sale or distribution
thereof, except in compliance with the Act, and to make such other
representations as are deemed necessary or appropriate by the Corporation and
its counsel. Stock certificates evidencing Shares acquired pursuant to an
unregistered transaction to which the Act applies will bear a restrictive legend
substantially in the following form and such other restrictive legends as are
required or deemed advisable under the Plan or the provisions of any applicable
law:

            "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
            UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
            QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE
            BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
            CONNECTION WITH ANY DISTRIBUTION THEREOF, AND MAY NOT BE SOLD,
            MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
            EFFECTIVE REGISTRATION UNDER THE ACT AND/OR QUALIFICATION UNDER ANY
            APPLICABLE STATE SECURITIES LAWS, OR WITHOUT AN OPINION OF COUNSEL
            ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION
            OR QUALIFICATION IS NOT REQUIRED."


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Any determination by the Corporation and its counsel in connection with any of
the matters set forth in this Section 10 will be conclusive and binding on all
persons.

            (c) Registration or Qualification of Securities. The Corporation
may, but will not be obligated to, register or qualify the sale of Shares under
the Act or any other applicable law. In connection with any such registration or
qualification, the Corporation will provide each Optionee with such information
required pursuant to all applicable laws and regulations.

            (d) Exchange of Certificates. If, in the opinion of the Corporation
and its counsel, any legend placed on a stock certificate representing Shares
issued hereunder is no longer required, the Optionee or the holder of such
certificate will be entitled to exchange such certificate for a certificate
representing the same number of Shares but without such legend.

      11. EXERCISE OF UNVESTED OPTIONS. The Committee may grant to any Optionee
the right to exercise any Option prior to the complete vesting of such Option.
Without limiting the generality of the foregoing, the Committee may provide that
if an Option is exercised prior to having completely vested, the Shares issued
upon such exercise will remain subject to vesting at the same rate as under the
Option so exercised and will be subject to a right, but not an obligation, of
repurchase by the Corporation with respect to all unvested Shares if the
Optionee ceases to be an Employee for any reason. For the purposes of
facilitating the enforcement of any such right of repurchase, at the request of
the Committee, the Optionee will enter into Joint Escrow Instructions with the
Corporation and deliver every certificate for his or her unvested Shares with a
stock power executed in blank by the Optionee and by the Optionee's spouse, if
required for transfer.

      12. AMENDMENT OF THE PLAN. The Board or the Committee may, from time to
time, terminate, suspend or discontinue the Plan, in whole or in part, or revise
or amend the Plan in any respect whatsoever including, but not limited to, the
adoption of any amendment(s) deemed necessary or advisable to qualify the
Options under rules and regulations promulgated by the Securities and Exchange
Commission with respect to Employees who are subject to the provisions of
Section 16 of the Exchange Act or to correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any Option granted thereunder,
without approval of the shareholders of the Corporation, but without the
approval of the Corporation's shareholders, no such revision or amendment will:

            (a) Increase the number of Shares subject to the Plan, other than
any increase pursuant to Section 9;

            (b) Materially modify the requirements as to eligibility for
participation in the Plan;

            (c) Materially increase the benefits accruing to Optionees under the
Plan;

            (d) Extend the term of the Plan; or

            (e) Amend this Section 12 to defeat its purpose.


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            No amendment, termination or modification of the Plan will affect
any Option theretofore granted in any material adverse way without the consent
of the Optionee.

      13. APPLICATION OF FUNDS. The proceeds received by the Corporation from
the sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.

      14. APPROVAL OF SHAREHOLDERS. The Plan will be subject to approval by the
affirmative vote of the holders of a majority of all classes of the outstanding
shares present and entitled to vote at the first meeting of shareholders of the
Corporation following the adoption of the Plan or by written consent, and in no
event later than one year following the Effective Date. Prior to such approval,
Options may be granted but will not be exercisable. Any amendment described in
Section 12.(a) to (d) will also be subject to approval by the Corporation's
shareholders.

      15. WITHHOLDING OF TAXES. In the event the Corporation or an Affiliate
determines that it is required to withhold federal, state, or local taxes in
connection with the exercise of an Option or the disposition of Shares issued
pursuant to the exercise of an Option, the Optionee or any person succeeding to
the rights of the Optionee, as a condition to such exercise or disposition, may
be required to make arrangements satisfactory to the Corporation or the
Affiliate to enable it to satisfy such withholding requirements. Alternatively
the Corporation may issue or transfer Shares net of the number of Shares
sufficient to satisfy withholding tax requirements. For withholding tax
purposes, the Shares will be valued on the date the withholding obligation is
incurred.

      16. RIGHTS AS AN EMPLOYEE. Neither the Plan nor any Option granted
pursuant thereto will be construed to give any person the right to remain in the
employ of the Corporation or any Affiliate, or to affect the right of the
Corporation or any Affiliate to terminate such individual's employment at any
time with or without cause. The grant of an Option will not entitle the Optionee
to, or disqualify the Optionee from, participation in the grant of any other
Option under the Plan or participation in any other benefit plan maintained by
the Corporation or any Affiliate.

      17. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS, OR CREATION OF IMPLIED
RIGHTS. In adopting and maintaining the Plan and granting options hereunder,
neither the Corporation nor any Affiliate makes any representations or
undertakings with respect to the initial qualification or treatment of Options
under federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees, Optionees,
or beneficiaries of any obligations on the part of the Corporation, any
Affiliate or the Committee, except as expressly provided herein.

      18. INSPECTION OF RECORDS. Copies of the Plan, records reflecting each
Optionee's Option(s), and any other documents and records which an Optionee is
entitled by law to inspect will be open to inspection by the Optionee and his or
her duly authorized representative at the office of the Committee at any
reasonable business hour.


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<PAGE>

      19. INFORMATION TO OPTIONEES. Each Optionee will be provided with such
information regarding the Corporation as the Committee from time to time deems
necessary or appropriate; provided however, that each Optionee will at all times
be provided with such information as is required to be provided from time to
time pursuant to applicable regulatory requirements, including, but not limited
to, the requirement in Section 260.140.46 of Title 10 of the California Code of
Regulations of annual financial statements, or any applicable successor
regulation, and any other applicable requirements of the Securities and Exchange
Commission, the California Department of Corporations, and other state
securities agencies.


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<PAGE>

      20. EXECUTION. To record the adoption of the Plan by the Board effective
as of May 31, 2000 the Corporation has caused its authorized officer to execute
the same.

                                           DAOU SYSTEMS, INC.,
                                           a Delaware corporation


                                           By:      /s/ Neil R. Cassidy
                                                --------------------------
                                                Neil R. Cassidy, President


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