Document:

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                                                                   EXHIBIT 10.3

                         VNUS MEDICAL TECHNOLOGIES, INC.
                                 1995 STOCK PLAN

        1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.

        2. Definitions. As used herein, the following definitions shall apply:

           (a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.

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

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

           (d) "Committee" means a Committee appointed by the Board of Directors
in accordance with Section 4 of the Plan.

           (e) "Common Stock" means the Common Stock of the Company.

           (f) "Company" means VNUS Medical Technologies, Inc., a Delaware
corporation.

           (g) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not; provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.

           (h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, on the 91st
day of such leave any Incentive Stock Option held by

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the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.

           (i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.

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

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

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

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

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.

           (l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.

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

           (n) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

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

           (p) "Optioned Stock" means the Common Stock subject to an Option or a
Stock Purchase Right.

           (q) "Optionee" means an Employee or Consultant who receives an Option
or Stock Purchase Right.

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           (r) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.

           (s) "Plan" means this 1995 Stock Plan.

           (t) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.

           (u) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.

           (v) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 below.

           (w) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

        3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,500,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.

           If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.

        4. Administration of the Plan.

           (a) Initial Plan Procedure. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.

           (b) Plan Procedure After the Date, if any, upon Which the Company
becomes Subject to the Exchange Act.

               (i) Administration With Respect to Directors and Officers. With
respect to grants of Options or Stock Purchase Rights to Employees who are also
officers or directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3")

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with respect to a plan intended to qualify thereunder as a discretionary plan,
or (B) a committee designated by the Board to administer the Plan, which
committee shall be constituted in such a manner as to permit the Plan to comply
with Rule 16b-3 with respect to a plan intended to qualify thereunder as a
discretionary plan. Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.

               (ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.

               (iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are neither directors nor officers of the Company,
the Plan shall be administered by (A) the Board or (B) a committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of applicable state corporate and securities laws, of the Code,
and of any applicable stock exchange (the "Applicable Laws"). Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.

           (c) Powers of the Administrator. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:

               (i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;

               (ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;

               (iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;

               (iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;

               (v) to approve forms of agreement for use under the Plan;

               (vi) to determine the terms and conditions of any award granted
hereunder;

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               (vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;

               (viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;

               (ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights; and

               (x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

           (d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.

        5. Eligibility.

           (a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.

           (b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:

               (i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which

               (ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary)

exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.

           (c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment relationship with the Company, nor shall
it interfere in any way with his or her right or the Company's right to
terminate his or her employment relationship at any time, with or without cause.

           (d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities

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required to be registered under Section 12 of the Exchange Act, the following
limitations shall apply to grants of Options and Stock Purchase Rights to
Employees:

               (i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 500,000 Shares.

               (ii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.

               (iii) If an Option or Stock Purchase Right is canceled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the canceled Option will
be counted against the limit set forth in Section 5(d)(i). For this purpose, if
the exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

        6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.

        7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.

        8. Option Exercise Price and Consideration.

           (a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:

               (i) In the case of an Incentive Stock Option

                   (A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

                   (B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.

               (ii) In the case of a Nonstatutory Stock Option

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                   (A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.

                   (B) granted to any person, the per Share exercise price shall
be no less than 85% of the Fair Market Value per Share on the date of grant.

           (b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

        9. Exercise of Option.

           (a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case at a rate of less than 20% per year over five (5)
years from the date the Option is granted.

           An Option may not be exercised for a fraction of a Share.

           An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.

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           Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

           (b) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the
ninety-first (91st) day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.

           (c) Disability of Optionee. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

           (d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately 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
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

           (e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 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
Plan transactions.

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           (f) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

        10. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

        11. Stock Purchase Rights.

            (a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator. Shares purchased pursuant
to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."

            (b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but at a minimum rate of 20% per year.

            (c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.

            (d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.

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        12. Adjustments Upon Changes in Capitalization or Merger.

            (a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.

            (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right will
terminate immediately prior to the consummation of such proposed action.

            (c) Merger. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right shall be
assumed or an equivalent option or right shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, the Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the option or right
confers the right to purchase, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger, the
consideration (whether stock, cash, or other securities or property) received in
the merger by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.

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        13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

        14. Amendment and Termination of the Plan.

            (a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.

            (b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.

        15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

            As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.

            16. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

            The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect

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of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

        17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.

        18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.

        19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquired Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquired Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.

                                      -12-<PAGE>   1
                                                                    EXHIBIT 10.4

                   THIRD RESTATED STOCKHOLDER RIGHTS AGREEMENT

        This Third Restated Stockholder Rights Agreement ("Agreement") is
entered into as of February 25, 1999, by and among VNUS Medical Technologies,
Inc., a Delaware corporation (the "Company"), and the Investors set forth on the
Schedule of Investors attached as Exhibit A hereto (the "Investors") and amends
and restates in its entirety the Stockholder Rights Agreement dated May 2, 1997
(the "Prior Rights Agreement") as amended by Amendment No. I dated June 25,
1998.

        WHEREAS, certain of the Investors and the Company have entered into a
Series D Preferred Stock Purchase Agreement of even date herewith (the "Stock
Purchase Agreement"). In connection with the Stock Purchase Agreement, the
Company wishes to grant certain rights to the Investors. Any term not otherwise
defined in this Agreement shall have the meaning ascribed to it in the Stock
Purchase Agreement.

        NOW, THEREFORE, the parties hereto hereby agree as follows:

1.      Registration Rights.

        1.1 Certain Definitions. As used in this paragraph 1, the following
terms shall have the following respective meanings:

               "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.

               "Conversion Stock" shall mean the shares of the Company's Common
Stock issued or issuable upon exercise of the Preferred Stock.

               "Holder" shall mean the original purchaser of the Registrable
Securities or securities convertible into Registrable Securities and any person
holding Registrable Securities or securities convertible into Registrable
Securities to whom the rights under this paragraph 1 have been transferred in
accordance with paragraph 1.10 hereof.

               "Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold more than 50% of the outstanding Registrable Securities.

               "Investor" shall mean a purchaser of Common Stock, a purchaser of
Series A-1 Preferred Stock, a purchaser of Series A-2 Preferred Stock and a
purchaser of Series A-3 Preferred Stock pursuant to the Stock Purchase Agreement
dated January 6, 1995; a purchaser of Series B Preferred Stock pursuant to the
Stock Purchase Agreement dated August 6, 1996; a purchaser of Series C Preferred
Stock pursuant to the Series C Preferred Stock Purchase Agreement dated May 2,
1997; Lighthouse Capital Partners II, L.P.; and a purchaser of Series D
Preferred Stock pursuant to the Series D Preferred Stock Purchase Agreement
dated February 25, 1999.

<PAGE>   2

               "Preferred Stock" shall mean the issued and outstanding shares of
the Company's Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock (including
Series C Preferred Stock issued upon exercise of warrants to purchase Series C
Preferred Stock) and Series D Preferred Stock.

               "Registrable Securities" means (i) the shares of Common Stock of
the Company held by Lighthouse Capital Partners II, L.P., and issued or issuable
upon conversion of the shares of Series C Preferred Stock issued or issuable
upon exercise of the Preferred Stock Purchase Warrant dated June 25, 1998 (the
"Warrant") to acquire 44,118 shares of the Company's Series C Preferred Stock or
any shares of Common Stock otherwise issuable under the Warrant, (ii) the
Conversion Stock and (iii) any Common Stock of the Company issued or issuable
with respect to, or in exchange for or in replacement of the Conversion Stock or
other securities convertible into or exercisable for Preferred Stock upon any
stock split, stock dividend, recapitalization, or similar event, provided,
however, that shares of Common Stock or other securities shall only be treated
as Registrable Securities for the purposes of paragraph 1.3 hereof (A) if and
for so long as they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction or
pursuant to Rule 144, or (B) such securities are held by a Holder holding less
than 1% of the outstanding voting securities of the Company and a public market
exists for the Company's Common Stock and prior to the date such securities have
been sold or are all available for immediate sale in the opinion of counsel to
the Company in a transaction exempt from the prospectus delivery requirements of
the Securities Act so that all transfer restrictions and legends with respect
thereto are removed upon the consummation of such sale.

               The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

               "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with paragraphs
1.2, 1.3 and 1.4 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed $20,000 of a single special counsel for the Holders, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).

               "Restricted Securities" shall mean the securities of the Company
required to bear a legend in the form set forth in paragraph 3.2.

               "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

               "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes, if any, applicable to the securities
registered by the Holders.

        1.2    Requested Registration.

                                       2
<PAGE>   3

               (a) Request for Registration. If (i) prior to the Company's first
registered underwritten public offering of its Common Stock, the Company shall
receive from an Initiating Holder or Initiating Holders a written request that
the Company effect any registration, qualification or compliance with respect to
shares of Registrable Securities having an expected aggregate offering price of
at least $3,000,000, or (ii) subsequent to the Company's first registered
underwritten public offering of its Common Stock, the Company shall receive from
Holders of Registrable Securities a written request that the Company effect any
registration, qualification or compliance with respect to shares of Registrable
Securities having an expected aggregate offering price of at least $10,000,000,
the Company will:

                      (i) within ten days of the receipt by the Company of such
notice, give written notice of the proposed registration, qualification or
compliance to all other Holders; and

                      (ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within 20 days after receipt of such
written notice from the Company;

        Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this paragraph 1.2:

                              (A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;

                              (B) During any period commencing on the date of
filing of, and ending on the date three (3) months immediately following the
effective date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction, with
respect to an employee benefit plan or with respect to the Company's first
registered public offering of its stock), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective;

                              (C) After the Company has effected (i) one such
registration pursuant to this paragraph 1.2(a) prior to the Company's first
registered underwritten public offering of its Common Stock, which registrations
have been declared or ordered effective; provided, however that in the event
that any legal restriction or prohibition shall result in the inability of the
Holders participating in a registration pursuant to this paragraph 1.2(a) to
sell at least 75% of the Registrable Securities included in any such
registration within 180 days of the effectiveness thereof, then the Holders
shall be entitled to demand an additional registration pursuant to this
paragraph 1.2(a); and (ii) one such registration pursuant to this paragraph
1.2(a) subsequent to the Company's first registered underwritten public offering
of its Common Stock;

                                       3
<PAGE>   4

                              (D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this paragraph 1.2 shall be deferred for a period not to
exceed 120 days from the date of receipt of written request from the Initiating
Holders; provided, however, that the Company shall not exercise such right more
than once in any twelve-month period.

        Subject to the foregoing clauses (A) through (E), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.

               (b) Underwriting. In the event that a registration pursuant to
this paragraph 1.2 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to paragraph 1.2(a)(i). In such event, the right of any Holder to
registration pursuant to this paragraph 1.2 shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this
paragraph 1.2, and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.

        The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company and reasonably acceptable to a majority of the Holders proposing
to distribute their securities through such underwriting. Notwithstanding any
other provision of this paragraph 1.2, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement or in such other manner as shall be
agreed to by the Company and Holders of a majority of the Registrable Securities
proposed to be included in such registration. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.

        If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 90 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may require.

        1.3    Company Registration.

                                       4
<PAGE>   5

               (a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans or (ii) a registration
relating solely to a Commission Rule 145 transaction, or (iii) a registration
pursuant to paragraph 1.2 hereof, the Company will:

                      (i) promptly give to each Holder written notice thereof;
and

                      (ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company, by any Holder.

               (b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to paragraph 13(a)(i). In such event the right of any Holder to
registration pursuant to this paragraph 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this paragraph 1.3, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities or other securities to be included in such registration;
provided, however, that no such reduction shall reduce the amount of securities
of the selling Holders included in the registration below 25% of the total
amount of securities included in such registration, unless such offering is the
initial public offering and such registration does not include shares of any
other selling shareholders, in which event any or all of the Registrable
Securities of the Holders may be excluded. The Company shall so advise all
Holders and other holders distributing their securities through such
underwriting and the number of shares of Registrable Securities and other
securities that may be included in the registration, and underwriting shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the time of
filing the registration statement. To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the number of shares
allocated to any Holder or holder to the nearest 100 shares. If any Holder or
holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 90 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.

               (c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
paragraph 1.3 prior to the effectiveness of such registration, whether or not
any Holder has elected to include securities in

                                       5
<PAGE>   6

such registration. The Registration Expenses of such withdrawn registration
shall be borne by the Company in accordance with paragraph 1.5 hereof.

        1.4    Registration on Form S-3.

               (a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3), or any
similar short-form registration statement, for a public offering of Registrable
Securities the reasonably anticipated aggregate price to the public of which,
net of underwriting discounts and commissions, would exceed $1,000,000, and the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form and
to cause such Registrable Securities to be qualified in such jurisdictions as
the Holder or Holders may reasonably request; provided, however, that the
Company shall not be required to effect more than two registrations pursuant to
this paragraph 1.4. The substantive provisions of paragraph 1.2(b) shall be
applicable to each registration initiated under this paragraph 1.4.

               (b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this paragraph 1.4: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii) if
the Company, within ten (10) days of the receipt of the request of the
initiating Holders, gives notice of its bona fide intention to effect the filing
of a registration statement with the Commission within ninety (90) days of
receipt of such request (other than with respect to a registration statement
relating to a Rule 145 transaction, or an offering solely to employees); (iii)
during the period starting with the date of filing of, and ending on the date
three (3) months immediately following, the effective date of any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iv) if the Company shall furnish to such Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed 90 days from the receipt of the request to
file such registration by such Holder; provided, however, that the Company shall
not exercise such right more than once in any twelve-month period.

        1.5    Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to paragraphs 1.2, 1.3 and 1.4 shall
be borne by the Company. All Selling Expenses relating to securities registered
on behalf of the Holders shall be borne by the Holders of such securities
included in the registration pro rata with the Company and among each other on
the basis of the number of shares so registered.

        1.6    Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this paragraph
1, the Company will keep each

                                       6
<PAGE>   7

Holder advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense
the Company will:

               (a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed;

               (b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

               (c) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as they may reasonably request in order to facilitate
the public offering of such securities.

               (d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

               (e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

               (f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

               (g) Furnish, at the request of any Holder requesting registration
of Registrable Securities, on the date such Registrable Securities are delivered
to the underwriters for sale in connection with a registration pursuant to this
paragraph 1.6, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
accountants of the Company, in form and substance as is customarily given by
independent accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.

        1.7    Indemnification.

                                       7
<PAGE>   8

               (a) The Company will indemnify each Holder, each of its officers,
directors, trustees, fiduciaries, partners and legal counsel, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this paragraph 1, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers, directors, trustees, fiduciaries, partners and legal
counsel, and each person controlling such Holder, each such underwriter and each
person who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.

               (b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers and legal counsel, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors,
partners and legal counsel and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the maximum liability of each Holder under this
subsection (b) shall be limited to an amount equal to the net proceeds to such
Holder from the sale of such Holder's Registrable Securities as contemplated
herein, unless such liability resulted from willful misconduct by such Holder. A

                                       8
<PAGE>   9

Holder will not be required to enter into any agreement or undertaking in
connection with any registration under this paragraph 1 providing for any
indemnification or contribution on the part of such Holder greater than the
Holder's obligations under this paragraph 1.7(b).

               (c) Each party entitled to indemnification under this paragraph
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this paragraph 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses but shall bear the expense of such defense nevertheless. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation.

               (d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages or liabilities referred to
herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the omissions or violations that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the net proceeds from the offering received by such
Holder.

        1.8     Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this paragraph 1.

        1.9     Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted

                                       9
<PAGE>   10

Securities to the public without registration, after such time as a public
market exists for the Common Stock of the Company, the Company agrees to use its
best efforts to:

               (a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended.

               (b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements);

               (c) So long as an Investor owns any Restricted Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934 (at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as an Investor may reasonably request in
availing itself of any rule or regulation of the Commission allowing an Investor
to sell any such securities without registration.

        1.10   Transfer of Registration Rights. The rights to cause the Company
to register securities granted to Holders under paragraphs 1.2, 1.3 and 1.4 may
be assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Holder of not less than 70,000 shares
of Registrable Securities, or to any transferee or assignee who is a constituent
partner of a Holder or the estate of such constituent partner or to a transferee
who is a Holder's family member or trust for the benefit of an individual
Holder, provided that such transfer may otherwise be effected in accordance with
applicable securities laws.

        1.11   Standoff Agreement. Each Holder agrees, so long as such Holder
holds at least one percent (1%) of the Company's outstanding voting equity
securities, in connection with the Company's initial public offering of the
Company's securities, upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Registrable Securities (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as may be requested by the
underwriters; provided that the officers and directors of the Company who own
stock of the Company also agree to such restrictions.

        1.12   Rule 144A Information. Whenever the Company receives a request
for the information required in Rule 144A(d)(4) from Initiating Holders on or
after January 6, 2000, then the Company shall within 60 days after the date of
such request provide such information to such Initiating Holders and any person
or persons designated by the Initiating Holders as a prospective

                                       10
<PAGE>   11

buyer in a transaction pursuant to Rule 144A. The Company's obligations pursuant
to this paragraph 1.12 shall extend to any person who acquires shares of the
Company's Preferred Stock and/or Conversion Stock as a result of a transaction
pursuant to Rule 144A.

        1.13    Amendment of Registration Rights. Any provision of this Section
1 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this paragraph 1.13 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Section 1, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.

        1.14    Limitation on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of sixty-six and two-thirds percent (66-2/3%) of the Registrable
Securities then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company that would grant such holder
registration rights senior to those granted to the Holders hereunder.

        1.15    Termination of Registration Rights. The rights granted under
this paragraph 1 shall terminate on the seventh anniversary of the consummation
of the initial underwritten public offering of the Company's securities pursuant
to a registration statement filed under the Securities Act.

2.      Right of First Refusal.

               (a) Except as set forth in paragraph 2(e), the Company hereby
grants to each Investor holding at least 70,000 shares of Registrable Securities
the right of first refusal to purchase all or any part of such Investor's pro
rata share of the New Securities (as defined in paragraph 2(b)) which the
Company may, from time to time, propose to sell and issue. The Investors may
purchase said New Securities on the same terms and at the same price at which
the Company proposes to sell the New Securities. The pro rata share of each
Investor, for purposes of this right of first refusal, is the ratio of the total
number of shares of Common Stock held by such Investor, including any shares of
Common Stock into which shares of Preferred Stock held by such Investor are
convertible, to the total number of shares of Common Stock outstanding
immediately prior to the issuance of the New Securities (including any shares of
Common Stock into which outstanding shares of Preferred Stock are convertible).

               (b) "New Securities" shall mean any capital stock of the Company,
whether now authorized or not, and any rights, options or warrants to purchase
said capital stock, and securities of any type whatsoever that are, or may
become, convertible into said capital stock; provided that "New Securities" does
not include (i) the Shares issued pursuant to the Stock Purchase Agreement or
the Conversion Stock described therein, (ii) securities offered pursuant to a
registration statement filed under the Securities Act, as hereinafter defined,
(iii) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or other
reorganization, and (iv) all shares of Common Stock hereafter issued or issuable
to officers, directors, employees or consultants of the Company

                                       11
<PAGE>   12

pursuant to any employee or consultant stock offering, plan or arrangement
approved by the Board of Directors of the Company.

               (c) In the event the Company proposes to undertake an issuance of
New Securities, it shall give to the Investors written notice (the "Notice") of
its intention, describing the type of New Securities, the price and the terms
upon which the Company proposes to issue such New Securities. Each Investor
entitled to such notification shall have fifteen (15) days from the date of
receipt of the Notice to agree to purchase any or all of such Investor's pro
rata portion of such New Securities for the price and upon the terms specified
in the Notice by giving written notice to the Company and stating therein the
quantity such New Securities to be purchased. Each such Investor that notifies
the Company of its intention to purchase New Securities shall forward payment
for such New Securities to the Company no later than the date on which the
Company issues any of such New Securities to any purchaser thereof who is not an
Investor.

               (d) In the event any Investors fail to exercise in full the right
of first refusal within said fifteen (15) day period, the Company shall offer
such shares to the other Investors who have elected to exercise their rights of
first refusal. Each such participating Investor shall be entitled to purchase
that number of shares of New Securities not being purchased by the Investors as
determined by multiplying such non-purchased New Securities by a fraction, the
numerator of which is the number of shares of New Securities being purchased by
the participating Investor and the denominator of which is the number of shares
of New Securities being purchased by all Investors exercising rights of first
refusal. Each Investor electing to purchase such additional New Securities shall
have five (5) days from the date of receipt of any notice from the Company with
respect thereto to agree to purchase its respective share of such New
Securities. The Company shall have ninety (90) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within thirty (30) days from date of said agreement)
to sell the New Securities respecting which the Investors' rights were not
exercised, at a price and upon general terms no more favorable to the Investors
thereof than specified in the Notice. In the event the Company has not sold the
New Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within thirty (30) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the Investors in the manner
provided above.

               (e) The right of first refusal granted under this paragraph 2
shall expire upon:

                      (i) The date upon which a registration statement filed by
the Company under the Securities Act (other than a registration of securities in
a Rule 145 transaction or with respect to an employee benefit plan) in
connection with an underwritten public offering of its securities first becomes
effective and the securities registered thereunder shall have been sold for
gross proceeds to the Company of at least $15,000,000 at a price to the public
of at least $4.25 per share.

                      (ii) With respect to each Investor, the date on which such
Investor no longer holds a minimum of Seventy Thousand (70,000) shares of
Registrable Securities.

                                       12
<PAGE>   13

               (f) The right of first refusal granted under this paragraph 2 is
assignable by the Investors to any transferee of a minimum of Seventy Thousand
(70,000) shares of Common Stock (including any shares of Common Stock into which
shares of Preferred Stock then held by it are convertible).

3.      Transferability.

        3.1     Restrictions on Transferability. The Preferred Stock and the
Conversion Stock held by the Investors shall not be sold, assigned, transferred
or pledged except upon the conditions specified in this paragraph 3, which
conditions are intended to ensure compliance with the provisions of the
Securities Act; provided, however, that BA Venture Partners III may pledge its
shares to BankAmerica Investment Corporation ("BAIC") and may transfer such
shares to BAIC so long as BAIC agrees to the provisions of this Agreement.
Notwithstanding the foregoing, there shall be permitted without any consents or
approvals, (i) the transfer by the State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System; State
Employees' Retirement System; Michigan State Police Retirement System; and
Michigan Judges Retirement System (the "Michigan Fund") of all or any part of
the Michigan Fund's shares to any successor or additional trustee or custodian
of the assets of the Michigan Fund as may be appointed, and qualified under the
applicable laws of the State of Michigan, and (ii) the transfer by GMI/DRI
Investment Trust ("GMI") of all or any part of GMI's shares to any successor
trust or trustee, and (iii) the admission of any such transferee as a
substituted stockholder with respect to such transferred shares. The Investors
will cause any proposed purchaser, assignee, transferee, or pledgee of the
Preferred Stock or the Conversion Stock held by the Investors to agree to take
and hold such securities subject to the provisions and upon the conditions
specified in this Agreement.

        3.2     Restrictive Legend. Each certificate representing (i) the
Preferred Stock held by the Investors, (ii) the Conversion Stock and (iii) any
other securities issued in respect of the Preferred Stock or Conversion Stock
held by the Investors upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by the
provisions of paragraph 3.3 below) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under
applicable state securities laws):

               THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
               INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
               OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
               ABSENCE OF SUCH REGISTRATION UNLESS THE TRANSFER IS IN ACCORDANCE
               WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN
               OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
               SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
               DELIVERY REQUIREMENTS OF SAID ACT.

               The Investors and Holders consent to the Company making a
notation on its records and giving instructions to any transfer agent of its
Preferred Stock or Conversion Stock in order to implement the restrictions on
transfer established in this paragraph 3.

                                       13
<PAGE>   14

        3.3 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this paragraph 3.3. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, or (ii) in transactions
involving the distribution without consideration of Restricted Securities by any
Investor to any of its partners, or retired partners, or to the estate of any of
its partners or retired partners, (iii) a transfer to an affiliated fund,
partnership or company, which is not a competitor of the Company, subject to
compliance with applicable securities laws, (iv) a transfer to a holder's family
member or a trust for the benefit of an individual holder, or (v) transfers in
compliance with Rule 144, so long as the Company is furnished with satisfactory
evidence of compliance with such Rule), unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to the Company of such holder's intention to
effect such transfer, sale, assignment or pledge. Each such notice shall
describe the manner and circumstances of the proposed transfer, sale, assignment
or pledge in sufficient detail, and shall be accompanied, at such holder's
expense by either (i) a written opinion of legal counsel who shall, and whose
legal opinion shall be, reasonably satisfactory to the Company addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in paragraph
3.1 above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for such holder and in the reasonable opinion of
the Company such legend is not required in order to establish compliance with
any provision of the Securities Act.

               In any case in which an opinion of counsel or written advice of
counsel is required pursuant to this Section 3.3 that requirement shall be
deemed satisfied in the case of the State Treasurer of the State of Michigan, as
Custodian of various retirement systems (the "Retirement Systems") by a
certificate signed by the administrator of the Retirement Systems stating that
the administrator has determined, after consultation with its counsel, the
Attorney General of the State of Michigan, that the specified circumstances or
consequences identified in the applicable opinion requirement, and set forth in
such certificate, exist.

        3.4     Removal of Restrictions on Transfer of Securities. Any legend
referred to in paragraph 3.2 hereof stamped on a certificate evidencing (i) the
Preferred Stock held by the Investors, (ii) the Conversion Stock or (iii) any
other securities issued in respect of the Preferred Stock or Conversion Stock
held by the Investors upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event and the stock transfer instructions and
record notations with respect to such security shall be removed and the Company
shall issue a certificate without such legend to the holder of such security if
such security is registered under the Securities Act, or if such holder provides
the Company with an opinion of counsel (which may be counsel for the Company)
reasonably acceptable to the Company to the effect that a public sale or
transfer of such security may be made without registration under the Securities
Act or (iii) such holder provides the Company with reasonable assurances, which
may, at the option

                                       14
<PAGE>   15

of the Company, include an opinion of counsel satisfactory to the Company, that
such security can be sold pursuant to Section (k) of Rule 144 under the
Securities Act.

4.      Designation of Director; Voting. Each holder of Series C Preferred Stock
agrees to vote the shares of Series C Preferred Stock now or hereafter owned by
such holder, whether beneficially or otherwise, so that the member of the
Company's Board of Directors elected pursuant to the provisions of Section 5.2
of the Company's Restated Certificate of Incorporation by the holders of the
Company's Series C Preferred Stock shall be the designee of the holder(s) of a
majority of the outstanding shares of Series C Preferred Stock

5.      Certain Covenants of the Company. The Company hereby covenants and
agrees as follows:

        5.1    Financial Information.

               (a) As soon as practicable after the end of each fiscal year, and
in any event within 90 days thereafter, the Company will provide to each
Investor (for so long as the Investor is a holder of a minimum of 5,000 shares
of Preferred Stock, Conversion Stock or an equivalent combination thereof),
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of income,
stockholders' equity and cash flows of the Company and its subsidiaries, if any,
for such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
audited by independent public accountants of national standing selected by the
Company.

               (b) As soon as practicable after the end of each month and in any
event within 20 days thereafter, the Company will provide to each Investor (for
so long as the Investor is a holder of a minimum of 500,000 shares of Preferred
Stock, Conversion Stock or an equivalent combination thereof, including for
purposes of this Section 5 any shares of Preferred Stock which have been
transferred to a constituent partner of an Investor), a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
month, consolidated statements of income, consolidated statements of changes in
financial condition, and a consolidated statement of cash flow of the Company
and its subsidiaries for such period and for the current fiscal year to date,
and setting forth in each case in comparative form the figures for corresponding
periods in the previous fiscal year, and setting forth in comparative form the
budgeted figures for such period and for the current fiscal year then reported,
prepared in accordance with generally accepted accounting principles (other than
for accompanying notes), subject to changes resulting from year-end audit
adjustments, all in reasonable detail and signed by the principal financial or
accounting officer of the Company.

               (c) The Company will provide each Investor (for so long as the
Investor is a holder of a minimum of 500,000 shares of Preferred Stock,
Conversion Stock or an equivalent combination thereof, including for purposes of
this Section 5 any shares of Preferred Stock which have been transferred to a
constituent partner of an Investor), an annual financial plan for the next
fiscal year of the Company containing profit and loss projections, cash flow
projections, and capital expenditures, all on a monthly basis, as soon as it is
available but in any event within thirty (30) days prior to the end of the
current fiscal year.

                                       15
<PAGE>   16

               (d) Any submission of financial information pursuant to this
Section 5.1 shall be under cover of a certificate executed by the Company's
president, chief financial officer or treasurer certifying that such information
(i) relates to the Company, (ii) to the best of the Company's knowledge is
accurate, and (iii) if applicable, has been audited by the Company's independent
auditors.

        5.2     Assignment of Rights to Financial Information. Subject to the
limitations set forth in Section 5.1, the rights granted pursuant to Section
5.1(a), (b) and (c) may be assigned or otherwise conveyed by the Investors or by
any subsequent transferee to an investor who acquires a minimum of 5,000 or
500,000 (as the case may be) shares of Preferred Stock, Conversion Stock, or a
combination thereof, respectively, other than a competitor of the Company, as
reasonably determined by the Board of Directors of the Company excluding any
director with an interest in such transferee, provided that written notice of
such assignment or conveyance is given to the Company.

        5.3     Termination of Covenants. The covenants set forth this Section
5, shall terminate and be of no further force or effect upon the closing of the
Company's initial underwritten public offering pursuant to an effective
registration statement filed by the Company under the Securities Act (other than
a registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan).

        5.4     Indemnification of Officers and Directors. For at least as long
as any representative or representatives of the Investors serve on the Board of
Directors of the Company, the Company shall indemnify its officers and directors
to the full extent permitted by law.

        5.5     Qualified Small Business. For so long as any Preferred Stock is
held by an Investor or by a transferee of any Investor in whose hands the
Preferred Stock is eligible to qualify as Qualified Small Business Stock as
defined in Section 1202(c)of the Code, the Company shall use its best efforts,
consistent with sound business practices, to cause the Preferred Stock to
qualify as Qualified Small Business Stock.

        5.6     Right to Conduct Activities. The Company and each Investor
hereby acknowledge that some or all of the Investors are professional investment
funds, and as such invest in numerous portfolio companies, some of which may be
competitive with the Company's business. No Investor shall be liable to the
Company or to any other Investor for any claim arising out of, or based upon,
the investment activities of such Investor, including without limitation, any
claim arising out of, or based upon, (i) the investment by Investor in any
entity competitive to the Company, or (ii) actions taken by any partner, officer
or other representative of any Investor to assist any such competitive company,
whether or not such action was taken as a board member of such competitive
company, or otherwise, and whether or not such action has a detrimental effect
on the Company.

        5.7     Confidentiality of Records. Except as required by law, each
Investor agrees to use, and to use its best efforts to insure that its
authorized representatives use, the same degree of care as such Investor uses to
protect its own confidential information to keep confidential any information
furnished to it which the Company identifies as being confidential or
proprietary (so

                                       16
<PAGE>   17

long as such information is not in the public domain), except that such Investor
may disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 5.7.

        5.8     Inspection Rights. So long as an Investor is the holder of a
minimum of 500,000 shares of Preferred Stock, Conversion Stock or an equivalent
combination thereof, such Investor shall have the right to visit and inspect any
of the properties of the Company, and to discuss the affairs, finances and
accounts of the Company with its officers, and to review such information as is
reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 5.7 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.

        5.9     Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion.

        5.10    Proprietary Information and Inventions Agreement. The Company
shall require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in the form delivered to Investors or their
counsel.

6.      Termination of Prior Rights Agreement. Effective upon execution of this
Agreement by the Company and the holders of a majority of the Registrable
Securities under the Prior Rights Agreement, the Prior Rights Agreement is null
and void and superseded in its entirety by this Agreement.

7.      Miscellaneous.

        7.1     Waivers and Amendments. Except as otherwise provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of at least two-thirds (66-2/3%) of the Registrable
Securities. With the written consent of the Holders of more than 66-2/3% of the
Registrable Securities, the obligations of the Company and the rights of the
Holders under this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely), and with the same consent the Company, when
authorized by resolution of its Board of Directors, may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement; provided,
however, that no such waiver or supplemental agreement shall reduce the
aforesaid percentage of Registrable Securities, the Holders of which are
required to consent to any waiver or supplemental agreement without the consent
of the Holders of all of the Registrable Securities. With the written consent of
the Company, the obligations of the Holders and the rights of the Company under
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely). Neither this Agreement nor any provisions hereof may be
changed, waived, discharged or terminated orally, but only by a signed statement
in writing. Any amendment, waiver or supplementary agreement effected in
accordance with this paragraph shall be binding upon each

                                       17
<PAGE>   18

Holder of any Registrable Securities then outstanding, each future Holder of all
such Registrable Securities and the Company.

        7.2     Governing Law. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.

        7.3     Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

        7.4     Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.

        7.5     Notices. All notices and other communications required or
permitted hereunder shall be in writing and may be delivered in person, by
telecopy with written confirmation, overnight delivery service or U.S. mail, in
which event it may be mailed by first-class, certified or registered, postage
prepaid, addressed (a) if to a Holder, at such address as such Holder shall have
furnished the Company in writing, or; until any such Holder so furnishes an
address to the Company, then to and at the address of the last holder of such
securities who has so furnished an address to the Company, or (b) if to the
Company, at such address as the Company shall have furnished to the Holders in
writing.

               Each such notice or other communication shall for all purposes
this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or one
(1) day after deposit with a nationally recognized overnight courier, or if sent
by telecopier with written confirmation, at the earlier of (i) 24 hours after
confirmation of transmission by the sending telecopier machine or (ii) delivery
of written confirmation.

        7.6     Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.

        7.7     Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

        7.8     Nominees. Securities registered in the name of a nominee for a
Holder shall, for purposes of this Agreement, be treated as being owned by such
Holder.

        7.9     Severability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

        7.10    Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be

                                       18
<PAGE>   19

construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in writing. All remedies,
either under this Agreement, by law, or otherwise afforded to Holders, shall be
cumulative and not alternative.

        7.11    Attorneys' Fees. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals. Notwithstanding the foregoing, this
Section 7.1 1 shall not apply to State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement System, and
Michigan Judges Retirement System.

                                       19
<PAGE>   20

        The foregoing Third Restated Stockholders Rights Agreement is hereby
executed as of the date first first above written.

COMPANY:

VNUS MEDICAL TECHNOLOGIES, INC.

By:                   /s/
   -------------------------------------------
           Brian E. Farley, President

<PAGE>   21

STATE TREASURER OF THE STATE OF
MICHIGAN, CUSTODIAN OF THE MICHIGAN
PUBLIC SCHOOL EMPLOYEES' RETIREMENT
SYSTEM, STATE EMPLOYEES' RETIREMENT
SYSTEM, MICHIGAN STATE POLICE
RETIREMENT SYSTEM, AND MICHIGAN JUDGES
RETIREMENT SYSTEM

By:            /s/
   ------------------------------
Name:   David C. Turner

Title:  Administrator

<PAGE>   22

INVESTORS:

    MENLO VENTURES VI, L.P.
BY: MV MANAGEMENT VI, L.P.
    ITS GENERAL PARTNER

BY:          /s/
   ------------------------------
        GENERAL PARTNER

MENLO ENTREPRENEURS FUND VI, L.P.
    BY: MV MANAGEMENT VI, L.P.
        ITS GENERAL PARTNER

BY:          /s/
   ------------------------------
        GENERAL PARTNER

<PAGE>   23

DLJ CAPITAL CORP.

               /s/
-----------------------------
By:  Kathleen D. La Porte
Its:   Attorney in Fact

DLJ ESC II, L.P.
By:  DLJ LBO Plans Management Corporation
Its:   Manager

               /s/
-----------------------------
By:  Kathleen D. La Porte
Its:   Attorney in Fact

SPROUT CAPITAL VIII, L.P.
By:  DLJ Capital Corp.
Its:   Managing General Partner

               /s/
-----------------------------
By:  Kathleen D. La Porte
Its:   Attorney in Fact

SPROUT VENTURE CAPITAL, L.P.
By:  DLJ Capital Corp.
Its:   Managing General Partner

               /s/
-----------------------------
By:  Kathleen D. La Porte
Its:   Attorney in Fact

<PAGE>   24

BANKAMERICA VENTURES

By:            /s/
   -------------------------
Name:   Kate D. Mitchell

Title:  Principal

BA VENTURE PARTNERS III

By:            /s/
   -------------------------
Name:   Robert M. Obuch

Title:  General Partner

<PAGE>   25

HAMBRECHT & QUIST CALIFORNIA

By:            /s/
   -------------------------
Name:   Robert N. Savoie

Title:  Tax Director, Attorney-in-Fact

HAMBRECHT & QUIST EMPLOYEE
VENTURE FUND, L.P. II

By:  H & Q Venture Management, L.L.C.
Its:   General Partner

By:            /s/
   -------------------------

Name:   Robert N. Savoie

Title:  Tax Director, Attorney-in-Fact

<PAGE>   26

LIGHTHOUSE CAPITAL PARTNERS II, L.P.

By:     Lighthouse Management Partners II, L.P.,
        its general partner

By:     Lighthouse Capital Partners, Inc.,
        its general partner

By:            /s/
   ------------------------------
Name:   Richard D. Stubblefield

Title:  Managing Director

<PAGE>   27

GMI/DRI INVESTMENT TRUST

By:            /s/
   --------------------------------
Name:   David VanBenschoten

Title:  Executive Secretary
        Benefit Finance Committee

<PAGE>   28

               /s/
---------------------------------
Rob Faulkner

               /s/
---------------------------------
Kurt Kruger

               /s/
---------------------------------
Dennis Purcell

               /s/
---------------------------------
John Rumsey

<PAGE>   29

               /s/
---------------------------------
Kate D. Mitchell

<PAGE>   30

BAY CITY CAPITAL

By:            /s/
   ------------------------------
Name:   Fred Craves

Title:  Managing Director

<PAGE>   31

               /s/
---------------------------------
Vincenzo Iuri

<PAGE>   32

                                    EXHIBIT A

                              SCHEDULE OF INVESTORS

<TABLE>
<CAPTION>

INVESTOR                                                            SECURITIES
--------                                                            ----------

<S>                                                    <C>
State Treasurer of the State of Michigan,              2,500,000  Series D Preferred Stock
Custodian of the Michigan Public School
Employees' Retirement System, State Employees'
Retirement System, Michigan State Police
Retirement System, and Michigan Judges
Retirement System

Menlo Ventures VI, L.P.                                2,500,000  Series A-1 Preferred Stock
                                                       2,000,000  Series A-2 Preferred Stock
                                                       1,000,000  Series A-3 Preferred Stock
                                                       1,666,667  Series B Preferred Stock
                                                         586,854  Series C Preferred Stock
                                                         234,742  Series C Warrants
                                                         492,611  Series D Preferred Stock

Menlo Entrepreneurs Fund VI, L.P.                         37,500  Series A-1 Preferred Stock
                                                          30,000  Series A-2 Preferred Stock
                                                          15,000  Series A-3 Preferred Stock
                                                          25,000  Series B Preferred Stock
                                                           8,803  Series C Preferred Stock
                                                           3,521  Series C Warrants
                                                           7,389  Series D Preferred Stock

Sprout Capital VII, L.P.                               2,501,459  Series C Preferred Stock
                                                       1,000,584  Series C Warrants

Sprout Capital VIII, L.P.                              1,297,565  Series D Preferred Stock

DLJ First ESC L.L.C.                                     287,559  Series C Preferred Stock
                                                         115,023  Series C Warrants

DLJ ESC II, L.P.                                         113,331  Series D Preferred Stock

DLJ Capital Corp.                                         57,512  Series C Preferred Stock
                                                          23,005  Series C Warrants
                                                          11,250  Series D Preferred Stock

The Sprout CEO Fund, L.P.                                 29,057  Series C Preferred Stock
                                                          11,623  Series C Warrants
                                                           4,517  Series D Preferred Stock
                                                       1,000,587  Series C Preferred Stock
BankAmerica Ventures                                     400,234  Series C Warrants
                                                         450,000  Series D Preferred Stock
</TABLE>

<PAGE>   33

<TABLE>
<CAPTION>

INVESTOR                                                            SECURITIES
--------                                                            ----------

<S>                                                    <C>
BA Venture Partners III                                  111,502  Series C Preferred Stock
                                                          44,601  Series C Warrants
                                                          50,000  Series D Preferred Stock

Hambrecht & Quist California                              70,423  Series C Preferred Stock
                                                          28,169  Series C Warrants
                                                          20,000  Series D Preferred Stock

Hambrecht & Quist Employee Venture Fund, L.P. II          20,000  Series D Preferred Stock

Lighthouse Capital Partners II, L.P.                      44,118  Series C Warrants

GMI/DRI Investment Trust                                 500,000  Series D Preferred Stock

Rob Faulkner                                               7,629  Series C Preferred Stock
                                                           3,052  Series C Warrants
                                                           4,250  Series D Preferred Stock

Kurt Kruger                                               14,671  Series C Preferred Stock
                                                           5,869  Series C Warrants

Dennis Purcell                                             8,216  Series C Preferred Stock
                                                           3,286  Series C Warrants
                                                           4,250  Series D Preferred Stock

John Rumsey                                                7,629  Series C Preferred Stock
                                                           3,052  Series C Warrants
                                                           4,500  Series D Preferred Stock

Kate D. Mitchell                                           2,934  Series C Preferred Stock
                                                           1,174  Series C Warrants
                                                           1,250  Series D Preferred Stock

Bay City Capital                                       2,500,000  Series D Preferred Stock

Vincenzo Iuri                                             20,000  Series D Preferred Stock

</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}]]