<PAGE>   1
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2000
 
                                            REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                            INTUITIVE SURGICAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

<TABLE>
<S>                                <C>                                <C>
             DELAWARE                             3842                            77-0416458
 (STATE OR OTHER JURISDICTION OF      (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)           IDENTIFICATION NUMBER)
</TABLE>

 
                            1340 W. MIDDLEFIELD ROAD
                        MOUNTAIN VIEW, CALIFORNIA 94043
                                 (650) 237-7000
 
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                                LONNIE M. SMITH
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                            INTUITIVE SURGICAL, INC.
                            1340 W. MIDDLEFIELD ROAD
                        MOUNTAIN VIEW, CALIFORNIA 94043
                                 (650) 237-7000
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                                   COPIES TO:
 

<TABLE>
<S>                                                 <C>
              ALAN C. MENDELSON, ESQ.                             KENNETH M. DORAN, ESQ.
              LAURA A. BEREZIN, ESQ.                            GIBSON, DUNN & CRUTCHER LLP
                COOLEY GODWARD LLP                                333 SOUTH GRAND AVENUE
               FIVE PALO ALTO SQUARE                               LOS ANGELES, CA 90071
                3000 EL CAMINO REAL                                   (213) 229-7000
            PALO ALTO, CALIFORNIA 94306
                  (650) 843-5000
</TABLE>

 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
 
    If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  [ ]
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
 
    If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [ ]
 

                        CALCULATION OF REGISTRATION FEE
 

<TABLE>
<S>                                                           <C>                     <C>
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
                                                                 PROPOSED MAXIMUM           AMOUNT OF
TITLE OF SHARES TO BE REGISTERED                                OFFERING PRICE(1)        REGISTRATION FEE
------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value...............................       $115,000,000              $30,360
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>

 
(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>   2
 
     THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
     MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
     WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
     IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS
     TO BUY.
 
                  SUBJECT TO COMPLETION, DATED MARCH 22, 2000
 
PROSPECTUS
 
                                                 SHARES
 
                           [INTUITIVE SURGICAL LOGO]
 
                                  COMMON STOCK
 
--------------------------------------------------------------------------------
 
This is our initial public offering of shares of common stock. We are offering
               shares. No public market currently exists for our shares.
 
We propose to list our common stock on the Nasdaq National Market under the
symbol "ISRG." Anticipated price range of $          to $          per share.
 
    INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 5.
 

<TABLE>
<CAPTION>
                                                                PER
                                                               SHARE      TOTAL
                                                              -------    -------
<S>                                                           <C>        <C>
Public Offering Price.......................................  $          $
Underwriting Discount.......................................  $          $
Proceeds to Intuitive Surgical..............................  $          $
</TABLE>

 
We have granted the underwriters a 30-day option to purchase up to
               additional shares of common stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any.
 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
 
Lehman Brothers expects to deliver the shares on or about              , 2000.
 
--------------------------------------------------------------------------------
 
LEHMAN BROTHERS
 
              BEAR, STEARNS & CO. INC.
                            ROBERTSON STEPHENS
                                         WARBURG DILLON READ LLC
 
               , 2000

<PAGE>   3
                           [Description of Graphics]


Outside Front Cover

Captions

Headline:  DA VINCI(TM) Surgical System
           The future of surgery is now at your fingertips(TM)

A series of four photographs are shown on the right side and bottom of the page.
The first image shows two ENDOWRIST instruments suturing an organ. The second
image shows a surgeon's hands inside our Surgeon's console manipulating the
instrument controls to move the instruments shown in the first image. The
surgeon's hands are positioned and oriented relative to one another in the same
manner the instruments of the first image are relatively positioned and
oriented. The third image shows a surgeon holding an actual ENDOWRIST instrument
in front of his face. The fourth image is a graphic comparing the range of
motion of the human hand and wrist to that of an ENDOWRIST instrument.

Captions:

First and
Second Images: Orientation and movement of the surgeon's wrists, hands and
               fingers are seamlessly translated to the instrument tips

Third Image:   Enhanced precision and intuitive control are provided
               through incisions the diameter of a pencil

Fourth Image:  Full dexterity of the surgeon's wrists, hands and fingers are
               replicated real-time at the operative field


Gatefold 

Captions

Headline:  DA VINCI(TM) Surgical System

Illustration:  This illustration, centered on the page, shows various
               operating room personnel performing a simulated surgery using
               Intuitive Surgical's DA VINCI(TM) Surgical System.

Legend

Orange dot 1   Surgeon's Console

Blue dot 2     Patient-Side Cart

Yellow dot 3   ENDOWRIST Instruments

Teal dot 4     INSITE Vision System High-Resolution 3-D Endoscope

Purple dot 5   INSITE Vision System Image Processing Equipment

<PAGE>   4
 
                               TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Prospectus Summary..........................................    1
Risk Factors................................................    5
Special Note Regarding Forward-Looking Statements...........   17
Use of Proceeds.............................................   18
Dividend Policy.............................................   18
Capitalization..............................................   19
Dilution....................................................   20
Selected Financial Data.....................................   22

Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   23
Business....................................................   27
Management..................................................   46
Related Party Transactions..................................   56
Principal Stockholders......................................   57
Description of Capital Stock................................   60
Shares Eligible for Future Sale.............................   63
Underwriting................................................   65
Legal Matters...............................................   67
Experts.....................................................   67
Where You Can Find More Information.........................   67
Index to Financial Statements...............................  F-1
</TABLE>

 
                             ABOUT THIS PROSPECTUS
 
     You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
 
     Until              , 2000 (25 days after the commencement of this
offering), all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to unsold allotments or subscriptions.

<PAGE>   5
 

                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the financial statements and the notes
to those statements, appearing elsewhere in this prospectus. Unless otherwise
indicated, information in this prospectus assumes that the underwriters do not
exercise their over-allotment option, assumes the conversion of all of our
preferred stock into common stock upon completion of this offering and assumes
the filing of our amended and restated certificate of incorporation immediately
following the closing of this offering. In this prospectus, we refer to
Intuitive Surgical, Inc. as "Intuitive Surgical," "we" and "us."
 
                               INTUITIVE SURGICAL
 
     We design and manufacture the da Vinci Surgical System, an advanced
surgical system that we believe represents a fundamentally new generation of
surgery. We believe this new generation of surgery, Intuitive surgery,
represents an advance similar in magnitude to the previous two generations of
surgery -- open surgery and minimally invasive surgery, or MIS. Our da Vinci
Surgical System seamlessly translates the surgeon's natural hand movements on
instrument controls at a console into corresponding micromovements of
instruments positioned inside the patient through small puncture incisions, or
ports. Our products provide the surgeon with the range of motion and fine tissue
control previously possible only with open surgery, while simultaneously
allowing the surgeon to work through small ports. To date, surgeons have
performed over 500 surgical procedures using our da Vinci Surgical System.
 
     Although open surgery is still the predominant form of surgery, the large
incisions required create significant trauma to the patient, often contributing
to long hospitalization and recovery times, high hospitalization costs, as well
as significant pain and suffering. Over the past several decades, physicians
have made progress in reducing surgery-related trauma by developing MIS
techniques. These techniques allow surgery to be performed through ports rather
than large incisions, resulting in shorter recovery times and reduced
hospitalization costs. MIS techniques have been widely adopted in certain
surgical procedures, such as gall bladder removal, but have not been widely
adopted for most complex surgical procedures. We believe surgeons have been slow
to adopt MIS for many surgical procedures because of the inherent drawbacks with
existing MIS tools and techniques, which include "backward" instrument
movements, restricted range of motion, magnified hand tremor, lack of precision,
difficulty in performing fine tissue manipulations, exaggerated instrument
movements and poor visualization.
 
     Intuitive surgery overcomes many of the limitations of existing MIS surgery
by using a broad technology platform consisting of computer hardware, software,
algorithms, mechanics and optics to perform fine tissue manipulation through
ports, in many parts of the body. Using our da Vinci Surgical System, the
surgeon operates while seated comfortably at a console viewing a 3-D image of
the surgical field. The surgeon's fingers grasp the instrument controls below
the display with wrists naturally positioned relative to his or her eyes. Our
technology seamlessly translates the surgeon's movements into precise, real-time
movements of our surgical instruments inside the patient. The key advantages of
Intuitive surgery over conventional MIS techniques include the following:
 
     - natural instrument movements that directly transform the surgeon's hand,
       wrist and finger movements outside the patient's body into corresponding
       instrument micromovements inside the body;
 
     - a full range of motion for surgical instruments, previously available
       only in open surgery;
                                        1

<PAGE>   6
 
     - reduced hand tremor and finer instrument movements as a result of
       computer enhancements of the surgeon's hand, wrist and finger movements;
 
     - the look and feel of open surgery enabled by our 3-D InSite vision
       system;
 
     - ease of use enabling surgeons to learn to use our products with a limited
       amount of training;
 
     - the capability to perform complex surgical procedures; and
 
     - broad applicability to multiple surgical procedures through a single
       surgical platform.
 
     Our products include our da Vinci Surgical System and a variety of "smart
disposable" EndoWrist instruments that incorporate our flexible "wrist" joint
technology. Our product revenues are generated primarily from the direct sale of
(1) the da Vinci Surgical System, consisting of a surgeon's console, a
patient-side cart that holds electromechanical arms, and our 3-D InSite vision
system, and (2) our EndoWrist instruments, which include scissors, forceps,
scalpels and a variety of other tools. Our instruments are resterilizable and
the number of procedures or hours that each can perform is controlled by a
custom computer chip. Because we have designed our EndoWrist instruments to
expire after their recommended useful lives, we expect continuing sales of our
EndoWrist instruments to generate recurring revenues.
 
     We have applied for trademark registration of, or claim trademark rights
in, the following: Intuitive, da Vinci, EndoWrist, InSite, the Intuitive
Surgical logo, Immersive and Navigator. Other trademarks and trade names
appearing in this prospectus are the property of their holders.
 
     We were incorporated in Delaware in November 1995 as Intuitive Surgical
Devices, Inc. and changed our name to Intuitive Surgical, Inc. in January 1997.
Our executive offices are located at 1340 W. Middlefield Road, Mountain View,
California 94043, and our telephone number is (650) 237-7000. Our website is
located at http://www.intuitivesurgical.com. Information contained on our
website is not a part of this prospectus.
                                        2

<PAGE>   7
 
                                  THE OFFERING
 
Common Stock offered..................               shares
 
Common Stock to be outstanding after
this offering.........................               shares
 
Use of Proceeds.......................     For working capital and general
                                           corporate purposes.
 
Proposed Nasdaq National Market
Symbol................................     "ISRG"
 
     The number or shares of common stock to be outstanding after this offering
is based on the number of shares of common stock outstanding as of December 31,
1999, and excludes:
 
     - 1,466,725 shares of common stock underlying options outstanding as of
       December 31, 1999 at a weighted-average exercise price of $1.90 per
       share;
 
     - 203,997 shares of common stock available for future grants under our
       stock option plans as of December 31, 1999;
 
     - 5,107,875 shares of common stock underlying warrants outstanding as of
       December 31, 1999 at a weighted-average exercise price of $9.49 per
       share, of which 3,588,400 shares of preferred stock were issued upon
       exercise of outstanding warrants in March 2000 at a weighted-average
       exercise price of $9.84 per share; and
 
     - an additional 6,960,000 shares authorized subsequent to December 31, 1999
       for issuance under our stock option and employee stock purchase plans, of
       which options to purchase 70,250 shares and 303,600 shares of common
       stock were granted in February 2000 and March 2000, respectively, at a
       weighted-average exercise price of $3.00 per share.
                                        3

<PAGE>   8
 
                             SUMMARY FINANCIAL DATA
 
     The following tables summarize our financial data. The pro forma
information contained in the statements of operations data gives effect to the
automatic conversion of our preferred stock into common stock upon the
completion of this offering. The as adjusted column of the balance sheet data
gives effect to the automatic conversion of our preferred stock into common
stock upon completion of this offering and reflects the sale of
shares of our common stock in this offering at the assumed initial public
offering price of $          per share, after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us. The
following tables do not reflect the March 2000 exercise of warrants to purchase
3,588,400 shares of preferred stock for gross proceeds of $35.3 million.
 

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                         --------------------------------------
                                                            1997          1998          1999
                                                         ----------    ----------    ----------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                      <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA
Sales................................................     $     --      $     --      $ 10,192
Cost of sales........................................           --            --         9,273
                                                          --------      --------      --------
  Gross margin.......................................           --            --           919
Operating costs and expenses:
  Research and development...........................       20,282        23,208        11,130
  Selling, general and administrative................        4,434         7,565         9,338
                                                          --------      --------      --------
     Total operating costs and expenses..............       24,716        30,773        20,468
                                                          --------      --------      --------
Loss from operations.................................      (24,716)      (30,773)      (19,549)
Interest income (expense), net.......................        1,114         1,330         1,134
                                                          --------      --------      --------
Net loss.............................................     $(23,602)     $(29,443)     $(18,415)
                                                          ========      ========      ========
Basic and diluted net loss per share.................     $ (11.24)     $  (8.14)     $  (3.81)
                                                          ========      ========      ========
Shares used in computing basic and diluted net loss
  per share..........................................        2,100         3,619         4,837
                                                          ========      ========      ========
Pro forma basic and diluted net loss per share
  (unaudited)........................................                                 $  (0.79)
                                                                                      ========
Shares used in computing pro forma basic and diluted
  net loss per share (unaudited).....................                                   23,331
                                                                                      ========
</TABLE>

 

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                                       1999
                                                              ----------------------
                                                               ACTUAL    AS ADJUSTED
                                                              --------   -----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>        <C>
BALANCE SHEET DATA
Cash, cash equivalents and short-term investments...........  $ 26,260        $
Working capital.............................................    22,023
Total assets................................................    34,455
Notes payable, less current portion.........................     2,521
Deferred compensation.......................................      (943)
Accumulated deficit.........................................   (75,147)
Total stockholders' equity..................................    22,211
</TABLE>

 
                                        4

<PAGE>   9
 

                                  RISK FACTORS
 
     An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. If any of the following risks actually occurs, our business could be
harmed. In that case, the trading price of our common stock could decline, and
you might lose all or part of your investment. The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties not presently known to us, or that we currently see as immaterial,
may also harm our business. If any of these additional risks or uncertainties
occurs, the trading price of our common stock could decline, and you might lose
all or part of your investment.
 
RISKS RELATED TO INTUITIVE SURGICAL
 
OUR FUTURE OPERATING RESULTS MAY BE BELOW SECURITIES ANALYSTS' OR INVESTORS'
EXPECTATIONS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
 
     Because of our limited operating history, we have limited insight into
trends that may emerge in our market and affect our business. The revenue and
income potential of our market are unproven, and we may be unable to generate
significant commercial revenues. In addition, our costs may be higher than we,
securities analysts or investors expect. If we fail to generate sufficient
revenues or our costs are higher than we expect, our results of operations will
suffer, which in turn could cause our stock price to decline. Further, future
revenue from sales of our products, if any, will be difficult to forecast
because the market for new surgical technologies is still evolving. Our results
of operations will depend upon numerous factors, including:
 
     - the progress and results of clinical trials;
 
     - actions relating to regulatory matters;
 
     - the extent to which our products gain market acceptance;
 
     - our timing and ability to develop our manufacturing and sales and
       marketing capabilities;
 
     - demand for our products;
 
     - the progress of surgical training in the use of our products;
 
     - our ability to develop, introduce and market new or enhanced versions of
       our products on a timely basis;
 
     - product quality problems;
 
     - our ability to protect our proprietary rights;
 
     - our ability to license additional intellectual property rights; and
 
     - third-party payor reimbursement policies.
 
Our operating results in any particular period will not be a reliable indication
of our future performance. It is likely that in some future quarters, our
operating results will be below the expectations of securities analysts or
investors. If this occurs, the price of our common stock, and the value of your
investment, will likely decline.
 
                                        5

<PAGE>   10
 
WE HAVE A LARGE ACCUMULATED DEFICIT, WE EXPECT FUTURE LOSSES, AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
 
     We have incurred substantial losses since inception as we funded the
development of our products and technologies. Our net loss for 1999 was $18.4
million. As of December 31, 1999, we had an accumulated deficit of $75.1
million.
 
     We expect to spend substantial amounts in the future to expand our
manufacturing and sales and marketing capabilities, and for additional research
and development activities, clinical trials, and regulatory approval
applications. As a result, we expect our operating losses to continue for the
foreseeable future. The extent of our future losses and the timing of
profitability are highly uncertain, and we may never achieve profitable
operations. If the time required to generate significant revenues and achieve
profitability is longer than anticipated, we may not be able to continue our
operations.
 
WE EXPERIENCE LONG AND VARIABLE SALES CYCLES, WHICH COULD HAVE A NEGATIVE IMPACT
ON OUR RESULTS OF OPERATIONS FOR ANY GIVEN QUARTER.
 
     Our da Vinci Surgical System has a lengthy sales and purchase order cycle
because it is a major capital item and generally requires the approval of senior
management at purchasing institutions. We do not plan to maintain an inventory
of assembled da Vinci Surgical Systems, but rather plan to manufacture our
products only after receiving customer orders. These factors may contribute to
substantial fluctuations in our quarterly operating results, particularly during
the periods in which our sales volume is low. Because of these fluctuations, it
is likely that in some future quarters, our operating results could fall below
the expectations of securities analysts or investors. If that happens, the
market price of our stock would likely decrease. These fluctuations also mean
that you will not be able to rely upon our operating results in any particular
period as an indication of future performance.
 
IF OUR PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS COULD FAIL.
 
     Our products represent a fundamentally new way of performing surgery.
Achieving physician, patient and third-party payor acceptance of Intuitive
surgery as a preferred method of performing surgery will be crucial to our
success. We believe that physicians' and third-party payors' acceptance of the
benefits of procedures performed using our products will be essential for
acceptance of our products by patients. Physicians will not recommend the use of
our products unless we can demonstrate that they produce results comparable or
superior to existing surgical techniques. Even if we can prove the effectiveness
of our products through clinical trials, surgeons may elect not to use our
products for any number of other reasons. For example, cardiologists may
continue to recommend conventional open heart surgery simply because such
surgery is already so widely accepted. In addition, surgeons may be slow to
adopt our products because of the perceived liability risks arising from the use
of new products and the uncertainty of reimbursement from third-party payors. If
our products fail to achieve market acceptance, we will not be able to generate
the revenue necessary to support our business.
 
     We expect that there will be a learning process involved for surgical teams
to become proficient in the use of our products. Broad use of our products will
require training of surgical teams. Market acceptance could be delayed by the
time required to complete this training. We may not be able to rapidly train
surgical teams in numbers sufficient to generate adequate demand for our
products. Although we are in the process of developing training programs for
surgical teams, we cannot be certain that our training programs will be cost
effective or sufficient to meet our customers' needs.
 
                                        6

<PAGE>   11
 
OUR ABILITY TO MARKET AND SELL OUR PRODUCTS DOMESTICALLY DEPENDS UPON RECEIVING
REGULATORY APPROVALS.
 
     Our products are subject to extensive regulation in the United States by
the U.S. Food and Drug Administration, or FDA. The FDA regulates the research,
testing, manufacturing, safety, labeling, storage, recordkeeping, promotion,
distribution and production of medical devices in the United States. Our
products have not been approved by the FDA for any surgical procedure. If we
fail to obtain FDA approval for the use of our products, our business will be
harmed and we will not be able to market and sell our products in the United
States. In November 1999, we submitted a premarket approval, or PMA, application
requesting permission to market our da Vinci Surgical System and EndoWrist
instruments for laparoscopic surgical procedures, which the FDA accepted for
review in December 1999. In addition to the pending PMA application for
laparoscopic approval, we presently have a clinical study in progress covering
surgery in the chest called thoracoscopic surgery. A PMA application must be
supported by valid scientific evidence, which typically includes extensive
preclinical and clinical trials and other data, to demonstrate the safety and
effectiveness of the device. Data obtained from clinical trials are subject to
varying interpretations that could delay, limit or prevent us from obtaining FDA
approval. Even if our products are approved by the FDA, if we modify them, the
FDA may require us to obtain approval of the modified products before we are
permitted to market and sell them. Any delay in receiving approval, failure to
receive approval or failure to comply with existing or future regulatory
requirements would harm our ability to market and sell our products. For
additional information concerning regulatory approval of our products, see
"Business -- Government Regulation."
 
OUR ABILITY TO MARKET AND SELL OUR PRODUCTS INTERNATIONALLY DEPENDS UPON
RECEIVING REGULATORY APPROVALS.
 
     To be able to market and sell our products in other countries, we must
obtain regulatory approvals and comply with the regulations of those countries.
These regulations, including the requirements for approvals, and the time
required for regulatory review vary from country to country. Obtaining and
maintaining foreign regulatory approvals are expensive, and we cannot be certain
that we will receive regulatory approvals in any foreign country in which we
plan to market our products. If we fail to obtain regulatory approval in any
foreign country in which we plan to market our products, our ability to generate
revenue will be harmed.
 
     The European Union requires that manufacturers of medical products obtain
the right to affix the CE mark to their products before selling them in member
countries of the European Union. The CE mark is an international symbol of
adherence to quality assurance standards and compliance with applicable European
medical device directives. In order to obtain the right to affix the CE mark to
products, a manufacturer must obtain certification that its processes meet
certain European quality standards. In January 1999, we received permission to
affix the CE mark to our da Vinci Surgical System and EndoWrist instruments for
general surgical use. We received additional CE approvals for use of our da
Vinci Surgical System and EndoWrist instruments in cardiac surgery in September
1999 and February 2000.
 
     If we modify existing products or develop new products in the future,
including new instruments, we will need to apply for permission to affix the CE
mark to such products. In addition, we will be subject to annual regulatory
audits in order to maintain the CE mark permissions we have already obtained. We
cannot be certain that we will be able to obtain permission to affix the CE mark
for new or modified products or that we will continue to meet the quality and
safety standards required to maintain the permissions we have already received.
If we are unable to maintain permission to
 
                                        7

<PAGE>   12
 
affix the CE mark to our products, we will no longer be able to sell our
products in member countries of the European Union.
 
IF INSTITUTIONS OR SURGEONS ARE UNABLE TO OBTAIN REIMBURSEMENT FROM THIRD-PARTY
PAYORS FOR PROCEDURES USING OUR PRODUCTS, OR IF REIMBURSEMENT IS INSUFFICIENT TO
COVER THE COSTS OF PURCHASING OUR PRODUCTS, WE MAY BE UNABLE TO GENERATE
SUFFICIENT SALES.
 
     At present, the da Vinci Surgical System is categorized as an "experimental
device" and thus does not qualify for Medicare reimbursement. In late 1999, the
FDA denied our formal request for reclassification of the da Vinci Surgical
System as an investigational, rather than an experimental, device. We believe
that unless the FDA approves our PMA application for a particular indication,
such as laparoscopic use, reimbursement through Medicare will be unavailable in
the United States for our products.
 
     Domestic institutions will typically bill the services performed with our
products to various third-party payors, such as Medicare, Medicaid and other
government programs and private insurance plans. We believe that the procedures
we intend to target if we receive FDA approval are generally already
reimbursable by government agencies and insurance companies. Accordingly, we
believe hospitals and surgeons in the United States will generally not be
required to obtain new billing authorizations or codes in order to be
compensated for performing approved surgery using our products. If hospitals do
not obtain sufficient reimbursement from third-party payors for procedures
performed with our products, or if government and private payors' policies do
not permit reimbursement for surgical procedures performed using our products,
we may not be able to generate the revenues necessary to support our business.
In such circumstances, we may have to apply to the American Medical Association
for a unique Current Procedural Terminology code covering computer-enhanced
surgery. If an application for a unique code is required, reimbursement for any
use of our products may be unavailable until an appropriate code is granted. The
application process, from filing until adoption of a new code, can take two or
more years.
 
     Our success in international markets also depends upon the eligibility of
our products for reimbursement through government-sponsored health care payment
systems and third-party payors. Reimbursement practices vary significantly by
country. Many international markets have government-managed healthcare systems
that control reimbursement for new products and procedures. Other foreign
markets have both private insurance systems and government-managed systems that
control reimbursement for new products and procedures. Market acceptance of our
products may depend on the availability and level of reimbursement in any
country within a particular time. In addition, health care cost containment
efforts similar to those we face in the United States are prevalent in many of
the other countries in which we intend to sell our products and these efforts
are expected to continue. For further information on third-party reimbursement
policies, see "Business -- Third-Party Reimbursement."
 
IF WE ARE UNABLE TO PROTECT THE INTELLECTUAL PROPERTY CONTAINED IN OUR PRODUCTS
FROM USE BY THIRD PARTIES, OUR ABILITY TO COMPETE IN THE MARKET WILL BE HARMED.
 
     Our commercial success will depend in part on obtaining patent and other
intellectual property protection for the technologies contained in our products,
and on successfully defending our patents and other intellectual property
against third party challenges.
 
     We will incur substantial costs in obtaining patents and, if necessary,
defending our proprietary rights. The patent positions of medical device
companies, including ours, can be highly uncertain and involve complex and
evolving legal and factual questions. We cannot assure you that we will obtain
the patent protection we seek, or that the protection we do obtain will be found
valid and enforceable
 
                                        8

<PAGE>   13
 
if challenged. We also cannot assure you that we will be able to develop
additional patentable proprietary technologies. If we fail to obtain adequate
protection of our intellectual property, or if any protection we obtain is
reduced or eliminated, others could use our intellectual property without
compensating us, resulting in harm to our business. We may also determine that
it is in our best interests to voluntarily challenge a third party's products or
patents in litigation or administrative proceedings, including patent
interferences or reexaminations. Given the early priority dates of some of our
licensed patents, we believe one or more patent proceedings may be in our best
interests in the foreseeable future. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent as do
the laws of the United States.
 
OTHERS MAY ASSERT THAT OUR PRODUCTS INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS,
WHICH MAY CAUSE US TO ENGAGE IN COSTLY DISPUTES AND, IF WE ARE NOT SUCCESSFUL IN
DEFENDING OURSELVES, COULD ALSO CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT
US FROM SELLING OUR PRODUCTS.
 
     We are aware of both United States and foreign patents issued to third
parties that relate to computer-assisted surgery and minimally invasive surgery.
Some of these patents on their face appear broad enough to cover one or more
aspects of our present technology, and may cover aspects of our future
technology. We do not know whether any of these patents, if challenged, would be
held valid, enforceable and infringed. From time to time, we receive, and likely
will continue to receive, letters from third parties inviting us to license
their patents. We may be sued by, or become involved in an administrative
proceeding because of one or more of these third parties, regardless of the
merits or likely outcome of such suit or proceeding. We cannot assure you that a
court or administrative body would agree with any arguments or defenses we have
concerning invalidity, unenforceability or noninfringement of any third-party
patent. In addition to the issued patents of which we are aware, other parties
may have filed, and in the future are likely to file, patent applications
covering surgical products that are similar or identical to ours. We cannot
assure you that any patents issuing from applications filed by a third party
will not cover our products or will not have priority over our patent
applications.
 
     The medical device industry has been characterized by extensive litigation
and administrative proceedings regarding patents and other intellectual property
rights, and companies have employed such actions to gain a competitive
advantage. If third parties assert infringement or other intellectual property
claims against us, our technical and management personnel will experience a
significant diversion of time and effort and we will incur large expenses
defending ourselves. If third parties in any patent action are successful, our
patent portfolio may be damaged, we may have to pay substantial damages,
including treble damages, and we may be required to stop selling our products or
obtain a license which, if available at all, may require us to pay substantial
royalties. We cannot be certain that we will have the financial resources or the
substantive arguments to defend our patents from infringement or claims of
invalidity or unenforceability, or to defend against allegations of infringement
of third-party patents. In addition, any public announcements related to
litigation or administrative proceedings initiated by us, or initiated or
threatened against us, could cause our stock price to decline.
 
THE RIGHTS AND MEASURES WE RELY ON TO PROTECT THE INTELLECTUAL PROPERTY
UNDERLYING OUR PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO
USE OUR TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
 
     In addition to patents, we typically rely on a combination of trade secret,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical security measures to protect our intellectual property
rights. Nevertheless, these measures may not be adequate to safeguard the
technology underlying our products. If they do not protect our rights
adequately, third parties could use our technology, and our ability to compete
in the market would be
 
                                        9

<PAGE>   14
 
reduced. In addition, employees, consultants and others who participate in
developing our products may breach their agreements with us regarding our
intellectual property, and we may not have adequate remedies for the breach. We
also may not be able to effectively protect our intellectual property rights in
some foreign countries. For a variety of reasons, we may decide not to file for
patent, copyright or trademark protection outside the United States. We also
realize that our trade secrets may become known through other means not
currently foreseen by us. Notwithstanding our efforts to protect our
intellectual property, our competitors may independently develop similar or
alternative technologies or products that are equal or superior to our
technology and products without infringing any of our intellectual property
rights, or may design around our proprietary technologies. For further
information on our intellectual property and the difficulties in protecting it,
see "Business -- Intellectual Property."
 
OUR PRODUCTS RELY ON LICENSES FROM THIRD PARTIES, AND IF WE LOSE ACCESS TO THESE
TECHNOLOGIES, OUR REVENUES COULD DECLINE.
 
     We rely on technology that we license from others, including technology
that is integral to our products. We have entered into license agreements with
SRI International, IBM and MIT. Any of these agreements may be terminated for
breach, including the failure to make required payments under the IBM license
and the failure to commercialize our products under the SRI license. If any of
these agreements is terminated, we may be unable to reacquire the necessary
license on satisfactory terms, or at all. The loss or failure to maintain these
licenses could prevent or delay further development or commercialization of our
products. See "Business -- Intellectual Property" for further information on our
license agreements.
 
WE OPERATE IN A HIGHLY COMPETITIVE BUSINESS ENVIRONMENT AND OUR REVENUES MAY BE
REDUCED OR ELIMINATED IF WE DO NOT COMPETE EFFECTIVELY.
 
     Intuitive surgery is a new technology that must compete with established
minimally invasive surgery and open surgery. These procedures are widely
accepted in the medical community and in many cases have a long history of use.
We also face competition from several companies that are developing new
approaches and products for the minimally invasive surgery market. In addition,
we presently face increasing competition from companies who are developing
robotic and computer-assisted surgical systems. Our revenues may be reduced or
eliminated if our competitors develop and market products that are more
effective or less expensive than our products. If we are unable to compete
successfully, our revenues will suffer.
 
     Many of our competitors have greater financial and other resources than we
do. In particular, these companies frequently have larger research and
development staffs and more experience and capabilities in:
 
     - conducting research and development activities;
 
     - testing products in clinical trials;
 
     - obtaining regulatory approvals; and
 
     - manufacturing, marketing and selling products.
 
     In many cases, the medical conditions that can be treated using our
products can also be treated by pharmaceuticals or other medical devices and
procedures. Many of these alternative treatments are also widely accepted in the
medical community and have a long history of use. In addition, technological
advances could make such treatments more effective or less expensive than using
our products, which could render our products obsolete or unmarketable. We
cannot be certain that
 
                                       10

<PAGE>   15
 
physicians will use our products to replace or supplement established treatments
or that our products will be competitive with current or future technologies.
 
IF SOFTWARE DEFECTS ARE DISCOVERED IN OUR PRODUCTS, OUR BUSINESS MAY BE HARMED.
 
     Our products incorporate sophisticated computer software. Complex software
frequently contains errors or failures, especially when first introduced. In
addition, new products or enhancements may contain undetected errors or
performance problems that, despite testing, are discovered only after commercial
shipment. Because our products are designed to be used to perform complex
surgical procedures, we expect that our customers will have an increased
sensitivity to software defects. We cannot assure you that our software will not
experience errors or performance problems in the future. If we experience
software errors or performance problems, any of the following could occur:
 
     - delays in product shipments;
 
     - loss of revenue;
 
     - delay in market acceptance;
 
     - diversion of our resources;
 
     - damage to our reputation;
 
     - increased service or warranty costs; or
 
     - product liability claims.
 
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS THAT COULD RESULT IN LOST REVENUE.
 
     We have manufactured a limited number of our products for prototypes and
sales to customers. We may be unable to establish or maintain reliable,
high-volume manufacturing capacity. Even if this capacity can be established and
maintained, the cost of doing so may increase the cost of our products and
reduce our ability to compete. We may encounter difficulties in scaling up
production of our products, including:
 
     - problems involving production yields;
 
     - quality control and assurance;
 
     - component supply shortages;
 
     - shortages of qualified personnel; and
 
     - compliance with state, federal and foreign regulations.
 
     Manufacturing our products is a complex process. We plan to manufacture
products to fill purchase orders rather than to maintain inventories of our
assembled products. If demand for our products exceeds our manufacturing
capacity, we could develop a substantial backlog of customer orders. If we are
unable to establish and maintain larger-scale manufacturing capabilities, our
ability to generate revenues will be limited and our reputation in the
marketplace would be damaged.
 
                                       11

<PAGE>   16
 
IF OUR MANUFACTURING FACILITIES DO NOT CONTINUE TO MEET FEDERAL, STATE OR
EUROPEAN MANUFACTURING STANDARDS, WE MAY NOT BE ABLE TO SELL OUR PRODUCTS IN THE
UNITED STATES OR EUROPE.
 
     Our manufacturing facilities are subject to periodic inspection by
regulatory authorities and our operations will continue to be regulated by the
FDA for compliance with Good Manufacturing Practices, or GMP. We are also
required to comply with the ISO 9000 series standards in order to produce
products for sale in Europe. We are currently in compliance with GMP
requirements for medical devices and ISO 9000 series standards. Maintaining such
compliance is difficult and costly. If we fail to continue to comply with GMP
requirements or ISO 9000 series standards, we may be required to cease all or
part of our operations until we comply with these regulations. We cannot be
certain that our facilities will be found to comply with GMP requirements or the
ISO 9000 series standards in future audits by regulatory authorities.
 
     The state of California also requires that we maintain a license to
manufacture medical devices. Our facilities and manufacturing processes were
inspected in February 1998. In March 1998, we passed the inspection and received
a device manufacturing license from the California Department of Health
Services. We will be subject to periodic inspections by the California
Department of Health Services and if we are unable to maintain this license
following any future inspections, we will be unable to manufacture or ship any
products.
 
OUR RELIANCE ON SOLE AND SINGLE SOURCE SUPPLIERS COULD HARM OUR ABILITY TO MEET
DEMAND FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN BUDGET.
 
     Some of the components necessary for the assembly of our products are
currently provided to us by sole source suppliers or single source suppliers. We
purchase components through purchase orders rather than long-term supply
agreements and generally do not maintain large volumes of inventory. The
disruption or termination of the supply of components could cause a significant
increase in the costs of these components, which could affect our profitability.
A disruption or termination in the supply of components could also result in our
inability to meet demand for our products, which could harm our ability to
generate revenues, lead to customer dissatisfaction and damage our reputation.
Furthermore, if we are required to change the manufacturer of a key component of
our products, we may be required to verify that the new manufacturer maintains
facilities and procedures that comply with quality standards and with all
applicable regulations and guidelines. The delays associated with the
verification of a new manufacturer could delay our ability to manufacture our
products in a timely manner or within budget.
 
THE USE OF OUR PRODUCTS COULD RESULT IN PRODUCT LIABILITY CLAIMS THAT COULD BE
EXPENSIVE, DIVERT MANAGEMENT'S ATTENTION AND HARM OUR BUSINESS.
 
     Our business exposes us to significant risks of product liability claims.
The medical device industry has historically been litigious, and we face
financial exposure to product liability claims if the use of our products were
to cause injury or death. There is also the possibility that defects in the
design or manufacture of our products might necessitate a product recall.
Although we maintain product liability insurance, the coverage limits of these
policies may not be adequate to cover future claims. Particularly as sales of
our products increase, we may be unable to maintain product liability insurance
in the future at satisfactory rates or adequate amounts. A product liability
claim, regardless of its merit or eventual outcome, could result in significant
legal defense costs. A product liability claim or any product recalls could also
harm our reputation or result in a decline in revenues.
 
                                       12

<PAGE>   17
 
OUR GROWTH WILL PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES AND, IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO MARKET, SELL AND
DEVELOP OUR PRODUCTS MAY BE HARMED.
 
     In order to complete clinical trials, scale-up manufacturing, expand
marketing and distribution capabilities and develop future products, we must
expand our operations. We expect that future expansion will occur particularly
in the areas of sales and marketing, manufacturing and research and development.
This expansion will likely result in new and increased responsibilities for
management personnel and place significant strain upon our management, operating
and financial systems and resources. We plan to sell our products primarily
through direct sales, and we currently have a small sales organization. We will
need to expand our sales team significantly over the next 12 months to achieve
our sales growth goals. We will face significant challenges and risks in
building and managing our sales team, including managing geographically
dispersed sales efforts and adequately training our sales people in the use and
benefits of our products. To accommodate our growth and compete effectively, we
will be required to improve our information systems, create additional
procedures and controls and expand, train, motivate and manage our work force.
Our future success will depend in part on the ability of current and future
management personnel to operate effectively, both independently and as a group.
We cannot be certain that our personnel, systems, procedures and controls will
be adequate to support our future operations.
 
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR ABILITY TO COMPETE WILL BE HARMED.
 
     We are highly dependent on the principal members of our management and
scientific staff, in particular Lonnie M. Smith, our President and Chief
Executive Officer, Frederic H. Moll, M.D., our Vice President and Medical
Director and Robert G. Younge, our Vice President and Chief Technology Officer.
In order to pursue our product development, marketing and commercialization
plans, we will need to hire additional qualified personnel with expertise in
research and development, clinical testing, government regulation,
manufacturing, sales and marketing, and finance. Attracting and retaining
qualified personnel will be critical to our success. We may not be able to
attract and retain personnel on acceptable terms given the competition for such
personnel among technology and healthcare companies, and universities. The loss
of any of these persons or our inability to attract and retain qualified
personnel could harm our business and our ability to compete.
 
WE MAY NOT BE ABLE TO MEET THE UNIQUE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES THAT WE WILL ENCOUNTER IN OUR INTERNATIONAL OPERATIONS, WHICH MAY
LIMIT THE GROWTH OF OUR BUSINESS.
 
     Our business currently depends in large part on our activities in Europe,
and a component of our growth strategy is to expand our presence into additional
foreign markets. We will be subject to a number of challenges that specifically
relate to our international business activities. These challenges include:
 
     - failure of local laws to provide the same degree of protection against
       infringement of our intellectual property;
 
     - protectionist laws and business practices that favor local competitors,
       which could slow our growth in international markets;
 
     - the risks associated with foreign currency exchange rate fluctuation;
 
     - the expense of establishing facilities and operations in new foreign
       markets; and
 
     - building an organization capable of supporting geographically dispersed
       operations.
 
If we are unable to meet and overcome these challenges, our international
operations may not be successful, which would limit the growth of our business.
 
                                       13

<PAGE>   18
 
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUES.
 
     We expect that the cash proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next 12
months. After that, we may need to raise additional funds and we cannot be
certain that we will be able to obtain additional financing on favorable terms,
or at all. If we need additional capital and cannot raise it on acceptable
terms, we may not be able to, among other things:
 
     - develop or enhance our products and services;
 
     - acquire technologies, products or businesses;
 
     - expand operations in the United States or internationally;
 
     - hire, train and retain employees; or
 
     - respond to competitive pressures or unanticipated capital requirements.
 
     Our failure to do any of these things could result in lower revenues and
could harm our business.
 
RISKS RELATED TO OUR OFFERING
 
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE.
 
     Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
some agreements that our stockholders have entered into with the underwriters
and with us. Those lockup agreements restrict our stockholders from selling,
pledging or otherwise disposing of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of Lehman Brothers
Inc. However, Lehman Brothers Inc. may, in its sole discretion, release all or
any portion of the common stock from the restrictions of the lockup agreements.
The following table indicates approximately when the                shares of
our common stock that are not being sold in the offering but which were
outstanding as of                will be eligible for sale into the public
market:
 

<TABLE>
<CAPTION>
                                            ELIGIBILITY OF RESTRICTED
                                                 SHARES FOR SALE
     DAYS AFTER THE EFFECTIVE DATE               IN PUBLIC MARKET                     COMMENT
     -----------------------------       --------------------------------  ------------------------------
<S>                                      <C>                               <C>
On Effectiveness.......................                                    Shares not locked-up and
                                                                           saleable under Rule 144(k)
180 days...............................                                    Lock-up released; shares
                                                                           saleable under Rules 144,
                                                                           144(k) and 701
At various times after 180 days........                                    Shares saleable under Rules
                                                                           144, 144(k) and 701
</TABLE>

 
     Additionally, of the                shares issuable upon exercise of
options to purchase our common stock outstanding as of              2000,
approximately              shares will be vested and eligible for sale 180 days
after the date of this prospectus. For a further description of the
 
                                       14

<PAGE>   19
 
eligibility of shares for sale in to the public market following the offering,
see "Shares Eligible for Future Sale."
 
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
 
     The assumed initial public offering price is substantially higher than the
book value per share of our common stock. Investors purchasing common stock in
this offering will, therefore, incur immediate dilution of $     in net tangible
book value per share of common stock, based on an assumed initial public
offering price of $     per share. In addition, the number of shares available
for issuance under our stock option and employee stock purchase plans will
automatically increase without stockholder approval. Investors will incur
additional dilution upon the exercise of outstanding stock options and warrants.
See "Dilution" for a more detailed discussion of the dilution new investors will
incur in this offering.
 
OUR STOCK PRICE MAY BE VOLATILE BECAUSE OUR SHARES HAVE NOT BEEN PUBLICLY TRADED
BEFORE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
 
     Prior to this offering, there has been no public market for our common
stock and an active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price will be
determined by negotiations between the representatives of the underwriters and
us and may not be indicative of future market prices.
 
     The market prices for securities of medical device companies in general
have been highly volatile and may continue to be highly volatile in the future.
The following factors, in addition to other risk factors described in this
section, may have a significant impact on the market price of our common stock:
 
     - announcements of technological innovations or new commercial products by
       our competitors or us;
 
     - developments concerning proprietary rights, including patents by our
       competitors or us;
 
     - developments concerning our clinical trials;
 
     - publicity regarding actual or potential medical results relating to
       products under development by our competitors or us;
 
     - regulatory developments in the United States and foreign countries;
 
     - litigation or other disputes and associated public announcements;
 
     - economic and other external factors or other disaster or crisis; or
 
     - period-to-period fluctuations in financial results.
 
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY.
 
     In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
This risk is especially acute for us because technology companies have
experienced greater than average stock price volatility in recent years and, as
a result, have been subject to, on average, a greater number of securities class
action claims than companies in other industries. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources, and could harm our
business.
 
                                       15

<PAGE>   20
 
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
 
     Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third-party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:
 
     - establishment of a classified board of directors that prevents a majority
       of the board from being elected at one time;
 
     - authorizing the issuance of "blank check" preferred stock that could be
       issued by our board of directors to increase the number of outstanding
       shares and thwart a takeover attempt;
 
     - prohibiting cumulative voting in the election of directors, which would
       otherwise allow less than a majority of stockholders to elect director
       candidates;
 
     - limitations on the ability of stockholders to call special meetings of
       stockholders;
 
     - prohibiting stockholder action by written consent, thereby requiring all
       stockholder actions to be taken at a meeting of stockholders; and
 
     - establishing advance notice requirements for nominations for election to
       the board of directors or for proposing matters that can be acted upon by
       stockholders at stockholder meetings.
 
     In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Intuitive Surgical.
 
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.
 
     Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
     % of our outstanding common stock. These stockholders as a group will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors, any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporation
transactions. This could have the effect of delaying or preventing a change of
control of Intuitive Surgical and will make some transactions difficult or
impossible without the support of these stockholders. See "Principal
Stockholders" for details of our stock ownership.
 
                                       16

<PAGE>   21
 
               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
     Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"anticipates," "believes," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "potential," "predicts," "seeks," "should" or "will"
or the negative of these terms or other similar expressions are generally
intended to identify forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by these forward-looking statements, including our plans, objectives,
expectations and intentions and other factors discussed under "Risk Factors."
 
     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are not under any duty to update any
of the forward-looking statements after the date of this prospectus to conform
these statements to actual results, unless required by law.
 
                                       17

<PAGE>   22
 

                                USE OF PROCEEDS
 
     We estimate that the net proceeds to us from the sale of the
          shares of our common stock to be approximately $     million,
approximately $     million if the underwriters' over-allotment option is
exercised in full, at an assumed initial public offering price of $     per
share, after deducting the underwriting discounts and commissions and estimated
offering expenses.
 
     We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased
expenditures for research and development, sales and marketing, and selling,
general and administrative. The amounts and timing of these expenditures will
vary depending on a number of factors, including the amount of cash generated by
our operations, competitive and technological developments and the rate of
growth, if any, of our business. We may also use a portion of the net proceeds
to acquire additional businesses, products and technologies, to lease additional
facilities, or to establish joint ventures that we believe will complement our
current or future business. However, we have no specific plans, agreements or
commitments to do so and are not currently engaged in any negotiations for any
business acquisition or joint venture.
 
     We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net proceeds
of this offering in short term interest bearing, investment-grade securities. We
cannot predict whether the proceeds will be invested to yield a favorable
return. We believe that our available cash, together with the net proceeds of
this offering, will be sufficient to meet our capital requirements for at least
the next 12 months.
 

                                DIVIDEND POLICY
 
     We have never paid or declared any cash dividends. We currently expect to
retain earnings for use in the operation and expansion of our business, and
therefore do not anticipate paying any cash dividends for the foreseeable
future.
 
                                       18

<PAGE>   23
 

                                 CAPITALIZATION
 
     The following table sets forth our actual capitalization as of December 31,
1999. Our capitalization is also presented:
 
     - on a pro forma basis to give effect to the automatic conversion of our
       preferred stock into an aggregate of 19,134,375 shares of common stock,
       which will occur upon the closing of this offering; and
 
     - on a pro forma as adjusted basis to give effect to the automatic
       conversion of our preferred stock into common stock upon closing of this
       offering and to reflect our receipt of net proceeds from the sale of
                      shares of common stock in this offering at an assumed
       initial public offering price of $     per share, after deducting the
       underwriting discounts and commissions and estimated offering expenses.
 

<TABLE>
<CAPTION>
                                                                    AS OF DECEMBER 31, 1999
                                                              ------------------------------------
                                                                                        PRO FORMA
                                                               ACTUAL     PRO FORMA    AS ADJUSTED
                                                              --------    ---------    -----------
                                                              (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                                           <C>         <C>          <C>
Notes payable...............................................  $  2,521    $  2,521      $  2,521
Stockholders' equity:
  Preferred Stock, $0.001 par value; 30,000,000 shares
     authorized, actual and 5,000,000 shares authorized, pro
     forma and pro forma as adjusted; 19,134,375 shares
     issued and outstanding, actual; none issued and
     outstanding, pro forma and pro forma as adjusted.......        19          --            --
  Common Stock, $0.001 par value; 45,000,000 shares
     authorized, actual; 200,000,000 shares authorized, pro
     forma and pro forma as adjusted; 6,681,848 shares
     issued and outstanding, actual; 25,816,223 shares
     issued and outstanding, pro forma;        shares issued
     and outstanding, pro forma as adjusted.................         7          26
Additional paid-in capital..................................    98,508      98,508
Deferred compensation.......................................      (943)       (943)         (943)
Accumulated deficit.........................................   (75,147)    (75,147)      (75,147)
Accumulated other comprehensive income......................      (233)       (233)         (233)
                                                              --------    --------      --------
     Total stockholders' equity.............................    22,211      22,211
                                                              --------    --------      --------
     Total capitalization...................................  $ 24,732    $ 24,732      $
                                                              ========    ========      ========
</TABLE>

 
-------------------------
 
     The number of shares of common stock to be outstanding after the offering
is based on the number of common shares outstanding as of December 31, 1999 and
excludes:
 
     - 1,466,725 shares of common stock underlying options outstanding as of
       December 31, 1999 at a weighted-average exercise price of $1.90 per
       share;
 
     - 203,997 shares of common stock available for future grants under our
       stock option plan as of December 31, 1999;
 
     - 5,107,875 shares of common stock underlying warrants outstanding as of
       December 31, 1999 at a weighted-average exercise price of $9.49 per
       share, of which 3,588,400 shares of preferred stock were issued upon
       exercise of outstanding warrants in March 2000 at a weighted-average
       exercise price of $9.84 per share; and
 
     - an additional 6,960,000 shares authorized subsequent to December 31, 1999
       for issuance under our stock option and employee stock purchase plans, of
       which options to purchase 70,250 shares and 303,600 shares of common
       stock were granted in February 2000 and March 2000, respectively, at a
       weighted-average exercise price of $3.00 per share.
 
     See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes included in this prospectus.
 
                                       19

<PAGE>   24
 
                                    DILUTION
 
     The pro forma net tangible book value of our common stock, on December 31,
1999, after giving effect to the conversion of all outstanding shares of
preferred stock upon the closing of the offering, was approximately $22.2
million, or approximately $0.86 per share. Pro forma net tangible book value per
share represents the amount of our total tangible assets less total liabilities
divided by the number of shares of common stock outstanding. Dilution in pro
forma net tangible book value per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the net tangible book value per share of our common stock immediately
afterwards. Assuming our sale of           shares of common stock offered by
this prospectus at an assumed initial public offering price of $     per share,
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our net tangible book value at December 31, 1999
would have been approximately $     million or $     per share. This represents
an immediate decrease in net tangible book value of $     per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution:
 

<TABLE>
<S>                                                           <C>        <C>
Assumed initial public offering.............................             $
                                                                         -------
  Pro forma net tangible book value per share at December
     31, 1999...............................................  $
  Increase per share attributable to new investors..........
                                                              -------
Pro forma net tangible book value per share after this
  offering..................................................
                                                                         -------
Dilution in net tangible book value per share to new
  investors.................................................             $
                                                                         =======
</TABLE>

 
     If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $     per
share, the increase in net tangible book value per share to existing
stockholders would be $     per shares and the dilution in net tangible book
value to new investors would be $     per share.
 
     The following table summarizes, on a pro forma basis, as of December 31,
1999, the differences between the total consideration paid and the average price
per share paid by the existing stockholders and the new investors with respect
to the number of shares of common stock purchased from us based on an assumed
public offering price of $     per share. We have not deducted the underwriting
discounts and commissions and estimated offering expenses in our calculations.
 

<TABLE>
<CAPTION>
                                          SHARES PURCHASED        TOTAL CONSIDERATION
                                        ---------------------    ----------------------    AVERAGE PRICE
                                          NUMBER      PERCENT      AMOUNT       PERCENT      PER SHARE
                                        ----------    -------    -----------    -------    -------------
<S>                                     <C>           <C>        <C>            <C>        <C>
Existing stockholders.................  25,816,223           %   $94,455,000           %      $
New stockholders......................
                                        ----------    -------    -----------    -------
  Total...............................                       %   $                     %
                                        ==========    =======    ===========    =======
</TABLE>

 
     The foregoing discussion and tables do not assume the exercise of any stock
options or warrants outstanding at December 31, 1999. At December 31, 1999,
there were:
 
     - 1,466,725 shares of common stock underlying options outstanding as of
       December 31, 1999 at a weighted-average exercise price of $1.90 per
       share;
 
     - 203,997 shares of common stock available for future grants under our
       option plan as of December 31, 1999;
 
     - 5,107,875 shares of common stock underlying warrants outstanding as of
       December 31, 1999 at a weighted-average exercise price of $9.49 per
       share, of which 3,588,400 shares of preferred stock were issued upon
       exercise of outstanding warrants in March 2000 at a weighted-average
       exercise price of $9.84 per share; and
 
                                       20

<PAGE>   25
 
     - an additional 6,960,000 shares authorized subsequent to December 31, 1999
       for issuance under our stock option and employee stock purchase plans, of
       which options to purchase 70,250 shares and 303,600 shares of common
       stock were granted in February 2000 and March 2000, respectively, at a
       weighted-average exercise price of $3.00 per share.
 
     The exercise of options outstanding under our stock option plans and
warrants having an exercise price less than the offering price would increase
the dilutive effect to new investors. See "Capitalization" and
"Management -- Employee Benefit Plans."
 
                                       21

<PAGE>   26
 
                            SELECTED FINANCIAL DATA
 
     This section presents our historical financial data. You should read
carefully the financial statements included in this prospectus, including the
notes to the financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected data in this
section are not intended to replace the financial statements.
 
     We derived the statement of operations data for the years ended December
31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and
1999 from the financial statements which have been audited by Ernst & Young LLP
and included elsewhere in this prospectus. We derived the statement of
operations data for the period from inception (November 9, 1995) through
December 31, 1996 and the balance sheet data as of December 31, 1996 and 1997
from the audited financial statements which have been audited by Ernst & Young
LLP but which are not included elsewhere in this prospectus. Historical results
are not necessarily indicative of future results. See notes to the financial
statements for an explanation of the method used to determine the number of
shares used in computing basic and diluted and pro forma basic and diluted net
loss per share.
 

<TABLE>
<CAPTION>
                                                          PERIOD FROM
                                                           INCEPTION
                                                         (NOVEMBER 9,
                                                           1995) TO          YEAR ENDED DECEMBER 31,
                                                         DECEMBER 31,     ------------------------------
                                                             1996           1997       1998       1999
                                                        ---------------   --------   --------   --------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>               <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................................      $    --       $     --   $     --   $ 10,192
Cost of sales.........................................           --             --         --      9,273
                                                            -------       --------   --------   --------
  Gross margin........................................           --             --         --        919
Operating costs and expenses:
  Research and development............................        2,934         20,282     23,208     11,130
  Selling, general and administrative.................          951          4,434      7,565      9,338
                                                            -------       --------   --------   --------
     Total operating costs and expenses...............        3,885         24,716     30,773     20,468
                                                            -------       --------   --------   --------
Loss from operations..................................       (3,885)       (24,716)   (30,773)   (19,549)
Interest income (expense), net........................          198          1,114      1,330      1,134
                                                            -------       --------   --------   --------
Net loss..............................................      $(3,687)      $(23,602)  $(29,443)  $(18,415)
                                                            =======       ========   ========   ========
Basic and diluted net loss per share..................      $ (2.86)      $ (11.24)  $  (8.14)  $  (3.81)
                                                            =======       ========   ========   ========
Shares used in computing basic and diluted net loss
  per share...........................................        1,287          2,100      3,619      4,837
                                                            =======       ========   ========   ========
Pro forma basic and diluted net loss per share
  (unaudited).........................................                                          $  (0.79)
                                                                                                ========
Shares used in computing pro forma basic and diluted
  net loss per share (unaudited)......................                                            23,331
                                                                                                ========
</TABLE>

 

<TABLE>
<CAPTION>
                                                                         AS OF DECEMBER 31,
                                                              ----------------------------------------
                                                               1996       1997       1998       1999
                                                              -------   --------   --------   --------
                                                                           (IN THOUSANDS)
<S>                                                           <C>       <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...........  $ 1,494   $ 32,674   $ 23,220   $ 26,260
Working capital.............................................    1,045     25,424     19,817     22,023
Total assets................................................    2,289     35,674     28,167     34,455
Notes payable, less current portion.........................       --        897      2,438      2,521
Deferred compensation.......................................       --     (1,831)    (1,128)      (943)
Accumulated deficit.........................................   (3,687)   (27,289)   (56,732)   (75,147)
Total stockholders' equity..................................    1,770     27,331     20,596     22,211
</TABLE>

 
Our statement of operations data for the period from inception (November 9,
1995) to December 31, 1995 are not presented separately as our operations during
that period were not material.
 
                                       22

<PAGE>   27
 

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
     The following management's discussion and analysis of financial condition
and results of operations contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
We assume no obligation to update forward-looking statements or the risk
factors. The following discussion should be read in conjunction with our
financial statements and related notes included elsewhere in this prospectus.
 
OVERVIEW
 
     Since our inception in November 1995, we have engaged in the development
and commercialization of products that are designed to provide the flexibility
of open surgery while operating through ports. We believe that our technology
enables surgeons to perform better surgery while giving patients the benefits of
MIS surgery, including decreased trauma and postoperative pain, reduced surgical
complications, shorter hospital stays and lower total treatment costs. In 1999,
we introduced our da Vinci Surgical System and EndoWrist instruments.
 
     We incurred net losses of $23.6 million in 1997, $29.4 million in 1998, and
$18.4 million in 1999. As of December 31, 1999, we had an accumulated deficit of
$75.1 million. We expect to expend substantial financial resources to expand
marketing, direct sales, training and customer support needed to support higher
sales. In addition, we anticipate our research and development expenses to
increase as we continue to develop new products and conduct clinical trials. If
we receive FDA approval, we will need to expend significant capital resources to
expand our manufacturing capabilities. This investment is likely to result in
low gross margins. Furthermore, we may encounter difficulties in scaling up
production. Problems may include low production yields, component supply
shortages, shortages of qualified personnel and failure to comply with federal,
state and international regulations.
 
     We have obtained permission from the European Union to affix the CE Mark to
the da Vinci Surgical System and EndoWrist instruments for general surgical and
cardiac surgical use. In the second quarter of 1999, we recognized revenue for
the first time for the sale of our products. Sales from markets outside of the
United States represent 91% of our 1999 sales. In November 1999, we filed a PMA
application with the FDA for laparoscopic use of the da Vinci Surgical System
and our EndoWrist instruments, and this application is currently under FDA
review. Substantial revenue growth in the United States is dependent on FDA
approval of our products.
 
     Sales are generated through our direct sales force and through our
distributors. Revenue is generated from sales of our da Vinci Surgical System
and related accessories, our EndoWrist instruments and ongoing service provided
to our customers. System revenue is recognized upon installation for direct
sales and upon shipment for sales to our distributors. If substantial
contractual obligations exist after system installation, revenue is recognized
after our obligations are fulfilled. We recognize revenue for our EndoWrist
instruments and accessories upon shipment.
 
     In 1999, the majority of our revenues came from the sales of da Vinci
Surgical Systems, which are high revenue dollar items. A smaller percentage of
our 1999 revenue came from sales of EndoWrist instruments and accessories, which
are lower revenue dollar items. Although we expect the majority of our revenues
to continue to come from the sale of da Vinci Surgical Systems over the next few
years, we expect the percentage of revenue from our EndoWrist instruments to
increase. Due to the high dollar revenue per system sold, small variations in
system unit sales may cause revenue to vary significantly from quarter to
quarter. During the useful life of each installed da Vinci
 
                                       23

<PAGE>   28
 
Surgical System, we expect to generate recurring revenue through sales of our
EndoWrist instruments and accessories.
 
RESULTS OF OPERATIONS
 
Years ended December 31, 1997, 1998 and 1999
 
     Sales. Sales were recorded for the first time in 1999. For the year ended
December 31, 1999, we recorded $10.2 million in revenue for shipments of the da
Vinci Surgical System, EndoWrist instruments and accessories.
 
     Cost of Sales. Cost of sales includes material, manufacturing labor,
overhead and warranty costs. No cost of sales exists for years 1997 and 1998. We
reported cost of sales of $9.3 million, or 91% of sales, for the year ended
December 31, 1999.
 
     Gross Profit. No gross profit exists for years 1997 and 1998. For the year
ended December 31, 1999, gross profit was $919,000, or 9% of sales.
 
     Research and Development Expenses. Research and development expenses
include costs associated with the design, development, testing and enhancement
of our products, purchase of laboratory supplies and clinical trials. We expense
research and development costs as incurred. Research and development expenses
increased from $20.3 million in 1997 to $23.2 million in 1998 and decreased to
$11.1 million in 1999. In 1997, we expensed $6.0 million in conjunction with
technology rights obtained from IBM. The increase in research and development
expenses from 1997 to 1998 was primarily attributable to increases of $2.6
million in prototype costs associated with development of the da Vinci Surgical
System, $2.4 million in clinical trial costs, and $3.1 million related to
increased personnel costs, and partially offset by the IBM charge in 1997. The
decrease in research and development expenses from 1998 to 1999 is primarily
attributable to reductions of $5.4 million in prototype costs, $2.3 million in
clinical trial costs, and $622,000 in deferred compensation expense. In
addition, we transitioned from recording manufacturing-related costs as research
and development in 1998 to cost of sales in 1999. This resulted in a decrease of
$3.6 million in research and development costs from 1998 to 1999. We expect
research and development spending to increase in the future, in absolute
dollars, as we expand our product development efforts and seek further
regulatory approvals.
 
     Selling, General and Administrative Expenses. Selling, general and
administrative expenses include personnel costs for sales, marketing, and
administrative personnel, tradeshow expenses, legal expenses, regulatory fees
and general corporate expenses. Selling, general and administrative expenses
increased from $4.4 million in 1997 to $7.6 million in 1998 and to $9.3 million
in 1999. The increase from 1997 to 1998 is primarily attributable to $1.4
million in increased personnel costs and $468,000 in marketing expenses. The
increase from 1998 to 1999 is primarily due to increased personnel costs.
Selling, general and administrative expenses are expected to increase in the
future to support expanding business activities and the additional
administrative costs related to being a public company.
 
     Interest Income (Expense). Net interest income remained relatively constant
at $1.1 million in 1997, $1.3 million in 1998 and $1.1 million in 1999. The
increase from 1997 to 1998 resulted from increased interest income earned on
higher average cash balances. The decrease from 1998 to 1999 resulted from lower
interest income earned on lower average cash balances, and higher interest
expense on additional debt.
 
                                       24

<PAGE>   29
 
DEFERRED COMPENSATION
 
     We recorded deferred compensation as the difference between the exercise
price of options granted and the fair value of its common stock at the time of
grant for financial reporting purposes. Deferred compensation is amortized to
research and development expense, and selling, general and administrative
expense. Deferred compensation recorded through December 31, 1999 was $4.7
million with accumulated amortization of $3.8 million. The remaining $943,000
will be amortized over the remaining vesting periods of the options, generally
four years from the date of grant. We anticipate that additional deferred
compensation totaling $2.4 million will be recorded for options granted in
January, February and March 2000. These amounts are being amortized over the
respective vesting periods of the individual stock options using a
graded-vesting model. We expect to record amortization expense for deferred
compensation as follows: $1.9 million during 2000, $900,000 during 2001,
$400,000 during 2002 and $100,000 during 2003. The amount of deferred
compensation expense to be recorded in future periods may decrease if unvested
options for which deferred compensation has been recorded are subsequently
canceled.
 
NET OPERATING LOSS AND RESEARCH TAX CREDIT CARRY FORWARDS
 
     As of December 31, 1999, net operating loss carryforwards were
approximately $44.8 million and $13.8 million for federal and state income tax
purposes, respectively. Federal and state research tax credit carryforwards were
approximately $2.0 million. The state and federal net operating loss
carryforwards will expire at various dates from 2003 through 2019 if not
utilized. The utilization of such carryforwards may be subject to a substantial
annual limitation due to the "change in ownership" provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses before utilization.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS 133
which, as amended, is required to be adopted in years beginning after June 15,
2000. Because we do not use derivatives, management does not anticipate the
adoption of SFAS 133 will have a significant effect on the results of
operations, financial position or cash flows of Intuitive Surgical.
 
     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101. SAB 101 summarizes some areas of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We believe that our current revenue recognition principles comply
with SAB 101.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     From our inception through December 31, 1999, we have financed our
operations primarily through sales of our preferred stock, yielding net proceeds
of approximately $92.5 million, and equipment financing arrangements yielding
approximately $6.0 million. The equipment arrangements provide financing at
specified interest rates for periods of up to 48 months, by which time the
principal is repaid to the lessors. As collateral for the equipment financing,
we have granted the lessors a security interest in equipment specified under
each arrangement. As of December 31, 1999, we had cash, cash equivalents and
short-term investments of $26.3 million and working capital of $22.0 million. In
March 2000, we received approximately $35.3 million in cash from the exercise of
warrants to purchase preferred stock and $500,000 in cash from additional
equipment financing arrangements.
 
     Net cash used in operating activities was approximately $14.9 million,
$31.1 million and $15.9 million in 1997, 1998 and 1999. For such periods, net
cash used in operating activities resulted primarily from net losses.
 
                                       25

<PAGE>   30
 
     Net cash used in investing activities was approximately $18.4 million and
$10.3 million in 1997 and 1999. Net cash provided by investing activities was
$954,000 in 1998. Investing activities primarily consist of capital expenditures
and the purchase and sale and maturity of short-term investments.
 
     Net cash provided by financing activities was approximately $48.9 million,
$23.3 million, and $20.2 million in 1997, 1998 and 1999. The net cash provided
by financing activities was primarily attributable to the sale of preferred
stock and proceeds from long-term borrowings.
 
     In June 1999 and October 1999, we entered into equipment financing
agreements with Heller Financial to finance equipment totaling $1.5 million and
$0.5 million, respectively. The term of both leases is 36 months. The interest
rates for both financing agreements approximate 10.0%. The June 1999 and October
1999 financing agreements provided for monthly payments of approximately $48,000
and $16,000, respectively. We have granted Heller Financial a security interest
in all equipment covered under these agreements.
 
     In addition, we have four prior equipment financing agreements with GE
Capital with an outstanding balance of $2.4 million at December 31, 1999. We are
currently repaying this amount at interest rates ranging from approximately 9.0%
to 13.8%. We have granted to GE Capital a security interest in all equipment
covered under these agreements. In connection with these financing agreements,
we issued a warrant to purchase 11,000 shares of common stock at an exercise
price of $5.00. The warrant, which is currently exercisable, expires in April
2003.
 
     As of December 31, 1999, we had capital equipment of $6.3 million less
accumulated depreciation of $3.6 million to support our clinical, research,
development, manufacturing and administrative activities. For the next twelve
months, we expect capital expenditures to increase modestly as we acquire
equipment and expand our facilities. Among these planned expenditures are
tooling costs for production and tenant improvements.
 
     Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, and other factors. We expect to devote substantial capital
resources to continue our research and development efforts, to expand our
support and product development activities, and for other general corporate
activities. If cash generated by operations is insufficient to satisfy our
liquidity requirements, we may need to sell additional equity or debt securities
or obtain additional credit arrangements. Additional financing may not be
available on terms acceptable to us or at all. The sale of additional equity or
convertible debt securities may result in additional dilution to our
stockholders.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds and government and non-government debt securities. The average duration of
all of our investments as of December 31, 1999 is less than one year. Due to the
short term nature of these investments, we believe we have no material exposure
to interest rate risk arising from our investments. Therefore, no quantitative
tabular disclosure is required.
 
                                       26

<PAGE>   31
 

 
                                   BUSINESS
 
OVERVIEW
 
     We design and manufacture the da Vinci Surgical System, an advanced
surgical system that we believe represents a new generation of surgery -- the
third generation. We believe that this new generation of surgery, which we call
Intuitive surgery, is a revolutionary advance similar in scope to the previous
two generations of surgery -- open surgery and minimally invasive surgery, or
MIS. Our da Vinci System consists of a surgeon's console, a patient-side cart, a
high performance vision system and our proprietary instruments. By placing
computer-enhanced technology between the surgeon and patient, we believe that
our system enables surgeons to perform better surgery in a manner never before
experienced. The da Vinci Surgical System seamlessly translates the surgeon's
natural hand movements on instrument controls at a console into corresponding
micro-movements of instruments positioned inside the patient through small
puncture incisions, or ports. Our da Vinci Surgical System is the only
commercially available technology that can provide the surgeon with the
intuitive control, range of motion, fine tissue manipulation capability and 3-D
visualization characteristic of open surgery, while simultaneously allowing the
surgeon to work through the small ports of minimally invasive surgery.
 
     In March 1997, surgeons using an early prototype of our technology
successfully performed Intuitive surgery on humans. Beginning in May 1998,
surgeons using our technology successfully performed what we believe were the
world's first computer-enhanced closed chest heart surgeries, including mitral
valve repair, dissection of an internal mammary artery and grafting of a
coronary artery. Since then, surgeons using our technology have successfully
completed hundreds of general surgery procedures of various types. In early
2000, surgeons using our technology successfully completed what we believe was
the world's first beating heart bypass procedure using only small ports. To
date, we have sold 14 of our da Vinci Surgical Systems. During the second
quarter of 2000, we expect the FDA to approve use of the da Vinci Surgical
System in laparoscopic surgical procedures, which would make us the only company
to have received FDA approval for a third generation surgical product.
Laparoscopic surgery is surgery in the abdominal and pelvic areas of the body
using an endoscope.
 
     The first generation of surgery, open surgery, remains the predominant form
of surgery and is still used in almost every area of the body. However, the
large incisions required for open surgery create significant trauma to the
patient, resulting in long hospitalization and recovery times, high
hospitalization costs, as well as significant pain and suffering. Over the past
several decades, the second generation of surgery, MIS surgery, has reduced
trauma to the patient by allowing some surgeries to be performed through small
ports rather than large incisions, resulting in shorter recovery times, fewer
complications and reduced hospitalization costs. MIS surgery has been widely
adopted for certain surgical procedures, but it has not been widely adopted for
complex procedures. We believe surgeons have been slow to adopt MIS surgery for
complex procedures because they generally find that fine tissue manipulations,
such as dissecting and suturing, using these techniques are more difficult to
learn and perform, and are less precise, than in open surgery.
 
     Intuitive surgery overcomes many of the shortcomings of both open surgery
and MIS surgery. Surgeons operate while seated comfortably at a console viewing
a bright and sharp 3-D image of the surgical field. This immersive visualization
results in surgeons no longer feeling disconnected from the surgical field and
the instruments, as they do when using an endoscope in MIS surgery. While seated
at the console, the surgeon manipulates instrument controls in a natural manner,
just as he or she has been trained to do in open surgery. Our technology is
designed to provide surgeons with a range of motion in the surgical field
analogous to the motions of a human wrist, while filtering out the tremor
inherent in every surgeon's hand. In designing our products, we have focused on
making our
 
                                       27

<PAGE>   32
 
technology as simple as possible to use. In our experience, based on hundreds of
procedures, surgeons can learn to manipulate our instruments with only a short
amount of training and can learn to perform Intuitive surgery with less training
than is required for MIS surgery.
 
     Our products are designed to make a broad range of open surgical and MIS
procedures suitable for Intuitive surgery. The da Vinci Surgical System is
designed to allow surgeons to perform better surgery while providing patients
with the benefits of MIS surgery. We believe that these advantages will enable
us to drive a fundamental change in surgery.
 
BACKGROUND
 
     We believe that there are three generations of surgical techniques: (1)
open surgery, which began its modern era in the 19th century, (2) MIS surgery,
which has developed over the past several decades, and (3) Intuitive surgery,
which we have developed. Each generation of surgery has been enabled by the
development of an important technology or set of related technologies.
 
First Generation: Open Surgery
 
     Modern open surgical technique developed in the second half of the 19th
century because of the combination of two medical breakthroughs: anesthesia and
sterile technique. Using open surgical techniques, a surgeon generally creates
an incision large enough to allow a direct view of the operating field and the
insertion of at least two human hands to manipulate the patient's tissues. Many
different types of hand-held instruments such as the scalpel, forceps, retractor
and clamp have been developed to enable the surgeon to manipulate tissue
precisely in almost every area of the body, and to accomplish complicated
movements such as suturing.
 
     The large incisions generally used in open surgery create very significant
trauma to the patient, resulting in long hospitalization and recovery times,
high hospitalization costs, as well as significant pain and suffering. In most
cases, repairing damaged tissue is much less traumatic than creating the large
incisions necessary to expose that tissue. However, because the human hand has
an extremely wide range of motion and can grip open surgical instruments near
their tips to allow very precise and natural tissue manipulations, open surgical
technique is generally considered the most precise and the easiest technique for
the surgeon to perform. Despite trauma and other drawbacks, open surgery remains
the predominant form of surgical technique.
 
Second Generation: Minimally Invasive Surgery
 
     Minimally invasive surgical techniques have evolved over the past few
decades, beginning with the development of the endoscope. The objective of MIS
surgery is to substantially reduce trauma to the patient by replacing the large
six- to twelve-inch incision typically required for open surgery with three or
more small puncture incisions, or ports. These ports are each approximately ten
millimeters, or less than one-half inch, in diameter. The ports are created in
the abdominal wall, chest wall, or other areas of the body in locations designed
to provide access to the organs on which the surgeon intends to operate. MIS
surgery generally results in shorter hospitalization and recovery times, reduced
hospitalization costs and substantially less pain and suffering.
 
     During an MIS procedure, the surgeon inserts an endoscope through a port.
An endoscope makes use of fiber optics or fine glass tubes that allow the
surgeon to view a surgical field through a small incision. The endoscope
transmits an image to a television monitor so the surgeon can see the surgical
site and indirectly observe the operation. The surgeon inserts a variety of
long, hand-held instruments through the ports and manipulates the handles of
these instruments outside the patient's body to perform the operation inside the
patient's body. The instruments typically have tips similar to the corresponding
instrument tips used in open surgery, such as forceps or scissors. These tips
are connected to 15- to 18-inch or 35- to 45-centimeter long tubes, which are
connected to the handles.
 
                                       28

<PAGE>   33
 
     Existing Limitations of Minimally Invasive Surgery. We believe that
surgeons generally find MIS surgical techniques more difficult to learn and
perform than open surgery for the following reasons:
 
     - "Backward" Instrument Movements. Existing MIS instruments are essentially
       long rigid levers that rotate around a fulcrum, or pivot point, located
       at the port created in the body wall. As a result, the instrument tip
       moves in the opposite direction from the surgeon's hand. For example, to
       move the tip left, surgeons move the instrument handle to the right; to
       move the tip up, surgeons move the instrument handle down. Surgeons must
       relearn their hand-eye coordination to translate their hand movements in
       this "backward" environment into the required instrument movements.
 
     - Restricted Motions. Existing MIS instruments provide surgeons less
       flexibility, dexterity and range of motion than their own hands provide
       in open surgical procedures. For example, MIS instruments in widespread
       use today do not have joints near their tips to replicate surgeons' hand
       and wrist movements used in open surgery to perform manipulations such as
       reaching behind tissue, suturing and fine dissection.
 
     - Magnified Tremor and Exaggerated Instrument Movements. In open surgery,
       instruments are held near their tips, allowing fine movements of
       surgeons' hands to be directly translated into fine movements of the
       instruments. In MIS surgery, the length of MIS instruments magnifies
       surgeons' hand movements. As a result, the tremor inherent in a surgeon's
       hands is magnified, and the exaggerated motor movements caused by MIS
       instruments make fine tissue manipulation more difficult for the surgeon.
       The difficulty of these movements is analogous to the lack of precision
       one would experience in writing while holding the eraser end of a pencil.
 
     - Poor Visualization. Since the video image from the endoscope is usually
       displayed on a video monitor, surgeons typically must look up and away
       from their hands, the patient and the instruments to see the surgical
       field on the monitor. This can give the MIS surgeon a feeling of being
       disconnected from the surgical field and the instruments. In addition,
       most endoscopes currently available give the surgeon only a
       two-dimensional image. Although three-dimensional endoscopes exist, they
       typically have diminished sharpness and lower brightness than
       two-dimensional endoscopes, making fine detail more difficult for the
       surgeon to see.
 
     - Difficult to Learn. The combination of the inherent difficulties
       mentioned above makes conventional MIS surgical techniques difficult to
       learn. Although most surgeons are now trained in their residency programs
       in basic laparoscopic skills, a significant amount of advanced training
       is required for surgeons to become proficient in most MIS procedures. The
       need for extensive training revolves around the difficulty of learning
       certain laparoscopic skills such as suturing and precise dissection.
       Without the assistance of computer-enhanced techniques, these types of
       advanced laparoscopic skills take months of practice to learn and
       perfect.
 
     Slowing MIS Procedure Conversion Rates. Despite the limitations of existing
MIS techniques, a number of procedures are routinely performed using
laparoscopic procedures. For example, laparoscopic cholecystectomy, removal of
the gall bladder through ports, is learned by most surgeons after a moderate
amount of training, in part because of the anatomical location of the
gallbladder and the relatively gross tissue manipulations required.
Consequently, laparoscopic cholecystectomy grew from a newly-introduced
procedure to the "standard of care" in the United States over approximately
three years, beginning in the late 1980s. In 1997, approximately 85% of
cholecystectomies in the United States were performed using MIS techniques.
 
     We believe that the adoption rate of laparoscopic cholecystectomy has not
been replicated for most subsequently introduced MIS procedures because such
procedures have been more difficult to
 
                                       29

<PAGE>   34
 
learn and perform. In addition, as a result of these difficulties, many surgical
procedures commonly performed using open surgery have not been adapted to MIS
surgical techniques.
 
     The chart below sets forth the percentage of selected procedures that were
performed worldwide in 1997 using MIS surgical techniques:
 
                                    [CHART]
     EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
     % PERFORMED USING MIS SURGICAL TECHNIQUES
 

<TABLE>
<S>                                                           <C>
Cholecystectomy.............................................   65%(1)
Gynecology (except Hysterectomy)............................   43%
Hysterectomy................................................   20%
Hernia Repair...............................................   14%
Cardiac.....................................................    4%
</TABLE>

 

<TABLE>
<CAPTION>
                                                                NUMBER       TOTAL
                                                                  OF         NUMBER
                                                              PROCEDURES       OF
                                                              PERFORMED    PROCEDURES
                                                                USING      PERFORMED
                                                                 MIS       ----------
                                                               SURGICAL
                                                              TECHNIQUES
                                                              ----------
<S>                                                           <C>          <C>
Cholecystectomy.............................................  1,173,000    1,804,000
Gynecology (except Hysterectomy)............................  1,098,000    2,540,000
Hysterectomy................................................    234,000    1,170,000
Hernia Repair...............................................    198,000    1,430,000
Cardiac.....................................................     39,000    1,065,000
</TABLE>

 
---------------
(1) 85% in United States
   Source: Medical Data International, Inc.
 
The Intuitive Surgical Solution: Third Generation Surgery
 
     Our technology is designed to return to the surgeon the range of motion,
fine tissue control and 3-D vision characteristic of open surgery while
simultaneously allowing the surgeon to work through the ports used in MIS
surgery. All this is accomplished in an intuitive manner, in the same way that
the movements of a surgeon's hands in open surgery are entirely intuitive.
 
     We believe that our technology overcomes many of the limitations of
existing MIS surgery in the following ways:
 
     - Natural Instrument Movements. Our technology is designed to directly
       transform the surgeon's natural hand movements outside the body into
       corresponding micromovements inside the patient's body. For example, a
       hand movement to the right outside the body causes the instrument inside
       the patient to be moved to the right, eliminating the backward nature of
       existing MIS surgery.
 
     - EndoWrist Instruments Provide Natural Dexterity and Range of Motion. Our
       technology is designed to provide surgeons with a range of motion in the
       surgical field analogous to the motions of a human hand and wrist. Our
       proprietary instruments, which we call EndoWrist instruments, incorporate
       "wrist" joints that enable surgeons to reach behind tissues and suture
       with precision, just as they can in open surgery. The surgeon controls
       the joint's movements from the surgeon's console using natural hand and
       wrist movements. EndoWrist joints are located near the tips of all of our
       instruments.
 
                                       30

<PAGE>   35
 
     - More Precise Movements and Reduced Tremor. With our technology, the
       surgeon can also use "motion scaling," a feature that translates, for
       example, a three millimeter hand movement outside the patient's body into
       a one millimeter instrument movement in the surgical field inside the
       patient's body. Motion scaling is designed to allow greater precision
       than is normally achievable in both open and MIS surgery. In addition,
       our technology is designed to filter out the tremor inherent in every
       surgeon's hands.
 
     - Immersive 3-D Visualization. Our vision system, which we call the InSite
       vision system, is designed to give surgeons the perception that their
       hands are immersed in the surgical field even though they are outside the
       patient's body. As a result, we believe that surgeons no longer feel
       disconnected from the surgical field and the instruments, as they
       currently do with MIS surgery. In addition, we believe that the InSite
       system provides a much brighter and sharper image than any other 3-D
       endoscope vision system. The InSite system also incorporates our
       proprietary Navigator camera control technology that allows the surgeon
       to easily change, move, zoom and rotate his or her field of vision. The
       combination of these features offers what we believe is the most advanced
       surgical vision system available today.
 
     - Easy to Learn and Perform. In designing our products, we have focused on
       making our technology as simple as possible to use, even though it is
       inherently complex. We believe that tissue manipulations using our
       products are as natural as hand movements in open surgery. In our
       experience, based on feedback from surgeons who have performed hundreds
       of procedures, surgeons can learn to manipulate our instruments with only
       a short amount of training. Learning to perform surgical procedures using
       the da Vinci System will vary depending on the complexity of the
       procedure and the surgical team's experience with MIS surgery techniques.
 
     - Multi-Specialty Surgical Platform. The da Vinci System is designed to
       enable surgeons to perform surgery in virtually any part of the body. To
       date, surgeons have used the da Vinci System to perform over 20 different
       types of surgical procedures.
 
     We believe that these advantages give the patient the benefits of less
traumatic MIS surgery while restoring to the surgeon the range of motion and
fine tissue control possible with open surgery, along with further enhancements
such as tremor reduction, motion scaling and superior visualization.
 
     We believe that our technology has the potential to change surgical
procedures in three basic ways:
 
     - Convert Open Procedures to Intuitive Surgery. We believe our technology
       will make a number of surgical procedures that currently are performed
       only with open surgical techniques suitable for Intuitive surgery.
 
     - Facilitate Difficult MIS Operations. We believe surgical procedures that
       today are performed only rarely using MIS techniques will be performed
       routinely and with confidence using Intuitive surgery. Some procedures
       have been adapted for port-based techniques but are extremely difficult
       and are currently performed by a limited number of highly skilled
       surgeons. We believe our da Vinci System will enable more surgeons at
       more institutions to perform these procedures.
 
     - Simplify Existing, High-Volume MIS Procedures. We believe surgical
       procedures that today are performed routinely using MIS techniques will
       be performed more quickly and safely with Intuitive surgery. For example,
       over the past decade, approximately 85% of gall bladder removals
       performed in the United States have been converted to MIS surgery. We
       believe that the da Vinci System will make these procedures easier,
       faster and more cost effective to perform.
 
                                       31

<PAGE>   36
 
INTUITIVE SURGICAL'S PRODUCTS
 
     Our principal products include the da Vinci Surgical System and a variety
of "smart disposable" EndoWrist instruments.
 
da Vinci Surgical System
 
     Surgeon's Console. The da Vinci System allows the surgeon to operate while
comfortably seated at an ergonomic console viewing a 3-D image of the surgical
field. The surgeon's fingers grasp the instrument controls below the display
with wrists naturally positioned relative to his or her eyes. Using hardware,
software, algorithms, mechanics and optics, our technology is designed to
seamlessly translate the surgeon's hand movements into precise and corresponding
real-time microsurgical movements of the EndoWrist instruments inside the
patient.
 
     Patient-Side Cart. The patient-side cart, which can be easily moved next to
the operating table, holds electromechanical arms that manipulate the
instruments inside the patient. Three arms attached to the cart can be easily
positioned as appropriate, and then locked into place. The first two arms, one
representing the left hand and one the right hand of the surgeon, hold our
EndoWrist instruments. The third arm positions the endoscope, allowing the
surgeon to easily change, move, zoom and rotate his or her field of vision.
 
     Immersive 3-D Visualization System. The InSite system uses two entirely
separate vision channels linked with an optical assembly to two high resolution,
progressively scanned color monitors. The system incorporates special high
resolution video cameras and specialized edge enhancement and noise reduction
technologies. The resulting image has high resolution and contrast and no
flicker or cross-fading, which occurs in single monitor systems, and minimizes
eye fatigue. The InSite system allows the surgeon to move his or her head in the
viewer without affecting image quality.
 
EndoWrist Instruments
 
     We manufacture a variety of EndoWrist instruments, each of which
incorporates a wrist joint for natural dexterity, with tips customized for
various surgical procedures. These EndoWrist instruments are currently
approximately seven millimeters in diameter. The instruments mount onto the
electromechanical arms that represent the surgeon's left and right hands and
provide the mechanical capability necessary for performing complex tissue
manipulations through ports. At their tips, the various EndoWrist instruments
include forceps, scissors, electrocautery, scalpels and other surgical tools
that are readily familiar to the surgeon from open and MIS surgery. Generally, a
variety of EndoWrist instruments are selected and used interchangeably during
the surgery. Where instrument tips need to incorporate a disposable component,
for example, scalpel blades, we sell disposable inserts. We plan to continue to
add new types of EndoWrist instruments for additional types of surgical
procedures.
 
     The EndoWrist instruments are "smart disposables" because they are
resterilizable and reusable for a defined number of procedures or hours of use.
A custom computer chip inside each instrument performs several functions that
help determine how the system and instruments work together. When an EndoWrist
instrument is attached to an arm of the patient-side cart, the chip performs an
"electronic handshake" that ensures the instrument was manufactured by us and
recognizes the type and function of the instrument and number of past uses or
hours. For example, the chip distinguishes between scissors and a scalpel and
controls the unique functions of different instruments as appropriate. In
addition, the chip will not allow the instrument to be used for more than the
prescribed number of procedures or hours so that its performance meets
specifications during each procedure. In addition, we can sell the instrument
for a fixed number of uses or hours and effectively price our EndoWrist
instruments on a per-procedure or per-hour basis.
 
                                       32

<PAGE>   37
 
USING THE DA VINCI SURGICAL SYSTEM
 
     During a procedure, the patient-side cart is positioned next to the
operating table with the electromechanical arms arranged to provide access to
the initial ports selected by the surgeon. Metal tubes attached to the arms are
inserted through the ports, and the EndoWrist instruments are introduced through
the tubes into the patient's body. The surgeon then performs the procedure while
sitting comfortably at the surgeon's console, manipulating the instrument
controls and viewing the operation through our InSite vision system. When a
surgeon needs to change an instrument, as is done many times during an
operation, the instrument is withdrawn from the surgical field using the
controls at the console, in similar fashion to the way a surgeon withdraws
instruments from the patient in MIS surgery. A scrub nurse standing near the
patient removes the unwanted instrument from the electromechanical arm and
replaces it with the new instrument, in a process designed to be rapid enough
not to disturb the natural flow of the procedure. As a result, the scrub nurse
plays a role similar to that played in open and MIS surgery. At the conclusion
of the operation, the metal tubes are removed from the patient's body and the
small incisions are sutured or stapled.
 
OUR STRATEGY
 
     Our goal is to establish Intuitive surgery as the standard for complex
surgical procedures and many other procedures currently performed using either
open or MIS surgery. We intend to accomplish this objective both by pioneering
new types of endoscopic surgery and by making existing MIS procedures easier,
safer and more cost effective. Over time, our strategy is to broaden the number
of procedures performed using the da Vinci Surgical System and to educate
surgeons and hospitals as to the benefits of Intuitive surgery. Key elements of
this strategy include:
 
     Focus on Key Institutions. Our marketing efforts are focused on large
multi-specialty care hospitals where a majority of complex surgical procedures
are performed. Following the initial placement at a given hospital, we intend to
expand the number of physicians who use the da Vinci Surgical System and work
with the hospitals and their surgeons to promote patient education as to the
benefits of Intuitive surgery. We believe that these efforts will result in
increased usage per system, leading to high volume sales of instruments and
sales of additional systems at each hospital. In addition, we believe such
efforts will benefit early-adopting hospitals by increasing their market share
in the procedures and specialties that benefit from Intuitive surgery. We expect
these efforts to increase demand for our products among competitive hospitals,
surgeons and referring physicians.
 
     Focus on Leading Surgeons to Drive Rapid and Broad Adoption. We will place
significant emphasis on marketing the da Vinci Surgical System to leading
surgeons who are considered to be the "thought leaders" in their institutions
and fields. These surgeons typically perform complex surgical procedures that
are currently not adaptable to MIS techniques. For example, cardiac procedures,
of which over one million are currently performed annually worldwide, are among
the most difficult to perform using MIS techniques. This strategy puts surgeons
at the forefront of procedure development and provides them an opportunity to
maintain a competitive edge in their specialty. We believe that early adoption
of our products by surgical thought leaders will give many other surgeons the
confidence that the da Vinci Surgical System can be used for all types of
surgical procedures.
 
     Develop Protocols for New Surgical Procedures. We intend to leverage our
relationships with key institutions and surgical thought leaders to develop
protocols for new surgical procedures. These protocols would include guidance on
patient screening, port placement, interaction of the surgical team and advice
on the sequence and selection of tools and maneuvers. We believe that
establishing protocols for a given procedure will facilitate the broader
adoption of Intuitive surgery for that procedure.
 
                                       33

<PAGE>   38
 
     Maintain Market Leadership. We intend to maintain our leadership advantage
by continuing to develop and enhance our technology and to communicate the
benefits of our da Vinci Surgical System to surgeons, hospitals and patients. We
will continue to improve our da Vinci Surgical System through software and
hardware enhancements and by developing new surgical instruments. We will also
continue to develop our surgical platform to facilitate and support future
surgical innovations.
 
CLINICAL CONTRIBUTIONS
 
     We believe our technology is capable of enhancing or enabling a wide
variety of procedures in many surgical specialties. Some of these applications
include the following:
 
General and Vascular Surgery
 
     Aortic Aneurysms. A common vascular procedure is the repair of aortic
aneurysms, which are sacs formed by the dilation of the wall of the main artery
in the body. Aneurysms are caused primarily by atherosclerosis, which is
characterized by the deposition of fatty substances in large and medium-sized
arteries, such as the arteries that lead to the heart and brain. Surgical
treatment involves clamping the aorta and making long incisions at multiple
sites to resect and replace the aneurysm with a synthetic graft. Once the aorta
is clamped, time is of the essence, since procedures are typically done without
heart/lung bypass machines. Thus, only a narrow window of time for completion is
available. Currently, some aneurysms are treated by intravascular stent-grafts.
These stent-grafts can be inserted through the main artery in the thigh, called
the femoral artery, and do not require an incision. However, the necessity of
traversing the femoral artery to gain access to the aorta limits the usage of
this technique. We believe that the capability of our technology to deliver to
the surgeon enhanced dexterity and the ability to suture grafts, alone or in
conjunction with stent-grafts, will help convert this procedure from open
surgery to Intuitive surgery.
 
     Aorto-Femoral Bypass. The lower portion of the abdominal aorta is often a
location of atherosclerosis. Atherosclerotic blockage of this portion of the
aorta restricts blood flow to the lower body. To treat this condition using open
surgery, a synthetic graft is attached above and below the blockage. This
procedure currently requires open surgery because of the need to suture the
grafts in place. We believe that with our technology, surgeons will be able to
perform the required suturing of arteries, called an anastomosis, through ports
and avoid the large incision currently required.
 
     Cholecystectomy. Removal of the gallbladder, or cholecystectomy, is the
most common procedure performed by general surgeons. The procedure is used to
treat cholecystitis, which is an inflammation of the gall bladder. Although a
minimally invasive approach, called a laparoscopic cholecystectomy, is now well
accepted for routine cases, there is great variability in the level of skill
required to accomplish the procedure. The skill level necessary to complete a
laparoscopic cholecystectomy is dependent on the disease status the surgeon
discovers after the abdomen is entered. For example, acute cholecystitis can
result in inflammation and the abnormal union of tissues resulting from the
formation of new fibrous tissue in the inflammatory process. As a result, very
meticulous surgery to access gallbladder anatomy can be required. Similarly,
during the operation, the surgeon may find a condition known as
choledocolithiasis, or stones in the common bile duct. The surgeon may choose to
incise or cut the common duct to extract stones that are caught between the
liver and intestine. Exploration of the common bile duct is an extremely
delicate procedure that requires micro-sutures to be placed in the common duct.
Most surgeons will not do this procedure laparoscopically because of its
difficulty. This usually results in a conversion to open technique or another
surgical or delicate gastrointestinal endoscopic procedure to extract the
stones. With our technology, we believe that the surgeon will have expanded
capability to deal with complicated cholecystectomies and can avoid subjecting
the patient to a second procedure.
 
                                       34

<PAGE>   39
 
     Nissen Fundoplication. Nissen fundoplication is a general surgical
procedure that is performed to correct esophageal reflux. Esophageal reflux
disease is a digestive disorder that affects the muscle connecting the esophagus
with the stomach. As an elective procedure, Nissen fundoplication is currently
performed on only a small fraction of candidates who suffer from this condition
because the open surgical procedure is quite invasive. An MIS alternative
exists, but there are only a limited number of surgeons skilled in the
procedure. We believe that our technology will significantly improve the ease of
performing the Nissen procedure through ports. Specifically, our technology will
address the two most difficult steps in this procedure, which are made more
difficult by existing MIS techniques, esophageal dissection and suturing of the
fundus of the stomach. If adoption of our technology becomes widespread for
Nissen procedures, we believe that the number of surgeons able to perform a
Nissen procedure using port-based techniques will increase. Further, we expect
that the widespread availability of a port-based approach may significantly
expand the number of surgeries performed.
 
     Colon Resection. Removal of the colon or large bowel is a common general
surgical procedure done for both benign and malignant disease. Colon resection
is accomplished in a variety of ways by removing all or part of the colon. These
procedures are complicated and involve resecting a portion of diseased tissue
and then re-anastomosing the two ends of the colon to re-establish continuity of
intestinal flow. When using existing MIS techniques, the challenge is to have
enough manipulating capability to perform fine dissection of the colon and then
to be able to sew or staple the ends of the bowel to accomplish the
re-anastomosis. The MIS procedure is currently performed by only a small
fraction of general surgeons. By making dissection significantly more precise,
we believe that our products will allow port-based colon resection to be
performed more widely.
 
     Hernia Repair. An inguinal hernia is a condition in which tissue protrudes
through the wall of the pelvis. It is caused by a defect or weakness in the
lining covering the pelvic region. Repair of inguinal hernia is the second most
common procedure done in general surgery. There are a variety of hernia
procedures available that use both open and MIS techniques. However, the lack of
precise dissection capability inhibits adoption of the MIS procedures.
Specifically, the delicate dissection of some of the structures and the
peritoneal sac, which often adheres to the pelvic anatomy, is very difficult for
surgeons to accomplish using MIS techniques. We believe that our technology will
encourage surgeons to convert hernia procedures to the port-based approach by
removing the training barrier that limits its adoption.
 
Gynecologic Surgery
 
     General Gynecology. Laparoscopy has been used for several decades in a
large number of diagnostic infertility procedures. Although there are a variety
of therapeutic infertility procedures that can currently be performed by some
gynecologists using existing MIS techniques, these procedures are relatively
difficult to perform using existing MIS tools because of the lack of tissue
control, inability to perform fine dissection, and limited suturing capability.
We believe that our technology will provide gynecologists with the ability to do
sophisticated procedures such as tubal re-anastomosis and dissection of ovarian
cysts, as well as common procedures such as surgical removal of an ovary or
fallopian tube.
 
     Hysterectomy. Removal of the uterus is one of the most commonly performed
surgeries in gynecology and it can be done by using open or MIS techniques. Like
colon resection, it demands a significant degree of tissue manipulation in the
dissection and ligation, or tying, of blood vessels, ligaments and other pelvic
structures. Further, laparoscopic techniques used in this procedure increase the
risk of injury to the ureters, which are vital structures that provide the
conduit for urine between the kidney and bladder. It is often difficult to
ensure the identification and prevention of injury to the ureters and bladder
with conventional MIS instruments because of the limited angles at which these
 
                                       35

<PAGE>   40
 
instruments can be positioned. We believe that our products will increase the
surgeon's dexterity in this procedure and, as a result, will have a significant
impact on safety, operating time, and rate of adoption of port-based techniques
in hysterectomy.
 
     Bladder Neck Suspension. Bladder incontinence is a widespread condition
affecting middle aged women, which can be treated surgically with a procedure
known as bladder neck suspension. This procedure involves elevation of the
bladder neck by suspension with sutures, surgically recreating the normal angle
of the urethra and re-establishing bladder sphincter control. The procedure
works well in open surgery and is the "gold standard" for correction of bladder
incontinence. However, because of its long recovery time, most candidates are
discouraged from undergoing the procedure using open surgical technique.
Instead, they use adult diapers for their incontinence, which is an
embarrassment and inconvenience. Bladder neck suspension can currently be done
laparoscopically but is difficult to perform because of the need to suture at
awkward angles using existing MIS instruments. We believe our technology may
provide a better solution for suturing the bladder neck and would represent an
advance in the ease of performing incontinence surgery.
 
Orthopedic Surgery
 
     Arthroscopy. Many knee surgeries are accomplished by an MIS technique
called arthroscopy. This technique is well accepted in the surgical community.
However, many of the more sophisticated maneuvers in arthroscopy, such as
suturing torn meniscal tissue, are very difficult with existing MIS instruments.
The meniscus is a structure located in the knee joint that provides a surface
and cushion upon which the bones of the knee joint can move. We believe that our
technology and the capabilities of our EndoWrist instruments will increase the
ease with which complex arthroscopic procedures such as advanced knee and
shoulder arthroscopy can be performed.
 
     Spinal Surgery. Disc removal and spinal fusion are common procedures
performed in open spinal surgery. MIS techniques where surgeons approach the
spine through the abdomen and use laparoscopic methods to expose the anterior
portion of the spine and lumbar disc space are just emerging. This procedure
requires both delicate and precise dissection and retraction of tissue, and
would benefit greatly from the enhanced capabilities offered by the da Vinci
Surgical System. We believe that our technology may make this procedure safer,
easier, more precise, and allow more surgeons to perform it with confidence.
 
Cardiothoracic Surgery
 
     IMA Dissection. In a Coronary Artery Bypass Graft, or CABG, procedure used
in cardiac surgery, a blocked coronary artery is bypassed with a graft. When
available, an artery from the chest called the internal mammary artery, or IMA,
is dissected from its natural position and grafted into place to perform the
bypass. Because the IMA is located on the underside of the anterior surface of
the chest, dissection of the vessel is challenging using existing surgical
instruments through the three-to five-inch incision currently used in a CABG
procedure. Our products have multiple joints that emulate the surgeon's
shoulders and elbows, allowing exact positioning of the instruments inside the
patient's chest. In addition, the EndoWrist joints permit the surgeon to reach
behind the tissues for easier dissection of the IMA. Thus, we believe that the
IMA can be dissected with greater ease and precision using our technology.
 
     Coronary Anastomosis. CABG surgery demands that the surgeon delicately
dissect and precisely suture very small structures, which are less than two
millimeters in diameter, under significant magnification. These procedures are
difficult when performed in open surgery. They are even more difficult when
performed using an endoscopic or limited incision approach, and extraordinarily
difficult to perform when the heart is beating. As a result, this procedure is
typically done as open surgery while stopping the heart and using a heart/lung
bypass machine. Our
 
                                       36

<PAGE>   41
 
technology is designed to allow surgeons to perform scaled instrument movements
that can be even more precise than the movements used in open surgery, thus,
enabling precise suturing of single and multiple coronary vessels on a stopped
or beating heart.
 
     Mitral and Aortic Valve Repair/Replacement. Valve repair and replacement
surgeries are challenging even when using open surgical techniques. Significant
exposure of the surgical field is essential to the identification and precise
manipulation of valves and other structures inside the heart, and is key to
successful surgical outcomes with minimal complications. Because motion scaling
allows a surgeon using our da Vinci Surgical System to maneuver instruments
inside the patient even more precisely than is possible in open surgery, the
system has already enabled heart valve repairs that could not have been
accomplished with open surgery, and has done so through small ports. Replacement
of valves currently requires a small incision, even if the majority of the
procedure is eventually performed through ports using our technology, because
the replacement valve itself is too large to be inserted into the chest through
a port. However, new valve designs that can be delivered through ports are being
developed, and the small incisions necessary today to delivery a replacement
valve to the heart may eventually not be required, allowing a surgeon using the
da Vinci Surgical System to replace a valve entirely using ports.
 
     Thoracoscopy. A number of procedures performed in the thorax, or chest
cavity, can be accomplished by minimally invasive methods. These methods are
generally referred to as thoracoscopic procedures. They include various types of
lung resection, biopsy procedures, node dissections, nerve resections and
esophageal surgery. Conventional thoracoscopic tools have all the limitations of
conventional laparoscopic tools, such as "backward" movement and limited range
of motion. The capability of our technology to operate dexterously in the often
very small and restrictive space of the chest cavity is believed to offer
significant clinical value in the performance of advanced thoracoscopic
procedures.
 
MARKETING AND DISTRIBUTION
 
     We market our products through a direct sales force in the United States
and most of Europe. We have also entered into agreements with distributors in
Italy and Japan. Our marketing and sales strategy in the United States and
Europe involves the use of a combination of area sales managers, technical sales
representatives and clinical training specialists. As of March 15, 2000, we had
20 employees in sales and marketing. We expect to significantly increase our
sales and marketing force as we expand our business.
 
     The role of our technical sales representatives is to educate physicians
and surgeons on the advantages of Intuitive surgery and the clinical
applications that our technology makes possible. We also train our technical
sales representatives to educate hospital management on the potential benefits
of early adoption of our technology and the potential for increased local market
share that may result from Intuitive surgery. Once a hospital has installed a da
Vinci Surgical System, our sales force helps to introduce the technology to
other surgical specialties within the hospital.
 
     Clinical training specialists provide training and support to physicians
and other hospital staff and coordinate installation of our products. We employ
service technicians to provide non-clinical technical expertise, upgrades,
service and maintenance for our da Vinci Surgical Systems. We believe that this
combination of technical sales representatives, clinical training specialists
and service technicians provides an appropriate balance of professional selling
skills while maintaining an appropriate level of technical expertise in the
field.
 
     Our da Vinci Surgical System has a lengthy sales and purchase order cycle
because it is a major capital item and requires the approval of senior
management at purchasing institutions. Particularly
 
                                       37

<PAGE>   42
 
during the period in which our sales volume is low, this may contribute to
fluctuations in our quarterly operating results.
 
TECHNOLOGY
 
     Using key technologies, we have designed the da Vinci Surgical System to
ensure intuitive control and fail-safe operation of the system. The system
updates arm and instrument positions over 1000 times per second, thereby
ensuring real-time connectivity between the surgeon's hand movements and the
movements of the instrument tips. A backup battery is included in the system
that can power the system for more than 20 minutes in case of power loss or
fluctuation. This 20-minute period is believed to be sufficient either to
reestablish the power supply or for the hospital back-up power system to become
effective.
 
     Monitoring the operation of the system at all times is a network of
approximately 20 micro-controllers that checks for proper system performance.
System misuse or system fault can be detected and the system can be transitioned
to a safe state in micro-seconds. The system also includes a sensor that detects
the presence of the surgeon's head in the viewer. If the surgeon removes his or
her head from the viewer, the system automatically disengages and locks the
instruments in place to prevent their inadvertent movement.
 
     The instrument controls at the surgeon's console have eight degrees of
freedom of motion that allow the surgeon to move each hand through a workspace
approximately one cubic foot in volume. These degrees of freedom allow the
surgeon to orient his or her hands without limitation. The instrument controls
are constructed with very low friction cables and gear transmissions to ensure
smooth operation. Furthermore, critical components are constructed of magnesium
and titanium to provide high mechanical stiffness and low inertia, ensuring a
light and responsive feel to the surgeon.
 
     The electromechanical arms of the patient-side cart are gravitationally
counterbalanced to allow for smooth, easy and safe positioning of the
instruments in the patient. The arms have seven degrees of freedom, allowing for
control of position, orientation, translation and grip of the instrument, all
inside the body. Redundant sensors are designed to ensure fail-safe operation of
the instrument tips.
 
     Unlike other 3-D systems, our InSite vision system relies on two entirely
separate vision channels. Two eyepieces are linked by a precisely designed
optical assembly to two high resolution, and high contrast medical grade
monitors, which have been specially designed to have a high visual update rate
that eliminates flicker and thus, reduces eye fatigue. Our stereo endoscope uses
two separate high resolution optical channels to improve image clarity. The
stereo images pass through video processing electronics that provide specialized
edge enhancement and noise reduction. A foot switch at the surgeon's console
operates a focus controller on the endoscope. The endoscope self-regulates the
temperature of its tip to eliminate fogging during procedures.
 
     Our EndoWrist instruments use a wrist joint architecture driven by six tiny
but very high strength, flexible tungsten cables. Each tungsten cable is a
"metal rope" constructed from over 200 fibers that are each less than one
thousandth of an inch in diameter. These cables are similar in function to the
tendons of a human wrist and are used to drive fluid motions of the wrist joint.
The instruments each contain a custom memory chip that records and stores data
each time the instrument is placed on the system. The chip contains encrypted
security codes to protect against use of non-Intuitive Surgical instruments so
that only our instruments will work with the da Vinci Surgical System. The chip
identifies the type of tool being inserted so that different instrument types
can be controlled uniquely by the system. The chip also records usage of the
instrument and expires the instrument after its prescribed life.
 
                                       38

<PAGE>   43
 
INTELLECTUAL PROPERTY
 
     Since our inception in late 1995, we have encountered and solved a number
of technical hurdles. We have patented and continue to pursue patent and other
intellectual property protection for the technology that we have developed to
overcome such hurdles. In addition to developing our own patent portfolio, we
have spent significant resources in acquiring exclusive license rights to
necessary and desirable patents and other intellectual property from SRI
International and IBM, who were early leaders in applying robotics to surgery.
One of the strengths of our portfolio is that the licensed SRI and IBM patents
have original filing dates as early as January 1992 and June 1991, respectively.
We have also exclusively licensed a patent application from MIT concerning
robotic surgery. As of March 15, 2000, we hold exclusive field-of-use licenses
for 28 United States patents and 35 foreign patents, and own outright four U.S.
patents that expire in 2016. We also own or have licensed numerous pending
United States and foreign patent applications, two of which were recently
allowed. Our patents and patent applications relate to a number of important
aspects of our technology, including our surgeon's console, electromechanical
arms, vision system and our EndoWrist instruments. We intend to continue to file
additional patent applications to seek protection for other proprietary aspects
of our technology.
 
     Our success will depend in part on our ability to obtain patent and
copyright protection for our products and processes, to preserve our trade
secrets, to operate without infringing or violating valid and enforceable
proprietary rights of third parties, and to prevent others from infringing our
proprietary rights. We intend to take action to protect our intellectual
property rights when we believe doing so is necessary and appropriate. In
addition, our strategy is to actively pursue patent protection in the United
States and in foreign jurisdictions for technology that we believe is
proprietary and that offers a potential competitive advantage, and to license
appropriate technologies when necessary or desirable. However, we cannot be
certain that we will be able to obtain adequate protection for our technology or
licenses on acceptable terms. Furthermore, if any protection we obtain is
reduced or eliminated, others could use our intellectual property without
compensating us, resulting in harm to our business. In addition, the laws of
certain foreign countries do not protect intellectual property rights to the
same extent as do the laws of the United States.
 
SRI License Agreement
 
     After receiving funding in 1990 from the U.S. Advanced Research Projects
Agency, SRI International conducted research to develop a "telesurgery" system
to allow surgeons to perform surgery on the battlefield from a remote location.
SRI developed the precise electromechanics, force-feedback systems, vision
systems and surgical instruments needed to build and demonstrate a prototype
system that could accurately reproduce a surgeon's hand motions with remote
surgical instruments. In 1995, John G. Freund, M.D., one of our founders,
acquired an option to license SRI's telesurgery technology, which resulted in
SRI granting us a license.
 
     Under the terms of our license agreement with SRI, we have an exclusive,
worldwide, royalty-free license to use the SRI technology developed before
September 12, 1997, including all patents and patent applications resulting from
such work, in the field of manipulating tissues and medical devices in animal
and human medicine, including surgery, laparoscopic surgery and microsurgery. We
also have the right of first negotiation with respect to any SRI technology
developed in these areas before September 12, 1999 but after September 12, 1997.
 
     Our license with SRI will terminate upon the last expiration of the patents
licensed from SRI or December 20, 2012, whichever is later. Currently, the last
patent expiration date is in 2016, although this could change. SRI may terminate
the license in the event of a material, uncured breach of our obligations. In
the event SRI terminates the license, we cannot assure you that the necessary
licenses could be reacquired from SRI on satisfactory terms, if at all.
 
                                       39

<PAGE>   44
 
IBM License Agreement
 
     IBM conducted research on the application of computers and robotics to
surgery during the late 1980s and early 1990s. IBM performed some of this work
in conjunction with the Johns Hopkins Medical Center. Our license agreement with
IBM covers a number of technologies related to the application of computers and
robotics to surgery. Under the terms of this agreement, we have an exclusive,
worldwide, royalty-free license to a number of IBM patents and patent
applications in the field of surgery performed on animals and humans. We also
have a non-exclusive license from IBM to practice in the areas neurology,
ophthalmology, orthopedics and biopsies. Under the license, we are obligated to
make two future payments tied to revenue milestones. The IBM license agreement
will terminate upon the last expiration of the licensed patents. Currently, the
last patent expiration date is in 2016, although this could change. IBM may
terminate the license in the event that we fail to make the required payments.
In the event IBM terminates the license agreement, we cannot assure you that
necessary licenses could be reacquired from IBM on satisfactory terms, if at
all.
 
MIT License Agreement
 
     After receiving funding from the U.S. Department of the Army, several
researchers at MIT conducted research on various aspects of robotic surgical
systems. As a result of that work, several patent applications were filed. Both
MIT and the Army waived their rights to one of these applications, which the
inventors ultimately assigned to Intuitive Surgical. MIT owns the other
application. Under the terms of our license agreement with MIT, we have an
exclusive, worldwide, royalty-free license to this patent application in the
field of medical devices. The MIT license will terminate upon the last
expiration of any patents issuing from the licensed patent application. MIT also
has the right to terminate the MIT license in the event of a material, uncured
breach of our obligations under the license. In the event MIT terminates the
license, we cannot assure you that we would be able to reacquire a license from
MIT on satisfactory terms, if at all.
 
RESEARCH AND DEVELOPMENT
 
     Substantially all of our research and development activity is performed
internally. Our research and development team is divided into four groups:
software engineering, systems analysis, electrical engineering and mechanical
engineering. In addition, various members of the research and development team
support the design and development of the manufacturing processes used in
fabricating our products.
 
MANUFACTURING
 
     We have a 13,000 square foot manufacturing facility in Mountain View,
California that is currently certified for GMP by the FDA. We have used this
facility and our manufacturing personnel to produce the systems and instruments
that have been sold to date and used in clinical trials. The manufacture of our
products is a complex operation involving a number of separate processes and
components. All of our products are assembled and tested in accordance with FDA
requirements.
 
     We purchase both custom and off-the-shelf components from a large number of
certified suppliers and subject them to stringent quality specifications. We
periodically conduct quality audits of suppliers and have established a supplier
certification program. Some of the components necessary for the assembly of our
products are currently provided to us by sole source suppliers or single source
suppliers. We purchase components through purchase orders rather than long-term
supply agreements and generally do not maintain large volumes of inventory. The
disruption or termination of the supply of components could cause a significant
increase in the costs of these components, which could affect our profitability.
A disruption or termination in the supply of components could also result in our
 
                                       40

<PAGE>   45
 
inability to meet demand for our products, which could harm our ability to
generate revenues, lead to customer dissatisfaction and damage our reputation.
 
COMPETITION
 
     We consider our primary competition to be existing open or MIS surgical
techniques. Our success depends in part on convincing hospitals, surgeons and
patients to convert procedures to Intuitive surgery from open or existing MIS
surgery.
 
     We also face competition from several companies that are developing new
approaches and products for the minimally invasive surgery market, and, in
particular, minimally invasive cardiac surgery. Many of these companies have an
established presence in the field of MIS, including Boston Scientific
Corporation, CardioThoracic Systems, Inc., a division of Guidant Corporation,
C.R. Bard, Inc., Guidant Corporation, Heartport, Inc., Ethicon Endo-Surgery,
Inc., a division of Johnson & Johnson, Medtronic, Inc., and United States
Surgical Corporation, a division of Tyco International Ltd. If we are unable to
compete successfully with these companies our revenues will suffer.
 
     In addition, a limited number of companies are using robots and computers
in surgery, including Brock Rogers Surgical, Inc., Computer Motion, Inc.,
Integrated Surgical Systems, Inc., Johns Hopkins University Engineering Research
Consortium, Maquet AG, MicroDexterity Systems, Inc. and Ross-Hime Designs, Inc.
Our revenues may be reduced or eliminated if our competitors develop and market
products that are more effective or less expensive than our products.
 
     We believe that the primary competitive factors in the market we address
are capability, safety, efficacy, ease of use, price, quality, reliability, and
effective sales, support, training and service. The length of time required for
products to be developed and to receive regulatory and reimbursement approval is
also an important competitive factor.
 
GOVERNMENT REGULATION
 
     FDA's Premarket Clearance and Approval Requirements
 
     Unless an exemption applies, each medical device that we wish to market in
the U.S. must first receive either "510(k) clearance" or "PMA approval" from the
U.S. Food and Drug Administration pursuant to the Federal Food, Drug, and
Cosmetic Act. The FDA's 510(k) clearance process usually takes from four to 12
months, but it can last longer. The process of obtaining PMA approval is much
more costly, lengthy and uncertain. It generally takes from one to three years
or even longer. We cannot be sure that 510(k) clearance or PMA approval will be
obtained in the future for any product we propose to market.
 
     The FDA decides whether a device must undergo either the 510(k) clearance
or PMA approval process based upon statutory criteria. These criteria include
the level of risk that the agency perceives is associated with the device and a
determination whether the product is similar to devices that are already legally
marketed. Devices deemed to pose relatively less risk are placed in either class
I or II, which requires the manufacturer to request 510(k) clearance, unless an
exemption applies. The manufacturer must demonstrate that the proposed device is
"substantially equivalent" in intended use, safety and effectiveness to a
legally marketed "predicate device" that is either in class I, class II, or is a
"preamendment" class III device, one that was in commercial distribution before
May 28, 1976, for which the FDA has not yet called for submission of a PMA
application. After a device receives 510(k) clearance, any modification to the
device that could significantly affect its safety or effectiveness, or that
would constitute a major change in its intended use, requires a new 510(k)
clearance or could require a PMA approval.
 
     Devices deemed by the FDA to pose the greatest risk, such as
life-sustaining, life-supporting or implantable devices, or devices deemed not
substantially equivalent to a legally marketed predicate
 
                                       41

<PAGE>   46
 
device, are placed in class III. Such devices are required to undergo the PMA
approval process in which the manufacturer must prove the safety and
effectiveness of the device to the FDA's satisfaction.
 
     A PMA application must provide extensive preclinical and clinical trial
data as well as information about the device and its components regarding, among
other things, device design, manufacturing and labeling. As part of the PMA
review, the FDA will inspect the manufacturer's facilities for compliance with
Good Manufacturing Practice requirements, which include elaborate testing,
control, documentation and other quality assurance procedures. During the FDA's
review, an FDA advisory committee, typically a panel of clinicians, likely will
be convened to review the application and recommend to the FDA whether, or upon
what conditions, the device should be approved. Although the FDA is not bound by
the advisory panel decision, the panel's recommendation is important to the
FDA's overall decision making process. If the FDA's evaluation of the PMA
application is favorable, the FDA typically issues an "approvable letter"
requiring the applicant's agreement to comply with specific conditions or to
supply specific additional data or information in order to secure final PMA
approval.
 
     Once the approvable letter conditions are satisfied, the FDA will issue a
PMA order for the approved indications, which can be more limited than those
originally sought by the manufacturer. The PMA order can include post-approval
conditions that the FDA believes necessary to ensure the safety and
effectiveness of the device including, among other things, restrictions on
labeling, promotion, sale and distribution. Failure to comply with the
conditions of approval can result in an enforcement action, including withdrawal
of the approval. The PMA process can be expensive and lengthy, and no assurance
can be given that any PMA application will ever be approved for marketing. After
approval of a PMA, a new PMA or PMA supplement may be required in the event of
modifications to the device, its labeling or its manufacturing process.
 
     A clinical trial may be required to support a 510(k) submission and
generally is required for a PMA application. Such trials generally require an
investigational device exemption application, or IDE, approved in advance by the
FDA for a specified number of patients, unless the product is deemed an
insignificant risk device eligible for more abbreviated IDE requirements. The
IDE must be supported by appropriate data, such as animal and laboratory testing
results. Clinical trials may begin if the FDA and the appropriate institutional
review boards, or IRBs, at the clinical trial sites approve the IDE. Trials must
be conducted in conformance with FDA regulations and IRB requirements. The
sponsor or the FDA may suspend these trials at any time if they are deemed to
pose unacceptable health risks or if the FDA finds deficiencies in the way they
are being conducted. Data from clinical trials are often subject to varying
interpretations that could delay, limit or prevent FDA approval.
 
     Currently, our console, patient-side cart and all of our instruments have
not been approved by the FDA to be used in any particular surgical procedure. In
July 1997, we received 510(k) clearance from the FDA for the surgeon's console
and patient cart to be used with only rigid endoscopes, blunt dissectors,
retractors and stabilizer instruments. In November 1997, we withdrew a
subsequent 510(k) submission covering additional instruments necessary for
performing most surgical procedures, including scissors, scalpels,
forceps/pickups, needle holders, clip appliers and electrocautery, after the FDA
indicated that substantial clinical data would be required to support clearance.
 
     In January 1999, we filed a 510(k) submission with clinical data, seeking
clearance for the da Vinci Surgical System and EndoWrist instruments for
laparoscopic surgical procedures. In May 1999, the FDA determined that our
products were not eligible for 510(k) clearance but would instead be required to
undergo the PMA approval process. On June 16, 1999, after review of the clinical
data on the use of our products in laparoscopic surgical procedures, the FDA's
General Surgery Advisory Panel recommended approval. In November 1999, we filed
a PMA application to commercialize our
 
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<PAGE>   47
 
products for laparoscopic surgery which was accepted by the FDA in December
1999. This PMA application is currently subject to approval by the FDA. In March
2000, the FDA inspected our Mountain View facility and found it to be in
compliance with Good Manufacturing Practice requirements. We cannot assure you
that we will obtain FDA approval for the use of our products in laparoscopic or
other surgical procedures on a timely basis, or at all. We anticipate that the
FDA will require a new PMA approval for each additional surgical procedure for
which we propose to market our products.
 
     We presently have a thoracoscopic clinical study in progress. If completed,
this study may be the subject of a PMA application for permission to
commercialize our products for thoracoscopic procedures. In the next twelve
months, we anticipate submitting one or more IDE applications requesting
permission to conduct trials for mitral valve repair and coronary artery bypass.
We cannot assure you that the FDA will approve our IDE applications or permit
such trials to go forward.
 
     We are subject to inspection and market surveillance by the FDA to
determine compliance with regulatory requirements. If the FDA finds that we have
failed to comply, the agency can institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions. The FDA
also has the authority to request repair, replacement or refund of the cost of
any medical device manufactured or distributed by us. Our failure to comply with
applicable requirements could lead to an enforcement action that may have an
adverse effect on our financial condition and results of operations.
 
     California Regulation
 
     The state of California requires that we obtain a license to manufacture
medical devices and subjects us to periodic inspection. Our facilities and
manufacturing processes were inspected in February 1998. We passed the
inspection and received our device manufacturing license from the Food and Drug
Branch of the California Department of Health Service in March 1998. The license
has remained in effect ever since.
 
     Foreign Regulation
 
     In order for us to market our products in other countries, we must obtain
regulatory approvals and comply with extensive safety and quality regulations in
other countries. These regulations, including the requirements for approvals or
clearance and the time required for regulatory review, vary from country to
country. Failure to obtain regulatory approval in any foreign country in which
we plan to market our products may harm our ability to generate revenue and harm
our business.
 
     Commercialization of medical devices in Europe is regulated by the European
Union. The European Union presently requires that all medical products bear the
CE mark, an international symbol of adherence to quality assurance standards and
demonstrated clinical effectiveness. Compliance with the Medical Device
Directive, as certified by a recognized European Competent Authority, permits
the manufacturer to affix the CE mark on its products. In January 1999,
following an audit of our quality system and Mountain View facility, we received
permission from the Danish Government, which was our European Competent
Authority, to affix the CE mark to our da Vinci Surgical System and EndoWrist
instruments for general surgical use, Class II-b. Additional CE approvals for
use of our da Vinci Surgical System and EndoWrist instruments in cardiac surgery
were received in September 1999 and February 2000, Class III.
 
     If we modify existing products or develop new products in the future, we
will need to apply for permission to affix the CE mark to such products. In
addition, we will be subject to annual regulatory audits in order to maintain
the CE mark permissions we have already obtained. We cannot be certain that we
will be able to obtain permission to affix the CE mark for new or modified
products or that we will continue to meet the quality and safety standards
required to maintain the permissions we
 
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<PAGE>   48
 
have already received. If we are unable to maintain permission to affix the CE
mark to our products, we will no longer be able to sell our products in member
countries of the European Union.
 
     The Ministry of Health and Welfare regulates commercialization and
reimbursement of medical devices in Japan. We are currently in the process of
developing a clinical trial strategy for laparoscopic and cardiovascular use of
the da Vinci Surgical System and our EndoWrist instruments with our commercial
partner in Japan. However, we cannot assure you that we will succeed in
procuring the required approvals to market our products in Japan or elsewhere,
even if we develop a strategy and ultimately apply for these approvals.
 
THIRD-PARTY REIMBURSEMENT
 
     In the United States and international markets where we intend to sell our
products, the government and health insurance companies together are responsible
for hospital and surgeon reimbursement for virtually all surgical procedures.
Governments and insurance companies generally reimburse hospitals and physicians
for surgery when the procedures are considered non-experimental and
non-cosmetic. In the United States, reimbursement for medical procedures is
governed by the Health Care Financing Administration and, in the case of
investigational devices, by the FDA. Reimbursement, however, is only available
if an appropriate Current Procedural Terminology, or CPT, code exists for the
procedure performed. If an appropriate CPT code does not exist, then an
application requesting an appropriate code can be made to the American Medical
Association.
 
     Governments and insurance companies carefully review and increasingly
challenge the prices charged for medical products and services. Reimbursement
rates from private companies vary depending on the procedure performed, the
third-party involved, the insurance plan involved, and other factors. Medicare
reimburses hospitals a prospectively determined fixed amount for the costs
associated with an in-patient hospitalization based on the patient's discharge
diagnosis, and reimburses physicians a prospectively determined fixed amount
based on the procedure performed. This fixed amount is paid regardless of the
actual costs incurred by the hospital or physician in furnishing the care and is
unrelated to the specific devices used in that procedure. Thus, any
reimbursements that hospitals obtain for performing surgery with our products
will generally have to cover any additional costs that hospitals incur in
purchasing our products.
 
     At present, the da Vinci Surgical System is categorized as an "experimental
device" and thus does not qualify for Medicare reimbursement. In late 1999, the
FDA denied our formal request for reclassification of the da Vinci Surgical
System as an investigational, rather than an experimental, device. We presently
believe that unless and until the FDA approves our PMA application for a
particular indication, such as laparoscopic use, reimbursement through Medicare
will be unavailable in the United States for our products.
 
     Domestic institutions will typically bill the services performed with our
products to various third-party payors, such as Medicare, Medicaid and other
government programs and private insurance plans. We believe that the procedures
we intend to target if and when we receive FDA approval are generally already
reimbursable by government agencies and insurance companies. Accordingly, we
believe hospitals and surgeons in the United States will generally not be
required to obtain new billing authorizations or codes in order to be
compensated for performing approved surgery using our products. If hospitals do
not obtain sufficient reimbursement from third-party payors for procedures
performed with our products, or if governmental and private payors' policies do
not permit reimbursement for surgical procedures performed using our products,
we may not be able to generate the revenues necessary to support our business.
In such circumstances, we may have to apply to the American Medical Association
for a unique CPT code covering computer-enhanced surgery. If an application for
a unique code is required, reimbursement for any use of our products may be
 
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<PAGE>   49
 
unavailable until an appropriate code is granted. The application process, from
filing until adoption of a new code, can take two or more years.
 
     In countries outside the United States, reimbursement is obtained from
various sources, including governmental authorities, private health insurance
plans, and labor unions. In most foreign countries, private insurance systems
may also offer payments for some therapies. Although not as prevalent as in the
United States, health maintenance organizations are emerging in certain European
countries. To effectively conduct our business, we may need to seek
international reimbursement approvals, and we do not know if these required
approvals will be obtained in a timely manner or at all.
 
     Any regulatory or legislative developments in domestic or foreign markets
that eliminate or reduce reimbursement rates for procedures performed with our
products could harm our ability to sell our products or cause downward pressure
on the prices of our products, either of which would affect our ability to
generate the revenues necessary to support our business.
 
EMPLOYEES
 
     As of December 31, 1999, we had 113 employees, 33 of whom were engaged
directly in research and development, 39 in manufacturing and service and 41 in
marketing, sales, and administrative activities. None of our employees is
covered by a collective bargaining agreement, and we consider our relationship
with our employees to be good.
 
FACILITIES
 
     We lease approximately 50,000 square feet in Mountain View, California. The
facility is leased through February 2002, and we have an option to extend the
lease for an additional three-year term. We believe that this facility will be
adequate to meet our needs through 2001. Approximately 12,000 square feet are
subleased to a third party through July 2000.
 
LEGAL PROCEEDINGS
 
     From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this prospectus, we are not
engaged in any legal proceedings that we expect to harm our business.
 
                                       45

<PAGE>   50
 

                                   MANAGEMENT
 
EXECUTIVE OFFICERS, SENIOR MANAGEMENT AND DIRECTORS
 
     The following table presents information regarding our executive officers,
senior management and directors as of March 17, 2000:
 

<TABLE>
<CAPTION>
               NAME                  AGE                       POSITION
               ----                  ---                       --------
<S>                                  <C>   <C>
EXECUTIVE OFFICERS
Lonnie M. Smith....................  55    President, Chief Executive Officer and Director
Susan K. Barnes....................  46    Vice President, Finance, Chief Financial Officer
                                           and Assistant Secretary
Frederic H. Moll, M.D..............  48    Vice President, Medical Director and Director
Robert G. Younge...................  48    Vice President and Chief Technology Officer
SENIOR MANAGEMENT
Corinne Z. Augustine...............  42    Vice President, Manufacturing
Douglas M. Bruce...................  42    Vice President, Product Marketing
David Casal, Ph.D. ................  45    Vice President, Clinical, Regulatory and Quality
                                           Affairs
Gary S. Guthart, Ph.D. ............  34    Vice President, Engineering
David M. Shaw......................  33    Chief Patent Counsel
Thierry B. Thaure..................  37    Vice President, Sales and Marketing
Alan C. Mendelson..................  51    Secretary
DIRECTORS
Scott S. Halsted(1)................  40    Director
Russell C. Hirsch, M.D.,             37    Director
  Ph.D.(2).........................
Richard J. Kramer(1)...............  57    Director
James A. Lawrence(1)...............  47    Director
Alan J. Levy, Ph.D.(2).............  62    Director
</TABLE>

 
-------------------------
(1) Member of the Audit Committee.
 
(2) Member of the Compensation Committee.
 
     Lonnie M. Smith has been our President and Chief Executive Officer since
May 1997 and has served as a member of our board of directors since December
1996. From 1977 until joining Intuitive Surgical, Mr. Smith was with Hillenbrand
Industries, Inc., a public holding company, serving as the Senior Executive Vice
President, a member of the Office of the President, and director since 1982, as
Executive Vice President of American Tourister, Inc., from 1978 to 1982, and as
a Senior Vice President of Corporate Planning from 1977 to 1978. Mr. Smith has
also held positions with The Boston Consulting Group and IBM. Mr. Smith
currently serves as a director of Biosite Diagnostics, Inc. Mr. Smith received a
B.S.E.E. from Utah State University and an M.B.A. from Harvard Business School.
 
     Susan K. Barnes has been our Vice President, Finance, Chief Financial
Officer and Assistant Secretary since May 1997. From January 1995 to September
1996, Ms. Barnes founded and served as Managing Director of the Private Equity
Group of Jefferies and Company, Inc., an investment bank. From January 1994 to
January 1995, she founded and served as Managing General Partner of Westwind
Capital Partners, a private equity fund. From June 1991 to January 1994, Ms.
Barnes served as Chief Financial Officer and Managing Director of BLUM Capital
Partners, L.P., formerly Richard C. Blum & Associates, Inc., a merchant banking
firm. From September 1985 to June 1991, she served as Vice President and Chief
Financial Officer of NeXT Computer, Inc., a computer
 
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<PAGE>   51
 
company. Ms. Barnes received a B.A. from Bryn Mawr College and an M.B.A. from
the Wharton School, University of Pennsylvania.
 
     Frederic H. Moll, M.D. is a co-founder of Intuitive Surgical and has served
as Vice President, Medical Director and as a member of our board of directors
since our inception. In 1989, Dr. Moll co-founded Origin Medsystems, Inc., a
medical device company and served as Medical Director through 1995. Origin was
acquired by Eli Lilly & Company in 1992 and is now a wholly-owned subsidiary of
Tyco Health Care. In 1984, Dr. Moll founded Endotherapeutics, Inc., a medical
device company, which was acquired by United States Surgical Corporation in
1992. Dr. Moll received a B.A. from the University of California, Berkeley, an
M.S. in Management from Stanford University's Sloan Program and an M.D. from the
University of Washington.
 
     Robert G. Younge is a co-founder of Intuitive Surgical and has served as
our Vice President and Chief Technology Officer since November 1999. From our
inception to November 1999, Mr. Younge served as our Vice President,
Engineering. Mr. Younge co-founded Acuson Corporation, a medical device company,
in 1979 and served as Vice President, Engineering and in various other
capacities until co-founding Intuitive Surgical. From 1994 to December 1995, Mr.
Younge managed the Product Engineering Group at Acuson which introduced the
Aspen System in 1996. In 1991, he founded Acuson's Transducer Division and
served as its General Manager until 1994. The Transducer Division introduced
Acuson's first flexible endoscopic transducer. Mr. Younge received a B.S.E.E.
and an M.S.E.E. from Stanford University.
 
     Corinne Z. Augustine has been our Vice President, Manufacturing since
October 1999. Prior to joining Intuitive Surgical, from 1997 to October 1999,
Ms. Augustine served as a Vice President, Manufacturing with Acuson Corporation.
From 1994 to 1997, Ms. Augustine was a Director of Manufacturing with Acuson and
from 1991 to 1994, she held the position of a Manufacturing Project Manager at
Acuson. Ms. Augustine received a B.S.I.E. from the University of Florida and an
M.B.A. from Stanford University.
 
     Douglas M. Bruce has been our Vice President, Product Marketing since
December 1997 and joined us as Director, Product Management in May 1997. Prior
to joining Intuitive Surgical, Mr. Bruce served as Vice President, Engineering
with Acuson Corporation from January 1997 to May 1997. Mr. Bruce served as
Acuson's Director of Engineering from August 1994 to December 1995 and held
Engineering Manager positions with Acuson from October 1987 to August 1994. Mr.
Bruce received a B.S. in Mechanical Engineering from the University of
California, Berkeley, and an M.S. in Mechanical Engineering from Santa Clara
University.
 
     David Casal, Ph.D. has been our Vice President of Clinical, Regulatory, and
Quality Affairs since September 1999. From 1996 until joining Intuitive
Surgical, Mr. Casal was with Metra Biosystems, Inc., a medical technology
company, serving as Vice President of Clinical, Regulatory, and Quality Affairs.
From 1989 through 1996, Mr. Casal held many positions with Adeza Biomedical,
Inc., a biotechnology company, with the last being Vice President of Clinical
and Regulatory Affairs. Mr. Casal has also held positions with Hybritech, Inc.
and Progenex, Inc., medical technology companies. Mr. Casal received his B.A in
American History, M.S. in Physiology, and Ph.D. in Cardiovascular Epidemiology,
from the University of Minnesota, and was a National Institute of Health
Post-Doctoral Research Fellow in the School of Medicine at the University of
California, San Diego.
 
     Gary S. Guthart, Ph.D. has been our Vice President, Engineering since
November 1999. He joined Intuitive Surgical in April 1996. From August 1992 to
April 1996, as Senior Research Engineer, Mr. Guthart was part of the core team
developing foundation technology for computer enhanced surgery at SRI
International. Mr. Guthart received a B.S. in Engineering from the
 
                                       47

<PAGE>   52
 
University of California, Berkeley and an M.S. and Ph.D. in Engineering Science
from the California Institute of Technology.
 
     David M. Shaw has been our Chief Patent Counsel since April 1999. From
March 1998 to April 1999, Mr. Shaw was Director of Intellectual Property at
EndoVasix, Inc., a medical device company. From 1992 to 1994, he clerked on the
United States Court of Appeals for the Federal Circuit for the Honorable R.C.
Clevenger, III, and from 1994 to 1998 was an associate with the law firm of Fish
& Richardson P.C. Mr. Shaw received a B.S. in Chemical Engineering from North
Carolina State University and a J.D. from Duke University School of Law.
 
     Thierry B. Thaure has been our Vice President, Sales and Marketing since
May 1997. From January 1993 to April 1997, Mr. Thaure served as Director of
International Sales and Marketing for Guidant Corporation's Minimally Invasive
System Group. From July 1990 to December 1992, Mr. Thaure held various positions
in Marketing and Business Development at Advanced Cardiovascular Systems, Inc.,
which at that time was a wholly-owned subsidiary of Eli Lilly Inc. He received a
B.S. in Biomedical Engineering and a B.A. in Chemistry from Duke University, and
an M.B.A. from the Kellogg Graduate School of Business at Northwestern
University.
 
     Alan C. Mendelson has been our Secretary since our inception and is a
senior partner of Cooley Godward LLP. He currently heads the firm's companies
and life sciences groups and is a member of its Management Committee. Mr.
Mendelson served as Managing Partner of Cooley Godward's Palo Alto office from
May 1990 to March 1995 and November 1996 to September 1997. He served as
Secretary and Acting General Counsel of Amgen, Inc. from April 1990 to April
1991 and as Acting General Counsel of Cadence Design Systems, Inc. from November
1995 to June 1996. Mr. Mendelson serves as the secretary of a number of private
and public companies and is a member of the board of directors of Axys
Pharmaceuticals, Inc., Isis Pharmaceuticals, Inc. and US Search.com, Inc. Mr.
Mendelson received his A.B. in Political Science from the University of
California, Berkeley and a J.D. from Harvard Law School.
 
     Scott S. Halsted has been a member of our board of directors since March
1997. Mr. Halsted joined Morgan Stanley in 1987, and has been a general partner
at Morgan Stanley Dean Witter Venture Partners since 1997. Mr. Halsted currently
serves as a director of several private healthcare companies. Mr. Halsted
received A.B. and B.E. degrees in Biomechanical Engineering from Dartmouth
College and an M.M. degree from Northwestern University.
 
     Russell C. Hirsch, M.D., Ph.D. has been a member our board of directors
since December 1995. He joined Mayfield Fund, a venture capital firm, in 1992,
and has been a managing member of several venture capital funds affiliated with
Mayfield Fund since 1995. From 1984 to 1992, Dr. Hirsch conducted research in
the laboratories of Nobel Laureate Harold Varmus, M.D., and Don Ganem, M.D., at
the University of California, San Francisco. Dr. Hirsch currently serves on the
board of directors of Valentis, Inc., a biotechnology company. Dr. Hirsch
received a B.S. in Chemistry from the University of Chicago and an M.D. and a
Ph.D. from the University of California, San Francisco.
 
     Richard J. Kramer has been a member of our board of directors since
February 2000. From 1989 to 1999, he served as the President and Chief Executive
Officer of Catholic Healthcare West, a multi-state health care provider. From
1982 to 1989, Mr. Kramer was Executive Vice President of Allina Health, an
integrated health care system. Mr. Kramer received a B.S. in Rehabilitation
Education from Pennsylvania State University, an M.S. in Rehabilitation
Counseling from Syracuse University and an M.S. in Hospital & Health Care
Administration from the University of Minnesota.
 
     James A. Lawrence has been a member of our board of directors since March
2000. He has been Executive Vice President and Chief Financial Officer of
General Mills, Inc. since 1998. Mr. Lawrence has also held positions as
Executive Vice President and Chief Financial Officer for Northwest Airlines, and
President and Chief Executive Office of Pepsi-Cola Asia, Middle East,
 
                                       48

<PAGE>   53
 
Africa. He has also chaired and co-founded LEK Partnership, a corporate strategy
and merger/acquisition consulting firm headquartered in London, England. Mr.
Lawrence currently serves as a director of TransTechnology Corporation and
Avnet, Inc. Mr. Lawrence holds a B.A. in Economics from Yale University and an
M.B.A. from Harvard Business School.
 
     Alan J. Levy, Ph.D. has been a member of our board of directors since
February 2000. He has been the President, Chief Executive Officer and member of
the board of directors of Vertis Neuroscience, Inc., a biotechnology company,
since 1999. From 1993 to 1998, Mr. Levy was the President, Chief Executive
Officer and a member of the board of directors of Heartstream, Inc., a medical
device company. From 1989 to 1993, Mr. Levy was the President, Chief Operating
Officer and a member of the board of directors of Heart Technology, Inc., a
medical device company. From 1966 to 1989, Mr. Levy held various positions at
Ethicon, a subsidiary of Johnson & Johnson Company, and was a member of the
board of directors of Ethicon from 1980 to 1989. Mr. Levy received a B.S. in
Chemistry from City College of New York, and a Ph.D. in Organic Chemistry from
Purdue University.
 
BOARD COMMITTEES
 
     Audit committee. Our audit committee currently consists of Messrs. Halsted,
Kramer and Lawrence. The audit committee reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent accountants.
 
     Compensation committee. Our compensation committee currently consists of
Dr. Hirsch and Mr. Levy. The compensation committee administers our stock option
plans, reviews and approves the compensation and benefits of all our officers
and establishes and reviews general policies relating to compensation and
benefits of our employees.
 
DIRECTOR COMPENSATION
 
     Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings. Directors may
be reimbursed for expenses in connection with attendance at board of directors
and committee meetings.
 
     In consideration for attending our board and committee meetings, in
February 2000 we granted each of Messrs. Kramer and Levy, and in March 2000 we
granted Mr. Lawrence, options to purchase 20,000 shares of our common stock at
$3.00 per share. These options vest in 48 equal monthly installments.
 
     In March 2000, we adopted the 2000 Non-Employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our non-employee directors who are not employees of Intuitive Surgical
or any affiliate of Intuitive Surgical. Any non-employee director elected after
the closing of this offering will receive an initial option to purchase 20,000
shares of common stock. Starting at the annual stockholder meeting in 2001, all
non-employee directors will receive an annual option to purchase 5,000 shares of
common stock. See "-- Employee Benefit Plans -- 2000 Non-Employee Directors'
Stock Option Plan" for a more detailed explanation of the terms of these stock
options.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Investment entities affiliated with Dr. Hirsch have purchased shares of our
preferred stock. See "Related Party Transactions" for a detailed explanation of
these transactions.
 
                                       49

<PAGE>   54
 
BOARD COMPOSITION
 
     We currently have seven directors. Upon the closing of this offering the
terms of office of the board of directors will be divided into three classes. As
a result, a portion of our board of directors will be elected each year. The
division of the three classes, the initial directors and their respective
election dates are as follows:
 
     - the class I directors will be Messrs. Halsted and Levy and their term
       will expire at the annual meeting of stockholders to be held in 2001;
 
     - the class II directors will be Drs. Hirsch and Moll and Mr. Lawrence and
       their term will expire at the annual meeting of stockholders to be held
       in 2002; and
 
     - the class III directors will be Messrs. Kramer and Smith and their term
       will expire at the annual meeting of stockholders to be held in 2003.
 
     At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following election. In addition, the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Intuitive Surgical.
 

EXECUTIVE COMPENSATION
 
     The following table sets forth summary information concerning the
compensation paid to our chief executive officer and other executive officers
for services during the year ended December 31, 1999.
 
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                                               LONG TERM
                                                                              COMPENSATION
                                                                              ------------
                                                              ANNUAL           NUMBER OF
                                                           COMPENSATION        SECURITIES
                                                         -----------------     UNDERLYING
              NAME AND PRINCIPAL POSITION                 SALARY     BONUS      OPTIONS
              ---------------------------                --------    -----    ------------
<S>                                                      <C>         <C>      <C>
Lonnie M. Smith........................................  $300,000     --             --
  President and Chief Executive Officer
Susan K. Barnes........................................  $191,643     --         20,000
  Vice President, Finance, Chief Financial Officer and
     Assistant Secretary
Frederic H. Moll, M.D. ................................  $196,643     --             --
  Vice President and Medical Director
Robert G. Younge.......................................  $194,965     --             --
  Vice President and Chief Technology Officer
</TABLE>

 
                                       50

<PAGE>   55
 
                       OPTION GRANTS IN FISCAL YEAR 1999
 
     The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1999, to each of the individuals listed on the
previous table.
 
     The exercise price of each option was equal to the fair value of our common
stock as valued by the board of directors on the date of grant. The exercise
price may be paid in cash, in shares of our common stock valued at fair value on
the exercise date or through a cashless exercise procedure involving a same-day
sale of the purchased shares.
 
     The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
 
     - multiplying the number of shares of common stock subject to a given
       option by the assumed initial public offering price of $     per share;
 
     - assuming that the aggregate stock value derived from that calculation
       compounds at the annual 5% or 10% rate shown in the table until the
       expiration of the options; and
 
     - subtracting from that result the aggregate option exercise price.
 
     The shares listed in the following table under "Number of Securities
Underlying Options Granted" are subject to vesting. Upon completion of six
months of service from the vesting start date, 12.5% of the option shares vest
and the balance vest in a series of equal monthly installments over the next 42
months of service. The option has a ten-year term, subject to earlier
termination if the optionee's service with us ceases. See "Employee Benefit
Plans" for a description of the material terms of this option.
 
     Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of 628,550 options granted to employees
of Intuitive Surgical under our stock option plans during the fiscal year ended
December 31, 1999.
 

<TABLE>
<CAPTION>
                                                                                                  POTENTIAL
                                                                                                 REALIZABLE
                                                                                                  VALUE AT
                                                                                                   ASSUMED
                                                                                                ANNUAL RATES
                                            INDIVIDUAL GRANTS                                  OF STOCK PRICE
                          -----------------------------------------------------                 APPRECIATION
                             NUMBER OF       PERCENT OF TOTAL                                    FOR OPTION
                            SECURITIES      OPTIONS GRANTED TO                                      TERM
                            UNDERLYING         EMPLOYEES IN      EXERCISE PRICE   EXPIRATION   ---------------
          NAME            OPTIONS GRANTED      FISCAL 1999         PER SHARE         DATE        5%      10%
          ----            ---------------   ------------------   --------------   ----------   ------   ------
<S>                       <C>               <C>                  <C>              <C>          <C>      <C>
Lonnie M. Smith.........          --                --                  --               --        --       --
Susan K. Barnes.........      20,000               3.2%              $3.00         08/05/09
Frederic H. Moll,
  M.D...................          --                --                  --               --        --       --
Robert G. Younge........          --                --                  --               --        --       --
</TABLE>

 
                                       51

<PAGE>   56
 
                         FISCAL YEAR-END OPTION VALUES
 
     The following table sets forth the number and value of securities
underlying unexercised options that are held by each of the individuals listed
in the Summary Compensation Table as of December 31, 1999. No shares were
acquired on the exercise of stock options by these individuals during the year
ended December 31, 1999.
 
     Amounts shown under the column "Value of Unexercised In-the-Money Options
at December 31, 1999" are based on the assumed initial public offering price of
$               , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares. Our stock option
plans allow for the early exercise of options granted to employees. All options
exercised early are subject to repurchase by us at the original exercise price,
upon the optionee's cessation of service prior to the vesting of the shares.
 

<TABLE>
<CAPTION>
                                             NUMBER OF SECURITIES
                                            UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                                                  OPTIONS AT               IN-THE-MONEY OPTIONS AT
                                              DECEMBER 31, 1999               DECEMBER 31, 1999
                                         ----------------------------    ----------------------------
                                         EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
                                         -----------    -------------    -----------    -------------
<S>                                      <C>            <C>              <C>            <C>
Lonnie M. Smith......................             --            --                --            --
Susan K. Barnes......................         20,000             0
Frederic H. Moll, M.D. ..............             --            --                --            --
Robert G. Younge.....................        300,000             0
</TABLE>

 
EMPLOYMENT ARRANGEMENTS
 
     In February 1997, we entered into an agreement with Lonnie M. Smith, our
President and Chief Executive Officer, providing that, in the case of
involuntary termination other than for cause, his salary and benefits will
continue to be paid for a period of one year from the date of termination. Cause
as defined in the agreement includes conviction for any felony, participation in
a fraud or act of dishonesty against us, willful breach of our policies, or a
material breach by Mr. Smith of his employment agreement or of his proprietary
information and inventions agreement.
 
EMPLOYEE BENEFIT PLANS
 
2000 Equity Incentive Plan
 
     We adopted the equity incentive plan in March 2000, subject to stockholder
approval. The incentive plan is an amendment and restatement of the equity
incentive plan we adopted in 1996.
 
     Share Reserve. We have reserved 10,000,000 shares for issuance under the
incentive plan. For 10 years starting with the year 2001, on the day after each
annual meeting of our stockholders, the number of shares in this reserve shared
by the incentive plan will automatically increase by the greater of:
 
     - 0.5% of the outstanding common stock on a fully-diluted basis, or
 
     - the number of shares of common stock subject to awards granted under the
       incentive plan during the previous twelve months.
 
     No more than 20 million shares may be used for incentive stock options
under the incentive plan over the 10-year period. If stock awards granted under
the incentive plan expire or otherwise terminate without being exercised, the
shares not acquired pursuant to the stock awards again become available for
issuance under the incentive plan.
 
                                       52

<PAGE>   57
 
     Effect of an Acquisition or Merger. If we dissolve or liquidate, then
outstanding stock awards will terminate immediately prior to the event. If we
sell, lease or dispose of all, or substantially all, of our assets, or are
acquired pursuant to a merger or consolidation, the surviving entity will either
assume or substitute all outstanding awards under the incentive plan. If it
declines to do so, then generally the vesting and exercisability of the stock
awards will accelerate.
 
     Options Issued. As of December 31, 1999, we had issued 2,509,278 shares
upon the exercise of options under the incentive plan, 307,096 shares of which
have been repurchased and 566,381 shares of which are subject to repurchase;
options to purchase 1,466,725 shares were outstanding; and 203,997 shares,
remained available for future grant. As of December 31, 1999, the board has
granted 160,000 restricted stock awards under the incentive plan, no shares of
which have been repurchased and 25,000 shares of which are subject to
repurchase. The incentive plan will terminate in 2010 unless the board
terminates it sooner.
 
2000 Non-Employee Directors' Stock Option Plan
 
     We adopted the non-employee directors' stock option plan in March 2000,
subject to stockholder approval.
 
     Share Reserve. We have reserved 300,000 shares of our common stock for
issuance pursuant to the non-employee directors' stock option plan. On January 1
of each year for 9 years, starting with the year 2001, the number of shares in
the reserve will automatically increase by the greater of:
 
     - 0.3% of the outstanding shares of common stock on a fully-diluted basis
       or
 
     - the number of shares subject to options granted under the plan during the
       prior 12-month period.
 
     Under the non-employee directors' stock option plan, each new non-employee
director who is subsequently elected or appointed for the first time after this
offering will automatically be granted an option to purchase 20,000 shares of
common stock. This is the non-employee director's initial grant.
 
     On each anniversary date of the offering, beginning in the year 2001, each
non-employee director who has been a non-employee director for at least six
months will be granted an option to purchase 5,000 shares of common stock. This
is the non-employee director's annual grant.
 
     Options granted under the non-employee directors' stock option plan are
granted at 100% of the fair market value of the common stock on the date of
grant. Options granted under the non-employee directors' stock option plan have
a ten-year term and vest as follows: initial grants vest monthly at a rate of
1/36 of the shares each month for 36 months after the date of the grant; annual
grants vest as to 1/12 of the shares each month for 12 months after the date of
the grant. The non-employee directors' stock option plan will terminate if and
when terminated by the board of directors.
 
     Effect of an Acquisition or Merger. If we sell, lease or dispose of all, or
substantially all of our assets, or are acquired pursuant to a merger or
acquisition then all outstanding options under the non-employee directors' stock
option plan shall be assumed by the surviving entity or the surviving entity
shall substitute similar options for such outstanding options. If the surviving
entity determines not to assume such outstanding options or substitute similar
options, then, with respect to persons whose service with an affiliate has not
terminated prior to the transaction, the vesting of the options shall accelerate
and the options terminated if not exercised prior to the transaction.
 
     Options Issued. The directors' plan will not be effective until the date of
the initial public offering of our stock. Therefore, we have not issued any
options under the directors' plan.
 
                                       53

<PAGE>   58
 
2000 Employee Stock Purchase Plan
 
     We adopted the employee stock purchase plan in March 2000, subject to
stockholder approval. The purchase plan has no set termination date. It will
terminate when all of the shares reserved under it have been issued unless the
board terminates it earlier.
 
     Share Reserve. We have reserved 1,000,000 shares of our common stock
pursuant to purchase rights to be granted to eligible employees under the
purchase plan. For 10 years, beginning in 2001, on the day after each annual
meeting of stockholders the number of shares in the reserve will automatically
be increased by the greater of:
 
     - 0.5% of our outstanding shares of common stock on a fully-diluted basis,
       or
 
     - that number of shares issued under the plan during the prior 12-month
       period.
 
     The automatic share reserve increase in the aggregate may not exceed
10,000,000 shares over the 10-year period.
 
     Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offerings
of purchase rights to eligible employees. Generally, all employees of Intuitive
Surgical and any United States affiliate may participate in the purchase plan,
excluding part-time and seasonal employees. However, no employee may participate
in the purchase plan if immediately after we grant the employee a purchase
right, the employee has voting power over 5% or more of our outstanding capital
stock. As of the date of this prospectus, no shares of common stock have been
purchased under the purchase plan.
 
     Offerings. Under the purchase plan, the board may specify offerings of up
to 27 months. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, our common stock
is purchased for accounts of participating employees at a price per share equal
to the lower of:
 
     - 85% of the fair market value of a share on the first day of the offering,
       or
 
     - 85% of the fair market value of a share on the purchase date.
 
     The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
 
     - 85% of the fair market value of a share on the day they began
       participating in the purchase plan, or
 
     - 85% of the fair market value of a share on the purchase date.
 
     Under the current offering, employees may authorize payroll deductions of
up to 15% of their base compensation, not including sales commissions or
bonuses, for the purchase of stock under the purchase plan and may end their
participation in the offering at any time up to 10 days before a purchase date.
Participation ends automatically on termination of employment with Intuitive
Surgical or its affiliate.
 
     Other Provisions. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
Intuitive Surgical or its affiliate, if any, do not permit the employee's rights
to purchase our stock to accrue at a rate that exceeds $25,000 of the fair
market value of our stock for each calendar year in which the purchase rights
are outstanding. The board also may limit the number of shares that an employee
may purchase on any purchase date.
 
                                       54

<PAGE>   59
 
     Effect of an Acquisition or Merger. If we sell, lease or dispose of all, or
substantially all, of our assets, or are acquired pursuant to a merger or
acquisition then, the board may provide that the successor corporation will
assume or substitute outstanding purchase rights. Alternatively, the board may
shorten the offering and provide that shares will be purchased for participants
immediately before the transaction.
 
401(k) Plan
 
     We maintain a 401(k) Plan for eligible employees. An employee participant
may contribute up to 15% of his or her total annual compensation to the 401(k)
Plan, up to a legal annual limit. The annual limit for calendar year 2000 is
$10,500. Each participant is fully vested in his or her deferred salary
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no contributions to the 401(k) Plan on behalf of the participants. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code, so
that contributions by employees or by Intuitive Surgical to the 401(k) Plan, and
income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by Intuitive
Surgical, if any, will be deductible when made.
 
Limitation of Liability and Indemnification
 
     Our certificate of incorporation and bylaws provide for the indemnification
of our directors from personal liability to the fullest extent not prohibited by
Delaware law. Delaware law permits us to eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in circumstances involving wrongful acts, including:
 
     - for any breach of the director's duty of loyalty to Intuitive Surgical or
       our stockholders;
 
     - for acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;
 
     - for any acts under Section 174 of the Delaware General Corporation Law;
       or
 
     - for any transaction from which the director derives an improper personal
       benefit.
 
     Delaware law does not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief including an injunction or rescission, in the
event of a breach of a director's fiduciary duty. Delaware law does not alter a
director's liability under federal securities laws. In addition, we intend to
enter into separate indemnification agreements with our directors and officers
that provide each of them indemnification protection in the event our
certificate of incorporation and bylaws are subsequently amended. We believe
that these provisions and agreements will assist us in attracting and retaining
qualified individuals to serve as directors and officers.
 
                                       55

<PAGE>   60
 

                           RELATED PARTY TRANSACTIONS
 
     The following executive officers, directors and holders of more than five
percent of our securities purchased securities in the amounts and as of the
dates shown below.
 

<TABLE>
<CAPTION>
                                                                       SHARES OF CONVERTIBLE PREFERRED STOCK
                                                     -------------------------------------------------------------------------
                                      COMMON STOCK     SERIES A    SERIES B    SERIES C    SERIES D    SERIES E     SERIES F
                                     --------------  ------------  --------   -----------  --------   -----------  -----------
<S>                                  <C>             <C>           <C>        <C>          <C>        <C>          <C>
DIRECTORS AND EXECUTIVE OFFICERS
Frederic H. Moll, M.D. ............       1,050,000       150,000      --              --       --             --           --
Lonnie M. Smith....................         700,000            --      --              --       --             --           --
Robert G. Younge...................       1,100,000       100,000      --              --       --             --           --
Russell C. Hirsch, M.D., Ph.D. ....              --            --      --              --       --          6,250        6,250
 
ENTITIES AFFILIATED WITH DIRECTORS
Mayfield Fund(1)...................         150,000     2,700,000      --         960,000  355,400        125,000      125,000
Morgan Stanley Dean Witter Venture
  Partners(2)......................              --            --      --       1,500,000       --        125,000      125,000
 
OTHER 5% STOCKHOLDERS
Sierra Ventures V, L.P. ...........              --     2,300,000      --         600,000  125,000        125,000           --
Investor (Guernsey) Limited........              --            --      --              --       --      1,250,000    1,250,000
PaTMarK Company, Inc. .............              --            --      --       1,000,000   37,500      1,250,000           --
Allan G. Lozier....................              --            --      --       1,200,000  116,000        312,500      312,500
Price per Share....................  $0.001 - $0.05         $1.00   $0.10           $5.00    $8.00          $8.00        $9.84
Date(s) of Purchase................    11/95 - 1/97  12/95 - 1/96    1/96     1/97 - 3/97    11/97    7/98 - 5/99         3/00
</TABLE>

 
------------------------
 
(1) Russell C. Hirsch, M.D., Ph.D., one of our directors, is a general partner
    of Mayfield Fund.
(2) Scott S. Halsted, one of our directors, is a general partner of Morgan
    Stanley Dean Witter Venture Partners.
 
     We have entered into the following agreements with our executive officers,
directors, and holders of more than five percent of our voting securities.
 
     Investor Rights Agreement. Intuitive Surgical and the preferred
stockholders described above have entered into an agreement pursuant to which
these and other preferred stockholders will have registration rights with
respect to their shares of common stock following this offering. Upon the
completion of this offering, all shares of our outstanding preferred stock will
be automatically converted into an equal number of shares of common stock. For
further information on these registration rights, see "Description of Capital
Stock -- Registration Rights of Stockholders."
 
     Stock Options. We have granted Messrs. Kramer, Lawrence and Levy options to
purchase common stock in connection with their services as our directors. See
"Management -- Director Compensation" for a description of these stock option
grants.
 
     Executive Employment Agreement. We have entered into an employment
agreement with Lonnie M. Smith, our President and Chief Executive Officer. See
"Management -- Employment Arrangements" for a description of this agreement.
 
     We believe that all of the transactions set forth above were made on terms
no less favorable to Intuitive Surgical than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
Intuitive Surgical and our officers, directors, principal stockholders and their
affiliates will be approved by a majority of the board of directors, including a
majority of the independent and disinterested directors, and will continue to be
on terms no less favorable to Intuitive Surgical than could be obtained from
unaffiliated third parties.
 
     Indemnification Agreements. We intend to enter into indemnification
agreements with our directors and officers for the indemnification of and
advancement of expenses to these persons to the full extent permitted by law. We
also intend to execute such agreements with our future directors and officers.
 
                                       56

<PAGE>   61
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 29, 2000, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:
 
     - each person, or group of affiliated persons, who is known by us to own
       beneficially 5% or more of our common stock;
 
     - each of the individuals listed on the "Summary Compensation Table" above;
 
     - each of our directors; and
 
     - all current directors and executive officers as a group.
 
     Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of February 29, 2000 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.
 
     Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Percentage of ownership is based on 25,816,223 shares of common
stock outstanding on February 29, 2000 and                shares of common stock
outstanding after completion of this offering. This table assumes no exercise of
the underwriters' over-allotment option. Unless otherwise indicated, the address
of each of the individuals named below is: c/o Intuitive Surgical, Inc., 1340 W.
Middlefield Road, Mountain View, CA 94043.
 

<TABLE>
<CAPTION>
                                                        SHARES SUBJECT TO      SHARES ISSUABLE
                                         SHARES OF         A RIGHT OF        PURSUANT TO OPTIONS         PERCENT OF
                                           COMMON          REPURCHASE        EXERCISABLE WITHIN      OUTSTANDING SHARES
                                           STOCK        WITHIN 60 DAYS OF        60 DAYS OF        ----------------------
                                        BENEFICIALLY      FEBRUARY 29,          FEBRUARY 29,       BEFORE THE   AFTER THE
 NAME AND ADDRESS OF BENEFICIAL OWNER     OWNED(1)           2000(2)                2000            OFFERING    OFFERING
 ------------------------------------   ------------   -------------------   -------------------   ----------   ---------
<S>                                     <C>            <C>                   <C>                   <C>          <C>
5% STOCKHOLDERS
Entities affiliated with Mayfield
  Fund(3).............................   4,415,400                --                    --            17.0%
PatMarK Company, Inc.(4)..............   3,537,500                --                    --            13.1
Sierra Ventures V, L.P.(5)............   3,275,000                --                    --            12.6
Investor (Guernsey) Limited(6)........   2,500,000                --                    --             9.2
Allan G. Lozier(7)....................   1,941,000                --                    --             7.4
Entities affiliated with Morgan
  Stanley(8)..........................   1,750,000                --                    --             6.8
DIRECTORS AND EXECUTIVE OFFICERS
Russell C. Hirsch, M.D., Ph.D.(9).....   4,427,900                --                    --            17.1
Scott S. Halsted(10)..................   1,750,000                --                    --             6.8
Frederic H. Moll, M.D. ...............   1,500,000           199,375                    --             5.8
Robert G. Younge(11)..................   1,298,000           123,750               300,000             5.0
Lonnie M. Smith(12)...................   1,000,000           314,584                    --             3.9
Susan K. Barnes.......................     225,000            54,167                25,000               *
Richard J. Kramer.....................          --                --                20,000               *             *
James A. Lawrence(13).................          --                --                20,000               *             *
Alan J. Levy, Ph.D. ..................          --                --                20,000               *             *
All directors and executive officers
  as a group (9 persons)(14)..........  10,200,900           691,876               385,000            38.8%
</TABLE>

 
                                       57

<PAGE>   62
 
-------------------------
  *  Less than 1%
 
 (1) Includes shares of common stock subject to a right of repurchase within 60
     days of February 29, 2000 and shares issuable pursuant to options
     exercisable within 60 days of February 29, 2000.
 
 (2) The unvested portion of the shares of common stock is subject to a right of
     repurchase, at the original option exercise price, in the event the holder
     ceases to provide services to Intuitive Surgical. The option exercise
     prices range from $0.001 to $0.50.
 
 (3) Represents 4,075,880 shares held by Mayfield VIII and 214,520 shares held
     by Mayfield Associates Fund II. Also includes 118,750 shares and 6,250
     shares issuable upon exercise of outstanding warrants within 60 days of
     February 29, 2000 by Mayfield VIII and Mayfield Associates Fund II,
     respectively. Dr. Hirsch, a director of Intuitive Surgical, is a managing
     member of the general partner of Mayfield VIII and a general partner of
     Mayfield Associates Fund II. Dr. Hirsch disclaims beneficial ownership of
     shares held by such entities except to the extent of his proportionate
     partnership interest therein. Mayfield Fund is located at 2800 Sand Hill
     Road, Suite 250, Menlo Park, California 94025.
 
 (4) Includes 1,250,000 shares issuable upon exercise of outstanding warrants
     within 60 days of February 29, 2000. PaTMarK is located at 700 State Route,
     46 East, Batesville, IN 47006.
 
 (5) Also includes 125,000 shares issuable upon exercise of outstanding warrants
     within 60 days of February 29, 2000. Sierra Ventures V, L.P. is located at
     3000 Sand Hill Road, Building 4, Suite 210, Menlo Park, California 94025.
 
 (6) Includes 1,250,000 shares issuable upon exercise of outstanding warrants
     within 60 days of February 29, 2000. Investor (Guernsey) Limited is located
     at PO Box 626, National Westminster House, Le Tuchot St. Peter Port,
     Guernsey Channel Islands, GY 1 4PW.
 
 (7) Includes 312,500 shares issuable upon exercise of outstanding warrants
     within 60 days of February 29, 2000. Mr. Lozier's address is c/o Lozier
     Corporation, 6226 Pershing Drive, Omaha, Nebraska 67810.
 
 (8) Represents 1,482,650 shares held by Morgan Stanley Venture Partners III,
     L.P. and 142,350 shares held by Morgan Stanley Venture Investors III, L.P.
     Also includes 114,050 shares and 10,950 shares issuable upon exercise of
     outstanding warrants within 60 days of February 29, 2000 by Morgan Stanley
     Venture Partners III, L.P. and Morgan Stanley Venture Investors III, L.P.,
     respectively. Mr. Halsted, a director of Intuitive Surgical, is a general
     partner of the general partner of such entities. Mr. Halsted disclaims
     beneficial ownership of shares held by such entities except to the extent
     of his proportionate partnership interest therein. Morgan Stanley Dean
     Witter Ventures Partners is located at 3000 Sand Hill Road, Building 4,
     Suite 210, Menlo Park, California 94025.
 
 (9) Includes (a) 3,125 shares issuable upon exercise of outstanding warrants
     within 60 days of February 29, 2000 held by Dr. Hirsch, (b) 3,125 shares
     held by the Russell C. Hirsch Trust, (c) 3,125 shares issuable upon
     exercise of outstanding warrants within 60 days of February 29, 2000 by the
     Russell C. Hirsch Trust, (d) 4,075,880 shares held by Mayfield VIII, (e)
     214,520 shares held by Mayfield Associates Fund II, and (f) 118,750 shares
     and 6,250 shares issuable upon exercise of outstanding warrants within 60
     days of February 29, 2000 by Mayfield VIII and Mayfield Associates Fund II,
     respectively. Dr. Hirsch, a director of Intuitive Surgical, is a managing
     member of the general partner of Mayfield VIII and a general partner of
     Mayfield Associates Fund II. Dr. Hirsch disclaims beneficial ownership of
     shares held by such entities except to the extent of his proportionate
     partnership interest therein.
 
(10) Represents 1,482,650 shares held by Morgan Stanley Venture Partners III,
     L.P. and 142,350 shares held by Morgan Stanley Venture Investors III, L.P.
     Also includes 114,050 shares and
 
                                       58

<PAGE>   63
 
     10,950 shares issuable upon exercise of outstanding warrants within 60 days
     of February 29, 2000 by Morgan Stanley Venture Partners III, L.P. and
     Morgan Stanley Venture Investors III, L.P., respectively. Mr. Halsted, a
     director of Intuitive Surgical, is a general partner of the general partner
     of such entities. Mr. Halsted disclaims beneficial ownership of shares held
     by such entities except to the extent of his proportionate partnership
     interest therein.
 
(11) Includes 30,000 shares held by Diane Lauren Sotos, Trustee of the Younge
     Irrevocable Trust fbo Ellen Sotos McCoy dated June 25, 1996 and 3,000
     shares held by Arthur G. Closson, Custodian fbo Eric Roy Younge, under the
     CUTMA, to age 21. Mr. Younge disclaims beneficial ownership of the shares
     held for the benefit of Ellen Sotos McCoy and Eric Roy Younge.
 
(12) Includes 200,000 shares held by McKRAM Investors, L.P. Mr. Smith, a partner
     of McKRAM, disclaims beneficial ownership of shares held by such entity
     except to the extent of his proportionate partnership interest therein.
 
(13) Mr. Lawrence was appointed to the board of directors in March 2000.
 
(14) Includes 256,250 shares issuable upon exercise of outstanding warrants
     within 60 days of February 29, 2000.
 
                                       59

<PAGE>   64
 

                          DESCRIPTION OF CAPITAL STOCK
 
     Upon the closing of this offering, our authorized capital stock will
consist of 200 million shares of common stock, $0.001 par value, and five
million shares of preferred stock, $0.001 par value.
 
COMMON STOCK
 
     As of December 31, 1999, there were 25,816,223 shares of common stock
outstanding that were held of record by approximately 196 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio. There will be                shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options, after giving effect to the sale of the
shares of common stock offered by this prospectus.
 
     The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive ratably any dividends
out of assets legally available therefor as our board of directors may from time
to time determine. Upon liquidation, dissolution or winding up of Intuitive
Surgical, holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
 
PREFERRED STOCK
 
     Our certificate of incorporation provides that our board of directors will
have the authority, without further action by the stockholders, to issue up to
five million shares of preferred stock in one or more series. The board will be
able to fix the rights, preferences, privileges and restrictions of the
preferred stock, including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, sinking fund terms and the number
of shares constituting any series or the designation of this series. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock, and the likelihood that holders of preferred stock will receive
dividend payments and payments upon liquidation may have the effect of delaying,
deferring or preventing a change in control of Intuitive Surgical, which could
depress the market price of our common stock. We have no present plan to issue
any shares of preferred stock.
 
WARRANTS
 
     As of December 31, 1999, one warrant to purchase 11,000 shares of common
stock was outstanding at an exercise price of $5.00 per share. This warrant
expires on April 15, 2003.
 
     As of December 31, 1999, 43 warrants to purchase up to 5,096,875 shares of
Series F preferred stock at an exercise price of $9.50 per share were
outstanding. The exercise price of the warrants increases incrementally by
$0.1667 on the last day of each month up to a maximum of $10.00 per share.
Shares of Series F preferred stock are convertible into shares of common stock
at the rate of one share of common stock for each share of Series F preferred
stock owned. In March 2000, warrants to purchase 3,588,400 shares of Series F
preferred stock were exercised at a price per share of $9.84.
 
                                       60

<PAGE>   65
 
REGISTRATION RIGHTS OF STOCKHOLDERS
 
     Upon completion of this offering, the holders of 22,758,609 shares of
common stock, or their transferees, will be entitled to rights to register these
shares under the Securities Act of 1933. If we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders, the holders of these shares will be entitled
to notice of the registration and will be entitled to include, at our expense,
their shares of common stock. In addition, the holders of these shares may
require us, at our expense and on not more than two occasions at any time
beginning approximately six months from the date of the closing of this
offering, to file a registration statement under the Securities Act with respect
to their shares of common stock, and we will be required to use our best efforts
to effect the registration. Further, the holders may require us at our expense
to register their shares on Form S-3 when this form becomes available. These
rights shall terminate on the earlier of five years after the effective date of
this offering, or when a holder is able to sell all its shares pursuant to Rule
144 under the Securities Act in any 90-day period.
 
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
 
     We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
 
     - prior to the date, the board of directors of the corporation approved
       either the business combination or the transaction that resulted in the
       stockholder becoming an interested stockholder;
 
     - upon consummation of the transaction that resulted in the stockholder's
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of the voting stock of the corporation outstanding at the time
       the transaction commenced, excluding those shares owned by persons who
       are directors and also officers, and employee stock plans in which
       employee participants do not have the right to determine confidentially
       whether shares held subject to the plan will be tendered in a tender or
       exchange offer; or
 
     - on or subsequent to the date, the business combination is approved by the
       board of directors and authorized at an annual or special meeting of
       stockholders, and not by written consent, by the affirmative vote of at
       least two-thirds of the outstanding voting stock that is not owned by the
       interested stockholder.
 
     Section 203 defines "business combination" to include:
 
     - any merger or consolidation involving the corporation and the interested
       stockholder;
 
     - any sale, transfer, pledge or other disposition involving the interested
       stockholder of 10% or more of the assets of the corporation;
 
     - subject to exceptions, any transaction that results in the issuance or
       transfer by the corporation of any stock of the corporation to the
       interested stockholder; or
 
     - the receipt by the interested stockholder of the benefit of any loans,
       advances, guarantees, pledges or other financial benefits provided by or
       through the corporation.
 
     In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
 
     Our bylaws provide that candidates for director may be nominated only by
the board of directors or by a stockholder who gives written notice to us no
later than 90 days prior nor earlier than
 
                                       61

<PAGE>   66
 
120 days prior to the first anniversary of the last annual meeting of
stockholders. The board may consist of one or more members to be determined from
time to time by the board. The board currently consists of seven members divided
into three different classes. As a result, only one class of directors will be
elected at each annual meeting of stockholders of Intuitive Surgical, with the
other classes continuing for the remainder of their respective terms. Between
stockholder meetings, the board may appoint new directors to fill vacancies or
newly created directorships.
 
     Our certificate of incorporation requires that upon completion of the
offering, any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Our certificate of incorporation also
provides that the authorized number of directors may be changed only by
resolution of the board of directors. Delaware law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control or our management, which could depress the market price of our common
stock.
 
SECTION 2115 OF THE CALIFORNIA CORPORATIONS CODE
 
     We are currently subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights, election
and removal of directors and distributions to shareholders will apply to that
company if the company meets the requirements of Section 2115. We will not be
subject to Section 2115 if:
 
     - we are qualified for trading as a national market security on The Nasdaq
       National Market, and we have at least 800 stockholders of record as of
       the record date of our most recent annual meeting, or
 
     - during any income year less than 50% of our outstanding voting securities
       are held of record by persons having addresses in California.
 
     Our certificate of incorporation includes a provision requiring cumulative
voting for directors whenever Section 2115 of the California Corporations Code
applies to us. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election of
one or more directors.
 
TRANSFER AGENT
 
     The transfer agent and registrar for our common stock is American
Securities Transfer & Trust. Its phone number is (800) 962-4284.
 
NATIONAL MARKET LISTING
 
     We have applied to list our common stock on the Nasdaq Stock Market's
National Market under the symbol "ISRG."
 
                                       62

<PAGE>   67
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
 
     Upon completion of this offering, we will have outstanding an aggregate of
               shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 25,816,223 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
 

<TABLE>
<CAPTION>
                                          ELIGIBILITY OF RESTRICTED
                                               SHARES FOR SALE
    DAYS AFTER THE EFFECTIVE DATE              IN PUBLIC MARKET                   COMMENT
    -----------------------------      --------------------------------  -------------------------
<S>                                    <C>                               <C>
On Effectiveness.....................                                    Shares not locked-up and
                                                                         saleable under Rule
                                                                         144(k)
180 days.............................                                    Lock-up released; shares
                                                                         saleable under Rules 144,
                                                                         144(k) and 701
At various times after 180 days......                                    Shares saleable under
                                                                         Rules 144, 144(k) and 701
</TABLE>

 
     Additionally, of the                shares issuable upon exercise of
options to purchase our common stock outstanding as of              2000,
approximately              shares will be vested and eligible for sale 180 days
after the date of this prospectus.
 
     Lock-Up Agreements. All of our officers, directors, stockholders and option
holders have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, for a period of 180 days after the
date the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of Lehman Brothers Inc.
 
     Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated, who
his beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:
 
     - 1% of the number of shares of our common stock then outstanding which
       will equal approximately                shares immediately after this
       offering; or
 
     - the average weekly trading volume of our common stock on the Nasdaq
       National Market during the four calendar weeks preceding the filing of a
       notice on Form 144 with respect to the sale.
 
                                       63

<PAGE>   68
 
     Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Intuitive Surgical.
 
     Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. No shares will
qualify as "144(k) shares" within 180 days after the date the registration
statement, of which this prospectus is a part, is declared effective.
 
     Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.
 
     Registration Rights. Upon completion of this offering, the holders of
22,758,609 shares of our common stock, or their transferees, will be entitled to
rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in the
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness of
this registration.
 
     Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 2000 Equity Incentive Plan, 2000
Non-Employee Directors' Stock Option Plan, and 2000 Employee Stock Purchase
Plan. The registration statement is expected to be filed and become effective as
soon as practicable after the closing of this offering. Accordingly, shares
registered under the registration statements will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
beginning 180 days after the effective date of the registration statement of
which this prospectus is a part.
 
                                       64

<PAGE>   69
 

                                  UNDERWRITING
 
     Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below, for whom Lehman Brothers Inc., Bear, Stearns & Co. Inc.,
FleetBoston Robertson Stephens Inc. and Warburg Dillon Read LLC are acting as
representatives, has agreed to purchase from us the number of shares of common
stock shown opposite its name below:
 

<TABLE>
<CAPTION>
                                                              NUMBER OF
                        UNDERWRITERS                           SHARES
                        ------------                          ---------
<S>                                                           <C>
Lehman Brothers Inc. .......................................
Bear, Stearns & Co. Inc. ...................................
FleetBoston Robertson Stephens Inc. ........................
Warburg Dillon Read LLC.....................................
                                                              --------
  Total.....................................................
                                                              ========
</TABLE>

 
     The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock that the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement that:
 
     - the representations and warranties made by us to the underwriters are
       true;
 
     - there is no material change in the financial markets; and
 
     - we deliver to the underwriters customary closing documents.
 
     The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
shown on the cover page of this prospectus. The representatives have also
advised us that the underwriters propose to offer the shares of common stock to
dealers, who may include the underwriters, at the public offering price less a
selling concession not in excess of $     per share. The underwriters may allow,
and the dealers may reallow, a concession not in excess of $     per share to
brokers and dealers. After completion of the offering, the underwriters may
change the offering price and other selling terms.
 
     We have granted the underwriters an option to purchase up to    additional
shares of common stock, exercisable solely to cover over-allotments, if any, at
the public offering price less the underwriting discount shown on the cover page
of this prospectus. The underwriters may exercise this option at any time until
30 days after the date of the underwriting agreement. If this option is
exercised, each underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of additional shares
of common stock proportionate to the underwriter's initial commitment as
indicated in the table above and we will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.
 
     We have agreed that, without the prior consent of Lehman Brothers Inc., we
will not, directly or indirectly, offer, sell or otherwise dispose of any shares
of common stock or any securities that may be converted into or exchanged for
any shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers, directors and substantially all of
our stockholders have agreed under lock-up agreements that, without the prior
written consent of Lehman Brothers Inc., they will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of common stock or any securities
that may be converted into or exchanged for any shares of common stock for the
period ending 180 days from the date of this prospectus. See "Shares Eligible
for Future Sale."
 
                                       65

<PAGE>   70
 
     Before this offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
 
     - our historical performance and capital structure;
 
     - estimates of our business potential and earning prospects;
 
     - an overall assessment of our management; and
 
     - the consideration of the above factors in relation to market valuations
       of companies in related businesses.
 
     We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "ISRG."
 
     We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement. We
have also agreed to contribute to payments that the underwriters may be required
to make for these liabilities.
 
     Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
 
     The underwriters may create a short position in the common stock in
connection with the offering. This means that they may sell more shares than are
shown on the cover page of this prospectus. If the underwriters create a short
position, then the representatives may reduce that short position by purchasing
common stock in the open market. The representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option. The
underwriters have informed us that they do not intend to confirm sales to
discretionary accounts that exceed 5% of the total number of shares of common
stock offered by them.
 
     The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offering.
 
     In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
 
                                       66

<PAGE>   71
 

                                 LEGAL MATTERS
 
     The validity of the common stock offered by this prospectus will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, partners and associates of Cooley Godward LLP own an aggregate of
approximately 43,000 shares of our common stock through an investment
partnership. The underwriters have been represented by Gibson, Dunn & Crutcher
LLP, Los Angeles.
 

                                    EXPERTS
 
     Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1998 and 1999, and for each of the three
years ended December 31, 1999, as set forth in their report. We have included
our financial statements in this prospectus and elsewhere in this registration
statement in reliance on Ernst & Young LLP's report, given based on their
authority as experts in accounting and auditing.
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
     We have filed with the Securities and Exchange Commission a registration
statement, which term shall include any amendment to the registration statement,
on Form S-1 under the Securities Act of 1933 with respect to the shares of
common stock offered by our company. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set forth
in the Registration Statement, some items of which are contained in exhibits to
the registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Intuitive Surgical and the
common stock offered, reference is made to the registration statement, including
the exhibits, and the financial statements and notes filed as a part of the
registration statement. A copy of the registration statement, including the
exhibits and the financial statements and notes filed as a part of it, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from the Securities and Exchange
Commission upon the payment of fees prescribed by it. The Securities and
Exchange Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
companies that file electronically with it.
 
                                       67

<PAGE>   72
 
                            INTUITIVE SURGICAL, INC.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statement of Stockholders' Equity..............  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

 
                                       F-1

<PAGE>   73
 

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Intuitive Surgical, Inc.
 
     We have audited the accompanying consolidated balance sheets of Intuitive
Surgical, Inc. as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
 
     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Intuitive
Surgical, Inc. as of December 31, 1998 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
 
Palo Alto, California                     ERNST & YOUNG LLP
March 8, 2000

 
                                       F-2

<PAGE>   74
 
                            INTUITIVE SURGICAL, INC.
 
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                              PRO FORMA
                                                      DECEMBER 31,          STOCKHOLDERS'
                                                  --------------------        EQUITY AT
                                                    1998        1999      DECEMBER 31, 1999
                                                  --------    --------    -----------------
                                                                             (UNAUDITED)
<S>                                               <C>         <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.....................  $ 10,169    $  4,106
  Short-term investments........................    13,051      22,154
  Accounts receivable...........................        --       2,044
  Inventories...................................     1,259       2,861
  Prepaid expenses..............................       471         581
                                                  --------    --------
     Total current assets.......................    24,950      31,746
Property and equipment, net.....................     3,217       2,709
                                                  --------    --------
                                                  $ 28,167    $ 34,455
                                                  ========    ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..............................  $  2,256    $  2,722
  Accrued compensation and employee benefits....       562       1,325
  Warranty provision............................        --         812
  Accrued liabilities...........................       671       1,116
  Deferred revenue..............................       765       2,130
  Current portion of notes payable..............       879       1,618
                                                  --------    --------
     Total current liabilities..................     5,133       9,723
 
Notes payable...................................     2,438       2,521

Commitments
Stockholders' equity:
  Preferred stock, 30,000,000 shares authorized,
     $0.001 par value, issuable in series:
     26,037,500 designated as convertible
     preferred stock, 16,656,000 and 19,134,375
     shares issued and outstanding at December
     31, 1998 and 1999, respectively (aggregate
     liquidation preference of $93,265 at
     December 31, 1999); 5,000,000 shares
     authorized, none issued and outstanding pro
     forma......................................        17          19        $     --
  Common stock, 45,000,000 shares authorized,
     $0.001 par value, 6,773,494 and 6,681,848
     shares issued and outstanding at December
     31, 1998 and 1999; 200,000,000 shares
     authorized, 25,816,223 issued and
     outstanding pro forma......................         7           7              26
  Additional paid-in capital....................    78,386      98,508          98,508
  Deferred compensation.........................    (1,128)       (943)           (943)
  Accumulated deficit...........................   (56,732)    (75,147)        (75,147)
  Accumulated other comprehensive income........        46        (233)           (233)
                                                  --------    --------        --------
     Total stockholders' equity.................    20,596      22,211        $ 22,211
                                                  --------    --------        ========
                                                  $ 28,167    $ 34,455
                                                  ========    ========
</TABLE>

 
See accompanying notes.
 
                                       F-3

<PAGE>   75
 
                            INTUITIVE SURGICAL, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                          ----------------------------------
                                                            1997        1998         1999
                                                          ---------   ---------   ----------
<S>                                                       <C>         <C>         <C>
Sales...................................................  $      --   $      --   $   10,192
Cost of sales...........................................         --          --        9,273
                                                          ---------   ---------   ----------
  Gross margin..........................................         --          --          919
Operating costs and expenses:
  Research and development..............................     20,282      23,208       11,130
  Selling, general and administrative...................      4,434       7,565        9,338
                                                          ---------   ---------   ----------
     Total operating costs and expenses.................     24,716      30,773       20,468
                                                          ---------   ---------   ----------
Loss from operations....................................    (24,716)    (30,773)     (19,549)
Interest income.........................................      1,244       1,545        1,540
Interest expense........................................       (130)       (215)        (406)
                                                          ---------   ---------   ----------
Net loss................................................  $ (23,602)  $ (29,443)  $  (18,415)
                                                          =========   =========   ==========
Basic and diluted net loss per common share.............  $  (11.24)  $   (8.14)  $    (3.81)
                                                          =========   =========   ==========
Shares used in computing basic and diluted net loss per
  common share..........................................  2,099,605   3,618,867    4,837,465
                                                          =========   =========   ==========
Pro forma basic and diluted net loss per common share
  (unaudited)...........................................                          $    (0.79)
                                                                                  ==========
Shares used in computing pro forma basic and diluted net
  loss per common share (unaudited).....................                          23,330,892
                                                                                  ==========
</TABLE>

 
See accompanying notes.
 
                                       F-4

<PAGE>   76
 
                            INTUITIVE SURGICAL, INC.
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
 
                                        PREFERRED STOCK        COMMON STOCK      ADDITIONAL
                                      -------------------   ------------------    PAID-IN       DEFERRED     ACCUMULATED
                                        SHARES     AMOUNT    SHARES     AMOUNT    CAPITAL     COMPENSATION     DEFICIT
                                      ----------   ------   ---------   ------   ----------   ------------   ------------
<S>                                   <C>          <C>      <C>         <C>      <C>          <C>            <C>
Balances at December 31, 1996.......   5,912,500    $ 6     3,833,000     $4      $ 5,447       $    --        $ (3,687)
Issuance of Series C convertible
  preferred stock, net of issuance
  costs of $51......................   6,000,000      6            --     --       29,943            --              --
Issuance of Series D convertible
  preferred stock, net of issuance
  costs of $75......................   2,125,000      2            --     --       16,923            --              --
Issuance of common stock............          --     --     2,874,853      3          864            --              --
Repurchase of common stock..........          --     --      (113,333)    --           (6)           --              --
Deferred compensation...............          --     --            --     --        3,259        (3,259)             --
Amortization of deferred
  compensation......................          --     --            --     --           --         1,428              --
Net loss............................          --     --            --     --           --            --         (23,602)
                                      ----------    ---     ---------     --      -------       -------        --------
Balances at December 31, 1997.......  14,037,500     14     6,594,520      7       56,430        (1,831)        (27,289)
Issuance of Series E convertible
  preferred stock, net of issuance
  costs of $13......................   2,618,500      3            --     --       20,932            --              --
Issuance of common stock............          --     --       255,060     --          189            --              --
Repurchase of common stock..........          --     --       (76,086)    --          (30)           --              --
Deferred compensation...............          --     --            --     --          865          (865)             --
Amortization of deferred
  compensation......................          --     --            --     --           --         1,568              --
Comprehensive loss:
  Other comprehensive income
    (loss) -- change in unrealized
    gain (loss) on
    available-for-sale securities...          --     --            --     --           --            --              --
  Net loss..........................          --     --            --     --           --            --         (29,443)
Comprehensive loss..................          --     --            --     --           --            --              --
                                      ----------    ---     ---------     --      -------       -------        --------
Balances at December 31, 1998.......  16,656,000     17     6,773,494      7       78,386        (1,128)        (56,732)
Issuance of Series E convertible
  preferred stock, net of issuance
  costs of $544.....................   2,478,375      2            --     --       19,281            --              --
Issuance of common stock............          --     --        79,365     --          265            --              --
Repurchase of common stock..........          --     --      (171,011)    --          (43)           --              --
Deferred compensation...............          --     --            --     --          619          (619)             --
Amortization of deferred
  compensation......................          --     --            --     --           --           804              --
Comprehensive loss:
  Other comprehensive income
    (loss) -- change in unrealized
    gain (loss) on
    available-for-sale securities...          --     --            --     --           --            --              --
  Net loss..........................          --     --            --     --           --            --         (18,415)
Comprehensive loss..................          --     --            --     --           --            --              --
                                      ----------    ---     ---------     --      -------       -------        --------
Balances at December 31, 1999.......  19,134,375    $19     6,681,848     $7      $98,508       $  (943)       $(75,147)
                                      ==========    ===     =========     ==      =======       =======        ========
 
<CAPTION>
                                       ACCUMULATED
                                          OTHER           TOTAL
                                      COMPREHENSIVE   STOCKHOLDERS'
                                         INCOME          EQUITY
                                      -------------   -------------
<S>                                   <C>             <C>
Balances at December 31, 1996.......      $  --         $  1,770
Issuance of Series C convertible
  preferred stock, net of issuance
  costs of $51......................         --           29,949
Issuance of Series D convertible
  preferred stock, net of issuance
  costs of $75......................         --           16,925
Issuance of common stock............         --              867
Repurchase of common stock..........         --               (6)
Deferred compensation...............         --               --
Amortization of deferred
  compensation......................         --            1,428
Net loss............................         --          (23,602)
                                          -----         --------
Balances at December 31, 1997.......         --           27,331
Issuance of Series E convertible
  preferred stock, net of issuance
  costs of $13......................         --           20,935
Issuance of common stock............         --              189
Repurchase of common stock..........         --              (30)
Deferred compensation...............         --               --
Amortization of deferred
  compensation......................         --            1,568
Comprehensive loss:
  Other comprehensive income
    (loss) -- change in unrealized
    gain (loss) on
    available-for-sale securities...         46               46
  Net loss..........................         --          (29,443)
                                                        --------
Comprehensive loss..................         --          (29,397)
                                          -----         --------
Balances at December 31, 1998.......         46           20,596
Issuance of Series E convertible
  preferred stock, net of issuance
  costs of $544.....................         --           19,283
Issuance of common stock............         --              265
Repurchase of common stock..........         --              (43)
Deferred compensation...............         --               --
Amortization of deferred
  compensation......................         --              804
Comprehensive loss:
  Other comprehensive income
    (loss) -- change in unrealized
    gain (loss) on
    available-for-sale securities...       (279)            (279)
  Net loss..........................         --          (18,415)
                                                        --------
Comprehensive loss..................         --          (18,694)
                                          -----         --------
Balances at December 31, 1999.......      $(233)        $ 22,211
                                          =====         ========
</TABLE>

 
See accompanying notes.
 
                                       F-5

<PAGE>   77
 
                            INTUITIVE SURGICAL, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1997        1998        1999
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
OPERATING ACTIVITIES
Net loss....................................................  $(23,602)   $(29,443)   $(18,415)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation..............................................       706       1,268       1,439
  Amortization of deferred compensation.....................     1,428       1,568         804
  Issuance of common stock for technology...................        --          --         150
Changes in operating assets and liabilities:
  Accounts receivable.......................................        --          --      (2,044)
  Prepaid expenses..........................................      (126)       (275)       (110)
  Inventories...............................................        --      (1,259)     (1,602)
  Accounts payable..........................................     1,339         445         466
  Accrued compensation and employee benefits................       235         327         763
  Warranty provision........................................        --          --         812
  Accrued liabilities.......................................     5,095      (4,471)        445
  Deferred revenue..........................................        --         765       1,365
                                                              --------    --------    --------
Net cash used in operating activities.......................   (14,925)    (31,075)    (15,927)
 
INVESTING ACTIVITIES
Capital expenditures........................................    (2,785)     (1,681)       (931)
Purchase of investments.....................................   (26,254)    (45,811)    (38,292)
Proceeds from sales and maturities of investments...........    10,614      48,446      28,910
                                                              --------    --------    --------
Net cash provided by (used in) investing activities.........   (18,425)        954     (10,313)
 
FINANCING ACTIVITIES
Net proceeds from issuance of convertible preferred stock...    46,874      20,935      19,283
Proceeds from issuance of common stock......................       861         189         115
Repurchase of common stock..................................        --         (30)        (43)
Proceeds from notes payable.................................     1,359       2,644       2,000
Repayment of notes payable..................................      (204)       (482)     (1,178)
                                                              --------    --------    --------
Net cash provided by financing activities...................    48,890      23,256      20,177
                                                              --------    --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........    15,540      (6,865)     (6,063)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............     1,494      17,034      10,169
                                                              --------    --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................  $ 17,034    $ 10,169    $  4,106
                                                              ========    ========    ========
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid.............................................  $    130    $    190    $    397
                                                              ========    ========    ========
</TABLE>

 
See accompanying notes.
 
                                       F-6

<PAGE>   78
 
                            INTUITIVE SURGICAL, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Operations
 
     Intuitive Surgical, Inc., formerly Intuitive Surgical Devices, Inc. (the
"Company") was incorporated in Delaware on November 9, 1995 and is engaged in
the development, manufacture and marketing of products designed to provide the
flexibility of open surgery while operating through ports. To date, the Company
has been engaged primarily in researching, developing, testing, commercializing
and pursuing regulatory clearances for its products. In 1999, the Company began
to manufacture, market and sell its products in Europe and the United States.
The Company expects to expend substantial additional funds and continue to incur
significant operating losses for the foreseeable future as it continues to fund
clinical trials in support of regulatory approvals, expands research and
development activities, establishes commercial-scale manufacturing capabilities
and expands sales and marketing activities.
 
Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
 
Cash and Cash Equivalents
 
     The Company considers all highly liquid investments with an original
maturity from date of purchase of three months or less to be cash equivalents
for the purpose of balance sheet and statement of cash flows presentation. The
carrying value of cash and cash equivalents approximates market value at
December 31, 1998 and 1999.
 
Short-Term Investments
 
     All short-term investments are classified as available-for-sale and
therefore carried at fair value. The Company views its available-for-sale
portfolio as available for use in its current operations. Accordingly, the
Company has classified all investments as short-term, even though the stated
maturity date may be one year or more beyond the current balance sheet date.
Available-for-sale securities are stated at fair value based upon quoted market
prices of the securities. Unrealized gains and losses on such securities, when
material, are reported as a separate component of stockholders' equity. Realized
gains and losses, net, on available-for-sale securities are included in interest
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest income.
 
Concentrations of Risk
 
     Financial instruments which subject the Company to potential credit risk
consist of its cash equivalents, short-term investments and accounts receivable.
The Company invests with high credit quality financial institutions. The Company
believes the financial risks associated with these financial instruments are
minimal. For the year ended December 31, 1999, two customers each accounted for
16% of total sales. The Company extends reasonably short collection terms but
does not require
 
                                       F-7

<PAGE>   79
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collateral. The Company provides reserves for potential credit losses but has
not experienced significant losses to date.
 
     The Company's da Vinci(TM) Surgical System and related instruments and
accessories have accounted for all of the Company's sales for the year ended
December 31, 1999. The Company currently purchases key parts and components used
to manufacture its products from limited sources of supply.
 
Inventories
 
     Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value.
 
Property and Equipment
 
     Property and equipment are stated at cost, net of accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the assets, generally three to five years.
 
Warranty Provision
 
     The Company's standard policy is to warrant all shipped systems against
defects in design, materials and workmanship by replacing failed parts during
the first year of ownership. The warranty provision is reduced by the cost of
the replacement parts and labor over the warranty period. Estimated expenses for
warranty obligations are accrued as revenue is recognized and are included in
cost of sales.
 
Research and Development
 
     Research and development costs, which include clinical and regulatory
costs, are expensed to operations as incurred. In 1997, the Company expensed
$6.0 million in conjunction with technology obtained from IBM. This arrangement
with IBM specifically limits the Company's application of the technology to
products used in surgery. Since none of the Company's products had received
regulatory approval, and the Company had no alternate future use for the
technology, this amount was expensed when incurred.
 
Use of Estimates
 
     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
these estimates.
 
                                       F-8

<PAGE>   80
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
 
     The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
In accordance with the provisions of SFAS No. 123, the Company applies APB
Opinion 25, "Accounting for Stock Issued to Employees" and related
interpretations ("APB 25") in accounting for its stock option grants to
employees and directors with an exercise price equal to or in excess of the fair
value of the shares at the date of grant. The Company accounts for stock awards
granted to non-employees in accordance with SFAS No. 123 and related
interpretations. (See Note 9)
 
Revenue Recognition
 
     The Company recognizes system revenue upon installation for direct sales
and upon shipment for sales to our distributors. If substantial contractual
obligations exist after system installation, revenue is recognized after such
obligations are fulfilled. The Company recognizes revenue for instruments and
accessories upon shipment. Amounts billed in excess of revenue recognized are
included as deferred revenue in the accompanying consolidated balance sheet.
 
Segment Disclosures
 
     The company operates in one segment, the development and marketing of
products designed to provide the flexibility of open surgery while operating
through ports. For the year ended December 31, 1999, sales to Europe and the
U.S. accounted for 75% and 25% of total sales, respectively. Sales in the U.S.
included sales to the Company's Japanese Distributor's U.S. subsidiary, which
represented 16% of total sales.
 
Recent Accounting Pronouncements
 
     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")
which, as amended, is required to be adopted in years beginning after June 15,
2000. Because the Company does not use derivatives, management does not
anticipate that the adoption of SFAS 133 will have a significant effect on the
results of operations, financial position or cash flows of the Company.
 
     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes some areas of the Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company believes that its current revenue recognition principles comply with
SAB 101.
 
Unaudited Pro Forma Stockholders' Equity
 
     If the initial public offering contemplated by the Company is consummated,
all of the preferred stock outstanding will automatically be converted into
common stock. Unaudited pro forma stockholders' equity at December 31, 1999, as
adjusted for the assumed conversion of preferred stock outstanding at December
31, 1999, is set forth on the balance sheet.
 
                                       F-9

<PAGE>   81
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 2. NET LOSS PER SHARE
 
     Basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the period
less shares subject to repurchase. Pro forma basic and diluted net loss per
share, as presented in the statements of operations, have been computed as
described above and also give effect to the conversion of the convertible
preferred stock (using the if-converted method) from the original date of
issuance. To date, the Company has not had any issuances of shares for nominal
consideration as that term is used in the Securities and Exchange Commission's
Staff Accounting Bulletin No. 98, "Earnings Per Share."
 
     The following table presents the calculation of basic and diluted net loss
per share and pro forma basic and diluted net loss per share (in thousands,
except share and per share amounts):
 

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                 -----------------------------------------
                                                    1997           1998           1999
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
Numerator used for basic and diluted net loss
  per common share.............................  $   (23,602)   $   (29,443)   $   (18,415)
                                                 ===========    ===========    ===========
Denominator used for basic and diluted net loss
  per common share:
  Weighted-average shares outstanding..........    5,173,024      6,800,736      6,729,580
  Weighted-average shares subject to
     repurchase................................   (3,073,419)    (3,181,869)    (1,892,115)
                                                 -----------    -----------    -----------
                                                   2,099,605      3,618,867      4,837,465
                                                 ===========    ===========    ===========
Basic and diluted net loss per common share....  $    (11.24)   $     (8.14)   $     (3.81)
                                                 ===========    ===========    ===========
Shares used in computing pro forma basic and
  diluted net loss per common share
  (unaudited):
  Shares used above............................                                  4,837,465
  Pro forma adjustment to reflect weighted
     effect
     of the assumed conversion of preferred
     stock (unaudited).........................                                 18,493,427
                                                                               -----------
                                                                                23,330,892
                                                                               ===========
Pro forma basic and diluted net loss per common
  share (unaudited)............................                                $     (0.79)
                                                                               ===========
Potentially dilutive securities excluded from
  diluted net loss per share computation
  because they are anti-dilutive...............   18,561,334     20,263,030     26,940,981
                                                 ===========    ===========    ===========
</TABLE>

 
                                      F-10

<PAGE>   82
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
3. AVAILABLE-FOR-SALE SECURITIES
 
     The following summarizes available-for-sale securities included in cash and
cash equivalents and short-term investments as of the respective dates (in
thousands):
 

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1999
                                                       --------------------------------------
                                                       AMORTIZED      UNREALIZED       FAIR
                                                         COST       HOLDING LOSSES     VALUE
                                                       ---------    --------------    -------
<S>                                                    <C>          <C>               <C>
Time deposits........................................   $    67         $  --         $    67
U.S. corporate debt..................................    14,687           (92)         14,595
Government debt......................................     3,000          (141)          2,859
Other debt securities................................     4,700            --           4,700
                                                        -------         -----         -------
                                                        $22,454         $(233)        $22,221
                                                        =======         =====         =======
Reported as:
  Cash equivalents...................................   $    67         $  --         $    67
  Short-term investments.............................    22,387          (233)         22,154
                                                        -------         -----         -------
                                                        $22,454         $(233)        $22,221
                                                        =======         =====         =======
</TABLE>

 

<TABLE>
<CAPTION>
                                                                  DECEMBER 31, 1998
                                                        -------------------------------------
                                                        AMORTIZED     UNREALIZED       FAIR
                                                          COST       HOLDING GAINS     VALUE
                                                        ---------    -------------    -------
<S>                                                     <C>          <C>              <C>
Time deposits.........................................   $    50          $--         $    50
U.S. corporate debt...................................    11,990           45          12,035
Government debt.......................................     6,600            1           6,601
Other debt securities.................................     1,285           --           1,285
                                                         -------          ---         -------
                                                         $19,925          $46         $19,971
                                                         =======          ===         =======
Reported as:
  Cash equivalents....................................   $ 6,920          $--         $ 6,920
  Short-term investments..............................    13,005           46          13,051
                                                         -------          ---         -------
                                                         $19,925          $46         $19,971
                                                         =======          ===         =======
</TABLE>

 
     As of December 31, 1999, the average duration of securities in the
portfolio was less than one year.
 
     Proceeds from the sale of available-for-sale securities were approximately
$10.6 million, $48.4 million, and $28.9 million for the years ended December 31,
1997, 1998 and 1999. Realized gross gains and losses from the sale of these
securities were not significant.
 
                                      F-11

<PAGE>   83
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 4. INVENTORIES
 
     Inventories consist of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                                ----------------
                                                 1998      1999
                                                ------    ------
<S>                                             <C>       <C>
Raw materials.................................  $  276    $1,147
Work-in-process...............................     158       619
Finished goods................................     825     1,095
                                                ------    ------
                                                $1,259    $2,861
                                                ======    ======
</TABLE>

 
 5. PROPERTY AND EQUIPMENT
 
     Property and equipment consist of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Computer equipment..........................................  $ 1,697    $ 1,833
Laboratory/manufacturing equipment..........................    1,134      1,426
Office furniture/equipment..................................      704        816
Leasehold improvements......................................      962      1,220
Software....................................................      867      1,000
                                                              -------    -------
                                                                5,364      6,295
Less accumulated depreciation...............................   (2,147)    (3,586)
                                                              -------    -------
                                                              $ 3,217    $ 2,709
                                                              =======    =======
</TABLE>

 
     At December 31, 1999, the Company has granted to third parties interests in
specific property and equipment as part of equipment financing arrangements.
(See Note 8.)
 
 6. EMPLOYEE BENEFIT PLAN
 
     Effective May 1, 1996, the Company established a defined contribution
retirement plan (the "Plan") with 401(k) plan features. All U.S. employees who
are at least 21 years of age are eligible to participate. Contributions of up to
15% of compensation may be made by employees to the Plan through salary
withholdings. Employer contributions are made solely at the Company's
discretion. No employer contributions were made to the Plan for the years ended
December 31, 1997, 1998 and 1999.
 
 7. COMMITMENTS
 
     The Company leases office space in Mountain View, California. This facility
is leased through February 2002 and is accounted for as an operating lease. This
lease includes an option to extend the lease for an additional three-year term.
Rent expense was approximately $586,000, $825,000 and $882,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
 
                                      F-12

<PAGE>   84
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 7. COMMITMENTS (CONTINUED)
     Future minimum rental commitments under the operating leases as of December
31, 1999 are as follows (in thousands):
 

<TABLE>
<S>                                                       <C>
2000....................................................  $  855
2001....................................................     855
2002....................................................      65
                                                          ------
                                                          $1,775
                                                          ======
</TABLE>

 
     Rental income from a sublease was approximately $226,000 and $244,000 for
the years ended December 31, 1998 and 1999, respectively. There was no rental
income in 1997. This sublease expires in July 2000.
 
     The arrangement entered into with IBM in December 1997 also provides for
payments of $1.0 million each upon the Company reaching revenue milestones, as
defined, of $25.0 million and $50.0 million. Each $1.0 million payment is due
and payable after the end of the fiscal year in which the cumulative total of
all sales of products and services in that year meet the revenue milestone. Both
payments may become due in the same year. The $1.0 million payments will be
expensed ratably over the revenue period they pertain to, beginning in the
period that it becomes evident that the revenue milestones will be met. Other
than described, no further payments are required under this arrangement.
 
 8. NOTES PAYABLE
 
     Notes payable consist of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                               -----------------
                                                                1998      1999
                                                               ------    -------
<S>                                                            <C>       <C>
Note payable, due in monthly installments through April 1,
  2001; interest rate at 13.8% at December 31, 1999........    $  897    $   602
Note payable, due in monthly installments through August 1,
  2001; interest rate at 12.1% at December 31, 1999........       504        355
Note payable, due in monthly installments through June 1,
  2002; interest rate at 9.0% at December 31, 1999.........       958        739
Note payable, due in monthly installments through June 1,
  2002; interest rate at 9.0% at December 31, 1999.........       958        739
Note payable, due in monthly installments through July 1,
  2002; interest rate at 9.9% at December 31, 1999.........        --      1,240
Note payable, due in monthly installments through November
  1, 2002; interest rate at 10.2% at December 31, 1999.....        --        464
                                                               ------    -------
                                                                3,317      4,139
Less current portion.......................................      (879)    (1,618)
                                                               ------    -------
                                                               $2,438    $ 2,521
                                                               ======    =======
</TABLE>

 
                                      F-13

<PAGE>   85
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 8. NOTES PAYABLE (CONTINUED)
     Notes payable are collateralized by fixed assets specified under each
agreement. Assets collateralized under these agreements total $4.0 million and
$6.4 million at December 31, 1998 and 1999, respectively. Certain of the notes
payable by the Company contain covenants pertaining to profitability levels and
certain other financial ratios. As of December 31, 1999, the Company is in
compliance with all covenants. Principal maturities of notes payable at December
31, 1999 are as follows (in thousands): 2000 -- $1,618; 2001 -- $1,666; and
2002 -- $855. In March 2000, the Company issued a note payable of $500,000 for
additional equipment financing.
 
     The fair value of notes payable is estimated based on current interest
rates available to the Company for debt instruments with similar terms, degrees
of risk and remaining maturities. The carrying values of these obligations
approximate their respective fair values as of December 31, 1998 and 1999.
 
 9. STOCKHOLDERS' EQUITY
 
     At December 31, 1999, the Company was authorized to issue up to 30,000,000
shares of convertible preferred stock, issuable in series, with the rights and
preferences of each designated series to be determined by the Company's Board of
Directors. The outstanding shares of convertible preferred stock automatically
convert into common stock upon the closing of an underwritten public offering of
common stock under the Securities Act of 1933 in which the Company receives at
least $10.0 million in gross proceeds and the price per share is at least $10.00
as adjusted for stock splits, recapitalization and the like, or at the election
of the holders of at least 75% of the then outstanding shares of convertible
preferred stock.
 
Convertible Preferred Stock
 
     Convertible preferred stock at December 31, 1999 is as follows:
 

<TABLE>
<CAPTION>
                                                   SHARES
                                                 ISSUED AND     PAR                    LIQUIDATION
                                    DESIGNATED   OUTSTANDING   VALUE    NET PROCEEDS   PREFERENCE
                                    ----------   -----------   ------   ------------   -----------
<S>                                 <C>          <C>           <C>      <C>            <C>
Series A convertible..............   5,442,500    5,442,500    $0.001   $ 5,389,499    $ 5,442,500
Series B convertible..............     470,000      470,000     0.001        41,750         47,000
Series C convertible..............   6,000,000    6,000,000     0.001    29,948,787     30,000,000
Series D convertible..............   2,125,000    2,125,000     0.001    16,924,873     17,000,000
Series E convertible..............   6,000,000    5,096,875     0.001    40,218,071     40,775,000
Series F convertible..............   6,000,000           --     0.001            --             --
                                    ----------   ----------             -----------    -----------
                                    26,037,500   19,134,375             $92,522,980    $93,264,500
                                    ==========   ==========             ===========    ===========
</TABLE>

 
     Each share of Series A, B, C, D and E convertible preferred stock is
convertible, at the option of the holder, into common stock on a one-for-one
basis, subject to certain adjustments for dilution, if any, resulting from
future stock issuances.
 
     The Series A, B, C, D and E convertible preferred stockholders are entitled
to noncumulative dividends, before and in preference to any dividends paid on
common stock, at the rate of 8% of the original issuance price per annum on each
outstanding share of preferred stock as adjusted for stock splits,
recapitalization and the like. Dividends will be paid only when and if declared
by the Board of
 
                                      F-14

<PAGE>   86
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 9. STOCKHOLDERS' EQUITY (CONTINUED)
Directors out of legally available funds. No dividends have been declared
through December 31, 1999.
 
     The Series A, B, C, D and E convertible preferred stockholders are entitled
to receive, upon liquidation, dissolution or winding up of the Company, an
amount per share equal to the original issuance price, plus all declared but
unpaid dividends. Thereafter, the remaining assets and funds, if any, shall be
distributed pro rata among the common stockholders. If the assets or property
were not sufficient to allow full payment to the Series A, B, C, D and E
stockholders, the available assets or property shall be distributed ratably
among the Series A, B, C, D and E stockholders.
 
     The Series A, B, C, D and E convertible preferred stockholders have voting
rights equal to the shares of common stock issuable upon conversion.
 
Common Stock
 
     The Company has reserved the following shares of common stock for the
conversion of preferred stock, the exercise of warrants, and the issuance of
options and rights granted under the Company's stock option plan as of December
31, 1999:
 

<TABLE>
<S>                                                <C>
Convertible preferred stock......................  19,134,375
Warrants.........................................   5,107,875
Stock option plan................................   1,670,722
                                                   ----------
                                                   25,912,972
                                                   ==========
</TABLE>

 
     The Company has previously issued shares of common stock which are subject
to the Company's right to repurchase at the original issuance price upon the
occurrence of certain events as defined in the agreements relating to the sale
of such stock. As of December 31, 1997, 1998 and 1999, shares subject to
repurchase were 3,523,425, 2,559,530 and 1,232,006, respectively.
 
Warrants
 
     In April 1997, in connection with one of the notes payable discussed in
Note 8, the Company issued a warrant to purchase 11,000 shares of common stock
at an exercise price of $5.00. The warrant, which is currently exercisable,
expires in April 2003. The fair value of the warrant was not material at the
issuance date.
 
     In conjunction with the issuance of the Series E convertible preferred
stock, the Company issued to each purchaser a warrant to purchase shares of
Series F convertible preferred stock at a price initially equal to $8.00 per
preferred share. Warrants to purchase 5,096,875 shares of Series F convertible
preferred stock were issued. The exercise price shall increase on every
subsequent one-month anniversary of the issuance date by $0.1667 per month up to
a maximum exercise price of $10.00 per preferred share ($9.50 as of December 31,
1999). These warrants are exercisable through March 2000.
 
                                      F-15

<PAGE>   87
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 9. STOCKHOLDERS' EQUITY (CONTINUED)
1996 Equity Incentive Plan
 
     In January 1996, the Board of Directors adopted, and the stockholders
approved, the 1996 Equity Incentive Plan (the "1996 Plan") under which
employees, consultants and directors may be granted Incentive Stock Options
("ISOs") and Nonstatutory Stock Options ("NSOs") to purchase shares of the
Company's common stock. The 1996 Plan permits ISOs to be granted at an exercise
price not less than the fair value on the date of grant and NSOs at an exercise
price not less than 85% of the fair value on the date of grant. Options granted
under the 1996 Plan generally expire 10 years from the date of grant and become
exercisable upon grant subject to repurchase rights in favor of the Company
until vested. Options generally vest 12.5% upon completion of 6 months service
and 1/48 per month thereafter; however, options may be granted with different
vesting terms as determined by the Board of Directors. A total of 4,340,000
shares of common stock have been authorized for issuance pursuant to the 1996
Plan as of December 31, 1999.
 
     Option activity under the 1996 Plan was as follows:
 

<TABLE>
<CAPTION>
                                                            OPTIONS OUTSTANDING
                                                        ----------------------------
                                                                        WEIGHTED-
                                                        NUMBER OF        AVERAGE
                                                          SHARES      EXERCISE PRICE
                                                        ----------    --------------
<S>                                                     <C>           <C>
Balance as of December 31, 1996.....................       398,000        $0.05
  Granted...........................................     2,485,950        $0.56
  Exercised.........................................    (1,889,853)       $0.39
  Canceled..........................................        (4,688)       $0.66
                                                        ----------
Balance as of December 31, 1997.....................       989,409        $0.68
  Granted...........................................       392,750        $2.33
  Exercised.........................................      (245,060)       $0.65
  Canceled..........................................      (100,599)       $1.71
                                                        ----------
Balance as of December 31, 1998.....................     1,036,500        $1.21
  Granted...........................................       641,050        $3.00
  Exercised.........................................       (29,365)       $2.21
  Canceled..........................................      (181,460)       $1.82
                                                        ----------
Balance as of December 31, 1999.....................     1,466,725        $1.90
                                                        ==========
</TABLE>

 
                                      F-16

<PAGE>   88
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 9. STOCKHOLDERS' EQUITY (CONTINUED)
     The following table summarizes information concerning options outstanding
and vested at December 31, 1999:
 

<TABLE>
<CAPTION>
                                    OPTIONS OUTSTANDING                  OPTIONS OUTSTANDING AND VESTED
                     -------------------------------------------------   ------------------------------
                                   WEIGHTED-AVERAGE                        NUMBER
     EXERCISE          NUMBER         REMAINING       WEIGHTED-AVERAGE   OUTSTANDING   WEIGHTED-AVERAGE
      PRICES         OUTSTANDING   CONTRACTUAL LIFE    EXERCISE PRICE    AND VESTED     EXERCISE PRICE
     --------        -----------   ----------------   ----------------   -----------   ----------------
<S>                  <C>           <C>                <C>                <C>           <C>
$0.05..............       5,000          6.30              $0.05                --          $0.05
$0.50..............     528,650          7.40              $0.50           307,685          $0.50
$1.50..............     184,475          7.90              $1.50           103,658          $1.50
$3.00..............     748,600          9.50              $3.00            80,730          $3.00
                      ---------                                            -------
$0.05-$3.00........   1,466,725          8.50              $1.90           492,073          $1.12
                      =========                                            =======
</TABLE>

 
     Under the 1996 Plan, the Company may also grant rights to purchase
restricted stock. Exercise of these share purchase rights are made pursuant to
restricted stock purchase agreements containing provisions established by the
Board of Directors. These provisions give the Company the right to repurchase
the shares at the original purchase price of the stock. The right expires at a
rate determined by the Board of Directors, generally at a rate of 12.5% after 6
months and 1/48 per month thereafter. For the years ended December 31, 1997,
1998 and 1999, the Company issued 2,585,950, 402,750 and 691,050 shares under
the 1996 Plan. For the years ended December 31, 1997, 1998 and 1999, the Company
repurchased 113,333, 76,086 and 117,677 shares under the 1996 Plan.
 
     As of December 31, 1999, 203,997 shares were available for future grant
under the 1996 Plan.
 
     For the years ended December 31, 1997, 1998 and 1999, the Company recorded
deferred stock compensation of $3,259,000, $865,000 and $619,000, respectively,
representing the difference between the exercise price and the fair value for
accounting purposes of the Company's common stock on the date such options were
granted. For the years ended December 31, 1997, 1998 and 1999, the Company
recorded amortization of deferred stock compensation of $1,428,000, $1,568,000
and $804,000, respectively. As of December 31, 1999, the Company had $943,000 of
remaining unamortized deferred compensation. Such amount is included as a
reduction of stockholders' equity and is being amortized over the vesting period
of the underlying options.
 
Stock-Based Compensation
 
     Pro forma information regarding net loss is required by SFAS No. 123, as if
the Company had accounted for its employee stock options under the fair value
method of SFAS No. 123. Option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable measure of the fair value of its employee stock
options.
 
     For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
weighted-average fair value of these options was $1.41, $2.53 and $1.37 in 1997,
1998 and 1999, respectively. The fair value of these options was estimated at
the date of grant using the Black-Scholes option pricing model and a
graded-vesting approach using
 
                                      F-17

<PAGE>   89
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 9. STOCKHOLDERS' EQUITY (CONTINUED)
the following weighted-average assumptions for 1997, 1998 and 1999,
respectively: risk-free interest rate of 6.5%, 5.5% and 5.9%, a weighted-average
expected option life of 2.16, 2.50 and 2.50 years; no volatility and no annual
dividends. The Company's pro forma net loss was $23.7 million, $29.7 million and
$18.7 million for the years ended December 31, 1997, 1998 and 1999,
respectively. The Company's pro forma net loss per share was $11.29, $8.21 and
$3.87 for the years ended December 31, 1997, 1998 and 1999, respectively. Future
pro forma results of operations may be materially different from amounts
reported as future years will include the effects of additional stock option
grants.
 
10. INCOME TAXES
 
     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):
 

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                      ------------------
                                                       1998       1999
                                                      -------    -------
<S>                                                   <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards..................  $13,500    $16,100
  Research credits..................................    1,600      2,000
  Capitalized research and development..............       --      1,600
  Expenses not currently deductible.................    8,000      9,400
                                                      -------    -------
          Total.....................................   23,100     29,100
Valuation allowance.................................  (23,100)   (29,100)
                                                      -------    -------
                                                      $    --    $    --
                                                      =======    =======
</TABLE>

 
     Realization of deferred tax assets is dependent upon future earnings the
timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased by $9.8 million and $11.7 million during the years ended December 31,
1997 and 1998, respectively.
 
     As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $44.8 million, which expire in
the years 2010 through 2019. The Company also had net operating loss
carryforwards for state income tax purposes of approximately $13.8 million,
which expire in the years 2003 through 2004. The Company also had federal and
state research credit carryforwards of $2.0 million.
 
     Utilization of the Company's net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
 
                                      F-18

<PAGE>   90
                            INTUITIVE SURGICAL, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11. SUBSEQUENT EVENTS (UNAUDITED)
 
Warrant Exercise
 
     Subsequent to December 31, 1999, warrants to purchase 3,588,400 shares of
Series F convertible preferred stock were exercised at a weighted-average
exercise price of $9.84 per share for gross proceeds of $35.3 million.
 
Employee Stock Plans
 
     In March 2000, subject to shareholders approval, the Board of Directors
adopted the 2000 Equity Incentive Plan. This plan is an amendment and
restatement of the 1996 Plan. In March 2000, the Company reserved an additional
5,660,000 shares under this plan. Also in March 2000, the Board of Directors
adopted the 2000 Non-Employee Directors' Stock Option Plan and the 2000 Employee
Stock Purchase Plan. The Company has reserved 300,000 and 1,000,000 shares for
issuances under these plans.
 
Stock-Based Compensation
 
     Subsequent to December 31, 1999, the Company has granted options to
purchase 373,850 shares of common stock at a weighted-average exercise price of
$3.00 per share. Relating to the grant of these options, the Company expects to
record additional deferred stock compensation of approximately $2.4 million
during the quarter ended March 31, 2000.
 
Initial Public Offering
 
     In March 2000, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the preferred stock outstanding will automatically convert into 19,134,375
shares of common stock. Unaudited pro forma stockholders' equity, as adjusted
for the assumed conversion of the preferred stock, is set forth on the balance
sheet.
 
                                      F-19

<PAGE>   91
 
                           [INTUITIVE SURGICAL LOGO]
 
                                      LOGO

<PAGE>   92
 

 
                                   PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereby. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
 

<TABLE>
<S>                                                           <C>
  SEC registration fee......................................  $   30,360
  Nasdaq National Market listing fee........................      95,000
  NASD filing fee...........................................      12,000
  Blue sky qualification fees and expenses..................       5,000
  Printing and engraving expenses...........................     150,000
  Legal fees and expenses...................................     500,000
  Accounting fees and expenses..............................     200,000
  Transfer agent and registrar fees.........................      15,000
  Miscellaneous.............................................      17,640
                                                              ----------
          Total.............................................  $1,025,000
                                                              ==========
</TABLE>

 
     We intend to pay all expenses of registration, issuance and distribution.
 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
 
     - for any breach of duty of loyalty to us or to our stockholders;
 
     - for acts or omissions not in good faith or that involve intentional
       misconduct or a knowing violation of law;
 
     - under Section 174 of the Delaware General Corporation Law; or
 
     - for any transaction from which the director derived an improper personal
       benefit.
 
     Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
 
     We will enter into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for some expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any of these persons in any action or
proceeding, including any action by or in the right of Intuitive Surgical,
arising out of person's services as our director or officer, any subsidiary of
ours or any other company or enterprise to which the person provides services at
our request.
 
     The underwriting agreement (Exhibit 1.1) will provide for indemnification
by the underwriters of Intuitive Surgical, our directors, our officers who sign
the registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
 
                                      II-1

<PAGE>   93
 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     Since inception, we have sold and issued the following unregistered
securities:
 
          (1) From November 1995 through the date hereof, Intuitive Surgical has
     granted stock options to purchase 4,636,600 shares of the common stock to
     employees, consultants and directors pursuant to its 2000 Equity Incentive
     Plan. Of these options, 289,822 shares have been canceled without being
     exercised, 2,509,278 shares have been exercised, 307,096 shares of which
     have been repurchased, and 1,837,500 shares remain outstanding. From
     November 1995 through the date hereof, the Registrant has also granted
     stock awards to purchase 160,000 shares of common stock to consultants
     pursuant to the Incentive Plan. Of these stock awards, no shares have been
     canceled or repurchased and all 160,000 shares remain outstanding.
 
          (2) In November 1995 and December 1995, Intuitive Surgical issued an
     aggregate of 3,385,000 shares of common stock to 14 purchasers at $0.001
     per share, for an aggregate purchase price of $3,385.
 
          (3) In December 1995 and January 1996, Intuitive Surgical issued an
     aggregate of 5,442,500 shares of Series A preferred stock to 13 purchasers
     at $1.00 per share, for an aggregate purchase price of $5,442,500. Shares
     of Series A preferred stock are convertible into shares of common stock at
     the rate of one share of common stock for each share of Series A preferred
     stock owned.
 
          (4) In January 1996, Intuitive Surgical issued an aggregate of 470,000
     shares of Series B preferred stock to one purchaser at $0.10 per share, for
     an aggregate purchase price of $47,000. Shares of Series B preferred stock
     are convertible into shares of common stock at the rate of one share of
     common stock for each share of Series B preferred stock owned.
 
          (5) In May 1996, Intuitive Surgical issued 50,000 shares of common
     stock to one purchaser at $0.05 per share, for a purchase price of $2,500.
 
          (6) In June 1996, Intuitive Surgical issued 3,000 shares of common
     stock for services rendered to one purchaser at $0.05 per share.
 
          (7) In December 1996 and January 1997, Intuitive Surgical issued an
     aggregate of 910,000 shares of common stock to four purchasers at $0.05 per
     share, for an aggregate purchase price of $45,500.
 
          (8) In January 1997 and March 1997, Intuitive Surgical issued an
     aggregate of 6,000,000 shares of Series C preferred stock to 21 purchasers
     at a purchase price of $5.00 per share, for an aggregate purchase price of
     $30,000,000. Shares of Series C preferred stock are convertible into shares
     of common stock at the rate of one share of common stock for each share of
     Series C preferred stock owned.
 
          (9) In April 1997, Intuitive Surgical issued a warrant to purchase
     11,000 shares of the common stock of Intuitive Surgical to Lease Management
     Services, Inc., for an exercise price of $5.00 per share, issuable upon
     exercise of the warrant.
 
          (10) In November 1997, Intuitive Surgical issued an aggregate of
     2,125,000 shares of Series D preferred stock to 23 purchasers at a purchase
     price of $8.00 per share for an aggregate purchase price of $17,000,000.
     Shares of Series D preferred stock are convertible into shares of common
     stock at the rate of one share of common stock for each share of Series D
     preferred stock owned.
 
                                      II-2

<PAGE>   94
 
          (11) In November 1997, Intuitive Surgical issued 25,000 shares of
     common stock for services rendered in connection with the Series D
     preferred stock financing.
 
          (12) In April 1998, Intuitive Surgical issued 10,000 shares of common
     stock to one purchaser at $3.00 per share, for a purchase price of $30,000.
 
          (13) From July 1998 through May 1999, Intuitive Surgical issued
     5,096,875 shares of Series E preferred stock to 43 purchasers at a purchase
     price of $8.00 per share for an aggregate purchase price of $40,775,000.
     Shares of Series E preferred stock are convertible into shares of common
     stock at the rate of one share of common stock for each share of Series E
     preferred stock owned.
 
          (14) From March 1999 through May 1999, Intuitive Surgical issued
     warrants to purchase up to 5,096,875 shares of Series F preferred stock at
     an exercise price of $8.00 per share increasing incrementally by $0.1667 on
     each one-month anniversary from March 31, 1999 up to a maximum of $10.00
     per share. Shares of Series F preferred stock are convertible into shares
     of common stock at the rate of one share of common stock for each share of
     Series F preferred stock owned.
 
          (15) In March 2000, Intuitive Surgical issued 3,588,400 shares of
     Series F preferred stock to 39 purchasers upon exercise of warrants at an
     exercise price of $9.84 per share for an aggregate purchase price of
     $35,309,856.
 
     The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act in that they were offered and sold either pursuant to
a written compensatory benefit plan or pursuant to a written contract relating
to compensation, as provided by Rule 701. The sales and issuances of securities
described in paragraphs (2) through (12) above were deemed to be exempt from
registration under the Securities Act by virtue of Rule 4(2), Regulation D or
Regulation S promulgated thereunder. With respect to the grant of options
described in paragraph (1), an exemption from registration was unnecessary in
that none of the transactions involved a "sale" of securities as such term is
used in Section 2(3) of the Act.
 
     Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about Intuitive Surgical or had access, through employment or other
relationships, to such information.
 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) The following is a list of exhibits filed as a part of this
Registration Statement:
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                      DESCRIPTION OF DOCUMENT
-------                     -----------------------
<C>       <S>
 1.1*     Form of Underwriting Agreement.
 3.1      Restated Certificate of Incorporation of the Registrant.
 3.2      Form of Amended and Restated Certificate of Incorporation of
          the Registrant to be effective upon the closing of the
          offering.
 3.3      Bylaws of the Registrant.
 4.1      Reference is made to Exhibits 3.1 through 3.3.
 4.2*     Specimen Stock Certificate.
 5.1*     Opinion of Cooley Godward LLP.
10.1      Form of Indemnity Agreement.
</TABLE>

 
                                      II-3

<PAGE>   95
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                      DESCRIPTION OF DOCUMENT
-------                     -----------------------
<C>       <S>
10.2      2000 Equity Incentive Plan.
10.3      2000 Non-Employee Directors' Stock Option Plan.
10.4      2000 Employee Stock Purchase Plan.
10.5      Amended and Restated Investor Rights Agreement dated March
          31, 1999.
10.6      Equipment Financing Agreement (No. 10809), dated April 2,
          1997, between the Registrant and Lease Management Services,
          Inc., and related addendums.
10.7      Security Agreement, dated May 20, 1999, between the
          Registrant and Heller Financial Leasing, Inc., and related
          amendments.
10.8      License Agreement, dated December 20, 1995, between the
          Registrant and SRI International.
10.9      License Agreement, dated December 29, 1997, between the
          Registrant and International Business Machines Corporation.
10.10     License Agreement, dated April 1, 1999, between the
          Registrant and Massachusetts Institute of Technology.
10.11     Lease, dated September 9, 1996, between the Registrant and
          Zappettini Investment Co.
10.12     Lease, dated February 5, 1997, between the Registrant and
          Zappettini Investment Co.
10.13     Employment Agreement, dated February 28, 1997, between the
          Registrant and Lonnie M. Smith.
23.1      Consent of Ernst & Young LLP, independent auditors.
23.2*     Consent of Cooley Godward LLP. Reference is made to Exhibit
          5.1.
24.1      Power of Attorney. See Signature Page.
27.1      Financial Data Schedule -- Three Years ended December 31,
          1999.
</TABLE>

 
-------------------------
* To be filed by amendment.
 
     (b) Financial Statement Schedule
 
          Schedules not listed have been omitted because the information
     required to be set forth therein is not applicable or is shown in the
     financial statements or the notes thereto.
 

ITEM 17. UNDERTAKINGS
 
     The undersigned registrant hereby undertakes:
 
          (1) That for purposes of determining any liability under the
     Securities Act, the information omitted from the form of this prospectus
     filed as part of this Registration Statement in reliance upon Rule 430A and
     contained in a form of prospectus filed by the Registrant pursuant to Rule
     424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
     part of this Registration Statement as of the time it was declared
     effective.
 
          (2) That for purposes of determining any liability under the
     Securities Act, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of the securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
          (3) Insofar as indemnification for liabilities arising under the
     Securities Act may be permitted to directors, officers and controlling
     persons of the Registrant pursuant to the provisions referenced in Item 15
     of this Registration Statement or otherwise, the Registrant has been
     advised that in the opinion of the Securities and Exchange Commission this
     indemnification is against public policy as expressed in the Securities Act
     and is, therefore, unenforceable. In the
 
                                      II-4

<PAGE>   96
 
     event that a claim for indemnification against these liabilities (other
     than the payment by the Registrant of expenses incurred or paid by a
     director, officer, or controlling person of the Registrant in the
     successful defense of any action, suit or proceeding) is asserted by a
     director, officer, or controlling person in connection with the securities
     being registered, the Registrant will, unless in the opinion of its counsel
     the matter has been settled by controlling precedent, submit to a court of
     appropriate jurisdiction the question of whether the indemnification by it
     is against public policy as expressed in the Securities Act of 1933, and
     will be governed by the final adjudication of this issue.
 
          (4) To provide to the Underwriters at the closing specified in the
     Underwriting Agreement certificates in the denomination and registered in
     the names required by the Underwriters to permit prompt delivery to each
     purchaser.
 
                                      II-5

<PAGE>   97
 

                                   SIGNATURES
 
     In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to the Registration Statement on Form
S-1 to be signed on its behalf by the undersigned, in the City of Mountain View,
County of Santa Clara, State of California, on the 22nd day of March, 2000.
 
                                          INTUITIVE SURGICAL, INC.
 
                                          By:      /s/ LONNIE M. SMITH
                                            ------------------------------------
                                                      Lonnie M. Smith
                                               President and Chief Executive
                                                           Officer
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Lonnie M. Smith and Susan K.
Barnes, and each of them, his true and lawful agent, proxy and attorney-in-fact,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to (i) act on, sign and file with
the Securities and Exchange Commission any and all amendments (including
post-effective amendments) to this registration statement together with all
schedules and exhibits thereto and any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto, (ii) act on, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith, (iii) act on and file any supplement to any
prospectus included in this registration statement or any such amendment or any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and (iv) take any and all actions which may
be necessary or appropriate to be done, as fully for all intents and purposes as
he or she might or could do in person, hereby approving, ratifying and
confirming all that such agent, proxy and attorney-in-fact or any of his
substitutes may lawfully do or cause to be done by virtue thereof.
 
     IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BELOW BY THE FOLLOWING PERSON IN THE
CAPACITIES AND ON THE DATES STATED.
 

<TABLE>
<CAPTION>
                  SIGNATURE                                   TITLE                       DATE
                  ---------                                   -----                       ----
<C>                                            <C>                                   <S>
             /s/ LONNIE M. SMITH                    President, Chief Executive       March 22, 2000
---------------------------------------------          Officer and Director
               Lonnie M. Smith                    (Principal Executive Officer)
 
             /s/ SUSAN K. BARNES                  Vice President, Finance, Chief     March 22, 2000
---------------------------------------------               Financial
               Susan K. Barnes                   Officer and Assistant Secretary
                                                     (Principal Financial and
                                                       Accounting Officer)
 
            /s/ SCOTT S. HALSTED                             Director                March 22, 2000
---------------------------------------------
              Scott S. Halsted
 
     /s/ RUSSELL C. HIRSCH, M.D., PH.D.                      Director                March 22, 2000
---------------------------------------------
       Russell C. Hirsch, M.D., Ph.D.
</TABLE>

 
                                      II-6

<PAGE>   98
 

<TABLE>
<CAPTION>
                  SIGNATURE                                   TITLE                       DATE
                  ---------                                   -----                       ----
<C>                                            <C>                                   <S>
            /s/ RICHARD J. KRAMER                            Director                March 22, 2000
---------------------------------------------
              Richard J. Kramer
 
            /s/ JAMES A. LAWRENCE                            Director                March 22, 2000
---------------------------------------------
              James A. Lawrence
 
           /s/ ALAN J. LEVY, PH.D.                           Director                March 22, 2000
---------------------------------------------
             Alan J. Levy, Ph.D.
 
         /s/ FREDERIC H. MOLL, M.D.                          Director                March 22, 2000
---------------------------------------------
           Frederic H. Moll, M.D.
</TABLE>

 
                                      II-7

<PAGE>   99
 

                                 EXHIBIT INDEX
 

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                      DESCRIPTION OF DOCUMENT
    -------                     -----------------------
    <C>       <S>
      1.1*    Form of Underwriting Agreement.
      3.1     Restated Certificate of Incorporation of the Registrant.
      3.2     Form of Amended and Restated Certificate of Incorporation of
              the Registrant to be effective upon the closing of the
              offering.
      3.3     Bylaws of the Registrant.
      4.1     Reference is made to Exhibits 3.1 through 3.3.
      4.2*    Specimen Stock Certificate.
      5.1*    Opinion of Cooley Godward LLP.
     10.1     Form of Indemnity Agreement.
     10.2     2000 Equity Incentive Plan.
     10.3     2000 Non-Employee Directors' Stock Option Plan.
     10.4     2000 Employee Stock Purchase Plan.
     10.5     Amended and Restated Investor Rights Agreement dated March
              31, 1999.
     10.6     Equipment Financing Agreement (No. 10809), dated April 2,
              1997, between the Registrant and Lease Management Services,
              Inc., and related addendums.
     10.7     Security Agreement, dated May 20, 1999, between the
              Registrant and Heller Financial Leasing, Inc., and related
              amendments.
     10.8     License Agreement, dated December 20, 1995, between the
              Registrant and SRI International.
     10.9     License Agreement, dated December 29, 1997, between the
              Registrant and International Business Machines Corporation.
     10.10    License Agreement, dated April 1, 1999, between the
              Registrant and Massachusetts Institute of Technology.
     10.11    Lease, dated September 9, 1996, between the Registrant and
              Zappettini Investment Co.
     10.12    Lease, dated February 5, 1997, between the Registrant and
              Zappettini Investment Co.
     10.13    Employment Agreement, dated February 28, 1997, between the
              Registrant and Lonnie M. Smith.
     23.1     Consent of Ernst & Young LLP, independent auditors.
     23.2*    Consent of Cooley Godward LLP. Reference is made to Exhibit
              5.1.
     24.1     Power of Attorney. See Signature Page.
     27.1     Financial Data Schedule -- Three Years ended December 31,
              1999.
</TABLE>

 
-------------------------
* To be filed by amendment.





<PAGE>   1

                                                                     EXHIBIT 3.1


                    RESTATED CERTIFICATE OF INCORPORATION OF
                            INTUITIVE SURGICAL, INC.


        Lonnie M. Smith and Alan C. Mendelson hereby certify that:

        1. The original name of this corporation is Intuitive Surgical Devices,
Inc. and the date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is November 9,
1995.

        2. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of Intuitive Surgical, Inc., a Delaware corporation.

        3. The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:


                                       I.

        The name of the corporation is INTUITIVE SURGICAL, INC. (the
"Corporation" or the "Company").


                                       II.

        The address of the registered office of the Corporation in the State of
Delaware is:

                      The Prentice-Hall Corporation System, Inc.
                      1013 Centre Road
                      Wilmington, DE 19805
                      County of New Castle

        The name of the Corporation's registered agent at said address is The
Prentice-Hall Corporation System, Inc.


                                      III.

        The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.


                                       IV.

        A. This Corporation is authorized
 to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Seventy-Five Million
(75,000,000) shares, Forty-Five Million (45,000,000) shares of which shall be
Common Stock (the "Common Stock") and Thirty Million (30,000,000) shares of
which shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock
shall have a par value of one-tenth of one cent ($.001) per share and the Common
Stock shall have a par value of one-tenth of one cent ($.001) per share.



                                       1

<PAGE>   2

        B. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation (voting together on an as-if-converted basis).

        C. The Preferred Stock may be issued from time to time in one or more
series. Subject to compliance with applicable protective voting rights which
have been or may be granted to the Preferred Stock or series thereto in
Certificates of Determination or the Corporation's Certificate of Incorporation,
the Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Restated Certificate, to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
the liquidation preferences of any wholly unissued series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or any of them; and to increase or decrease the number of shares of any
such series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

        D. Five Million Four Hundred Forty-Two Thousand Five Hundred (5,442,500)
of the authorized shares of Preferred Stock are hereby designated "Series A
Preferred Stock" (the "Series A Preferred"). Four Hundred Seventy Thousand
(470,000) of the authorized shares of Preferred Stock are hereby designated
"Series B Preferred Stock" (the "Series B Preferred"). Six Million (6,000,000)
of the authorized shares of Preferred Stock are hereby designated "Series C
Preferred Stock" (the "Series C Preferred"). Two Million One Hundred Twenty-Five
Thousand (2,125,000) of the authorized shares of Preferred Stock are hereby
designated "Series D Preferred Stock" (the "Series D Preferred"). Six Million
(6,000,000) of the authorized shares of Preferred Stock are hereby designated
"Series E Preferred Stock" (the "Series E Preferred"). Six Million (6,000,000)
of the authorized shares of Preferred Stock are hereby designated "Series F
Preferred Stock" (the "Series F Preferred"). "Preferred Stock", when used
herein, includes Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred and Series F Preferred.

        E. The rights, preferences, privileges, restrictions and other matters
relating to the Preferred Stock are as follows:

               1. Dividend Rights.

                      (a) Holders of Preferred Stock, in preference to the
holders of any other stock of the Company ("Junior Stock"), shall be entitled to
receive, when and as declared by the Board of Directors, but only out of funds
that are legally available therefor, cash dividends at the rate of eight percent
(8%) of the "Original Issue Price" per annum on each outstanding share of
Preferred Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The Original Issue
Price of the Series A Preferred shall be one dollar ($1.00). The Original Issue
Price of the Series B Preferred shall be ten cents ($0.10). The Original Issue
Price of the Series C Preferred shall be five dollars ($5.00). The Original
Issue Price of the Series D Preferred shall be eight dollars ($8.00). The 


                                       2

<PAGE>   3
Original Issue Price of the Series E Preferred shall be eight dollars ($8.00).
The Original Issue Price of the Series F Preferred shall be ten dollars
($10.00). Such dividends shall be payable only when, as and if declared by the
Board of Directors and shall be non-cumulative from the Original Issue Date (as
defined in Section 4(e) below).

                      (b) So long as any shares of Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Stock, nor
shall any shares of any Junior Stock of the Company be purchased, redeemed, or
otherwise acquired for value by the Company (except for acquisitions of Common
Stock by the Company pursuant to agreements which permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer) until
all dividends (set forth in Section 1(a) above) on the Preferred Stock shall
have been paid or declared and set apart. In the event dividends are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Preferred Stock in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares
of any Junior Stock in exchange for shares of any other Junior Stock, or (iii)
any repurchase of any outstanding securities of the Company that is unanimously
approved by the Company's Board of Directors.

               2. Voting Rights.

                      (a) General Rights. Except as otherwise provided herein or
as required by law, the Preferred Stock shall be voted with the shares of the
Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Preferred Stock shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Preferred Stock are convertible
(pursuant to Section 4 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent. Each holder of Common Stock shall be entitled to one (1) vote for each
share of Common Stock held.

               (b) Separate Vote of Preferred Stock. For so long as at least One
Million (1,000,000) shares of Preferred Stock remain outstanding, in addition to
any other vote or consent required herein or by law, the vote or written consent
of the holders of at least a majority of the outstanding Preferred Stock shall
be necessary for effecting or validating the following actions:

                             (i) Any amendment, alteration, or repeal of any
provision of the Restated Certificate or the Bylaws of the Company, that affects
adversely the voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Preferred Stock;



                                       3

<PAGE>   4

                             (ii) Any authorization or any increase, whether by
reclassification or otherwise, in the authorized amount of any class of shares
or series of equity securities of the Company senior to, or pari passu with, the
Preferred Stock in right of redemption, liquidation preference, voting or
dividends;

                             (iii) Any redemption, repurchase, payment of
dividends or other distributions with respect to Junior Stock (except for
acquisitions of Common Stock by the Company pursuant to agreements which permit
the Company to repurchase such shares upon termination of services to the
Company or in exercise of the Company's right of first refusal upon a proposed
transfer); or

                             (iv) Any agreement by the Company or its
stockholders regarding an Asset Transfer or Acquisition (each as defined in
Section 3(c)).

                      (c) Election of Board of Directors. For so long as at
least 1,000,000 shares of Preferred Stock remain outstanding (i) the holders of
Series A Preferred Stock, voting as a separate class, shall be entitled to elect
three (3) members of the Company's Board of Directors at each meeting or
pursuant to each consent of the Company's stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors; and (ii) the
holders of Common Stock and Preferred Stock, voting together as a class, shall
be entitled to elect all remaining members of the Board of Directors.

               3. Liquidation Rights.

                      (a) Upon any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, the holders of
Preferred Stock shall be entitled to be paid out of the assets of the Company an
amount per share of Preferred Stock equal to the applicable Original Issue
Price, plus all declared and unpaid dividends on such shares of Preferred Stock
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares) for each share of Preferred Stock held
by them.

                      (b) After the payment of the full liquidation preference
of the Preferred Stock as set forth in Section 3(a) above, the remaining assets
of the Company legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock.

                      (c) The following events shall be considered a liquidation
under this Section:

                             (i) any consolidation or merger of the Company with
or into any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than fifty percent (50%)
of the Company's voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions in which in
excess of fifty percent (50%) of the Company's voting power is transferred (an
"Acquisition"); or



                                       4

<PAGE>   5

                             (ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").

                      (d) If, upon any liquidation, distribution, or winding up,
the assets of the Company shall be insufficient to make payment in full to all
holders of Preferred Stock of the liquidation preference set forth in Section
3(a), then such assets shall be distributed among the holders of Preferred Stock
at the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.

                      (e) In any of such events, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:

                             (i) Securities not subject to investment letter or
other similar restrictions on free marketability:

                                    1) If traded on a securities exchange or
through NASDAQ National Market, the value shall be deemed to be the average of
the closing prices of the securities on such exchange over the thirty-day
(30-day) period ending three (3) days prior to the closing;

                                    2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sales prices
(whichever is applicable) over the thirty-day (30-day) period ending three (3)
days prior to the closing; and

                                    3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then-outstanding shares of Preferred Stock.

                             (ii) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) 1), 2) or 3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then-outstanding shares of
such Preferred Stock.

               4. Conversion Rights.

               The holders of the Preferred Stock shall have the following
rights with respect to the conversion of the Preferred Stock into shares of
Common Stock (the "Conversion Rights"):

                      (a) Optional Conversion. Subject to and in compliance with
the provisions of this Section 4, any shares of Preferred Stock may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred or Series F Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series A Conversion
Rate," "Series B Conversion Rate," "Series C Conversion Rate," "Series D
Conversion Rate," "Series E



                                       5

<PAGE>   6

Preferred Conversion Rate," or "Series F Preferred Conversion Rate," as
applicable, then in effect (determined as provided in Section 4(b)) by the
number of shares of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred or Series F Preferred being converted.

                      (b) Conversion Rate. The conversion rate in effect at any
time for conversion of (i) the Series A Preferred (the "Series A Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series A Preferred by the "Series A Conversion Price," calculated as
provided in Section 4(c); (ii) the Series B Preferred (the "Series B Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series B Preferred by the "Series B Conversion Price," calculated as
provided in Section 4(c); (iii) the Series C Preferred (the "Series C Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series C Preferred by the "Series C Conversion Price," calculated as
provided in Section 4(c); (iv) the Series D Preferred (the "Series D Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series D Preferred by the "Series D Conversion Price," calculated as
provided in Section 4(c); (v) the Series E Preferred (the "Series E Conversion
Rate") shall be the quotient obtained by dividing the Original Issue Price of
the Series E Preferred by the "Series E Conversion Price," calculated as
provided in Section 4(c); and (vi) the Series F Preferred (the "Series F
Conversion Rate") shall be the quotient obtained by dividing the Original Issue
Price of the Series F Preferred by the "Series F Conversion Price," calculated
as provided in Section 4(c).

                      (c) Conversion Price. The conversion price for the Series
A Preferred shall initially be the Original Issue Price of the Series A
Preferred (the "Series A Conversion Price"). The conversion price for the Series
B Preferred shall initially be the Original Issue Price of the Series B
Preferred (the "Series B Conversion Price"). The conversion price for the Series
C Preferred shall initially be the Original Issue Price of the Series C
Preferred (the "Series C Conversion Price"). The conversion price for the Series
D Preferred shall initially be the Original Issue Price of the Series D
Preferred (the "Series D Conversion Price"). The conversion price for the Series
E Preferred shall initially be the Original Issue Price of the Series E
Preferred (the "Series E Conversion Price"). The conversion price for the Series
F Preferred shall initially be the Original Issue Price of the Series F
Preferred (the "Series F Conversion Price"). The term "Conversion Price" shall
be read as referring to the Series A Conversion Price, Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price, the Series
E Conversion Price or Series F Conversion Price as applicable. Each initial
Conversion Price shall be adjusted from time to time in accordance with this
Section 4. All references to the Conversion Price herein shall mean the
Conversion Price as so adjusted.

                      (d) Mechanics of Conversion. Each holder of Preferred
Stock who desires to convert the same into shares of Common Stock pursuant to
this Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Preferred
Stock, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Preferred Stock being converted. Thereupon, the Company shall promptly issue
and deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market



                                       6

<PAGE>   7

value determined by the Board of Directors as of the date of such conversion),
any declared and unpaid dividends on the shares of Series Preferred being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificates representing the
shares of Preferred Stock to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.

                      (e) Adjustment for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date that the first
share of each series of Preferred Stock is issued (the "Original Issue Date")
effect a subdivision of the outstanding Common Stock, each Conversion Price in
effect immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares, each Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.

                      (f) Adjustment for Common Stock Dividends and
Distributions. If the Company at any time or from time to time after the
Original Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event each Conversion
Price that is then in effect shall be decreased as of the time of such issuance
or, in the event such record date is fixed, as of the close of business on such
record date, by multiplying each Conversion Price then in effect by a fraction
(1) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, each Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter each Conversion Price shall
be adjusted pursuant to this Section 4(f) to reflect the actual payment of such
dividend or distribution.

                      (g) Adjustments for Other Dividends and Distributions. If
the Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Company which they
would have received had their Preferred Stock been converted into Common Stock
on the date of such event and had they thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Preferred Stock or with respect to
such other securities by their terms.



                                       7

<PAGE>   8

                      (h) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than an
Acquisition or Asset Transfer as defined in Section 3(c) or a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 4), in
any such event each holder of Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.

                      (i) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Original Issue Date, there
is a capital reorganization of the Common Stock (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock the
number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of
Preferred Stock after the capital reorganization to the end that the provisions
of this Section 4 (including adjustment of each Conversion Price then in effect
and the number of shares issuable upon conversion of Preferred Stock) shall be
applicable after that event and be as nearly equivalent as practicable.

                      (j) Sale of Shares Below Either Conversion Price.

                             (i) If at any time or from time to time after the
Original Issue Date, the Company issues or sells, or is deemed by the express
provisions of this subsection (j) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in Section 4(f) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 4(e) above, for an Effective Price (as hereinafter defined) less than
the then-effective Conversion Price for any series of Preferred Stock, then and
in each such case the then existing Conversion Price for such series of
Preferred Stock shall be reduced, as of the opening of business on the date of
such issue or sale, to a price determined by multiplying the then existing
Conversion Price for such series of Preferred Stock by a fraction (i) the
numerator of which shall be (A) the number of shares of Common Stock deemed
outstanding (as defined below) immediately prior to such issue or sale, plus (B)
the number of shares of Common Stock which the aggregate consideration received
(as defined in subsection (j)(ii)) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price, and (ii) the denominator of which shall be the number of shares of Common
Stock deemed outstanding (as 



                                       8

<PAGE>   9
defined below) immediately prior to such issue or sale plus the total number of
Additional Shares of Common Stock so issued. For the purposes of the preceding
sentence, the number of shares of Common Stock deemed to be outstanding as of a
given date shall be the sum of (A) the number of shares of Common Stock actually
outstanding, (B) the number of shares of Common Stock into which the then
outstanding shares of Preferred Stock could be converted if fully converted on
the day immediately preceding the given date, and (C) the number of shares of
Common Stock which could be obtained through the exercise or conversion of all
other rights, options and convertible securities on the day immediately
preceding the given date.

                             (ii) For the purpose of making any adjustment
required under this Section 4(j), the consideration received by the Company for
any issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.

                             (iii) For the purpose of the adjustment required
under this Section 4(j), if the Company issues or sells any rights or options
for the purchase of, or stock or other securities convertible into, Additional
Shares of Common Stock (such convertible stock or securities being herein
referred to as "Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than any Conversion Price, in each
case the Company shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Company upon the conversion thereof; provided that if in the
case of Convertible Securities the minimum amounts of such consideration cannot
be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall



                                       9

<PAGE>   10

be again recalculated using the increased minimum amount of consideration
payable to the Company upon the exercise or conversion of such rights, options
or Convertible Securities. No further adjustment of the Conversion Price, as
adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Conversion Price as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company on the conversion of such Convertible Securities, provided that such
readjustment shall not apply to prior conversions of Preferred Stock.

                             (iv) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant
to this Section 4(j), whether or not subsequently reacquired or retired by the
Company other than (1) shares of Common Stock issued upon conversion of the
Preferred Stock; (2) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) issued or to be issued to
employees, officers or directors of, or consultants or advisors to the Company
or any subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board; (3) shares of Common Stock issued
pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date; (4) those shares of Common Stock
and/or options, warrants or other Common Stock purchase rights, and the Common
Stock issued pursuant to such options, warrants or other rights (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like)
issued or to be issued to Stanford Research Institute ("SRI") in connection with
that license agreement between the Company and SRI dated December 1995, and (5)
those shares of Common Stock or Preferred Stock issued or to be issued to
Guidant Corporation, its subsidiaries or affiliates prior to March 31, 1996. The
"Effective Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold by the Company under this
Section 4(j), into the aggregate consideration received, or deemed to have been
received by the Company for such issue under this Section 4(j), for such
Additional Shares of Common Stock.

                      (k) Accountants' Certificate of Adjustment. In each case
of an adjustment or readjustment of either Conversion Price for the number of
shares of Common Stock or other securities issuable upon conversion of Preferred
Stock, if the Preferred Stock is then convertible pursuant to this Section 4,
the Company, at its expense, shall compute such



                                       10

<PAGE>   11

adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
Preferred Stock at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (1) the consideration received or deemed to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (2) the Conversion Price at the time in effect, (3)
the number of Additional Shares of Common Stock and (4) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Preferred Stock.

                      (l) Notices of Record Date. Upon (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail to
each holder of Preferred Stock at least twenty (20) days prior to the record
date specified therein a notice specifying (1) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and the material terms of such transaction, and (3) the date, if any,
that is to be fixed as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.

                      (m) Automatic Conversion.

                             (i) Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, based on each
then-effective Conversion Price, (A) at any time upon the affirmative vote of
the holders of at least seventy-five percent (75%) of the outstanding shares of
the Preferred Stock, or (B) immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which (i) the per share price is
at least ten dollars ($10.00) (as adjusted for stock dividends, combinations,
splits, recapitalizations and the like), and (ii) the gross cash proceeds to the
Company (before underwriting discounts, commissions and fees) are at least ten
million dollars ($10,000,000.00). Upon such automatic conversion, any declared
and unpaid dividends shall be paid in accordance with the provisions of Section
4(d).

                             (ii) Upon the occurrence of either event specified
in paragraph (i) above, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the



                                       11

<PAGE>   12

Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Preferred Stock, the holders of
Preferred Stock shall surrender the certificates representing such shares at the
office of the Company or any transfer agent for the Preferred Stock. Thereupon,
there shall be issued and delivered to such holder promptly at such office and
in its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
the shares of Preferred Stock surrendered were convertible on the date on which
such automatic conversion occurred, and the Company shall promptly pay in cash
or, at the option of the Company, Common Stock (at the Common Stock's fair
market value determined by the Board as of the date of such conversion), or, at
the option of the Company, both, all declared and unpaid dividends on the shares
of Preferred Stock being converted, to and including the date of such
conversion.

                      (n) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.

                      (o) Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.

                      (p) Notices. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier, having
specified next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.

                      (q) Payment of Taxes. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to



                                       12

<PAGE>   13

the issue or delivery of shares of Common Stock upon conversion of shares of
Preferred Stock, excluding any tax or other charge imposed in connection with
any transfer involved in the issue and delivery of shares of Common Stock in a
name other than that in which the shares of Preferred Stock so converted were
registered.

                      (r) No Dilution or Impairment. The Company shall not amend
its Restated Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.

               4. Redemption. Preferred Stock is not redeemable.

               5. No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation shall be reissued.

               6. No Preemptive Rights. Stockholders shall have no preemptive
rights except as granted by the Company pursuant to written agreements.


                                       V.

        A. A director of the corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.

        B. Any repeal or modification of this Article V shall be prospective and
shall not affect the rights under this Article V in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.


                                       VI.

        For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:

        (i) The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. Except as set forth
herein, the number of directors



                                       13

<PAGE>   14

which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.

        (ii) The Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws; provided, however, that the stockholders may
change or repeal any Bylaw adopted by the Board of Directors by the affirmative
vote of the holders of a majority of the voting power of all of the then
outstanding shares of the capital stock of the Corporation; and, provided
further, that no amendment or supplement to the Bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement thus adopted
by the stockholders.

        (iii) The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.


                                      VII.

        The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right."


                                     * * * *


        4. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Section 245 of the General Corporation Law of
the State of Delaware. The total number of outstanding shares entitled to vote
or act by written consent was Six Million Seven Hundred Seventy-Two Thousand
Seven Hundred Fifty-Four (6,772,754) shares of Common Stock, Five Million Four
Hundred Forty Two Thousand Five Hundred (5,442,500) shares of Series A
Preferred, Four Hundred Seventy Thousand (470,000) shares of Series B Preferred,
Six Million (6,000,000) shares of Series C Preferred, Two Million One Hundred
Twenty-Five Thousand (2,125,000) shares of Series D Preferred, and Two Million
Six Hundred Eighteen Thousand Five Hundred (2,618,500) shares of Series E
Preferred. A majority of the outstanding shares of Common Stock and a majority
of the outstanding shares of Preferred Stock approved this Restated Certificate
of Incorporation by written consent in accordance with Section 228 of the
General Corporation Law of the State of Delaware and written notice of such was
given by the Corporation in accordance with Section 228 of the General
Corporation Law of the State of Delaware to those stockholders who did not
consent in writing. This is also duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.



                                       14

<PAGE>   15


        IN WITNESS WHEREOF, Intuitive Surgical, Inc. has caused this RESTATED
CERTIFICATE OF INCORPORATION to be signed by the Chief Executive Officer and
Secretary in Palo Alto, California this 30th day of March, 1999.



                                        INTUITIVE SURGICAL, INC.




                                        By /s/ LONNIE M. SMITH
                                           -------------------------------------
                                               LONNIE M. SMITH
                                               Chief Executive Officer



                                        By /s/ ALAN C. MENDELSON
                                           -------------------------------------
                                               ALAN C. MENDELSON
                                               Secretary






<PAGE>   1
                                                                     EXHIBIT 3.2


                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                            INTUITIVE SURGICAL, INC.


        INTUITIVE SURGICAL, INC., a corporation organized and existing under the
laws of the state of Delaware (the "Corporation") hereby certifies that:

        1. The name of the Corporation is Intuitive Surgical, Inc. The name
under which this corporation was originally incorporated is Intuitive Surgical
Devices, Inc.

        2. The date of filing of the Corporation's original Certificate of
Incorporation was November 9, 1995.

        3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.

        4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.

        5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.

        IN WITNESS WHEREOF, the undersigned has signed this certificate this ___
day of ______, 2000, and hereby affirms and acknowledges under
 penalty of
perjury that the filing of this Amended and Restated Certificate of
Incorporation is the act and deed of Intuitive Surgical, Inc.

                                            INTUITIVE SURGICAL,  INC.



                                      By 
                                         ---------------------------------------
                                           Lonnie M. Smith
                                           President and Chief Executive Officer


<PAGE>   2



                                                                       EXHIBIT A


                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                           OF INTUITIVE SURGICAL, INC.
                             A DELAWARE CORPORATION

                                   ARTICLE I.

        The name of the corporation is INTUITIVE SURGICAL, INC.

                                   ARTICLE II.

        The address of the corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Prentice-Hall Corporation System,
Inc.

                                  ARTICLE III.

        The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware ("DGCL").

                                   ARTICLE IV.

        A. CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is two
hundred five million (205,000,000) shares, of which two hundred million
(200,000,000) shares shall be Common Stock, par value $0.001 per share, and five
million (5,000,000) shares shall be Preferred Stock, par value $0.001 per share.

        B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock may be issued from time to time in one or more series. The Board
of Directors is hereby authorized, by filing a certificate (a "Preferred Stock
Designation") pursuant to DGCL, to fix or alter from time to time the
designation, powers, preferences and rights (voting or otherwise) granted upon,
and the qualifications, limitations or restrictions of, any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.

                                   ARTICLE V.

        For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:



<PAGE>   3
        A. MANAGEMENT OF BUSINESS. The management of the business and the
conduct of the affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed exclusively by one or more resolutions adopted by the
Board of Directors.

        B. BOARD OF DIRECTORS.

            1. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the directors
shall be divided into three classes designated as Class I, Class II and Class
III, respectively. Directors shall be assigned to each class in accordance with
a resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the closing of the initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock to the
public (the "Initial Public Offering"), the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the Initial Public Offering, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section B.1. of this
Article V shall become effective and be applicable only when the corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.

            2. In the event that the corporation is subject to Section 2115(b)
of the CGCL AND is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section B.1. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.

            3. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL AND is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an election
for directors may cumulate such stockholder's votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.


<PAGE>   4

        Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

        C. REMOVAL OF DIRECTORS.

            1. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.

            2. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section C.1. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.

        D. VACANCIES.

            1. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.

            2. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.


<PAGE>   5

            3. At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy by the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then:

                (a) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or

                (b) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.

        E. BYLAW AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.

        F. BALLOTS. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.

        G. ACTION BY STOCKHOLDERS. No action shall be taken by the stockholders
of the corporation except at an annual or special meeting of stockholders called
in accordance with the Bylaws; no action shall be taken by the stockholders by
written consent.

        H. ADVANCE NOTICE. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.

        I. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders may be called only by the Chairman of the Board, the Chief
Executive Officer, or a majority of the members of the Board of Directors.

                                   ARTICLE VI.

        A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.

        B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.


<PAGE>   6

        C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.

                                  ARTICLE VII.

        A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.

        B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.





<PAGE>   1


                                                                     EXHIBIT 3.3



                                     BYLAWS

                                       OF

                            INTUITIVE SURGICAL, INC.

                            (A DELAWARE CORPORATION)


<PAGE>   2

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                         <C>
ARTICLE I  OFFICES...........................................................................1

        Section 1.  Registered Office........................................................1

        Section 2.  Other Offices............................................................1

ARTICLE II  CORPORATE SEAL...................................................................1

        Section 3.  Corporate Seal...........................................................1

ARTICLE III  STOCKHOLDERS' MEETINGS..........................................................1

        Section 4.  Place Of Meetings........................................................1

        Section 5.  Annual Meetings..........................................................1

        Section 6.  Special Meetings.........................................................4

        Section 7.  Notice Of Meetings.......................................................5

        Section 8.  Quorum...................................................................5

        Section 9.  Adjournment And Notice Of Adjourned Meetings.............................6

        Section 10.  Voting Rights...........................................................6

        Section 11.  Joint Owners Of Stock...................................................6

        Section 12.  List Of Stockholders....................................................6

        Section 13.  Action Without Meeting..................................................7

        Section 14.  Organization............................................................7

ARTICLE IV  DIRECTORS........................................................................8

        Section 15.  Number And Term Of Office...............................................8

        Section 16.  Powers..................................................................8

        Section 17.  Classes of Directors....................................................8

        Section 18.  Vacancies...............................................................9

        Section 19.  Resignation............................................................10

        Section 20.  Removal................................................................10

        Section 21.  Meetings...............................................................11

        Section 22.  Quorum And Voting......................................................12

        Section 23.  Action Without Meeting.................................................12

        Section 24.  Fees And Compensation..................................................12

        Section 25.  Committees.............................................................12

        Section 26.  Organization...........................................................13
</TABLE>





<PAGE>   3
                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                           PAGE
<S>                                                                                        <C>
ARTICLE V  OFFICERS.........................................................................14

        Section 27.  Officers Designated....................................................14

        Section 28.  Tenure And Duties Of Officers..........................................14

        Section 29.  Delegation Of Authority................................................15

        Section
 30.  Resignations...........................................................15

        Section 31.  Removal................................................................15

ARTICLE VI  EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
                      OWNED BY THE CORPORATION..............................................16

        Section 32.  Execution Of Corporate Instruments.....................................16

        Section 33.  Voting Of Securities Owned By The Corporation..........................16

ARTICLE VII  SHARES OF STOCK................................................................16

        Section 34.  Form And Execution Of Certificates.....................................16

        Section 35.  Lost Certificates......................................................17

        Section 36.  Transfers..............................................................17

        Section 37.  Fixing Record Dates....................................................17

        Section 38.  Registered Stockholders................................................18

ARTICLE VIII  OTHER SECURITIES OF THE CORPORATION...........................................18

        Section 39.  Execution Of Other Securities..........................................18

ARTICLE IX  DIVIDENDS.......................................................................19

        Section 40.  Declaration Of Dividends...............................................19

        Section 41.  Dividend Reserve.......................................................19

ARTICLE X  FISCAL YEAR......................................................................19

        Section 42.  Fiscal Year............................................................19

ARTICLE XI  INDEMNIFICATION.................................................................19

        Section 43.  Indemnification Of Directors, Executive Officers, Other Officers,
                      Employees And Other Agents............................................19

ARTICLE XII  NOTICES........................................................................22

        Section 44.  Notices................................................................22

ARTICLE XIII  AMENDMENTS....................................................................24

        Section 45.  Amendments.............................................................24
</TABLE>


<PAGE>   4


                                TABLE OF CONTENTS
                                   (CONTINUED)


<TABLE>
<S>                                                                                        <C>
ARTICLE XIV  LOANS TO OFFICERS..............................................................24

        Section 46.  Loans To Officers......................................................24
</TABLE>




<PAGE>   5

                                     BYLAWS

                                       OF

                            INTUITIVE SURGICAL, INC.

                            (A DELAWARE CORPORATION)


                                    ARTICLE I

                                     OFFICES

        SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.

        SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.

                                   ARTICLE II

                                 CORPORATE SEAL

        SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.

                                   ARTICLE III

                             STOCKHOLDERS' MEETINGS

        SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.

        SECTION 5. ANNUAL MEETINGS.

                (a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a 

                                       1.

<PAGE>   6

stockholder of record at the time of giving of notice provided for in the
following paragraph, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in Section 5.

                (b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is 


                                       2.

<PAGE>   7

made (i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of the proposal, at least the percentage of the
corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").

                (c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.

                (d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.

                (e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.

                (f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.



                                       3.

<PAGE>   8

        SECTION 6. SPECIAL MEETINGS.

                (a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting; provided, however, that
following registration of any of the classes of equity securities of the
corporation pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, special meetings of the stockholders may only be called as set forth
in (i), (ii) or (iii) above, except as otherwise required below.

        At any time or times that the corporation is subject to Section 2115(b)
of the California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders only as set forth in Section 18(c) herein.

                (b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.

                (c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of 

                                       4.

<PAGE>   9

business on the later of the ninetieth (90th) day prior to such meeting or the
tenth (10th) day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.

        SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.

        SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.



                                       5.

<PAGE>   10

        SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

        SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.

        SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.

        SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.



                                       6.

<PAGE>   11

        SECTION 13. ACTION WITHOUT MEETING.

                (a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.

                (b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.

                (c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing, and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of stockholders to take action were delivered to the
corporation as provided in Section 228 (c) of the DGCL. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the DGCL if such action had been voted on by stockholders at a
meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written consent has been given in accordance with Section 228
of the DGCL.

                (d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").

        SECTION 14. ORGANIZATION.

                (a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

                (b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, 

                                       7.

<PAGE>   12

appropriate or convenient. Subject to such rules and regulations of the Board of
Directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those present,
limitations on participation in such meeting to stockholders of record of the
corporation and their duly authorized and constituted proxies and such other
persons as the chairman shall permit, restrictions on entry to the meeting after
the time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot. Unless
and to the extent determined by the Board of Directors or the chairman of the
meeting, meetings of stockholders shall not be required to be held in accordance
with rules of parliamentary procedure.

                                   ARTICLE IV

                                    DIRECTORS

        SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.

        SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.

        SECTION 17. CLASSES OF DIRECTORS.

                (a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. During such time or times that the corporation is
subject to Section 2115(b) of the 

                                       8.

<PAGE>   13

CGCL, this Section 17(a) shall become effective and apply only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of the
CGCL.

                (b) In the event that the corporation is unable to have a
classified Board of Directors under applicable law, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.

                (c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.

        Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

        SECTION 18. VACANCIES.

                (a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director.

                (b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application

                                       9.

<PAGE>   14

of any stockholder or stockholders holding at least ten percent (10%) of the
total number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in offices as aforesaid, which election shall be governed by
Section 211 of the DGCL.

                (c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then

                        (1) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or

                        (2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.

        SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.

        SECTION 20. REMOVAL.

                (a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.

                (b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 20(a) above shall no longer apply and removal shall be as provided
in Section 141(k) of the DGCL.

                                      10.

<PAGE>   15


        SECTION 21. MEETINGS.

                (a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.

                (b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.

                (c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.

                (d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.

                (e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

                (f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.

                                      11.

<PAGE>   16


        SECTION 22. QUORUM AND VOTING.

                (a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.

                (b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.

        SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

        SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.

        SECTION 25. COMMITTEES.

                (a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.

                (b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by 

                                      12.

<PAGE>   17

the Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Bylaws.

                (c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.

                (d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.

        SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

                                      13.

<PAGE>   18

                                    ARTICLE V

                                    OFFICERS

        SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.

        SECTION 28. TENURE AND DUTIES OF OFFICERS.

                (a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.

                (b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.

                (c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.

                (d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.

                                      14.

<PAGE>   19


                (e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.

                (f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.

        SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.

        SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.

        SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

                                      15.

<PAGE>   20

                                   ARTICLE VI

           EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
                            OWNED BY THE CORPORATION

        SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.

        All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.

        Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.

        SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.

                                   ARTICLE VII

                                 SHARES OF STOCK

        SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests 

                                      16.

<PAGE>   21

the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated stock,
the corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.

        SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.

        SECTION 36. TRANSFERS.

                (a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.

                (b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.

        SECTION 37. FIXING RECORD DATES.

                (a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to 

                                      17.

<PAGE>   22

vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

                (b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

        SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.

                                  ARTICLE VIII

                       OTHER SECURITIES OF THE CORPORATION

        SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.

                                      18.

<PAGE>   23

                                   ARTICLE IX

                                    DIVIDENDS

        SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.

        SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.


                                    ARTICLE X

                                   FISCAL YEAR

        SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

                                   ARTICLE XI

                                 INDEMNIFICATION

        SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.

                (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).

                                      19.

<PAGE>   24

                (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.

                (c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.

        Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.

                (d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 43 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a 

                                      20.

<PAGE>   25

manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL or any other applicable law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.

                (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.

                (f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

                (g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.

                (h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.

                (i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.

                (j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

                                      21.

<PAGE>   26

                        (1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.

                        (2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.

                        (3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

                        (4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.

                        (5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.

                                   ARTICLE XII

                                     NOTICES

        SECTION 44. NOTICES.

                (a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and 

                                      22.

<PAGE>   27

duly deposited in the United States mail, postage prepaid, and addressed to his
last known post office address as shown by the stock record of the corporation
or its transfer agent.

                (b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.

                (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.

                (d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.

                (e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.

                (f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.

                (g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.

                (h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of

                                      23.

<PAGE>   28

the corporation, to any stockholder to whom (i) notice of two consecutive annual
meetings, and all notices of meetings or of the taking of action by written
consent without a meeting to such person during the period between such two
consecutive annual meetings, or (ii) all, and at least two, payments (if sent by
first class mail) of dividends or interest on securities during a twelve-month
period, have been mailed addressed to such person at his address as shown on the
records of the corporation and have been returned undeliverable, the giving of
such notice to such person shall not be required. Any action or meeting which
shall be taken or held without notice to such person shall have the same force
and effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the DGCL, the
certificate need not state that notice was not given to persons to whom notice
was not required to be given pursuant to this paragraph.

                                  ARTICLE XIII

                                   AMENDMENTS

        SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.

                                   ARTICLE XIV

                                LOANS TO OFFICERS

        SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.



                                      24.



<PAGE>   1
                                                                    EXHIBIT 10.1

                               INDEMNITY AGREEMENT


        THIS AGREEMENT is made and entered into this _____ day of ______, 200__
by and between INTUITIVE SURGICAL, INC., a Delaware corporation (the
"Corporation"), and __________ ("Agent").

                                    RECITALS

        WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______ of the Corporation;

        WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");

        WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and

        WHEREAS, in order to induce Agent to continue to serve as _________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;

        NOW, THEREFORE, in consideration of Agent's continued service as
________ after the date hereof, the parties hereto agree as follows:

                                    AGREEMENT

        1. SERVICES TO THE CORPORATION.
 Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.

        2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).

                                       1.

<PAGE>   2

        3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:

            (a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and

            (b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and the Bylaws.

        4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:

            (a) on account of any claim against Agent solely for an accounting
of profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;

            (b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;

            (c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;

            (d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;

            (e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or

            (f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the

                                       2.

<PAGE>   3

proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.

        5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.

        6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.

        7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:

            (a) the Corporation will be entitled to participate therein at its
own expense;

            (b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such 

                                       3.

<PAGE>   4

action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and

            (c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.

        8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.

        9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.

        10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.

        11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.

                                       4.

<PAGE>   5

        12. SURVIVAL OF RIGHTS.

            (a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.

            (b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

        13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.

        14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.

        15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.

        16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.

        17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.

        18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:

               (a)    If to Agent, at the address indicated on the signature
                      page hereof.


                                       5.

<PAGE>   6

               (b)    If to the Corporation, to:

                      INTUITIVE SURGICAL, INC.
                      1340 W. Middlefield Road
                      Mountain View, CA 94043

or to such other address as may have been furnished to Agent by the Corporation.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.

                                            INTUITIVE SURGICAL, INC.

                                            By:                                 
                                               ---------------------------------

                                            Print Name:                         
                                                        ------------------------

                                            Title:                              
                                                   -----------------------------

                                            AGENT

                                            By:                                 
                                               ---------------------------------
                                               Name:                            
                                                    ----------------------------
                                               Address:                         
                                                       -------------------------


                                       6.




<PAGE>   1

                                                                    EXHIBIT 10.2

                            INTUITIVE SURGICAL, INC.

                           2000 EQUITY INCENTIVE PLAN

                             ADOPTED MARCH __, 2000
                    APPROVED BY STOCKHOLDERS _________, 2000
                        TERMINATION DATE: _________, 2010



1.      PURPOSES.

        (a) AMENDMENT AND RESTATEMENT OF INITIAL PLAN. The Plan initially was
established as the 1996 Equity Incentive Plan, effective as of January 31, 1996
(the "Initial Plan"). The Initial Plan, as amended, hereby is amended and
restated in its entirety and renamed the 2000 Equity Incentive Plan, effective
upon the completion of the Company's initial public offering. The terms of the
Initial Plan (other than the aggregate number of shares issuable thereunder)
shall remain in effect and apply to all Stock Awards granted pursuant to the
Initial Plan. Section 11 of the Plan shall supersede Section 12 of the Initial
Plan.

        (b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

        (c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory
 Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

        (d) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.      DEFINITIONS.

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

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

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

        (d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).




<PAGE>   2

        (e) "COMMON STOCK" means the common stock of the Company.

        (f) "COMPANY" means Intuitive Surgical, Inc., a Delaware corporation.

        (g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.

        (h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

        (i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

        (j) "DIRECTOR" means a member of the Board of Directors of the Company.

        (k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

        (l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

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

        (n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the


                                       2

<PAGE>   3

greatest volume of trading in the Common Stock) on the last market trading day
prior to the day of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable.

               (ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

        (o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

        (p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.

        (q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

        (r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

        (s) "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.

        (t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

        (u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

        (v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

        (w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations


                                       3

<PAGE>   4

promulgated under Section 162(m) of the Code), is not a former employee of the
Company or an "affiliated corporation" receiving compensation for prior services
(other than benefits under a tax qualified pension plan), was not an officer of
the Company or an "affiliated corporation" at any time and is not currently
receiving direct or indirect remuneration from the Company or an "affiliated
corporation" for services in any capacity other than as a Director or (ii) is
otherwise considered an "outside director" for purposes of Section 162(m) of the
Code.

        (x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

        (y) "PLAN" means this Intuitive Surgical, Inc. 2000 Equity Incentive
Plan.

        (z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

        (aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.

        (bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.

        (cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

        (dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

3.      ADMINISTRATION.

        (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).

        (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

               (i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

               (ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any


                                       4

<PAGE>   5

Stock Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.

               (iii) To amend the Plan or a Stock Award as provided in Section
12.

               (iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

        (c) DELEGATION TO COMMITTEE.

               (i) GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

               (ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.

        (d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4.      SHARES SUBJECT TO THE PLAN.

        (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Ten Million
(10,000,000) shares of Common Stock.


                                       5

<PAGE>   6

        (b) EVERGREEN SHARE RESERVE INCREASE.

               (i) Notwithstanding subsection 4(a) hereof, on the day after each
annual meeting of stockholders of the Company (the "Calculation Date") for a
period of ten (10) years, commencing with the annual meeting of stockholders in
2001, the aggregate number of shares of Common Stock that is available for
issuance under the Plan shall automatically be increased by that number of
shares equal to the greater of (1) five percent (5%) of the Diluted Shares
Outstanding or (2) the number of shares of Common Stock subject to Stock Awards
granted under the Plan during the prior 12-month period; provided, however, that
the Board, from time to time, may provide for a lesser increase in the aggregate
number of shares of Common Stock that is available for issuance under the Plan.

               (ii) Subject to the provisions of Section 11 hereof relating to
adjustments upon changes in securities, the increase in the maximum aggregate
number of shares of Common Stock that is available for issuance pursuant to
Incentive Stock Options granted under the Plan shall not exceed Twenty Million
(20,000,000) shares of Common Stock.

               (iii) "Diluted Shares Outstanding" shall mean, as of any date,
(1) the number of outstanding shares of Common Stock of the Company on such
Calculation Date, plus (2) the number of shares of Common Stock issuable upon
such Calculation Date assuming the conversion of all outstanding Preferred Stock
and convertible notes, plus (3) the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.

        (c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. If any shares are repurchased, such repurchased shares shall revert to
and again become available for issuance under the Plan for all Stock Awards
other than Incentive Stock Options.

        (d) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

5.      ELIGIBILITY.

        (a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.

        (b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.


                                       6

<PAGE>   7

        (c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than Five Million
(5,000,000) shares of Common Stock during any calendar year. This subsection
5(c) shall not apply prior to the Listing Date and, following the Listing Date,
this subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares of Common Stock reserved for issuance under the Plan in accordance with
Section 4); (2) the issuance of all of the shares of Common Stock reserved for
issuance under the Plan; (3) the expiration of the Plan; or (4) the first
meeting of stockholders at which Directors are to be elected that occurs after
the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.

        (d) CONSULTANTS.

               (i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

               (ii) Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.

6.      OPTION PROVISIONS.

        Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

        (a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option granted on or after the Listing
Date shall be exercisable after the expiration of ten (10) years from the date
it was granted.


                                       7

<PAGE>   8

        (b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

        (c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

        (d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

        In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

        (e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.


                                       8

<PAGE>   9

        (f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

        (g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

        (h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement),or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

        (i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

        (j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.


                                       9

<PAGE>   10

        (k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

        (l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.

7.      PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

        (a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:

               (i) CONSIDERATION. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.

               (ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.

               (iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.

               (iv) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement.


                                       10

<PAGE>   11

        (b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

               (i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.

               (ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.

               (iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.

               (iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.

               (v) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.

8.      COVENANTS OF THE COMPANY.

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

        (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of


                                       11

<PAGE>   12

the Stock Awards; provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
Common Stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is obtained.

9.      USE OF PROCEEDS FROM STOCK.

        Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.     MISCELLANEOUS.

        (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

        (b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

        (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

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

        (e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and


                                       12

<PAGE>   13

business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Stock Award; and (ii) to give written assurances satisfactory to the Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant's own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(1) the issuance of the shares of Common Stock upon the exercise or acquisition
of Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (2) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the Common
Stock.

        (f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

11.     ADJUSTMENTS UPON CHANGES IN STOCK.

        (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)


                                       13

<PAGE>   14

        (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to such event.

        (c) ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of
(i) a sale, lease or other disposition of all or substantially all of the assets
of the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise (collectively, a "change in
control"), then any surviving corporation or acquiring corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the change in control for those outstanding under the Plan). In
the event any surviving corporation or acquiring corporation refuses to assume
such Stock Awards or to substitute similar stock awards for those outstanding
under the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to the change in control. With respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall terminate if
not exercised (if applicable) prior to the change in control.

12.     AMENDMENT OF THE PLAN AND STOCK AWARDS.

        (a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.

        (b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

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

        (d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.


                                       14

<PAGE>   15

        (e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13.     TERMINATION OR SUSPENSION OF THE PLAN.

        (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

        (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.

14.     EFFECTIVE DATE OF PLAN.

        The Plan shall become effective upon adoption by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.

15.     CHOICE OF LAW.

        The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.


                                       15


<PAGE>   16



                            INTUITIVE SURGICAL, INC.
                            STOCK OPTION GRANT NOTICE
                          (2000 EQUITY INCENTIVE PLAN)


Intuitive Surgical, Inc. (the "Company"), pursuant to its 2000 Equity Incentive
Plan (the "Plan"), hereby grants to Optionholder an option to purchase the
number of shares of the Company's Common Stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in the Stock
Option Agreement, the Plan and the Notice of Exercise, all of which are attached
hereto and incorporated herein in their entirety.

Optionholder:                                     ______________________________
Date of Grant:                                    ______________________________
Vesting Commencement Date:                        ______________________________
Number of Shares Subject to Option:               ______________________________
Exercise Price (Per Share):                       ______________________________
Total Exercise Price:                             ______________________________
Expiration Date:                                  ______________________________

TYPE OF GRANT:     [ ] Incentive Stock Option(1)  [ ]  Nonstatutory Stock Option

EXERCISE SCHEDULE: Early Exercise Permitted

VESTING SCHEDULE:  1/4th  of the shares vest one year after the Vesting 
                   Commencement Date.
                   1/48th of the shares vest monthly thereafter over the next
                   four years.

PAYMENT:           By one or a combination of the following items (described in
                   the Stock Option Agreement):

                   By cash or check
                   Pursuant to a Regulation T Program if the Shares are publicly
                   traded
                   By delivery of already-owned shares if the Shares are
                   publicly traded

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

        OTHER AGREEMENTS:

                                            ------------------------------------

                                            ------------------------------------


INTUITIVE SURGICAL, INC.                    OPTIONHOLDER:


By:
   -------------------------------          ------------------------------------
            Signature                                    Signature

Title:                                      Date:
      ----------------------------               -------------------------------

Date:
     -----------------------------

ATTACHMENTS: Stock Option Agreement, 2000 Equity Incentive Plan and Notice of
Exercise



--------
1 If this is an incentive stock option, it (plus your other outstanding
incentive stock options) cannot be first exercisable for more than $100,000 in
any calendar year. Any excess over $100,000 is a nonstatutory stock option.

<PAGE>   17




                            INTUITIVE SURGICAL, INC.
                           2000 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT
                   (INCENTIVE AND NONSTATUTORY STOCK OPTIONS)


        Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Intuitive Surgical, Inc. (the "Company") has granted you
an option under its 2000 Equity Incentive Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

        The details of your option are as follows:

        1. VESTING.

           (a) Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.

           (b) Notwithstanding the foregoing vesting schedule, if you are a full
time Employee and if the Company consummates a Change of Control (as defined in
subsection 1(c) below), and if within twenty-four (24) months after a Change of
Control one of the following events occurs: (i) your employment is terminated
without Cause (as defined in subsection 1(d) below); (ii) the principal place of
the performance of your employment responsibilities (the "Employment Location")
is changed to a location more than twenty-five (25) miles from your Employment
Location immediately prior to the Change of Control; or (iii) there is a
material reduction in your compensation or employment responsibilities without
Cause, then the unvested portion of your option shall immediately become fully
vested and exercisable.

           (c) A "Change of Control," as used herein shall mean any
consolidation or merger of the Company with or into any other corporation or
other entity or person, or any other corporate reorganization in which the
stockholders of the Company prior to such consolidation, merger or
reorganization shall own less than fifty percent (50%) of the voting stock of
the continuing or surviving entity of such consolidation, merger or
reorganization.

           (d) As used herein, "Cause" shall mean misconduct, including: (i)
conviction of any felony or any crime involving moral turpitude or dishonesty;
(ii) participation in a fraud or act of dishonesty against the Company; (iii)
willful and material breach of the Company's policies; (iv) intentional and
material damage to the Company's property; (v) material breach of your
Proprietary Information and Inventions Agreement; or (vi) death, severe physical
or mental disability.



                                        1

<PAGE>   18

        2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

        3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

           (a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

           (b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;

           (c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and

           (d) if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of the shares of Common Stock with respect to which your option
plus all other incentive stock options you hold are exercisable for the first
time by you during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or
portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as nonstatutory stock options.

        4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

           (a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

           (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or



                                       2

<PAGE>   19

indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes, in the sole discretion of
the Company at the time you exercise your option, shall include delivery to the
Company of your attestation of ownership of such shares of Common Stock in a
form approved by the Company. Notwithstanding the foregoing, you may not
exercise your option by tender to the Company of Common Stock to the extent such
tender would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock.

        5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

        6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

        7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:

           (a) three (3) months after the termination of your Continuous Service
for any reason other than your Disability or death, provided that if during any
part of such three- (3-) month period your option is not exercisable solely
because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

           (b) twelve (12) months after the termination of your Continuous
Service due to your Disability;

           (c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

           (d) the Expiration Date indicated in your Grant Notice; or

           (e) the day before the tenth (10th) anniversary of the Date of Grant.

        If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability



                                       3

<PAGE>   20

of your option under certain circumstances for your benefit but cannot guarantee
that your option will necessarily be treated as an "incentive stock option" if
you continue to provide services to the Company or an Affiliate as a Consultant
or Director after your employment terminates or if you otherwise exercise your
option more than three (3) months after the date your employment terminates.

        8. EXERCISE.

           (a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

           (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

           (c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

           (d) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period.

        9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.



                                       4

<PAGE>   21

        10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the Company's bylaws in effect at such time the Company elects to
exercise its right. The Company's right of first refusal shall expire on the
Listing Date.

        11. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws
as amended from time to time, the Company shall have the right to repurchase all
or any part of the shares of Common Stock you acquire pursuant to the exercise
of your option.

        12. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

        13. WITHHOLDING OBLIGATIONS.

            (a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.

            (b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law. If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such
exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

            (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise



                                       5

<PAGE>   22

your option when desired even though your option is vested, and the Company
shall have no obligation to issue a certificate for such shares of Common Stock
or release such shares of Common Stock from any escrow provided for herein.

        14. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

        15. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.







                                       6



<PAGE>   1

                                                                    EXHIBIT 10.3

                            INTUITIVE SURGICAL, INC.
                                        
                 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
                                        
                            ADOPTED MARCH ___, 2000
                   APPROVED BY STOCKHOLDERS _______ ___, 2000
                                        
                        EFFECTIVE DATE: _________, 2000
                             TERMINATION DATE: NONE

1.      PURPOSES.

        (a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.

        (b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.

        (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.

2.      DEFINITIONS.

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

        (b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.

        (c) "ANNUAL MEETING"
 means the annual meeting of the stockholders of the
Company.

        (d) "BOARD" means the Board of Directors of the Company.

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

        (f) "COMMON STOCK" means the common stock of the Company.

        (g) "COMPANY" means Intuitive Surgical, Inc., a Delaware corporation.

        (h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the


                                       1

<PAGE>   2

term "Consultant" shall not include either Directors of the Company who are not
compensated by the Company for their services as Directors or Directors of the
Company who are merely paid a director's fee by the Company for their services
as Directors.

        (i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.

        (j) "DIRECTOR" means a member of the Board of Directors of the Company.

        (k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

        (l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

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

        (n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

               (i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

               (ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

        (o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.


                                       2

<PAGE>   3

        (p) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.

        (q) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.

        (r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

        (s) "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.

        (t) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

        (u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

        (v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

        (w) "PLAN" means this Caliper Technologies Corp. 1999 Non-Employee
Directors' Stock Option Plan.

        (x) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

        (y) "SECURITIES ACT" means the Securities Act of 1933, as amended.

3.      ADMINISTRATION.

        (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.

        (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

               (i) To determine the provisions of each Option to the extent not
specified in the Plan.

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

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


                                       3

<PAGE>   4

               (iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.

        (c) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4.      SHARES SUBJECT TO THE PLAN.

        (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate Three Hundred
Thousand (300,000) shares of Common Stock.

        (b) EVERGREEN SHARE RESERVE INCREASE.

               (i) Notwithstanding subsection 4(a) hereof, on the day after each
Annual Meeting (the "Calculation Date") for a period of ten (10) years,
commencing with the Annual Meeting in 2000, the aggregate number of shares of
Common Stock that is available for issuance under the Plan shall automatically
be increased by that number of shares equal to the greater of (1) three-tenths
of one percent (0.3%) of the Diluted Shares Outstanding or (2) the number of
shares of Common Stock subject to Options granted during the prior 12-month
period; provided, however, that the Board, from time to time, may provide for a
lesser increase in the aggregate number of shares of Common Stock that is
available for issuance under the Plan

               (ii) "Diluted Shares Outstanding" shall mean, as of any date, (1)
the number of outstanding shares of Common Stock of the Company on such
Calculation Date, plus (2) the number of shares of Common Stock issuable upon
such Calculation Date assuming the conversion of all outstanding Preferred Stock
and convertible notes, plus (3) the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.

        (c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.

        (d) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.


                                       4

<PAGE>   5

5.      ELIGIBILITY.

        The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.

6.      NON-DISCRETIONARY GRANTS.

        (a) INITIAL GRANTS. Without any further action of the Board, each person
who is elected or appointed for the first time to be a Non-Employee Director
automatically shall, upon the date of his or her initial election or appointment
to be a Non-Employee Director, be granted an Initial Grant to purchase Twenty
Thousand (20,000) shares of Common Stock on the terms and conditions set forth
herein.

        (b) ANNUAL GRANTS. Without any further action of the Board, on the day
following each Annual Meeting, commencing with the Annual Meeting in 2001, each
person who is then a Non-Employee Director, and has been a Non-Employee Director
for at least six (6) months, automatically shall be granted an Annual Grant to
purchase Five Thousand (5,000) shares of Common Stock on the terms and
conditions set forth herein.

7.      OPTION PROVISIONS.

        Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

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

        (b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

        (c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock or (iii) pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board that, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds. The purchase price of
Common Stock acquired pursuant to an Option that is paid by delivery to the
Company of other Common Stock acquired, directly or indirectly from the Company,
shall be paid only by shares of the Common Stock of the Company that have been


                                       5

<PAGE>   6

held for more than six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes).

        (d) TRANSFERABILITY. An Option is transferable by will or by the laws of
descent and distribution. An Option also is transferable if, at the time of
transfer, a Form S-8 registration statement under the Securities Act is
available for the exercise of the Option and the subsequent resale of the
underlying securities.1 In addition, Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.

        (e) VESTING. Options shall vest as follows:

               (i) Initial Grants shall provide for vesting of 1/36th of the
shares subject to the Option each month for three (3) years after the date of
the grant.

               (ii) Annual Grants shall provide for vesting of 1/12th of the
shares subject to the Option each month for one (1) year after the date of the
grant.

        (f) EXERCISE. Options shall be exercisable in full immediately upon
grant.

        (g) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.

        (h) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the

----------

(1) See the General Instructions to the Form S-8 Registration Statement, Rule
A.1.(5). Currently a Form S-8 is available for the exercise of the Option and
the subsequent resale of the underlying securities by the Optionholder's family
member who has acquired the Option from the Optionholder through a gift or a
domestic relations order. For purposes of Form S-8, "family member" currently
includes any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, any person sharing the Optionholder's household (other
than a tenant or employee), a trust in which these persons have more than fifty
percent (50%) of the beneficial interest, a foundation in which these persons
(or the Optionholder) control the management of assets, and any other entity in
which these persons (or the Optionholder) own more than fifty percent (50%) of
the voting interests. Form S-8 currently is not available for the exercise of an
Option transferred for value. The following transactions currently are not
prohibited transfers for value: (i) a transfer under a domestic relations order
in settlement of marital property rights; and (ii) a transfer to an entity in
which more than fifty percent (50%) of the voting interests are owned by family
members (or the Optionholder) in exchange for an interest in that entity.


                                       6

<PAGE>   7

expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

        (i) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.

        (j) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

8.      COVENANTS OF THE COMPANY.

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

        (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.

9.      USE OF PROCEEDS FROM STOCK.

        Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.


                                       7

<PAGE>   8

10.     MISCELLANEOUS.

        (a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.

        (b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

        (c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

        (d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.


                                       8

<PAGE>   9

11.     ADJUSTMENTS UPON CHANGES IN STOCK.

        (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)

        (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to such event.

        (c) ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.

               (i) In the event of (i) a sale, lease or other disposition of all
or substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise (collectively, a "change in control"), then any surviving
corporation or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an option to acquire the
same consideration paid to the stockholders in the change in control transaction
for those outstanding under the Plan).

               (ii) In the event any surviving corporation or acquiring
corporation refuses to assume such Options or to substitute similar Options for
those outstanding under the Plan, then the vesting of such Options and the
vesting of any shares of Common Stock acquired pursuant to such Options shall be
accelerated in full, and the Options shall terminate if not exercised at or
prior to the change in control.

               (iii) In the event any surviving corporation or acquiring
corporation assumes such Options or substitutes similar Options for those
outstanding under the Plan but the Optionholder is not elected or appointed to
the board of directors of the surviving corporation or acquiring corporation at
the first meeting of such board of directors after the change in control, then
the vesting of such Options and the vesting of any shares of Common Stock
acquired pursuant to such Options shall be accelerated by eighteen (18) months
on the day after the first meeting of the board of directors of the surviving
corporation or acquiring corporation.


                                       9

<PAGE>   10

               (iv) In the event any surviving corporation or acquiring
corporation assumes such Options or substitutes similar Options for those
outstanding under the Plan and the Optionholder is elected or appointed to the
board of directors of the surviving corporation or acquiring corporation at the
first meeting of such board of directors after the change in control, then the
vesting of such Options and the vesting of any shares of Common Stock acquired
pursuant to such Options shall not be accelerated.

12.     AMENDMENT OF THE PLAN AND OPTIONS.

        (a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

        (b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.

        (c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

        (d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.

13.     TERMINATION OR SUSPENSION OF THE PLAN.

        (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
No Options may be granted under the Plan while the Plan is suspended or after it
is terminated.

        (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.

14.     EFFECTIVE DATE OF PLAN.

        The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.


                                       10

<PAGE>   11

15.     CHOICE OF LAW.

All questions concerning the construction, validity and interpretation of this
Plan shall be governed by the law of the State of Delaware, without regard to
such state's conflict of laws rules.


                                       11


<PAGE>   12
                            INTUITIVE SURGICAL, INC.
                 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
                           (NONSTATUTORY STOCK OPTION)


      Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Intuitive Surgical, Inc. (the "Company") has granted you an
option under its 2000 Non-Employee Directors' Stock Option Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.

      The details of your option are as follows:

      1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.

      2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

      3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). As permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

            (a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

            (b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement; and

            (c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred.

      4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or by one or more of the following:



                                       1

<PAGE>   13
            (a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.

            (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.

      5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

      7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

            (b) twelve (12) months after the termination of your Continuous
Service due to your Disability;





                                       2

<PAGE>   14
            (c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates; or

            (d) the Expiration Date indicated in your Grant Notice; or

            (e) the day before the tenth (10th) anniversary of the Date of
Grant.

      8. EXERCISE.

            (a) You may exercise your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of the exercise of your
option.

      9. TRANSFERABILITY. Your option is not transferable, except (i) by will or
by the laws of descent and distribution, or (ii) as permitted under the Form S-8
registration statement regulations in effect at the time of the transfer.(1)
Your option is exercisable during your life only by you or a transferee
satisfying the above-stated conditions. The right of a transferee to exercise
the transferred portion of your option after termination of your Continuous
Service shall terminate in accordance with your right to exercise your option as
specified in your option. In the event that your Continuous Service terminates
due to your death, your transferee will be treated as a person who acquired the
right to exercise your option by bequest or inheritance. In addition to the
foregoing, the Company may require, as a condition of the transfer of your
option to a trust or by gift, that your transferee enter into an option transfer
agreement provided by, or acceptable to, the Company. The terms of your option
shall be binding upon your transferees, executors, administrators, heirs,
successors, and assigns. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may designate
a third party who, in the event of your death, shall thereafter be entitled to
exercise your option.


-------- 
(1) See the General Instructions to the Form S-8 Registration Statement, Rule
A.1.(5). Currently a Form S-8 is available for the exercise of your option and
the subsequent resale of the underlying securities by your family member who has
acquired your option from you through a gift or a domestic relations order. For
purposes of Form S-8, "family member" currently includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing your household (other than a tenant or employee), a trust in which these
persons have more than fifty percent (50%) of the beneficial interest, a
foundation in which these persons (or you) control the management of assets, and
any other entity in which these persons (or you) own more than fifty percent
(50%) of the voting interests. Form S-8 currently is not available for the
exercise of an option transferred for value. The following transactions
currently are not prohibited transfers for value: (i) a transfer under a
domestic relations order in settlement of marital property rights; and (ii) a
transfer to an entity in which more than fifty percent (50%) of the voting
interests are owned by family members (or you) in exchange for an interest in
that entity.



                                       3

<PAGE>   15
      10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

      11. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      12. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.



                                       4



<PAGE>   1
                                                                   EXHIBIT 10.4


                            INTUITIVE SURGICAL, INC.
                        2000 EMPLOYEE STOCK PURCHASE PLAN
                                        
                  ADOPTED BY BOARD OF DIRECTORS MARCH __, 2000
                   APPROVED BY STOCKHOLDERS ___________, 2000
                             TERMINATION DATE: NONE


1.    PURPOSE.

      (a)   The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.

      (b)   The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.

      (c)   The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.

2.    DEFINITIONS.

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

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

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

      (d)   "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c)
 of the Plan.

      (e)   "COMPANY" means Intuitive Surgical, Inc., a Delaware corporation.

      (f)   "DIRECTOR" means a member of the Board.

      (g)   "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.

      (h)   "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.


                                      -1-

<PAGE>   2

      (i)   "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.

      (j)   "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.

      (k)   "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.

      (l)   "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.

      (m)   "OFFERING" means the grant of Rights to purchase Shares under the
Plan to Eligible Employees.

      (n)   "OFFERING DATE" means a date selected by the Board for an Offering
to commence.

      (o)   "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

      (p)   "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.



                                      -2-

<PAGE>   3

      (q)   "PLAN" means this 2000 Employee Stock Purchase Plan.

      (r)   "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.

      (s)   "RIGHT" means an option to purchase Shares granted pursuant to the
Plan.

      (t)   "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.

      (u)   "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.

      (v)   "SHARE" means a share of the common stock of the Company.

3.    ADMINISTRATION.

      (a)   The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c). Whether
or not the Board has delegated administration, the Board shall have the final
power to determine all questions of policy and expediency that may arise in the
administration of the Plan.

      (b)   The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i)   To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).

            (ii)  To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.

            (iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.

            (iv)  To amend the Plan as provided in Section 14.

            (v)   Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.

      (c)   The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the



                                      -3-

<PAGE>   4

Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

4.    SHARES SUBJECT TO THE PLAN.

      (a)   Subject to the provisions of Section 13 relating to adjustments upon
changes in securities, the Shares that may be sold pursuant to Rights granted
under the Plan shall not exceed in the aggregate One Million (1,000,000) Shares.
If any Right granted under the Plan shall for any reason terminate without
having been exercised, the Shares not purchased under such Right shall again
become available for the Plan.

      (b)   The aggregate number of Shares that may be sold pursuant to Rights
granted under the Plan as specified in Section 4(a) hereof automatically shall
be increased as follows:

            (i)   On the day after each annual meeting of stockholders of the
Company (the "Calculation Date") for a period of ten (10) years, commencing with
the annual meeting of stockholders in 2001, the aggregate number of shares of
Common Stock that is available for issuance under the Plan shall automatically
be increased by that number of shares equal to the greater of (1) five-tenths of
one percent (0.5%) of the Diluted Shares Outstanding or (2) the number of shares
of Common Stock sold pursuant to Rights during the prior 12-month period;
provided, however, that the Board, from time to time, may provide for a lesser
increase in the aggregate number of shares of Common Stock that is available for
issuance under the Plan

            (ii)  Subject to the provisions of Section 13 hereof relating to
adjustments upon changes in securities, the increase in the maximum aggregate
number of shares of Common Stock that is available for issuance pursuant to
Rights granted under the Plan shall not exceed Ten Million (10,000,000) Shares.

            (iii) "Diluted Shares Outstanding" shall mean, as of any date, (1)
the number of outstanding shares of Common Stock of the Company on such
Calculation Date, plus (2) the number of shares of Common Stock issuable upon
such Calculation Date assuming the conversion of all outstanding Preferred Stock
and convertible notes, plus (3) the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.

      (c)   The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.



                                      -4-

<PAGE>   5

5.    GRANT OF RIGHTS; OFFERING.

      (a)   The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in Sections 6 through 9, inclusive.

      (b)   If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.

6.      ELIGIBILITY.

      (a)   Rights may be granted only to Employees of the Company or, as the
Board may designated as provided in subsection 3(b), to Employees of an
Affiliate. Except as provided in subsection 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but in no event shall the required period of continuous employment be equal to
or greater than two (2) years.

      (b)   The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:

            (i)   the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;

            (ii)  the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and


                                      -5-

<PAGE>   6

            (iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.

      (c)   No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subsection 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.

      (d)   An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
Shares of the Company or any Affiliate to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of the fair market value of such Shares
(determined at the time such Rights are granted) for each calendar year in which
such Rights are outstanding at any time.

      (e)   The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.

      (f)   The Board may provide in an Offering that Employees whose customary
employment is twenty (20) hours or less per week shall not be eligible to
participate.

      (g)   The Board may provide in an Offering that Employees whose customary
employment is for not more than five (5) months in any calendar year shall not
be eligible to participate.

7.    RIGHTS; PURCHASE PRICE.

      (a)   On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of Shares purchasable either:

            (i)   with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering; or

            (ii)  with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins



                                      -6-

<PAGE>   7

on the Offering Date (or such later date as the Board determines for a
particular Offering) and ends on the date stated in the Offering, which date
shall be no later than the end of the Offering and/or (2) shall be contributed,
in whole or in part, by such Employee during such period.

      (b)   The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.

      (c)   In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the Shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.

      (d)   The purchase price of Shares acquired pursuant to Rights granted
under the Plan shall be not less than the lesser of:

            (i)   an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Offering Date; or

            (ii)  an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Purchase Date.

8.    PARTICIPATION; WITHDRAWAL; TERMINATION.

      (a)   An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.

      (b)   At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a


                                      -7-

<PAGE>   8

notice of withdrawal in such form as the Company provides. Such withdrawal may
be elected at any time prior to the end of the Offering except as provided by
the Board in the Offering. Upon such withdrawal from the Offering by a
Participant, the Company shall distribute to such Participant all of his or her
accumulated payroll deductions (reduced to the extent, if any, such deductions
have been used to acquire Shares for the Participant) under the Offering,
without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.

      (c)   Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the terminated Employee) under
the Offering, without interest unless otherwise specified in the Offering. If
the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subsection 8(a), then the distribution shall be made from the separate account,
without interest unless otherwise specified in the Offering.

      (d)   Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in Section 15 and, otherwise during his
or her lifetime, shall be exercisable only by the person to whom such Rights are
granted.

9.    EXERCISE.

      (a)   On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering.

      (b)   Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a


                                      -8-

<PAGE>   9

separate account with a financial institution as provided in subsection 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.

      (c)   No Rights granted under the Plan may be exercised to any extent
unless the Shares to be issued upon such exercise under the Plan (including
Rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws applicable to the
Plan. If on a Purchase Date in any Offering hereunder the Plan is not so
registered or in such compliance, no Rights granted under the Plan or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the Plan is subject to such an effective registration statement
and such compliance, except that the Purchase Date shall not be delayed more
than twelve (12) months and the Purchase Date shall in no event be more than
twenty-seven (27) months from the Offering Date. If, on the Purchase Date of any
Offering hereunder, as delayed to the maximum extent permissible, the Plan is
not registered and in such compliance, no Rights granted under the Plan or any
Offering shall be exercised and all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire Shares) shall be distributed to the Participants, without interest
unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subsection 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.

10.   COVENANTS OF THE COMPANY.

      (a)   During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.

      (b)   The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.

11.   USE OF PROCEEDS FROM SHARES.

      Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.



                                      -9-

<PAGE>   10

12.   RIGHTS AS A STOCKHOLDER.

      A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.

13.   ADJUSTMENTS UPON CHANGES IN SECURITIES.

      (a)   If any change is made in the Shares subject to the Plan, or subject
to any Right, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subsection 4(a), and the
outstanding Rights will be appropriately adjusted in the class(es), number of
Shares and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction that does not involve the receipt of consideration by the
Company.)

      (b)   In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders in the transaction described in this
subsection 13(b)) for those outstanding under the Plan, or (2) in the event any
surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.

14.   AMENDMENT OF THE PLAN.

      (a)   The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and


                                      -10-

<PAGE>   11

any Nasdaq or other securities exchange listing requirements. Currently under
the Code, stockholder approval within twelve (12) months before or after the
adoption of the amendment is required where the amendment will:

            (i)   Increase the amount of Shares reserved for Rights under the
Plan;

            (ii)  Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or

            (iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.

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

      (c)   Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.

15.   DESIGNATION OF BENEFICIARY.

      (a)   A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.

      (b)   The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such Shares and/or
cash to the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.


                                      -11-

<PAGE>   12

16.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a)   The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.

      (b)   Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.

17.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective as determined by the Board, but no Rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board, which date may be prior to the
effective date set by the Board.


                                      -12-



<PAGE>   1
                                                                   EXHIBIT 10.5






                            INTUITIVE SURGICAL, INC.


                 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT


                                 MARCH 31, 1999



<PAGE>   2

                                TABLE OF CONTENTS




<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          -----
<S>     <C>                                                                               <C>
1.      GENERAL............................................................................  2
        1.1    Definitions.................................................................  2

2.      REGISTRATION; RESTRICTIONS ON TRANSFER.............................................  3
        2.1    Restrictions on Transfer....................................................  3
        2.2    Demand Registration.........................................................  4
        2.3    Piggyback Registrations.....................................................  6
        2.4    Form S-3 Registration.......................................................  7
        2.5    Expenses of Registration....................................................  8
        2.6    Obligations of the Company..................................................  8
        2.7    Termination of Registration Rights..........................................  9
        2.8    Delay of Registration; Furnishing Information............................... 10
        2.9    Indemnification............................................................. 10
        2.10   Assignment of Registration Rights........................................... 12
        2.11   Amendment of Registration Rights............................................ 12
        2.12   Limitation on Subsequent Registration Rights................................ 12
        2.13   "Market Stand-Off" Agreement................................................ 13

3.      COVENANTS OF THE COMPANY........................................................... 14
        3.1    Basic Financial Information and Reporting................................... 14
        3.2    Inspection Rights........................................................... 15
        3.3    Confidentiality of Records.................................................. 15
        3.4    Proprietary Information..................................................... 16
        3.5    Stock Vesting............................................................... 16
        3.6    Right of First Refusal...................................................... 16
        3.7    Visitation Rights........................................................... 18
        3.8    Reservation of Common Stock................................................. 18
        3.9    Termination of Covenants.................................................... 18

4.      MISCELLANEOUS...................................................................... 18
        4.1    Governing Law............................................................... 18
        4.2    Survival.................................................................... 18
        4.3    Successors and Assigns...................................................... 19
        4.4    Severability................................................................ 19
        4.5    Amendment and Waiver........................................................ 19
        4.6    Delays or Omissions......................................................... 19
        4.7    Notices..................................................................... 20
        4.8    Attorney's Fees............................................................. 20
        4.9    Titles and Subtitles........................................................ 20
        4.10   Counterparts................................................................
 20
        4.11   Entire Agreement............................................................ 20

SCHEDULES

Schedule of Investors
</TABLE>




                                       i

<PAGE>   3




                 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT


        This AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement") is
entered into as of the 31st day of March, 1999, by and among INTUITIVE SURGICAL,
INC., a Delaware corporation (the "Company"), ROBERT G. YOUNGE, FREDERIC H. MOLL
and JOHN G. FREUND (the "Founders"), and the holders of the Company's Preferred
Stock and Common Stock set forth on Exhibit A attached hereto. Such holders
shall be referred to hereinafter as the "Investors" and each individually as an
"Investor."


                                 R E C I T A L S

        WHEREAS, the Company proposes to sell and issue shares of its Preferred
Stock from time to time, including the sale and issuance of Series E Preferred
Stock and warrants to purchase Series F Preferred Stock pursuant to that certain
Series E Preferred Stock Purchase Agreement (the "Purchase Agreement") and
Warrant Purchase Agreement (the "Warrant Agreement"), respectively;

        WHEREAS, as a condition of entering into the Purchase Agreement and the
Warrant Agreement, the purchaser of Series E Preferred Stock under the Purchase
Agreement and recipient of the warrant to purchase Series F Preferred Stock
under the Warrant Agreement (the "Purchaser") has requested that the Company
extend to it registration rights and other rights as set forth below;

        WHEREAS, the Company, the Founders and those undersigned Investors
holding the Company's Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock Series D Preferred Stock and Series E Preferred Stock desire
to grant such rights to the Purchaser by substituting this Agreement, to which
the Purchaser is a party, for that Investors Rights Agreement entered into as of
the 20th day of December, 1995 and amended on the 31st day of January, 1996; the
29th day of January, 1997; the 14th day of November, 1997, and the 31st day of
July, 1998, by and among the Company, the Founders and the holders of all of the
then outstanding shares of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock (collectively the "Prior Agreements"); and

        WHEREAS, the Company and the Investors wish to grant certain rights to
and impose certain restrictions on the Founders, as set forth below;

        NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree (i) that
effective upon the closing of the sale and issuance of the Series E Preferred
Stock pursuant to the Series E Stock Purchase Agreement, and execution of this
Agreement by Investors holding at least fifty percent (50%) of the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, all provisions of, rights
granted by, and covenants made in the Prior Agreements



                                       1

<PAGE>   4

are hereby waived, released and terminated in their entirety and shall have no
further force or effect whatsoever and (ii) as follows:

        1. GENERAL

               1.1 DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:

               "Form S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.

               "Holder" means any Investor owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2.10 hereof.

               "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
effectiveness of such registration statement or document.

               "Registrable Securities" means (i) Common Stock of the Company
issued or issuable upon conversion of the Shares; (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities, and (iii) shares of Common Stock issued to Massachusetts Institute
of Technology ("M.I.T.") pursuant to that certain License Agreement by and
between M.I.T and the Company. Notwithstanding the foregoing, Registrable
Securities shall not include any securities (i) sold by a person to the public
either pursuant to a registration statement or Rule 144, or (ii) sold in a
private transaction in which the transferror's rights under Article II of this
Agreement are not assigned.

               "Registrable Securities then outstanding" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.

               "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed Ten Thousand Dollars ($10,000) of a single special counsel for the
Holders, blue sky fees and expenses and 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).

               "SEC" or "Commission" means the Securities and Exchange
Commission.

               "Securities Act" shall mean the Securities Act of 1933, as
amended.



                                       2

<PAGE>   5

               "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes, if any, applicable to the sale of
Registrable Securities.

               "Shares" shall mean shares of the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock.

        2. REGISTRATION; RESTRICTIONS ON TRANSFER

               2.1 RESTRICTIONS ON TRANSFER.

                      (a) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities (or the Common Stock issuable upon
the conversion thereof) unless and until the transferee has agreed in writing
for the benefit of the Company to be bound by this Section 2.1, provided and to
the extent such Section is then applicable and:

                             (i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or

                             (ii) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.

                             (iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder which is (A) a partnership to its
partners or former partners in accordance with partnership interests, or a
corporation to its affiliates, (B) a corporation to its shareholders in
accordance with their interest in the corporation or (C) to the Holder's family
member or trust for the benefit of an individual Holder, provided the transferee
will be subject to the terms of this Section 2.1 to the same extent as if he
were an original Holder hereunder.

                      (b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of this
Agreement) be stamped or otherwise imprinted with a legend substantially similar
to the following (in addition to any legend required under applicable state
securities laws or as provided elsewhere in this Agreement and except that the
Regulation S legend shall be applied only to those securities issued to
Regulation S Purchasers):

        THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") AND MAY NOT BE OFFERED,
        SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
        REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR



                                       3

<PAGE>   6

        BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO
        THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
        HYPOTHECATION IS IN COMPLIANCE THEREWITH.

        THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
        PURSUANT TO REGULATION S OF THE SECURITIES ACT OF 1933, AS AMENDED, (THE
        "ACT") AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHETICATED OR
        OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH.

                      (c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend. Upon removal of such legend, the provisions of Section
2.1(a) shall no longer apply.

                      (d) Each Regulation S Purchaser is aware that the Company
will, and the Company agrees that the Company shall, to the extent required by
Regulation S, refuse to register any transfer of the Shares purchased by such
Regulation S Purchaser that is not made in accordance with Regulation S.

                      (e) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.

               2.2 DEMAND REGISTRATION.

                      2.2.1 Subject to the conditions of this Section 2.2, if
the Company shall receive at any time after the earlier of either (i) January
29, 2000 or (ii) ninety (90) days after the effective date of the registration
statement pertaining to the initial public offering of the Company's Common
Stock (the "Initial Offering"), a written request from the Holders of at least
thirty percent (30%) of the Registrable Securities then outstanding (the
"Initiating Holders") that the Company file a registration statement under the
Securities Act covering the registration of (i) at least twenty percent (20%) of
Registrable Securities or (ii) less than twenty percent (20%) of the Registrable
Securities provided such lesser percentage of Registrable Securities have an
aggregate offering price to the public of not less than $7,500,000, then the
Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this
Section 2.2, shall use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.

                      2.2.2 If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall



                                       4

<PAGE>   7

include such information in the written notice referred to in Section 2.2.1. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
2.2, if the underwriter advises the Company in writing that marketing factors
require a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders). Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.

                      2.2.3 The Company shall not be required to effect a
registration pursuant to this Section 2.2:

                             (i) after the Company has effected two (2)
registrations pursuant to this Section 2.2 and such registrations have been
declared or ordered effective; or

                             (ii) during the period starting with the date of
filing of, and ending on the date ninety (90) days following the effective date
of the Initial Offering, provided that the Company is making reasonable and good
faith efforts to cause such registration statement to become effective; or

                             (iii) if within thirty (30) days of receipt of a
written request from Initiating Holders pursuant to Section 2.2.1, the Company
gives notice to the Holders of the Company's bona fide good faith intention to
make its Initial Offering within ninety (90) days; or

                             (iv) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company no more than twice in any one-year period.

               2.3 PIGGYBACK REGISTRATIONS. The Company promptly shall notify
all Holders in writing of the Company's determination to file any registration
statement under the Securities Act for purposes of a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to employee benefit plans and
corporate



                                       5

<PAGE>   8

reorganizations) and will afford each such Holder an opportunity to include in
such registration statement all or part of such Registrable Securities held by
such Holder. Each Holder desiring to include in any such registration statement
all or any part of the Registrable Securities held by it shall, within twenty
(20) days after mailing of the above-described notice from the Company, so
notify the Company in writing. Such notice shall state the intended method of
disposition of the Registrable Securities by such Holder. If a Holder decides
not to include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.

                      2.3.1 Underwriting. If the registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of the Agreement, if the underwriter determines in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any shareholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
and in no event shall the amount of securities of the selling Holders included
in the registration be reduced below thirty percent (30%) of the total amount of
securities included in such registration, unless such offering is the Initial
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 in accordance with the immediately preceding sentence.
In no event will shares of any other selling shareholder be included in such
registration which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than a majority of
the Registrable Securities proposed to be sold in the offering.

                      2.3.1.1 Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated or withdraw
any registration initiated by it under this Section 2.3 prior to the
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration. The Registration Expenses of such
withdrawn registration shall be borne by the Company in accordance with Section
2.5 hereof.

               2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:



                                       6

<PAGE>   9

                      2.4.1 Promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and

                      2.4.2 As soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within twenty (20) days after mailing of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 2.4:

                             (i) if Form S-3 (or such successor or similar form)
is not available for such offering by the Holders; or

                             (ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $750,000; or

                             (iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4, provided that the
Company may exercise such right only once in each 12-month period;

                             (iv) after the Company has effected two (2)
registrations pursuant to this Section 2.4 in any twelve (12) month period; or

                             (v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

                      2.4.3 Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.

               2.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be
borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders unless the withdrawal is based
upon material adverse information



                                       7

<PAGE>   10

concerning the Company of which the Initiating Holders were not aware at the
time of such request. If the Holders are required to pay the Registration
Expenses, such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the number
of shares for which registration was requested.

               2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall use its best
efforts, as expeditiously as reasonably possible, to:

                      2.6.1 Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
eighty (180) days or, if earlier, until the Holder or Holders have completed the
distribution related thereto.

                      2.6.2 Prepare and file with the SEC 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.

                      2.6.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

                      2.6.4 Use its best 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.

                      2.6.5 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.

                      2.6.6 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.

                      2.6.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such



                                       8

<PAGE>   11

securities becomes effective, (i) an opinion, dated as of 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 and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.

                      2.6.8 Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.

                      2.6.9 Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration.

               2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Article II shall terminate and be of no further force and
effect five (5) years after the closing of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if all Registrable
Securities held by and issuable to such Holder may be sold under Rule 144 during
any ninety (90) day period.

               2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.

                      (a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Article II.

                      (b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.

               2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:

                      2.9.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations



                                       9

<PAGE>   12

(collectively a "Violation") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will, as incurred, reimburse
each such Holder, partner, officer or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided however, that the indemnity agreement contained in this Section
2.9.1 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.

                      2.9.2 To the extent permitted by law, each selling Holder,
if Registrable Securities held by such Holder are included in the securities as
to which such registration is being effected, will indemnify and hold harmless
the Company, each of its directors, each of its officers, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under an instrument
duly executed by such Holder and stated to be specifically for use in connection
with such registration; and each such Holder will reimburse, as incurred, any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9.2 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the gross proceeds from the offering
received by such Holder.

                      2.9.3 Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action),



                                       10

<PAGE>   13

such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.9, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.9.

                      2.9.4 If the indemnification provided for in this Section
2.9 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 Violation(s) 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 the 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.

                      2.9.5 Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.

                      2.9.6 The obligations of the Company and Holders under
this Section 2.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.

               2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(i) is a subsidiary, parent, general partner, limited partner or retired partner
of a Holder, (ii) is a Holder's family member or trust for the benefit of an
individual Holder, or (iii) acquires at least one hundred thousand (100,000)
shares of Registrable Securities (as adjusted for stock splits and
combinations); provided, however, (A) the transferor shall, within ten (10) days
after such transfer, furnish to the Company written



                                       11

<PAGE>   14

notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned and (B) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement.

               2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Article II 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
not less than fifty percent (50%) of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 2.11 shall be binding upon
each Holder and the Company. By acceptance of any benefits under this Article
II, Holders of Registrable Securities hereby agree to be bound by the provisions
hereunder.

               2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders not less than fifty percent (50%) of the Registrable Securities,
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.

               2.13 "MARKET STAND-OFF" AGREEMENT. If requested by a
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder and Founder shall not sell or otherwise transfer or dispose
of any Common Stock (or other securities) of the Company held by such Holder or
Founder (other than those included in the registration) for a period specified
by the representative of the underwriters, not to exceed one hundred eighty
(180) days following the effective date of a registration statement of the
Company filed under the Securities Act (the "Effective Date"), provided that:

                      (a) such agreement shall apply only to the Company's
Initial Offering; and

                      (b) all officers and directors of the Company enter into
similar agreements.

        The obligations described in this Section 2.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.

               2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:

                      (a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;



                                       12

<PAGE>   15

                      (b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Securities Act and the 1934
Act; and

                      (c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (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 as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.

        3. COVENANTS OF THE COMPANY

               3.1 BASIC FINANCIAL INFORMATION AND REPORTING.

                      3.1.1 The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.

                      3.1.2 So long as an Investor (with its affiliates) shall
own not less than (i) two million (2,000,000) shares of Registrable Securities
(as adjusted for stock splits and combinations), (ii) two hundred thousand
(200,000) shares of Series C Preferred Stock (as adjusted for stock splits and
combinations), (iii) two hundred thousand (200,000) shares of Series D Preferred
Stock (as adjusted for stock splits and combinations), (iv) two hundred thousand
(200,000) shares of Series E Preferred Stock, or (v) two hundred thousand
(200,000) shares of Series F Preferred Stock (as adjusted for stock splits and
combinations) (a "Major Investor" which term shall include each Founder
regardless of the number of shares such Founder holds) as soon as practicable
after the end of each fiscal year of the Company, and in any event within ninety
(90) days thereafter, the Company will furnish each Major Investor a
consolidated balance sheet of the Company, as at the end of such fiscal year,
and a consolidated statement of income and a consolidated statement of cash
flows of the Company, for such year, all prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.

                      3.1.3 The Company will furnish each Major Investor as soon
as practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of each such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.



                                       13

<PAGE>   16

                      3.1.4 The Company will furnish each such Major Investor
(i) at least thirty (30) days prior to the beginning of each fiscal year an
annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto); and (ii) as soon as practicable
after the end of each month, and in any event within twenty (20) days
thereafter, a consolidated balance sheet of the Company as of the end of each
such month, and a consolidated statement of income and a consolidated statement
of cash flows of the Company for such month and for the current fiscal year to
date, including a comparison to plan figures for such period, prepared in
accordance with generally accepted accounting principles, with the exception
that no notes need be attached to such statements and year-end audit adjustments
may not have been made.

               3.2 INSPECTION RIGHTS. Each Major Investor shall have the right
to visit and inspect any of the properties of the Company or any of its
subsidiaries, to discuss the affairs, finances and accounts of the Company or
any of its subsidiaries with its officers, and to review such information
regarding the Company 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 3.2 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.

               3.3 CONFIDENTIALITY OF RECORDS.

                      3.3.1 Each Investor agrees not to use Confidential
Information (as hereinafter defined) of the Company for its own use or for any
purpose except to evaluate and enforce its equity investment in the Company.
Except as permitted under subsection (b) below, each Investor agrees to use its
best efforts not to disclose such Confidential Information to any third parties.
Each Investor shall undertake to treat such Confidential Information in a manner
consistent with the treatment of its own information of such proprietary nature
and agrees that it shall protect the confidentiality of and use reasonable best
efforts to prevent disclosure of the Confidential Information to prevent it from
falling into the public domain or the possession of unauthorized persons. Each
transferee of any Investor who receives Confidential Information shall agree to
be bound by such provisions. For purposes of this Section, "Confidential
Information" means any information, technical data, or know-how, including, but
not limited to, the Company's licenses, research, products, software, services,
development, inventions, consultants' identities, processes, designs, drawings,
engineering, marketing, finances, or business partners disclosed by the Company
either directly or indirectly in writing, orally or by drawings or inspection of
parts or equipment.

                      3.3.2 Confidential Information does not include
information, technical data or know-how which (i) is in the Investor's
possession at the time of disclosure as shown by Investor's files and records
immediately prior to the time of disclosure; (ii) before or after it has been
disclosed to the Investor, it is part of the public knowledge or literature, not
as a result of any action or inaction of the Investor; (iii) is approved for
release by written authorization of Company; or (iv) is rightfully disclosed to
Investor by a third party without restriction. The provisions of this Section
shall not apply (i) to the extent that an Investor is required to disclose
Confidential Information pursuant to any law, statute, rule or regulation or any
order of any court or jurisdiction process or pursuant to any direction, request
or requirement (whether or not



                                       14

<PAGE>   17

having the force of law but if not having the force of law being of a type with
which institutional investors in the relevant jurisdiction are accustomed to
comply) of any self-regulating organization or any governmental, fiscal,
monetary or other authority; (ii) to the disclosure of Confidential Information
to an Investor's employees, counsel, accountants or other professional advisors
or to affiliates for reporting purposes only; (iii) to the extent that an
Investor needs to disclose Confidential Information for the protection of any of
such Investor's rights or interest against the Company, whether under this
Agreement or otherwise; or (iv) to the disclosure of Confidential Information to
a prospective transferee of securities which agrees to be bound by the
provisions of this Section in connection with the receipt of such Confidential
Information.

               3.4 PROPRIETARY INFORMATION. The Company shall require all
employees of and consultants to the Company who have access to proprietary
information of the Company to enter into agreements in the Company's standard
form providing for the protection of proprietary information and inventions.

               3.5 STOCK VESTING. Unless otherwise approved by the Board of
Directors, all stock options and other stock equivalents issued after the date
of this Agreement to employees, directors, consultants and other service
providers, except with respect to the Founders, shall be subject to vesting
monthly over a four (4) year period. With respect to any shares of stock
purchased by any such person, the Company's repurchase option shall provide that
(i) upon such person's termination of employment or service with the Company,
with or without cause, the Company or its assignee (to the extent permissible
under applicable securities laws and other laws) shall have the option to
purchase at cost any unvested shares of stock held by such person, (ii) no such
stock may be transferred prior to vesting, and (iii) the sale of all such stock
shall be subject to a right of first refusal in favor of the Company or its
assignees.

               3.6 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
Major Investor, unless waived by the holders of at least a majority of the
shares held by the Major Investors, the right of first refusal to purchase a pro
rata share of New Securities (as defined below) that the Company may, from time
to time, propose to sell and issue. For purposes of this Section 3.6 only, the
term "Major Investor" shall include Guidant Corporation ("Guidant"). The Company
shall provide such information to a mutually-agreed upon Guidant employee
("Guidant Reviewer") in connection with the exercise of Guidant's rights under
this Section 3.6, as Guidant may reasonably request. The Company and Guidant
acknowledge and agree that any information delivered in accordance with this
Section 3.6 is (i) Confidential Information, (ii) subject to the confidentiality
provisions as set forth in Section 3.3 hereof and (iii) is to be provided to the
Guidant Reviewer only and is not to be disclosed to any other employee, agent or
affiliate of Guidant. Each Major Investor's pro rata share, for purposes of this
right of first refusal, is the ratio of (X) the number of shares of Registrable
Securities then owned by such Major Investor to (Y) the total number of shares
of Common Stock of the Company outstanding immediately prior to the issuance of
the New Securities, assuming full conversion of all shares of outstanding
Preferred Stock of the Company and exercise of all outstanding options and
warrants to purchase securities of the Company. This right of first refusal
shall be subject to the following provisions:

                      3.6.1 "New Securities" shall mean any offering by the
Company of any Common Stock or Preferred Stock of the Company, whether now
authorized or not, and rights,



                                       15

<PAGE>   18

options, or warrants to purchase said Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
Common Stock or Preferred Stock; provided, however, that "New Securities" does
not include (i) securities issuable upon conversion of the Shares; (ii)
securities issued upon conversion or exchange of currently outstanding
securities, (iii) securities offered to the public pursuant to a registration
statement filed under the Securities Act; (iv) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other reorganization whereby the Company
owns more than 50% of the voting power of such corporation; (v) shares of the
Company's Common Stock (or related options) issued or issuable at any time to
employees, directors or consultants of the Company, or any subsidiary, pursuant
to any employee stock offering, plan, or arrangement approved by the Board of
Directors; (vi) shares of the Company's Common Stock or Preferred Stock issued
in connection with any stock split, stock dividend, or recapitalization by the
Company; (vii) securities issued in connection with equipment lease financings
or other financings with commercial lenders; (viii) shares of the Company's
Common Stock or Preferred Stock issued in connection with strategic transactions
involving the Company and other entities, including (A) joint ventures,
manufacturing, marketing or distribution arrangements or (B) technology transfer
or development arrangements; provided that such strategic transactions and the
issuance of shares therein, has been approved by the Company's Board of
Directors.

                      3.6.2 In the event that the Company proposes to undertake
an issuance of New Securities, it shall give each Holder written notice of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Holder shall have
twenty (20) business days from the date of mailing of any such notice to agree
to purchase its pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell New Securities to any Holder who would cause the Company to be in violation
of applicable federal or state securities laws by virtue of such offer or sale.

                      3.6.3 In the event that any Holder fails or Holders fail
to exercise in full the right of first refusal within said twenty (20) business
day period, the Company shall give written notice of such failure to every other
Holder who gave timely notice to the Company of its exercise in full of its
first refusal rights (a "Fully Participating Holder"). Any such Fully
Participating Holder may then elect to purchase the New Securities respecting
which the Holders' rights were not exercised ("Available New Securities"), at a
price and upon general terms materially no more favorable to the purchasers
thereof than specified in the Company's notice, by notifying the Company in
writing within ten (10) business days from the date of mailing of any such
notice. In the event that the Fully Participating Holders give timely notice of
elections to purchase, in addition to their original pro rata share of the New
Securities, an aggregate of more than the Available New Securities available,
such Fully Participating Holders shall purchase that percentage of the total of
Available New Securities as each such Fully Participating Holder's present
ownership of Registrable Securities bears to the total number of shares of all
Fully Participating Holders who have given timely notice of their election to
purchase additional shares.



                                       16

<PAGE>   19

                      3.6.4 In the event (i) there are no Fully Participating
Holders or (ii) the Fully Participating Holders do not timely elect to purchase
all Available New Securities, the Company shall have one hundred and twenty
(120) days thereafter to sell (or enter into an agreement pursuant to which the
sale of Available New Securities covered thereby shall be closed, if at all,
within thirty (30) days from the date of said agreement) the Available New
Securities respecting which the Fully Participating Holders' rights were not
exercised at a price and upon general terms materially no more favorable to the
purchasers thereof than specified in the Company's notice. In the event the
Company has not sold the Available New Securities within said one hundred and
twenty (120) day period (or sold and issued Available New Securities in
accordance with the foregoing within one hundred and twenty (120) days from the
date of said agreement), the Company shall not thereafter issue or sell any
Available New Securities without first offering such securities to the Holders
in the manner provided above.

                      3.6.5 The right of first refusal of each Holder under this
Section 3.6 may be transferred to any transferee who is or becomes a Holder. For
purposes of this Section 3.6, Holder includes any general partner or affiliate
of Holder. A Holder shall be entitled to apportion the right of first refusal
granted it among itself and its partners and affiliates in such proportions as
it deems appropriate.

                      3.6.6 Notwithstanding the foregoing, the consent of
Guidant shall be required for any amendment or waiver of this Section 3.6.

               3.7 VISITATION RIGHTS. To the extent a Founder is not a member of
the board of directors, the Company shall allow one representative designated by
each of the Founders to attend all meetings of the Company's board of directors
in a nonvoting capacity, and in connection therewith, the Company shall give
such representative copies of all notices, minutes, consents and other
materials, financial or otherwise, which the Company provides to its board of
directors.
               3.8 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.

               3.9 TERMINATION OF COVENANTS. All covenants of the Company
contained in Article III of this Agreement shall expire and terminate as to each
Investor and the Founders on the Effective Date of the Company's first firm
commitment underwritten public offering registered under the Securities Act.

        4. MISCELLANEOUS

               4.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.

               4.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in



                                       17

<PAGE>   20

connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.

               4.3 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 and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.

               4.4 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.

               4.5 AMENDMENT AND WAIVER.

                      4.5.1 Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of not less than fifty percent (50%) of the Registrable
Securities.

                      4.5.2 Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of not less than
fifty percent (50%) of the Registrable Securities.

                      4.5.3 Notwithstanding the foregoing, subject to Section
2.12, this Agreement may be amended with only the written consent of the Company
to modify Exhibit A to include additional purchasers of Shares as "Investors,"
"Holders" and parties hereto.

                      4.5.4 Notwithstanding the foregoing, the consent of the
Founder shall be required for any amendment or waiver of this Agreement which
materially increases such Founder's obligations or diminishes such Founder's
rights hereunder.

               4.6 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 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 the 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 such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.

               4.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii)



                                       18

<PAGE>   21

when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, having specified next day delivery, with written
verification of receipt. All communications shall be sent to the Company or a
Founder at the address as set forth on the signature page hereof and to the
Investors at the address set forth on the Schedule of Investors or at such other
address as any party may designate by ten (10) days advance written notice to
the other parties hereto.

               4.8 ATTORNEY'S 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.

               4.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

               4.10 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.

               4.11 ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof. The Prior Agreements are hereby amended and restated in their
entirety by this Agreement and the Company, the Founders and the Investors agree
that this Agreement shall supersede and replace the rights and obligations of
the Company, the Founders and the Investors granted to them under the Prior
Agreements.



                                       19

<PAGE>   22

        IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.



COMPANY:                             INVESTORS:

INTUITIVE SURGICAL, INC.             MAYFIELD VIII
                                     a California Limited Partnership
                                     By: Mayfield VIII Management, L.L.C.
                                         a Delaware Limited Liability
By: /s/ LONNIE M. SMITH                  Company, its General Partner
   -------------------------------
    Lonnie M. Smith
    Chief Executive Officer

                                     By: /s/ RUSSELL C. HIRSCH
                                        ----------------------------------------
FOUNDERS:                                Russell C. Hirsch, Managing Member


                                     MAYFIELD ASSOCIATES FUND II
/s/ FREDERIC H. MOLL                 a California Limited Partnership
----------------------------------  
FREDERIC H. MOLL


/s/ ROBERT G. YOUNGE                  By: /s/ A. GRANT HEIDRICH
----------------------------------       ---------------------------------------
ROBERT G. YOUNGE                         A. Grant Heidrich, III, General Partner



/s/ JOHN G. FREUND                        SIERRA VENTURES V, L.P.
----------------------------------    By: SV Associates V, L.P.,
JOHN G. FREUND                            its General Partner


                                      By: /s/ PETRI T. VAINIO
                                          --------------------------------------
                                          Petri T. Vainio, General Partner


                                      ALLAN G. LOZIER

                                      /s/ ALLAN G. LOZIER
                                      ------------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   23



                                          GC&H INVESTMENTS

                                          By: /s/ JOHN L. CARDOZA
                                             -----------------------------------
                                              John L. Cardoza, Executive Partner



                                          ALLAN JOHNSTON

                                          /s/ ALLAN JOHNSTON
                                          -------------------------------------
                                          GUIDANT CORPORATION


                                          By: 
                                             -----------------------------------
                                              F. Thomas Watkins, Vice President


                                          RWI GROUP, L.P.


                                          By: /s/ DONALD A. LUCAS
                                             -----------------------------------
                                              Donald A. Lucas


                                          WILLIAM H. ABBOTT, TRUSTEE FOR THE
                                          ABBOTT LIVING TRUST DATED 08/20/87


                                          By: /s/ WILLIAM H. ABBOTT
                                             -----------------------------------
                                              William H. Abbott, Trustee

                                          PAUL A. BROOKE

                                          /s/ PAUL A. BROOKE
                                          -------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE




<PAGE>   24



                                          STANFORD UNIVERSITY



                                          By: /s/ CAROL GILMER
                                             -----------------------------------
                                          Its: Assistant Secretary
                                              ----------------------------------


                                          JOSEPH M. MANDATO AND ELIZABETH R.
                                          MANDATO TTEES OF THE MANDATO
                                          FAMILY TRUST



                                          By: /s/ JOSEPH M. MANDATO
                                             -----------------------------------
                                              Joseph M. Mandato, Trustee


                                          ROBERT OKUN

                                          /s/ ROBERT OKUN
                                          --------------------------------------


                                          HOWARD M. HOLSTEIN

                                          /s/ HOWARD M. HOLSTEIN
                                          --------------------------------------


                                          PETER DICKSTEIN



                                          --------------------------------------


                                          WILLIAM JENKINS

                                          /s/ WILLIAM JENKINS
                                          --------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   25



                                MORGAN STANLEY VENTURE PARTNERS III, L.P.

                                By:  Morgan Stanley Venture Partners III, L.L.C.
                                     Its General Partner

                                By:  Morgan Stanley Venture Capital III, Inc.
                                     Institutional Managing Member



                                By: /s/ SCOTT S. HALSTED
                                   ---------------------------------------------
                                    Scott S. Halsted
                                    General Partner



                                MORGAN STANLEY VENTURE INVESTORS III, L.P.

                                By:  Morgan Stanley Venture Partners III, L.L.C.
                                     Its General Partner

                                By:  Morgan Stanley Venture Capital III, Inc.
                                     Institutional Managing Member



                                By: /s/ SCOTT S. HALSTED
                                   ---------------------------------------------
                                    Scott S. Halsted
                                    General Partner


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   26



                                         PATMARK COMPANY, INC.



                                         By: /s/ JAMES D. VAN DE VELDE
                                            ------------------------------------
                                             James D. Van De Velde
                                             President



                                          HUNTERSVILLE ROAD INVESTORS L.P.



                                         By: /s/ W. AUGUST HILLENBRAND
                                            ------------------------------------
                                         Its:
                                             -----------------------------------



                                          WESTWOOD ASSOCIATES, L.P.



                                         By: /s/ LAWRENCE T. KENNEDY
                                            ------------------------------------
                                             Lawrence T. Kennedy
                                             Chairman, Treasurer


                                         W. AUGUST HILLENBRAND

                                         /s/ W. AUGUST HILLENBRAND
                                         ---------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   27



                                         PRICE BROTHERS INVESTMENT PARTNERSHIP
                                         By:  Price Brothers Investment Corp.,
                                              its General Partner



                                         By: /s/ JOHN PRICE
                                            ------------------------------------
                                             John Price
                                             Vice President


                                         ROSE REVOCABLE TRUST



                                         By: /s/ G. LYNN ROSE
                                            ------------------------------------
                                         Its: Trustee


                                         HARRY S. ROBBINS AND SUSAN K. ROBBINS,
                                         TRUSTEES OF THE ROBBINS FAMILY TRUST
                                         D/T/D 4/15/91


                                         By: /s/ HARRY S. ROBBINS
                                            ------------------------------------
                                             Harry S. Robbins, Trustee



                                         By: /s/ SUSAN K. ROBBINS
                                            ------------------------------------
                                             Susan K. Robbins, Trustee


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   28

                                         JUDD MELTZER

                                         /s/ JUDD MELTZER
                                         ---------------------------------------

                                         WENDY MELTZER

                                         /s/ WENDY MELTZER
                                         ---------------------------------------

                                         SEELIG FREUND

                                         /s/ SEELIG FREUND
                                         ---------------------------------------

                                         CHARMIAN FREUND

                                         /s/ CHARMIAN FREUND
                                         ---------------------------------------

                                         BERNARD WEISS

                                         /s/ BERNARD WEISS
                                         ---------------------------------------

                                         DORIS WEISS

                                         /s/ DORIS WEISS
                                         ---------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   29

                                     STAR BAY PARTNERS, L.P.,
                                     a California Limited Partnership

                                     By: APH Capital Management LLC,
                                         a California Limited Liability Company,
                                         its General Partner

                                     By: Levensohn Capital Management LLC,
                                         a California Limited Liability Company,
                                         its Managing Member



                                     By: /s/ PASCAL N. LEVENSOHN
                                        ----------------------------------------
                                         Pascal N. Levensohn
                                         Managing Member


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   30

                                     TRIAXIS TRUST AG



                                     By: /s/ H.P. JOHN
                                        ----------------------------------------
                                     Its: Chairman
                                         ---------------------------------------


                                      BANK JULIUS BAER & CO. LTD.



                                     By:
                                        ----------------------------------------
                                     Its:
                                         ---------------------------------------


                                      CBG COMPAGNIE BANCAIRE GENEVE



                                     By:
                                        ----------------------------------------
                                         Michele Streuli     Thierry Mory
                                         Vice President      Mandator


                                     LGT BANK IN LIECHTENSTEIN AG



                                     By:
                                        ----------------------------------------
                                     Its:
                                         ---------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   31

                                        RICHARD C. BLUM

                                        /s/ RICHARD C. BLUM
                                        ----------------------------------------



                                        N. COLIN LIND

                                        /s/ N. COLIN LIND
                                        ----------------------------------------



                                        JEFFREY W. UBBEN

                                        /s/ JEFFREY W. UBBEN
                                        ----------------------------------------



                                        MURRAY A. INDICK

                                        /s/ MURRAY A. INDICK
                                        ----------------------------------------



                                        GEORGE F. HAMEL, JR.


                                        ----------------------------------------



                                        MARC T. SCHOLVINCK

                                        /s/ MARC T. SCHOLVINCK
                                        ----------------------------------------



                                        R. CRAIG LIND

                                        /s/ R. CRAIG LIND
                                        ----------------------------------------



                                        TIMOTHY H. UBBEN

                                        /s/ TIMOTHY H. UBBEN
                                        ----------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   32

                                       INSURANCE COMPANY SUPPORTED
                                       ORGANIZATIONS PENSION PLAN TRUST

                                       By: Mellon Bank, N.A., solely in its
                                       capacity as Trustee for the Insurance
                                       Company Supported Organizations Pension
                                       Plan Trust (as directed by The Benefits
                                       Connection Group, Inc.), and not in its
                                       individual capacity.



                                       By: /s/ CAROLE BRUNO
                                          -------------------------------------
                                           Carole Bruno, Authorized Signatory


                                       BK CAPITAL PARTNERS, IV, L.P.

                                        By:   Richard C. Blum & Associates, L.P.
                                              Its General Partner


                                       By: /s/ MARC T. SCHOLVINCK
                                          -------------------------------------
                                           Marc T. Scholvinck, Managing Director


                                       PRISM PARTNERS I, L.P.



                                        By: /s/ JERALD M. WEINTRAB
                                           -------------------------------------
                                        Its: Managing General Partner
                                            ------------------------------------


                                       RICHARD C. BLUM & ASSOCIATES, L.P.



                                       By: /s/ MARC T. SCHOLVINCK
                                          -------------------------------------
                                           Marc T. Scholvinck, Managing Director


                                       THOMAS L. KEMPNER TRUST AND WILLIAM
                                       PERLMUTH TRUSTEES U/W CARL M. LOEB FBO
                                       THOMAS L. KEMPNER



                                        By: /s/ THOMAS L. KEMPNER
                                           -------------------------------------
                                        Its: Trustee
                                            ------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   33


                                        SUSAN J. SCHMIDT


                                        /s/ SUSAN J. SCHMIDT
                                        ----------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   34

                                        OR TRUST



                                        By: /s/ GEORGE A. PAVLOV
                                           -------------------------------------
                                            George A. Pavlov
                                            Authorized Signatory



                                        RUSSELL C. HIRSCH

                                        /s/ RUSSELL C. HIRSCH
                                        ----------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   35

                                         DBI I, L.P.



                                         By: /s/ DOUG BOSCH
                                            ------------------------------------

                                         Print Name:  Doug Bosch
                                                    ----------------------------

                                         Title:  CEO, Doug Bosch Interests,
                                                 General Partner
                                               ---------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   36

                                        MORTON MEYERSON


                                        /s/ TERRY PENDLETON
                                        ----------------------------------------
                                        Attorney in fact

                                        /s/ JANICE HUDSON
                                        ----------------------------------------
                                        Attorney in fact




                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   37

                                        DAVID N. MEYERSON EDS TRUST U/A
                                        R. GORDON APPLEMAN TRUSTEE DTD
                                        6/01/70



                                         By:  /s/ R. GORDON APPLEMAN TRUSTEE
                                            ------------------------------------

                                         Print Name:  R. Gordon Appleman
                                                    ----------------------------

                                         Title:  Trustee
                                               ---------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   38

                                         THE MARTI A. MEYERSON EDS TRUST
                                         U/A R. GORDON APPLEMAN TRUSTEE
                                         DTD 6/01/70



                                         By:  /s/ R. GORDON APPLEMAN TRUSTEE
                                            ------------------------------------

                                         Print Name:  R. Gordon Appleman
                                                    ----------------------------

                                         Title:  Trustee
                                               ---------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE




<PAGE>   39

                                         MARUBENI AMERICA CORPORATION



                                         By: /s/ T. NAKABAYASHI
                                            ------------------------------------

                                         Print Name: T. Nakabayashi
                                                    ----------------------------

                                         Title: Group Executive & SVP,
                                                Power Systems,
                                                Telecommunications & Electronics
                                                Group
                                               ---------------------------------



                                         MARUBENI CORPORATION



                                         By:  /s/ M. OKAMURA
                                            ------------------------------------

                                         Print Name:  M. Okamura
                                                    ----------------------------

                                         Title:  General Manager of Electronics
                                                 Dept.
                                               ---------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   40

                                         INVESTOR (GUERNSEY) LIMITED



                                         By:  /s/ OUJE HELMBERG
                                            ------------------------------------

                                         Print Name:  Ouje Helmberg
                                                    ----------------------------

                                         Title:  Director
                                               ---------------------------------



                                         By:  /s/ DAVID C. JEFFRIES
                                            ------------------------------------

                                         Print Name:  David C. Jeffries
                                                    ----------------------------

                                         Title:  Director
                                               ---------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   41

                                         FORETHOUGHT LIFE INSURANCE COMPANY



                                         By:  /s/ GUY M. COOPER
                                            ------------------------------------

                                         Print Name:  Guy M. Cooper
                                                    ----------------------------

                                         Title:  Chief Investment Officer
                                               ---------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   42

                                         IS INVESTMENTS, LLC



                                         By:  /s/ FRED GUMBINNER
                                            ------------------------------------

                                         Print Name:  Fred Gumbinner
                                                    ----------------------------

                                         Title:  Manager
                                               ---------------------------------



                                         LESLIE J. GOLDMAN


                                         /s/ LESLIE J. GOLDMAN
                                         ---------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   43

                                        FRANEY, PARR & MUHA, INC.



                                        By: /s/ JOHN R. MUHA
                                           -------------------------------------
                                            John R. Muha
                                            President


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   44

                                        FRANKLIN R. SILBEY


                                        /s/ FRANKLIN R. SILBEY
                                        ----------------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   45

                                        RUSSELL C. HIRSCH TRUST



                                        By: /s/ RUSSELL C. HIRSCH, TRUSTEE
                                           -------------------------------------
                                            Russell C. Hirsch, Trustee


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   46

                                        UNGER FAMILY TRUST



                                        By: /s/ WILLIAM D. UNGER
                                           -------------------------------------
                                            William D. Unger, Trustee


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   47

                                        DALAL REVOCABLE TRUST U/D/T DTD 7/31/90,
                                        YOGEN K. & MARGARET J. DALAL, TTEES



                                        By: /s/ YOGEN K. DALAL
                                           -------------------------------------
                                            Yogen K. Dalal



                                        By: /s/ MARGARET J. DALAL
                                           -------------------------------------
                                            Margaret J. Dalal



                                        NINA M. DALAL 1993 TRUST U/T/A 7/21/93,
                                        RAJEN K. DALAL, TRUSTEE



                                        By: /s/ RAJEN K. DALAL, TRUSTEE
                                           -------------------------------------
                                            Rajen K. Dalal, Trustee



                                        ALEX R. DALAL 1993 TRUST U/T/A 7/21/93,
                                        RAJEN K. DALAL, TRUSTEE



                                        By: /s/ RAJEN K. DALAL, TRUSTEE
                                           -------------------------------------
                                            Rajen K. Dalal, Trustee


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE


<PAGE>   48

                                        MASSACHUSETTS INSTITUTE OF TECHNOLOGY



                                        By:  /s/ LORI PRESSMAN
                                           -------------------------------------

                                        Print Name:  Lori Pressman
                                                   -----------------------------

                                        Title:       Assistant Director
                                                Technology Licensing Officer
                                              ----------------------------------


                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE



<PAGE>   49

                             SCHEDULE OF INVESTORS


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
Mayfield VIII                               2,565,000           --        912,000        337,630        118,750        118,750
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Attn: Russell C. Hirsch

Mayfield Associates Fund II                   135,000           --         48,000         17,770          6,250          6,250
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Attn: A. Grant Heidrich, III

Sierra Ventures V, L.P.                     2,300,000           --        600,000        125,000        125,000        125,000
3000 Sand Hill Road
Building 4, Suite 210
Attn: Petri T. Vainio

Frederic H. Moll                              150,000           --             --             --             --             --
P.O. Box 620635
Woodside, CA 94062

Robert G. Younge                              100,000           --             --             --             --             --
550 Westridge Drive
Portola Valley, CA 94028

John G. Freund and Linda G                     50,000           --             --             --             --             --
  Sexton, Trustees of the Freund/
  Sexton Living Trust Dated
  February 8, 1991
86 Alejandra Avenue
Atherton, CA 94027

William H. Abbott, Trustee                     25,000           --             --             --             --             --
  For the Abbott Living Trust
  dated 08/20/87
1507 Louisa Court
Palo Alto, CA 94303

Paul A. Brooke                                 25,000           --             --             --             --             --
Tower Hill Road
Tuxedo Park, NY 10987

Stanford University                            25,000           --             --             --             --             --
c/o Stanford Management Company
2770 Sand Hill Road
Menlo Park, CA 94025
Attn: Carol Gilmer

GC&H Investments                               20,000           --         10,000             --          6,500          6,500
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
</TABLE>



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT


<PAGE>   50


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
Joseph M. Mandato and Elizabeth R              20,000           --         10,000             --             --             --
  Mandato TTEES of the Mandato
  Family Trust
82 Monte Vista Avenue
Atherton, CA 94027

Harry S. Robbins & Susan K.                    20,000           --             --             --             --             --
  Robbins Trustees of the Robbins
  Family Trust D/T/D 4/15/91
15244 Montalvo Heights Court
Saratoga, CA 95070

Howard M. Holstein                              7,500           --             --             --             --             --
850 Potomac School Terrace
Potomac, MD 20854

Guidant Corporation                                --      470,000        290,000             --             --             --
c/o Origin Medsystems, Inc. 
135 Constitution Drive
Menlo Park, CA 94025
Attn: F. Thomas Watkins

Allan G. Lozier                                    --           --      1,200,000        116,000        312,500        312,500
c/o Lozier Corporation
6226 Pershing Drive
Omaha, NE 678110

RWI Group, L.P.                                    --           --        100,000             --             --             --
720 University Avenue, Suite 103
Palo Alto, CA 94301
Attn: Donald A. Lucas

Allan Johnston                                     --           --          5,000             --             --             --
c/o Synergy Partners International
1010 El Camino Real, Suite 300
Menlo Park, CA 94025

Robert Okun                                        --           --          5,000             --             --             --
c/o Synergy Partners International
1010 El Camino Real, Suite 300
Menlo Park, CA 94025

William M. Jenkins                                 --           --          4,000             --             --             --
2208 16th Avenue East
Seattle, WA 98112

Peter M. Dickstein                                 --           --          1,000             --             --             --
3746 Sacramento Street
San Francisco, CA 94118
</TABLE>




                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   51


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
Morgan Stanley Venture                             --           --      1,368,600             --        114,050        114,050
  Partners III, L.P. 
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Attn: Scott S. Halsted

Morgan Stanley Venture                             --           --        131,400             --         10,950         10,950
  Investors III, L.P. 
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Attn: Scott S. Halsted

PaTMarK Company, Inc.                              --           --      1,000,000         37,500      1,250,000      1,250,000
c/o Hillenbrand Industries, Inc. 
700 State Route, 46 East
Batesville, IN 47006
Attn: Thomas E. Brewer

Huntersville Road Investors L.P.                   --           --        250,000         87,500        125,000        125,000
c/o Hillenbrand Industries, Inc. 
700 State Route, 46 East
Batesville, IN 47006
Attn: Thomas E. Brewer

Rose Revocable Trust                               --           --             --         28,600             --             --
c/o Goldman, Sachs & Co. 
555 California Street, 44th Floor
San Francisco, Ca 94104
Attn: G. Lynn Rose

Westwood Associates, L.P.                          --           --         33,000             --        125,000        125,000
c/o Hillenbrand Industries, Inc. 
700 State Route, 46 East
Batesville, IN 47006
Attn: Thomas E. Brewer

Price Brothers Investment                          --           --         12,000             --             --             --
  Partnership
1218 Third Avenue, #1115
Seattle, WA 98101
Attn: John Price

Mr. Judd Meltzer                                   --           --         10,000             --             --             --
Mrs. Wendy Meltzer
900 Park Avenue
New York, NY 10028
</TABLE>




                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   52


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
Dr. Seelig Freund                                  --           --          5,000             --             --             --
Mrs. Charmian Freund
1185 Park Avenue, Apt. 3F
New York, NY 10128

Dr. Bernard Weiss                                  --           --          5,000             --             --             --
Mrs. Doris Weiss
119 East 84th Street, Apt. 8A
New York, NY 10028

Star Bay Partners, L.P.                            --           --             --        375,000        125,000        125,000
c/o Levensohn Capital Management
44 Montgomery Street
Suite 2000
San Francisco, CA 94104
Attn:  Pascal N. Levensohn

Triaxis Trust AG                                   --           --             --        184,500             --             --
Buerglistrasse 6
8027 Zuerich
Attn: Hans-Peter John

Bank Julius Baer & Co. Ltd.                        --           --             --        165,500             --             --
Bahmhoifstmasse 36
8010 Zuerich
Switzerland
Attn: Simon Newson

CBG Compagnie Bancaire Geneve                      --           --             --        125,000             --             --
Avenue de Rumine 20
Case postale 220
CH-1005 LAUSANNE
Switzerland
Attn: Thierry Mory

LGT Bank in Liechtenstein AG                       --           --             --         25,000             --             --
P.O. Box 85
FL-9490
Vaduz Liechtenstein

Insurance Company Supported                        --           --             --         75,000         25,000         25,000
  Organizations Pension Plan Trust
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133
</TABLE>



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   53


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
BK Capital Partners IV, L.P.                       --           --             --        187,500         56,250         56,250
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133
Attn: Marc T. Scholvinck

Prism Partners I, L.P.                             --           --             --         62,500             --             --
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Richard C. Blum & Associates, L.P.                 --           --             --         90,500         22,100         22,100
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133
Attn: Marc T. Scholvinck

Richard C. Blum                                    --           --             --         18,750          4,975          4,975
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

N. Colin Lind                                      --           --             --          8,750          2,225          2,225
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Jeffrey W. Ubben                                   --           --             --          2,500            650            650
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Timothy H. Ubben                                   --           --             --         18,750          4,975          4,975
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Murray A. Indick                                   --           --             --          1,250            325            325
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133
</TABLE>



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   54


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
George F. Hamel, Jr.                               --           --             --            625            150            150
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Marc T. Scholvinck                                 --           --             --          2,500            650            650
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

R. Craig Lind                                      --           --             --          1,250            325            325
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Thomas L. Kempner Trust and                        --           --             --         28,250          6,875          6,875
  William Permuth Trustee u/w Carl
  M. Loeb FBO Thomas L. Kempner
c/o Richard C. Blum &
  Associates, L.P. 
909 Montgomery Street, Suite 400
San Francisco, CA 94133

Susan J. Schmidt                                   --           --             --          1,875            500            500
3111 Jackson Street, #3
San Francisco, CA 94115

W August Hillenbrand                               --           --             --             --        125,000        125,000
c/o Hillenbrand Industries, Inc. 
700 State Route, 46 East
Batesville, IN 47006

Russell C. Hirsch                                  --           --             --             --          3,125          3,125
c/o Mayfield Fund, Suite 250
2800 Sand Hill Road
Menlo Park, CA 94025

OR Trust                                           --           --             --             --         52,875         52,875
c/o Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025

DBI I, L.P.                                        --           --             --             --        125,000        125,000
c/o Kim Combs
3760 Olympia
Houston, TX 77019
</TABLE>



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   55


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
Morton Meyerson                                    --           --             --             --        125,000        125,000
c/o Morgan Stanley
1221 Avenue of the Americas, 4th Floor
New York, NY 10020
Attn:  Alan D. Glatt

David N. Meyerson EDS Trust U/A                    --           --             --             --         62,500         62,500
R. Gordon Appleman Trustee DTD
6/01/70
c/o Morgan Stanley
1221 Avenue of the Americas, 4th Floor
New York, NY 10020
Attn:  Alan D. Glatt

The Marti A. Meyerson EDS Trust U/A                --           --             --             --         62,500         62,500
R. Gordon Appleman Trustee DTD
6/01/70
c/o Morgan Stanley
1221 Avenue of the Americas, 4th Floor
New York, NY 10020
Attn:  Alan D. Glatt

Marubeni America Corporation                       --           --             --             --        312,500        312,500
450 Lexington Avenue, 36th Floor
New York, NY 10017
Attn: H. Fukuda or his successor

Marubeni Corporation                               --           --             --             --        312,500        312,500
4-2, Ohtemachi
1-Chome, Chiyoda-Ku
Tokyo 100-8800 Japan
Attn: M. Okamura, Electronic Dept.

Investor (Guernsey) Limited                        --           --             --             --      1,250,000      1,250,000
PO Box 626
National Westminster House
Le Tuchot St Peter Port
Guernsey Channel Islands
GY 1 4PW

Forethought Life Insurance Company                 --           --             --             --        125,000        125,000
Forethought Center
Batesville, IN 47006
Attn:  Guy Mac Cooper

IS Investments, LLC                                --           --             --             --         37,500         37,500
c/o Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA 20171-4600
Attn: Frederic R. Gumbinner
</TABLE>



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   56


<TABLE>
<CAPTION>
                                            Series A      Series B      Series C       Series D       Series E       Series F
Name and Address                            Preferred     Preferred     Preferred      Preferred      Preferred      Warrants
===============================================================================================================================
<S>                                         <C>            <C>          <C>            <C>            <C>            <C>      
Leslie J. Goldman                                  --           --             --             --         12,500         12,500
c/o Skadden, Arps, Slate, Meagher &
  Flom LLP
1440 New York Avenue, N.W
Washington, D.C. 20005-2111

Franey, Parr & Muha, Inc.                          --           --             --             --          6,250          6,250
Dulles Gateway Center I
13921 Park Center Road, Suite 160
Herndon, VA 20171

Franklin R. Silbey                                 --           --             --             --          6,250          6,250
9430 Sunnyfield Court
Potomac, MD 20854

Russell C. Hirsch Trust                            --           --             --             --          3,125          3,125
c/o Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025

Unger Family Trust                                 --           --             --             --         12,500         12,500
c/o Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Attn: William D. Unger

Dalal Revocable Trust U/D/T DTD                    --           --             --             --         12,500         12,500
  7/31/90, Yogen K. & Margaret J.
  Dalal, TTEE
c/o Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025

Nina M. Dalal 1993 Trust U/T/A                     --           --             --             --          3,125          3,125
  7/21/93, Rajen K. Dalal, TTEE
c/o Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025

Alex R. Dalal 1993 Trust U/T/A                     --           --             --             --          3,125          3,125
  7/21/93, Rajen K. Dalal, TTEE
c/o Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025

TOTAL                                       5,442,500      470,000      6,000,000      2,125,000      5,096,875      5,096,875
</TABLE>



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT

<PAGE>   57

Massachusetts Institute of Technology          35,834 SHARES OF COMMON STOCK
Five Cambridge Center
Kendall Square
Room NE25-230
Cambridge, MA  02142-1493
Attn: Lori Pressman



                              AMENDED AND RESTATED
                           INVESTOR RIGHTS AGREEMENT




<PAGE>   1

                                                                   EXHIBIT 10.6


                  [LMSI LOGO] LEASE MANAGEMENT SERVICES, INC.

                          EQUIPMENT FINANCING AGREEMENT
                                 (Number 10809)

THIS EQUIPMENT FINANCING AGREEMENT NUMBER 10809 ("Agreement") is dated as of the
date set forth at the foot hereof and is between LEASE MANAGEMENT SERVICES,
INC., ("Secured Party") and INTUITIVE SURGICAL, INC., ("Debtor").

1.   EQUIPMENT; SECURITY INTEREST. The terms and conditions of this Agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title and
interest in and to the Equipment under the Uniform Commercial Code, such grant
with respect to an Item of Equipment to be as of Debtor's execution of a related
Equipment Financing Commitment referencing this Agreement or, if Debtor then has
no interest in such Item, as of such subsequent time as Debtor acquires an
interest in the Item. Such security interest is granted by Debtor to secure
performance by Debtor of Debtor's obligations to Secured
 Party hereunder and
under any other agreements under which Debtor has or may hereafter have
obligations to Secured Party. Debtor will ensure that such security interest
will be and remain a sole and valid first lien security interest subject only to
the lien of current taxes and assessment not in default but only if such taxes
are entitled to priority as a matter of law.

2.   DEBTOR'S OBLIGATIONS. The obligations of Debtor under this Agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in Paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required hereunder
provided, however, that if this Agreement is in default said obligations and
security interest will continue during the continuance of said default. Upon
termination of Secured Party's security interest in an Item of Equipment,
Secured Party will execute such release of interest with respect thereto as
Debtor reasonably requests.

3.   INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances Secured
Party makes on account of the Equipment in installment payments in the amounts
and at the times set forth in the Schedules, whether or not Secured Party has
rendered an invoice therefor, at the office of Secured Party set forth at the
foot hereof, or to such person and/or at such other place as Secured Party may
from time to time designate by notice to Debtor. Any other amounts required to
be paid Secured Party by Debtor hereunder are due upon Debtor's receipt of
Secured Party's invoice therefor and will be payable as directed in the invoice.
Payments under this Agreement may be applied to Debtor's then accrued
obligations to Secured Party in such order as Secured Party may choose.

4.   NET AGREEMENT; NO OFFSET, SURVIVAL. This Agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstance or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payment due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of the Agreement.

5.   FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR
ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED
SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND WILL NOT
BE THE VENDOR OF ANY  



<PAGE>   2

EQUIPMENT AND THAT SECURED PARTY HAS NOT MADE AND WILL NOT MAKE ANY AGREEMENT,
REPRESENTATION OR WARRANTY WITH RESPECT TO THE MERCHANTABILITY, CONDITION,
QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR VALUE OF THE EQUIPMENT OR
ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT WHATSOEVER.

6.   NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND, AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF THE
EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED ONLY AS PROVIDED
IN THAT PARAGRAPH.

7.   ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering 
the Equipment or any Items thereof will conclusively establish that such
Equipment has been included under and will be subject to all the terms and
conditions of this Agreement. If Debtor has not furnished Secured Party with an
executed Schedule by the earlier of fourteen (14) days after receipt thereof or
expiration of the commitment period set forth in the applicable Equipment
Financing Agreement, Secured Party may terminate its obligation to advance funds
as to the applicable Equipment.

8.   LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item may have been moved with the prior written consent
of Secured Party. Whenever requested by Secured Party, Debtor will advise
Secured Party as to the exact location of an Item of Equipment. Secured Party
will have the right to inspect the Equipment and observe its use during normal
business hours, subject to Debtor's security procedures and to enter into and
upon the premises where the Equipment may be located for such purpose. The
Equipment will at all times be used solely for commercial or business purposes
and operated in a careful and proper manner and in compliance with all
applicable laws, ordinances, rules and regulations, all conditions and
requirements of the policy or policies of insurance required to be carried by
Debtor under the terms of this Agreement and all manufacturer's instructions and
warranty requirements. Any modifications or additions to the Equipment required
by any such governmental edict or insurance policy will be promptly made by
Debtor.

9.   ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent
of Secured Party, Debtor will not make any alterations, additions or
improvements to any Item of Equipment which detract form its economic value or
functional utility, except as may be required pursuant to Paragraph 8 above.
Secured Party's security interest in the Equipment will include all
modifications and additions thereto and replacements and substitutions therefor,
in whole or in part. Such reference to replacements and substitutions will not
grant Debtor greater rights to replace or substitute than are provided in
Paragraph 11 below or as may be allowed upon the prior written consent of
Secured Party.

10.  MAINTENANCE. Debtor will maintain the Equipment in good repair, condition
and working order. Debtor will also cause each Item of Equipment for which a
service contract is generally available to be covered by such a contract which
provides coverages typical to property of the type involved and is issued by a
competent servicing entity.

11.  LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft of,
requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence"), Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, 



<PAGE>   3

condition and working order, provided, however, that if such Item is determined
by Secured Party to be lost, stolen, destroyed or damaged beyond repair, is
requisitioned or suffers a constructive total loss as defined in any applicable
insurance policy carried by Debtor in accordance with Paragraph 14 below,
Debtor, at Secured Party's option, will (a) replace such Item with like
Equipment in good repair, condition and working order whereupon such replacement
equipment will be deemed such Item for all purposes hereof or (b) pay Secured
Party the "Casualty Value" of such Item which will equal the total of (i) all
installment payments and other amounts due from Debtor to Secured Party at the
time of such payment and (ii) future installment payments due with respect to
such Item with each such payment including any final uneven payment discounted
at a rate equal to the discount rate of the Federal Reserve Bank of San
Francisco from the date due to the date of such payment.

Upon such replacement or payment, as appropriate, this Agreement and Secured
Party's security interest will terminate with, and only with, respect to the
Item of Equipment so replaced or as to which such payment is made in accordance
with Paragraph 2 above.

12.  TITLING; REGISTRATION. Each item of Equipment subject to title registration
laws will at all times be titled and/or registered by Debtor as Secured Party's
agent and attorney-in-fact with full power and authority to register (but
without power to affect title to) the Equipment in such manner and in such
jurisdiction or jurisdictions as Secured Party directs. Debtor will promptly
notify Secured Party of any necessary or advisable retitling and/or registration
of an Item of Equipment in a jurisdiction other than the one in which such Item
is then titled and/or registered. Any and all documents of title will be
furnished or caused to be furnished Secured Party by Debtor within sixty (60)
days of the date any titling or registering or restating or deregistering, as
appropriate, is directed by Secured Party.

13.  TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the Equipment and will pay as
directed by Secured Party or reimburse Secured Party for all other taxes,
including, but not limited to, gross receipt taxes (exclusive of federal and
state taxes based on Secured Party's net income, unless such net income taxes
are in substitution for or relieve Debtor from any taxes which Debtor would
otherwise be obligated to pay under the terms of this Paragraph 13), fees,
charges and assessments whatsoever, however designated, whether based on the
installment payments or other amounts due hereunder, levied, assessed or imposed
upon the Equipment or otherwise related hereto or to the Equipment, now or
hereafter levied, assessed or imposed under the authority of a federal, state,
or local taxing jurisdiction, regardless of when and by whom payable. Filings
with respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.

14.  INSURANCE. Debtor will procure and continuously maintain all risk insurance
against loss or damage to the Equipment from any cause whatsoever for not less
than the full replacement value thereof naming Secured Party as Loss Payee. Such
insurance must be in a form and with companies approved by Secured Party, must
provide at least thirty (30) days advance written notice to Secured Party of
cancellation, change or modification in any term, condition, or amount of
protection provided therein, must provide full breach of warranty protection and
must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. In the
event of an assignment of this Agreement of which Debtor has notice, Debtor will
cause such insurance to provide the same protection to the assignee as its
interests may appear. The proceeds of such insurance, at the option of the
Secured Party or such assignee, as appropriate, will be applied toward (a)
repair or replacement of the appropriate Item or Items of Equipment, (b) payment
of the Casualty Value thereof and/or (c) payment of, or as provision for,
satisfaction of any other accrued obligations of Debtor hereunder. Debtor hereby
appoints Secured Party as Debtor's attorney-in-fact with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on account of a
Casualty 


<PAGE>   4

Occurrence. Debtor and Secured Party contemplate that the jurisdictions where
the Equipment will be located will not impose any liability upon Secured Party
for personal injury and/or property damage resulting out of the possession, use,
operation or condition of the Equipment. In the event Secured Party determines
that such is not or may not be the case with respect to a given jurisdiction,
Debtor will provide Secured Party with public liability and property damage
coverage applicable to the Equipment in such amounts and in such form as Secured
Party requires.

15.  SECURED PARTY'S PAYMENT. If Debtor fails to pay any amounts due hereunder
or to perform any of its other obligations under this Agreement, Secured Party
may, at its option, but without any obligation to do so, pay such amounts or
perform such obligations, and Debtor will reimburse Secured Party the amount of
such payment or cost of such performance, plus interest at 1.5% per month.

16.  INDEMNITY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party (whether or not also indemnified against by any other
person) in any way relating to or arising out of this Agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor, including,
without limitation, any claim alleging latent and other defects, whether or not
discoverable by Secured Party or Debtor, and any other claim arising out of
strict liability in tort, whether or not in either instance relating to an event
occurring while Debtor remains obligated under this Agreement, and any claim for
patent, trademark or copyright infringement. Debtor agrees to give Secured Party
and Secured Party agrees to give Debtor notice of any claim or liability hereby
indemnified against promptly following learning thereof.

17.  DEFAULT. Any of the following will constitute an event of default 
hereunder: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in performing any other obligation, term or
condition of this Agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (l)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
property where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within ten
(10) days; (d) Debtor's failure to comply with its obligations under Paragraph
14 above or any transfer by Debtor in violation of Paragraph 21 below; (e) a
non-appealable judgment for the payment of money in excess of $100,000 being
rendered by a court of record against Debtor which Debtor does not discharge or
make provision for discharge in accordance with the terms thereof within ninety
(90) days from the date of entry thereof; (f) death or judicial declaration of
incompetency of Debtor, if an individual; (g) the filing by Debtor of a petition
under the Bankruptcy Code or any amendment thereto or under any other insolvency
law or law providing for the relief of debtors, including, without limitation, a
petition for reorganization, arrangement or extension, or the commission by
Debtor of an act of bankruptcy; (h) the filing against Debtor of any such
petition not dismissed or permanently stayed within thirty (30) days of the
filing thereof; (i) the voluntary or involuntary making of an assignment of
substantial portion of its assets by Debtor for the benefit of creditors,
appointment of a receiver or trustee for Debtor or for any of Debtor's assets,
institution by or against Debtor or any other type of insolvency proceeding
(under the Bankruptcy Code or otherwise) or of any formal or informal proceeding
for dissolution, liquidation, settlement of claims against or winding up of the
affairs of Debtor, Debtor's cessation of business activities or the making by
Debtor of a transfer of all or a material portion of Debtor's assets or
inventory not in the ordinary course of business; (j) the occurrence of any
event described in parts (e), (f), (g), (h) or (i) hereinabove with respect to
any guarantor or 



<PAGE>   5

other party liable for payment or performance of this Agreement; (k) any
certificate, statement, representation, warranty or audit heretofore or
hereafter furnished with respect hereto by or on behalf of Debtor or any
guarantor or other party liable for payment or performance of this Agreement
proving to have been false in any material respect at the time as of which the
facts therein set forth were stated or certified or having omitted any
substantial contingent or unliquidated liability or claim against Debtor or any
such guarantor or other party; (l) breach by Debtor of any lease or other
agreement providing financial accommodation under which Debtor or its property
is bound; or (m) a transfer of effective control of Debtor, if an organization.

18.  REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a Secured Party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue during
the pendency of such action with respect to any or all Items of Equipment; (c)
take possession of and, if deemed appropriate, render unusable any or all Items
of Equipment, without demand or notice, wherever same may be located, without
any court order or other process of law and without liability for any damages
occasioned by such taking of possession and remove, keep and store the same or
use and operate or lease the same until sold; (d) require Debtor to assemble any
or all Items of Equipment at the Equipment Location therefor, or at such
location to which such Equipment may have been moved with the written consent of
Secured Party or such other location in reasonable proximity to either of the
foregoing as Secured Party designates; (e) upon ten (10) days notice to Debtor
or such other notice as may be required by law, sell or otherwise dispose of any
Item of Equipment, whether or not in Secured Party's possession, in a
commercially reasonable manner at public or private sale at any place deemed
appropriate and apply the new proceeds of such sale, after deducting all costs
of such sale, including, but not limited to, costs of transportation,
repossession, storage, refurbishing, advertising and brokers' fees, to the
obligations of Debtor to Secured Party hereunder or otherwise, with Debtor
remaining liable for any deficiency and with any excess being returned to
Debtor; (f) upon thirty (30) days notice to Debtor, retain any repossessed or
assembled Items of Equipment as Secured Party's own property in full
satisfaction of Debtor's liability for the installment payments due hereunder
with respect thereto, provided that Debtor will have the right to redeem such
Items by payment in full of its obligations to Secured Party hereunder or
otherwise or to require Secured Party to sell or otherwise dispose of such Items
in the manner set forth in subparagraph (e) hereinabove upon notice to Secured
Party within such thirty (30) day period; or (g) utilize any other remedy
available to Secured Party under the Uniform Commercial Code or similar
provision of law or otherwise at law or in equity.

No right or remedy conferred herein is exclusive of any other right or remedy
conferred herein or by law; but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this Paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such sale,
or for any such adjourned sale, without further published notice, Secured Party
may bid and become the purchaser at any such sale. Any sale of an Item of
Equipment, whether under said subparagraph or by virtue of judicial proceedings,
will operate to divest all right, title, interest, claim and demand whatsoever;
either at law or in equity, of Debtor in and to said item and will be a
perpetual bar to any claim against such Item, both at law and in equity, against
Debtor and all persons claiming by, through or under Debtor.

19.  DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any right
under this Agreement and such proceedings are discontinued or abandoned for any
reason or are 



<PAGE>   6

determined adversely, then and in every such case Debtor and Secured Party will
be restored to their former positions and rights hereunder.

20.  SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including attorney's fees and court costs and sales costs not offset
against sales proceeds under Paragraph 18 above, incurred by Secured Party in
exercising any of its rights or remedies hereunder or enforcing any of the
terms, conditions or provisions hereof. This obligation includes the payment or
reimbursement of all such amounts whether an action is ultimately filed and
whether an action is ultimately dismissed.

21.  ASSIGNMENT. Without the prior written consent of Secured Party, Debtor will
not sell, lease, pledge or hypothecate, except as provided in this Agreement,
any Item of Equipment or any interest therein or assign, transfer, pledge, or
hypothecate this Agreement or any interest in this Agreement or permit the
Equipment to be subject to any lien, charge or encumbrance of any nature except
the security interest of Secured Party contemplated hereby. Debtor's interest
herein is not assignable and will not be assigned or transferred by operation of
law. Consent to any of the foregoing prohibited acts applies only in the given
instance and is not a consent to any subsequent like act by Debtor or any other
person.

All rights of Secured Party hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without notice
to Debtor but always, however, subject to the rights of Debtor under this
Agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
Agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this Agreement.

Subject always to the foregoing, this Agreement inures to the benefit of, and is
binding upon, the heirs, legatees, personal representative, successors and
assigns of the parties hereto.

22.  MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise mark the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain and deliver to Secured Party waivers of interest or liens in
recordable form satisfactory to Secured Party from all persons claiming any
interest in the real property on which an Item of Equipment is or is to be
installed or located.

23.  LATE CHARGES. Time is of the essence in this Agreement and if any
Installment Payment is not paid within ten (10) days after the due date thereof,
Secured Party shall have the right to add and collect, and Debtor agrees to pay:
(a) a late charge on and in addition to, such Installment Payment equal to five
percent (5%) of such Installment Payment or a lesser amount if established by
any state or federal statute applicable thereto, and (b) interest on such
Installment Payment from thirty (30) days after the due date until paid at the
highest contract rate enforceable against Debtor under applicable law but never
to exceed eighteen percent (18%) per annum.


<PAGE>   7


24.  NON-WAIVER.  No covenant or condition of this Agreement can be waived 
except by the written consent of Secured Party. Forbearance or indulgence by
Secured Party in regard to any breach hereunder will not constitute a waiver of
the related covenant or condition to be performed by Debtor.

25.  ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will execute and deliver to Secured Party such financing statements and
similar documents as Secured Party requests. Debtor authorizes Secured Party
where permitted by law to make filings of such financing statements without
Debtor's signature. Debtor further will furnish Secured Party (a) on a timely
basis, Debtor's future financial statements, including Debtor's most recent
annual report, balance sheet and income statement, prepared in accordance with
generally accepted accounting principles, which reports, Debtor warrants, shall
fully and fairly represent the true financial condition of Debtor (b) any other
information normally provided by Debtor to the public and (c) such other
financial data or information relative to this Agreement and the Equipment,
including, without limitation, copies of vendor proposals and purchase orders
and agreements, listings of serial numbers or other identification data and
confirmations of such information, as Secured Party may from time to time
reasonably request. Debtor will procure and/or execute, have executed,
acknowledge, have acknowledged, deliver to Secured Party, record and file such
other documents and showings as Secured Party deems necessary or desirable to
protect its interest in and rights under this Agreement and interest in the
Equipment. Debtor will pay as directed by Secured Party or reimburse Secured
Party for all filing, search, title report, legal and other fees incurred by
Secured Party in connection with any documents to be provided by Debtor pursuant
to this Paragraph or Paragraph 22 and any further similar documents Secured
Party may procure.

26.  DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial data
and other information which Debtor has submitted, or will submit, to Secured
Party in connection with this Agreement is, or will be at time of delivery, as
appropriate, a true and complete statement of the matters therein contained.
Debtor further certifies and warrants: (a) this Agreement has been duly
authorized by Debtor and when executed and delivered by the person signing on
behalf of Debtor below will constitute the legal, valid and binding obligation,
contract and agreement of Debtor enforceable against Debtor in accordance with
its respective terms; (b) this Agreement and each and every showing provided by
or on behalf of Debtor in connection herewith may be relied upon by Secured
Party in accordance with the terms thereof notwithstanding the failure of Debtor
or other applicable party to ensure proper attestation thereto, whether by
absence of a seal or acknowledgement or otherwise; (c) Debtor has the right,
power and authority to grant a security interest in the Equipment to Secured
Party for the uses and purposes herein set forth and (d) each Item of Equipment
will, at the time such Item becomes subject hereto, be in good repair, condition
and working order.

27.  ADDITIONAL SECURITY. As additional security to secure the performance of 
the Debtor's obligations under this Agreement and the Schedules hereto, Debtor
grants to the Secured Party a security interest in all of its fixed assets,
including, but not limited to, lab, test, computer and office equipment and
modifications and additions thereto and replacements and substitutions therefor
and the proceeds thereof including insurance proceeds, now owned or hereafter
acquired between the date of this Agreement and the later of (a) January 31,
1998 or (b) the expiration of the funding period under the credit approval dated
February 14, 1997 (collectively, the "Additional Equipment").

The Debtor shall have all of the obligations with respect to the Additional
Equipment as it has with respect to the Equipment as set forth in this
Agreement.

28.  ENTIRE AGREEMENT.  This instrument with exhibits and related documentation 
constitutes the entire agreement between Secured Party and Debtor and will not
be amended, altered or changed except by a written agreement signed by the
parties.

29.  NOTICES. Notices under this Agreement must be in writing and must be mailed
by United States mail, certified mail with return receipt requested, duly
addressed, with postage prepaid, to the party involved at its respective address
set forth at the foot hereof or at such other address as each party may provide
on notice to the other from time to time. Notices will be effective when
deposited. Each party will promptly notify the other of any change in that
party's address.

30.  GENDER, NUMBER: JOINT AND SEVERAL LIABILITY. Whenever the context of this
Agreement requires, the neuter gender includes the feminine or masculine and the
singular number includes the plural; and whenever the words "Secured Party" are
used herein, they include all assignees of Secured Party, it being understood
that specific reference to "assignee" in Paragraph 14 above is for further
emphasis. If there is more than one Debtor named in this Agreement, the
liability of each will be joint and several.

31.  TITLES.  The titles to the Paragraphs of this Agreement are solely for the 
convenience of the parties and are not an aid in the interpretation of the
instrument.

32.  GOVERNING LAW; VENUE. This Agreement will be governed by and construed in
accordance with the laws of the State of California. Venue for any action
related to the Agreement will be in an appropriate court in San Mateo County,
California, to which Debtor consents, or in another court selected by Secured
Party which has jurisdiction over the parties. In the event any provision hereof
is declared invalid, such provision will be deemed severable from the remaining
provisions of this Agreement, which will remain in full force and effect.

33.  TIME. Time is of the essence of this Agreement and for each and all of its 
provisions.

In WITNESS WHEREOF, the undersigned have executed this Agreement as of 4/2,
1997.

DEBTOR: 
INTUITIVE SURGICAL, INC. 
1340 W. Middlefield Road 
Mountain View, CA
94043

By: /s/ W.H. Abbott
    -----------------------
Title:  Consultant


SECURED PARTY:
LEASE MANAGEMENT SERVICES, INC.
2500 Sand Hill Road, Suite 101
Menlo Park, CA  94025

By: /s/ Barbara B. Kaiser
    ------------------------

Title:  EVP/General Manager


<PAGE>   8

             ADDENDUM TO EQUIPMENT FINANCING AGREEMENT NUMBER #10809
                                     BETWEEN
                       INTUITIVE SURGICAL, INC. ("DEBTOR")
                                       AND
                LEASE MANAGEMENT SERVICES, INC. ("SECURED PARTY")

The printed form of Equipment Financing Agreement #10809 between the parties
dated April 2, 1997 is amended as follows:

1.   In Section 1, line 11 before the word "agreement" insert "equipment lease 
or equipment financing."

2.   In Section 4, line 3, before "Debtor" insert  "To the extent not prohibited
by law."

3.   In Section 7, change "fourteen (14) days" to "thirty (30) days" in the 
second sentence.

4.   In Section 8, line 5, after the first occurrence of "Secured Party." insert
", except that Secured Party's consent shall not be required when Debtor's
principle place of business is relocated within the continental United States.
Debtor shall give Secured Party thirty (30) days advance written notice of
Debtor's intent to relocate an Item of Equipment within the continental United
States. If Debtor is in default as defined in Section 17 herein, Debtor may not
relocate an Item of Equipment without the prior written consent of Secured
Party, such consent shall not be unreasonably withheld."

5.   In Section 8, line 6, before the second occurrence of "Secured Party." 
insert "Upon Prior reasonable notice,".

6.   In Section 8, line 9, after "commercial" insert ",research and 
development."

7.   In Section 10, line 2, after "also" insert "either."

8.   At the end of Section 10, after "entity" insert "or provide comparable
maintenance and repair services."

9.   In Section 11, line 7, after the word "below" insert "Secured Party shall
first consult with Debtor and then.", and in line 13, replace "the Federal
Reserve Bank of San Francisco" with nine percent (9%)."



                                       1.

<PAGE>   9

10.  Section 14, delete section in its entirety and replace with "14. INSURANCE
Debtor will procure and continuously maintain insurance against loss (other than
by reason of war, acts of God, riot, earthquake, flood or the like) or damage to
the Equipment from any reasonable risk whatsoever for not less than the full
replacement value thereof naming Secured Party as Loss Payee as its interest may
appear. Such insurance must be in a form and with companies reasonably approved
by Secured Party, must provide at least thirty (10) days advance written notice
to Secured Party of cancellation, change or modification in any term, condition,
or amount of protection provided therein, must provide full breach of warranty
protection and must provide that the coverage is "primary coverage" (does not
require contribution from any other applicable coverage). Debtor will provide
Secured Party with an original policy or certificate evidencing such insurance.
In the event of an assignment of this Agreement of which Debtor has notice,
Debtor will cause such insurance to provide the same protection to the assignee
as its interest may appear. The proceeds of such insurance, at the option of the
Secured Party or such assignee (after consultation with Debtor), as appropriate,
will be applied toward (a) repair or replacement of the appropriate Item or
items of Equipment (b) payment of the Casualty Value thereof and/or (c) payment
of, or as provision for, satisfaction of any other accrued obligations of Debtor
hereunder. Debtor hereby appoints Secured Party as Debtor's attorney-in-fact
will full power and authority, if an Event of Default has occurred and is
continuing, to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on account of a
Casualty Occurrence. Debtor and Secured Party contemplate that the jurisdictions
where the Equipment will be located will not impose any liability upon Secured
Party for personal injury and/or property damage resulting out of the
possession, use, operation or condition of the Equipment. In the event Secured
Party determines that such is not or may not be the case with respect to a given
jurisdiction, Debtor will provide Secured Party with public liability and
property damage coverage applicable to the Equipment in such amounts and in such
form as Secured Party reasonably requires, PROVIDED, HOWEVER, that public
liability insurance with primary limits of $1,000,000 per occurrence with an
excess policy of $2,000,000, shall be deemed to satisfy this requirement."

11.  Section 15, at the beginning of the section insert "Subject to Section 23
below,".

12.  Section 16, line 4, after the phrase "kind and nature" insert, ", except 
any of the foregoing resulting from Secured Party's gross negligence or willful
misconduct,".

13.  In Section 17(h), change "thirty (30) days" to "sixty (60) days."

14.  In Section 17(i), at the end of the clause insert ", except for the 
purposes of a change in Debtor's state of incorporation."

15.  Section 17(k), at the end of the clause insert "in excess of $50,000 per
item or in the aggregate."


                                       2.

<PAGE>   10

16.  In Section 17(k), after the words "or having" insert "knowingly."

17.  In Section 17(m), insert "subject to Section 21," at the beginning of the
clause.

18.  Section 17(l), delete the section and replace it with "breach, in excess of
$50,000 per item or in the aggregate, by Debtor of any lease or other agreement
providing financial accommodation under which Debtor or its property is bound,
which breach is not cured or with respect to which no provision has been made to
cure within twenty (20) days;".

19.  Section 18, line 1, insert the following in front of the beginning of the
first sentence of the section: "Except as provided otherwise in this Agreement
(as amended by this Addendum)."

20.  In Section 18, (e) change "ten (10) days" to "fifteen (15) days."

21.  In Section 18, second paragraph, line 4, after "Any" insert "lawful."

22.  In Section 19, line 2, delete "or are determined adversely."

23.  Section 20, line 1, insert "reasonable" between "all" and "cost."

24.  Section 20, line 2, "reasonable" between "including" and "attorney's."

25.  Section 20, line 6, after "dismissed" insert ", provided that the cost and
expenses were incurred in the good faith exercise of Secured Party's rights and
remedies hereunder."

26.  Section 21, line 4, after "Agreement" insert "(except in each such case, 
for purposes of changing Debtor's state of incorporation)."

27.  Section 21, line 5, before "Debtor's" insert "Except as provided in the
previous sentence."

28.  Section 24, line 1, after "condition" insert "to be performed by Debtor."

29.  Section 25, line 4, insert "reasonably" before "requests."

30.  Section 25, line 17, insert "reasonable" between "report," and "legal" and
between "other" and "fees."

31.  Section 25(b), after "other" insert "financial."

32.  Section 25, line 15, delete "or desirable."

                                       3.

<PAGE>   11


33.  Section 25(c), delete the last sentence and replace it with "Debtor will 
pay as directed by Secured Party or reimburse Secured Party for all Uniform
Commercial Code filings by Secured Party against Debtor and all search reports
conducted with respect to the debtor."

34.  Section 27 append after last sentence to first paragraph "Notwithstanding
the foregoing, in no event shall Secured Party have any right or interests in
any intellectual property incorporated, associated or related to the Additional
Equipment."

35.  Section 29, line 5, after "effective" replace "when" with "upon the earlier
of receipt or three days after."

36.  Section 32, line 4, after "Secured Party" insert", to which Debtor
consents."

IN WITNESS WHEREOF, the undersigned have executed this Addendum this 2nd day of
April, 1997.

DEBTOR                                  SECURED PARTY:

INTUITIVE SURGICAL, INC.                LEASE MANAGEMENT SERVICES, INC.

By:  /s/ W.H. Abbott                    By: /s/ Barbara B. Kaiser
     --------------------------         -------------------------
Title:  Consultant                      Title:   EVP/GM



                                       4.

<PAGE>   12

[LMSI LOGO] LEASE MANAGEMENT SERVICES, INC.


                                   ADDENDUM TO

                          EQUIPMENT FINANCING AGREEMENT

                                  NUMBER 10809

                                 BY AND BETWEEN

                       INTUITIVE SURGICAL, INC., AS DEBTOR

                                       AND

                LEASE MANAGEMENT SERVICES, INC., AS SECURED PARTY

INTUITIVE SURGICAL, INC., as Debtor, hereby acknowledges its responsibility to
pay, and agrees to pay any taxes which may be due to the State of California or
where applicable, for the collateral covered under the above referenced
agreement.

DEBTOR:
INTUITIVE SURGICAL, INC.


By: /s/ W.H. Abbott

Title: Consultant

Date:  4/2/97

<PAGE>   13
                         LEASE MANAGEMENT SERVICES, INC.

                                 SCHEDULE 02 TO
                   EQUIPMENT FINANCING AGREEMENT NUMBER 10809
                                     BETWEEN
                       INTUITIVE SURGICAL, INC., AS DEBTOR
                                       AND
                LEASE MANAGEMENT SERVICES, INC., AS SECURED PARTY

ATTACHED TO AND MADE A PART OF EQUIPMENT FINANCING AGREEMENT NUMBER 10809, BY
AND BETWEEN SECURED PARTY AND DEBTOR ("AGREEMENT") WHICH IS INCORPORATED HEREIN
BY THIS REFERENCE. SECURED PARTY AND DEBTOR HEREBY ACKNOWLEDGE THAT THE ITEMS OF
EQUIPMENT DESCRIBED IN THIS SCHEDULE ARE COVERED BY THE AGREEMENT AND THAT THE
FOLLOWING IS A DESCRIPTION OF SAID ITEMS, THE ADVANCE AMOUNT ON ACCOUNT THEREOF,
THE INSTALLMENT PAYMENTS APPLICABLE THERETO, THE EQUIPMENT LOCATION THEREOF,
AND, IF SPECIFIED, CERTAIN FURTHER RELATED INFORMATION.

1.  EQUIPMENT DESCRIPTION:                     See attached Exhibit "A"

2.  PROCEEDS AMOUNT:                           $643,873.48

3.  INSTALLMENT PAYMENTS:                      Except as otherwise provided in 
                                               the agreement or in this 
                                               Schedule, the undersigned Debtor
                                               promises to repay the Advance 
                                               Amount, with interest as follows:

$16,857.00 per month due on the first day of each month for Forty-Two (42) 
consecutive months,  beginning on February 1, 1998, followed by a payment of 
$96,581.00 on August 1, 2001.

4.  EQUIPMENT LOCATION:                     1340 W. Middlefield Road
                                            Mountain View, CA  94043
5.  OTHER PROVISIONS:                       N/A

Dated: 2/6/98
      ----------------------------

DEBTOR:                                     SECURED PARTY:
INTUITIVE SURGICAL, INC.                    LEASE MANAGEMENT SERVICES, INC.


By: /s/ LONNIE M. SMITH                     By: /s/ BARBARA B. KAISER
   --------------------------------             --------------------------------
                                                Barbara B. Kaiser


Title: CFO                                  Title: EVP/General Manager
      -----------------------------                -----------------------------




<PAGE>   1
                                                                  EXHIBIT 10.7



--------------------------------------------------------------------------------
HELLER FINANCIAL



                               SECURITY AGREEMENT



        THIS SECURITY AGREEMENT ("Agreement") is entered into as of the 20 day
of May, 1999, by and between INTUITIVE SURGICAL, INC., a Delaware corporation
("Debtor"), whose business address is 1340 W. Middlefield Rd., Mountain View, CA
94043 and HELLER FINANCIAL LEASING, INC., a Delaware corporation ("Secured
Party"), whose address is Commercial Equipment Finance Division, 500 West Monroe
Street, Chicago, Illinois 60661.


                                   WITNESSETH:

1. Secure Payment. To secure payment of indebtedness in the principal sum of up
to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) as
evidenced by a note or notes executed and delivered by Debtor to Secured Party
(the "Notes") and any obligations arising under this Agreement, and also to
secure any other indebtedness or liability of Debtor to Secured Party, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising and no matter how acquired by Secured Party, including all
future advances or loans which may be made at the option of Secured Party (all
the foregoing hereinafter called the "Indebtedness"), Debtor hereby grants and
conveys to Secured Party a first priority continuing lien and security
 interest
in the personal property described on any schedule(s) now or hereafter attached
to or made a part hereof by reference hereto (the "Schedules"), all products and
proceeds (including insurance proceeds) thereof, if any, and all substitutions,
replacements, attachments, additions, and accessions thereto (all of the
foregoing hereinafter called the "Collateral.") The Schedules may be
supplemented from time to time to evidence the Collateral subject to this
Agreement.

Debtor shall request in writing each advance of principal under the Notes, which
request shall be satisfactory to Secured Party in form and substance. Each
advance shall be on and subject to the terms and conditions set forth in this
Agreement and shall otherwise be at Secured Party's sole discretion. Amounts
advanced and repaid may not be reborrowed.

2. Representations, Warranties and Covenants. Except as otherwise provided, each
representation and warranty made by Debtor in this



                                       1

<PAGE>   2

Agreement shall be true, correct and complete as of the date of this Agreement
and as of the date of each advance of funds under a Note. Debtor hereby
represents, warrants and covenants as follows:

        (a) Perform Obligations. Debtor shall pay as and when due all
Indebtedness secured by this Agreement and perform all of the obligations
contained in this Agreement according to its terms. Debtor shall use the loan
proceeds for business uses and not for personal, family, household, or
agricultural uses.

        (b) Perfection. This Agreement and all necessary Uniform Commercial Code
filings together create a valid, perfected and first priority continuing lien
and security interest in the Collateral, securing the payment and performance of
the Indebtedness, and all filings and other actions necessary or desirable to
create, perfect and protect such security interest have been or will be duly
taken.

        (c) Collateral Free and Clear. Except as may be set forth on a Schedule,
the Collateral is and shall remain free and clear of all liens, claims, charges,
encumbrances and other security interests of any kind (other than the security
interest granted hereby). Debtor shall defend the title to the Collateral
against all persons and against all claims and demands whatsoever.

        (d) Possession and Operating Order of the Collateral. Debtor shall
retain possession of the Collateral at all times and shall not sell, exchange,
assign, loan, deliver, lease, mortgage, or otherwise dispose of the Collateral
or any part thereof without the prior written consent of Secured Party. Debtor
shall at all times keep the Collateral at the location[s] specified on the
Schedules (except for removals thereof in the usual course of business for
temporary periods). At Debtor's sole cost and expense, Debtor shall keep the
Collateral in good repair and condition and shall not misuse, abuse, waste or
otherwise allow it to deteriorate, except for normal wear and tear. Secured
Party may verify any Collateral in any reasonable manner which Secured Party may
consider appropriate, and Debtor shall furnish all reasonable assistance and
information and perform any acts which Secured Party may reasonably request in
connection therewith.

        (e) Insurance. Debtor shall insure the Collateral against loss by fire
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed Fifty
Thousand and 00/100 Dollars ($50,000.00) per occurrence and without
co-insurance. In addition, Debtor shall obtain liability insurance covering
liability for bodily injury, including death and property damage, in an



                                       2

<PAGE>   3

amount of at least Five Million and 00/100 Dollars ($5,000,000.00) per
occurrence or such greater amount as may comply with general industry standards,
or in such other amounts as Secured Party may otherwise require. All policies of
insurance required hereunder shall be in such form, amounts, and with such
companies as Secured Party may approve; shall provide for at least thirty (30)
days prior written notice to Secured Party prior to any modification or
cancellation thereof; shall name Secured Party as loss payee or additional
insured, as applicable, and shall be payable to Debtor and Secured Party as
their interests may appear; shall waive any claim for premium against Secured
Party; and shall provide that no breach of warranty or representation or act or
omission of Debtor shall terminate, limit or affect the insurers' liability to
Secured Party. Certificates of insurance or policies evidencing the insurance
required hereunder along with satisfactory proof of the payment of the premiums
therefor shall be delivered to Secured Party. Debtor shall give immediate
written notice to Secured Party and to insurers of loss or damage to the
Collateral and shall promptly file proofs of loss with insurers. Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact, coupled with an
interest, for the purpose of obtaining, adjusting and canceling any such
insurance and endorsing settlement drafts. Debtor hereby assigns to Secured
Party, as additional security for the Indebtedness, all sums which may become
payable under such insurance.

        In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need not, protect Debtor's interests. The
coverage purchased by Secured Party may not pay any claim made by Debtor or any
claim that is made against Debtor in connection with the Collateral. Debtor may
later cancel any insurance purchased by Secured Party, but only after providing
Secured Party with evidence that Debtor has obtained insurance as required by
this Agreement. If Secured Party purchases insurance for the Collateral, Debtor
will be responsible for the costs of that insurance, including interest and
other charges imposed by Secured Party in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Indebtedness. The
costs of the insurance may be more than the cost of insurance Debtor is able to
obtain on its own.

        (f) If Collateral Attaches to Real Estate. If the Collateral or any part
thereof has been attached to or is to be attached to real estate, an accurate
description of the real estate and the name and address of the record owner is
set forth on the Schedules. Debtor shall, on demand of Secured Party, furnish
Secured Party with a disclaimer or waiver of any interest in any such



                                       3

<PAGE>   4

Collateral satisfactory to Secured Party and signed by all persons having an
interest in the real estate. Notwithstanding the foregoing, the Collateral shall
remain personal property and shall not be affixed to realty without the prior
written consent of Secured Party.

        (g) Financial Statements. Debtor shall furnish to Secured Party, as soon
as practicable, and in any event within thirty (30) days after the end of each
fiscal month Debtor's unaudited financial statements including in each instance,
balance sheets, income statements, and statements of cash flow, on a
consolidated and consolidating basis, as appropriate, and separate profit and
loss statements as of and for the quarterly period then ended and for the
respective person's fiscal year to date, prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP"). Debtor shall also
furnish to Secured Party, as soon as practicable, and in any event within one
hundred twenty (120) days after the end of each fiscal year, Debtor's annual
audited financial statements, including balance sheets, income statements and
statements of cash flow for the fiscal year then ended, on a consolidated and
consolidating basis, as appropriate, which have been prepared by its independent
accountants in accordance with GAAP. Such audited financial statements shall be
accompanied by the independent accountant's opinion, which opinion shall be in
form generally recognized as "unqualified".

        (h) Authorization. Debtor is now, and will at all times remain, duly
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets. The execution and
delivery of this Agreement, the Notes and any other documents and instruments
executed contemporaneously with or delivered pursuant to this Agreement and the
Notes, all as amended from time to time (collectively the "Loan Documents"),
have been duly authorized by Debtor and constitute the legal, valid, and binding
obligations of Debtor, enforceable against Debtor in accordance with their
respective terms. Debtor shall preserve and maintain its existence and shall not
wind up its affairs or otherwise dissolve. Debtor shall not, without thirty (30)
days prior written notice to Secured Party, (1) change its name or so change its
structure such that any financing statement or other record notice becomes
misleading or (2) change its principal place of business or chief executive or
accounting offices from the address stated herein.

        (i) Litigation. Except as disclosed by Debtor on a Schedule, there are
no judgments outstanding against or affecting Debtor, its officers, directors or
affiliates or any part of the Collateral and there are no actions, charges,
claims, demands, suits, proceedings, or investigations pending or threatened



                                       4

<PAGE>   5

against Debtor or otherwise affecting any part of the Collateral ("Litigation").
Debtor shall furnish to Secured Party all information regarding any material
Litigation as Secured Party shall reasonably request and in any event shall
promptly notify Secured Party in writing of any Litigation against it which if
decided against it would materially and adversely affect the finances or
operations of Debtor. For the purposes of this subsection 2(i), Five Hundred
Thousand and 00/100 Dollars ($500,000.00) shall be deemed material.

        (j) No Conflicts. Debtor is not in violation of any material term or
provision of its by-laws, or of any material agreement or instrument, decree,
order, or any statute, rule, or governmental regulation applicable to it. The
execution, delivery, and performance of the Loan Documents do not and will not
violate, constitute a default under, or otherwise conflict with any such term or
provision or result in the creation of any security interest, lien, charge, or
encumbrance upon any of the properties or assets of Debtor, except for the
security interest created hereunder.

        (k) Compliance with Laws. Debtor shall use and maintain the Collateral
in accordance with all applicable laws, regulations, ordinances, and codes and
shall otherwise comply in all material respects with all applicable laws, rules,
and regulations and duly observe all valid requirements of all governmental
authorities, and all statutes, rules and regulations relating to its business as
now in effect and which may be imposed in the future.

        (l) Taxes. Debtor has timely filed all tax returns (federal, state,
local, and foreign) required to be filed by it and has paid or established
reserves for all taxes, assessments, fees, and other governmental charges in
respect of its properties, assets, income and franchises. Debtor shall promptly
file, pay and discharge all taxes, assessments, license fees (related to the
Collateral) and other governmental charges prior to the date on which penalties
are attached thereto, establish adequate reserves for the payments of such
taxes, assessments, and other governmental charges and make all required
withholding and other tax deposits, and, upon request, provide Secured Party
with receipts or other proof that any or all of such taxes, assessments, license
fees or governmental charges have been paid in a timely fashion; provided,
however, that nothing contained herein shall require the payment of any tax,
assessment, or other governmental charge so long as its validity is being
diligently contested in good faith and by appropriate proceedings diligently
conducted and Debtor has established cash reserves therefor in accordance with
GAAP. Should any stamp, excise, or other tax, including mortgage, conveyance,
deed, intangible, or recording taxes become payable in connection with or
respect of any of the Loan Documents, Debtor shall pay the same (including
interest and penalties, if any) and shall hold Secured Party harmless with
respect thereto.



                                       5

<PAGE>   6

        (m) Environmental Laws/Compliance. Except as disclosed by Debtor on a
Schedule, Debtor (1) has not received any claim, summons, complaint, order, or
other notice that it is not in compliance with, or that any public authority is
investigating its compliance with, any federal, state, and local laws, rules,
regulations, orders, and decrees relating to pollution, hazardous substances,
waste, disposal or the protection of human health or safety, plant life or
animal life, natural resources or the environment, all as amended from time to
time (collectively, "Environmental Laws"), (2) has no knowledge of any material
violation of any Environmental Laws on or about its assets or property, and (3)
is not under any current clean up or other remediation program or order. Debtor
has obtained all environmental, health and safety permits necessary for the
operation of Debtor's business. Debtor is and shall remain in compliance, in all
respects, with the terms and conditions of all permits and with all applicable
Environmental Laws. Debtor shall provide Secured Party, promptly following
receipt, copies of any correspondence, notice, complaint, order, or other
document that it receives asserting or alleging a circumstance or condition
which requires or may require a cleanup, removal, remedial action or other
response by or on the part of Debtor under any Environmental Laws, or which
seeks damages or civil, criminal or punitive penalties from Debtor for an
alleged violation of any Environmental Laws. Debtor will promptly notify Secured
Party of any release, spill or material change in the nature or extent of any
hazardous substances or contaminants used, transported or stored by Debtor or
any subsidiary of Debtor, and allow no material change in the use thereof or of
Debtor's operations that would increase in any material amount the risk of
violation of any Environmental Laws without the express prior written approval
of Secured Party.

        (n) Regulations. No proceeds of the loans or any other financial
accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.

        (o) Books and Records. Debtor shall maintain, at all times, true and
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all reasonable
times, upon reasonable notice, and during normal business hours, Debtor shall
permit Secured Party or its agents to audit, examine and make extracts from or
copies of any of its books, ledgers, reports, correspondence, and other records
relating to the Collateral.



                                       6

<PAGE>   7

        (p) Setoff. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, but shall not be obligated to, set off and apply against any and all
Indebtedness, any and all monies then or thereafter owed to Debtor by Secured
Party, whether or not the obligation to pay such monies owed by Secured Party is
then due. An election by Secured Party to exercise its right of setoff shall be
effective immediately upon such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.

        (q) Standard of Care; Notice of Claims. Debtor acknowledges and agrees
that Secured Party shall not be liable for any acts or omissions nor for any
error of judgment or mistake of fact or law other than as a sole and direct
result of Secured Party's gross negligence or willful misconduct. Debtor shall
give Secured Party written notice of any action or inaction by Secured Party or
any agent or attorney of Secured Party that may give rise to a claim against
Secured Party or any agent or attorney of Secured Party or that may be a defense
to payment of the Indebtedness or performance hereunder for any reason,
including commission of a tort (subject, in any event, to the first sentence of
this paragraph) or violation of any contractual duty or duty implied by law.
Debtor agrees that unless such notice is fully given as promptly as possible
(and in any event within thirty (30) days) after Debtor has knowledge, or with
the exercise of reasonable diligence should have had knowledge, of any such
action or inaction, Debtor shall not assert, and Debtor shall be deemed to have
waived, any claim or defense arising therefrom.

        (r) Indemnity. Debtor shall indemnify, defend and hold Secured Party,
its parent, affiliates, officers, directors, agents, employees, consultants,
persons engaged by Secured Party to evaluate or monitor the Collateral, auditors
and attorneys harmless from and against any loss, cost, expense (including
reasonable attorneys' fees and costs and any consultants' or other experts' fees
and expenses), damage, penalty, fine, claim, lien, suit, judgment or liability
of every kind and nature arising directly or indirectly out of (i) any Loan
Document, (ii) the ownership, possession, lease, operation, use, condition,
sale, return, or other disposition of the Collateral, except to the extent the
loss, expense, damage or liability arises solely and directly from Secured
Party's gross negligence or willful misconduct, (iii) any Environmental Laws,
and (iv) the enforcement by Secured Party of its rights or remedies hereunder.
Any payments required to be made hereunder shall be due and payable on demand.



                                       7

<PAGE>   8

        (s) Payments Set Aside. If any payment is made to Secured Party or
Secured Party enforces its security interest or exercises its right of set off,
and such payment or part, or any proceeds of such enforcement or set off are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Indebtedness or part thereof originally intended to
be satisfied, and all liens, security interests, rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set off had not occurred.

        (t) Expenses and Attorneys' Fees. Debtor shall be liable for all
charges, costs, expenses and attorneys' fees incurred by Secured Party
(including allocated costs of internal counsel): (i) in perfecting, defending,
protecting or terminating its security interest in the Collateral, or any part
thereof; (ii) in the negotiation, execution, delivery, administration, amendment
or enforcement of the Loan Documents or the collection of any amounts due under
any Note or other Loan Document; (iii) in any lawsuit or other legal proceeding
in any way connected with any of the Loan Documents, including any contract or
tort or other actions, any arbitration or other alternative dispute resolution
proceeding, all appeals and judgment enforcement actions and any bankruptcy
proceeding (including any relief from stay and/or adequate protection motions,
cash collateral disputes, assumption/rejection motions and disputes or
objections to any proposed disclosure statement or reorganization plan).

        (u) Complete Information. No representation or warranty made by Debtor
in any Loan Document and no other document or statement now or hereafter
furnished to Secured Party by or on behalf of Debtor contains or will contain
any misstatement of a material fact or omit to state any material fact which
would make the statements contained therein misleading. Except as expressly set
forth in the Schedules, there is no fact known to Debtor that has or could have
a materially adverse affect on the business, operation, condition (financial or
otherwise), performance, properties or prospects of Debtor or Debtor's ability
to timely pay all of the Indebtedness and perform all of its other obligations
contained in or secured by this Agreement.

        (v) Collateral Documentation. Debtor shall deliver to Secured Party
prior to any advance, satisfactory documentation regarding the Collateral to be
financed, including such invoices, canceled checks evidencing payments, or other
documentation as may be reasonably requested by Secured Party. Additionally,
Debtor shall satisfy Secured Party that Debtor's business and



                                       8

<PAGE>   9

financial information is as has been represented and there has been no material
change in Debtor's business, financial condition, or operations.

        (w) Year 2000 Compliance. Debtor has made an assessment of the microchip
and computer-based systems and the software used in its business and based upon
such assessment believes that it will be "Year 2000 Compliant" by January 1,
2000. For purposes of this paragraph, "Year 2000 Compliant" means that all
software, embedded microchips and other processing capabilities utilized by, and
material to the business operations or financial condition of, Debtor are able
to interpret, store, transmit, receive and manipulate data on and involving all
calendar dates correctly and without causing any abnormal ending scenarios in
relation to dates in and after the Year 2000. From time to time, at the request
of Secured Party, Debtor shall provide to Secured Party such updated information
as is requested regarding the status of its efforts to become Year 2000
Compliant.

        3. Prepayment. Upon forty-five (45) days prior written notice to Secured
Party, Debtor may prepay in whole, but not in part, the then entire unpaid
principal balance of any Note, together with all accrued and unpaid interest
thereon to the date of such prepayment, provided that in addition to such
prepayment, Debtor shall pay (i) any and all other sums then due under any of
the Loan Documents, and (ii) a prepayment fee as liquidated damages and not as a
penalty, in a sum equal to one percent (1%) of the principal balance prepaid for
each full or partial twelve (12) month period by which the date of the
prepayment precedes the scheduled date of the final installment of principal
under the Note. The prepayment fee described in clause (ii) above shall also be
due upon the acceleration of the maturity date of any Note following the
occurrence of any Event of Default.

        4. Events of Default. If any one of the following events (each of which
is herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
part of the Indebtedness within ten (10) calendar days of its due date, or (b)
any warranty or representation of Debtor in any Loan Document is materially
untrue, misleading or inaccurate, or (c) Debtor breaches or defaults in the
performance of any other agreement or covenant under any Loan Document, or (d)
Debtor breaches or defaults in the payment or performance of any debt or other
obligation owed by it to Secured Party or any affiliate of Secured Party, and
Secured Party has (without being obligated to do so) declared such event, an
Event of Default hereunder, or (e) Debtor breaches or defaults in the payment or
performance of any debt or other obligation, whether now or hereafter existing,
with an outstanding principal balance in excess of One Million and 00/100
Dollars ($1,000,000.00), and the same is subsequently accelerated, or (f) there
shall be a change in the beneficial ownership and control, directly or
indirectly, of the majority of the



                                       9

<PAGE>   10

outstanding voting securities or other interests entitled (without regard to the
occurrence of any contingency) to elect or appoint members of the board of
directors or other managing body of Debtor (a "change of control"), or there is
any merger, consolidation, dissolution, liquidation, winding up or sale or other
transfer of all or substantially all of the assets of Debtor pursuant to which
there is a change of control or cessation of Debtor or the business of Debtor,
or (g) any money judgment is entered or filed against Debtor in excess of One
Million and 00/100 Dollars ($1,000,000.00), or (h) Debtor shall file a voluntary
petition in bankruptcy, shall apply for or permit the appointment by consent or
acquiescence of a receiver, conservator, administrator, custodian or trustee for
itself or all or a substantial part of its property, shall make an assignment
for the benefit of creditors or shall be unable, fail or admit in writing its
inability to pay its debts generally as such debts become due, or (i) there
shall have been filed against Debtor an involuntary petition in bankruptcy or
Debtor shall suffer or permit the involuntary appointment of a receiver,
conservator, administrator, custodian or trustee for all or a substantial part
of its property or the issuance of a warrant of attachment, diligence, execution
or similar process against all or any substantial part of its property; unless,
in each case, such petition, appointment or process is fully bonded against,
vacated or dismissed within forty-five (45) days from its effective date, but no
later than ten (10) days prior to any proposed disposition of any assets
pursuant to any such proceeding, or (j) if there is a material adverse change in
the business or financial condition or prospects of Debtor or (k) if any of the
events or circumstances described on the attached Exhibit A, which is hereby
incorporated herein, shall occur or exist, then, and in any such event, Secured
Party shall have the right to exercise any one or more of the remedies
hereinafter provided.

        5. Remedies. Upon the occurrence of an Event of Default, in addition to
all rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party may, at its option, at any time (a) declare the Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; or
(c) require Debtor to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS, IF ANY, TO (1) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship, store and repair the
Collateral so removed and sell any or all of the Collateral at a public or
private sale or sales. Unless the Collateral is perishable or threatens to
decline speedily in



                                       10

<PAGE>   11

value or is of a type customarily sold on a recognized market, Secured Party
will give Debtor reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made, it being understood and agreed that Secured
Party may be a buyer at any such sale and Debtor may not, either directly or
indirectly, be a buyer at any such sale. The requirements, if any, for
reasonable notice will be met if such notice is mailed postage prepaid to Debtor
at its address shown above, at least five (5) days before the time of sale or
disposition. After any such sale or disposition, Debtor shall be liable for any
deficiency of the Indebtedness remaining unpaid, with interest thereon at the
rate set forth in the related Notes.

        6. Cumulative Remedies/Marshaling. All remedies of Secured Party
hereunder are cumulative, are in addition to any other remedies provided for by
law or in equity, or under any other provision of any of the Loan Documents, or
under the provisions of any other document, instrument or other writing executed
by Debtor or any third party in favor of Secured Party, all of which may, to the
extent permitted by law, be exercised concurrently or separately, and the
exercise of any one remedy shall not be deemed an election of such remedy or to
preclude the exercise of any other remedy. No failure on the part of Secured
Party to exercise, and no delay in exercising any right or remedy, shall operate
as a waiver thereof or in any way modify or be deemed to modify the terms of
this Agreement or any other Loan Document or the Indebtedness, nor shall any
single or partial exercise by Secured Party of any right or remedy preclude any
other or further exercise of the same or any other right or remedy. Secured
Party shall not be under any obligation to marshal any assets in favor of Debtor
or any other person or against or in payment of any or all of the Indebtedness.

        7. Assignment. Secured Party may transfer or assign all or any part of
the Indebtedness and the Loan Documents without releasing Debtor or the
Collateral, and upon such transfer or assignment the assignee or holder shall be
entitled to all the rights, powers, privileges and remedies of Secured Party to
the extent assigned or transferred. The obligations of Debtor shall not be
subject, as against any such assignee or transferee, to any defense, set-off, or
counter-claim available to Debtor against Secured Party and any such defense,
set-off, or counter-claim may be asserted only against Secured Party.

        8. Time is of the Essence. Time and manner of performance by Debtor of
its duties and obligations under the Loan Documents is of the essence. If Debtor
shall fail to comply with any provision of any of the Loan Documents, Secured
Party shall have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be



                                       11

<PAGE>   12

paid by Debtor upon demand and shall be added to the Indebtedness. Any such
action by Secured Party shall not constitute a waiver of Debtor's default.

        9. ENFORCEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. AT SECURED PARTY'S ELECTION
AND WITHOUT LIMITING SECURED PARTY'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER
JURISDICTION, DEBTOR HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF ILLINOIS,
EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY
CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF DEBTOR,
WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF
MAILING THEREOF.

        10. Further Assurance; Notice. Debtor shall, at its expense, execute and
deliver such documents and do such further acts as Secured Party may from time
to time reasonably require to assure and confirm the rights created or intended
to be created hereunder, to carry out the intention or facilitate the
performance of the terms of the Loan Documents or to assure the validity,
perfection, priority or enforceability of any security interest created
hereunder. Debtor agrees to execute any instrument or instruments necessary or
expedient for filing, recording, perfecting, notifying, foreclosing, and/or
liquidating of Secured Party's interest in the Collateral upon request of, and
as determined by, Secured Party, and Debtor hereby specifically authorizes
Secured Party to prepare and file Uniform Commercial Code financing statements
and other documents and to execute same for and on behalf of Debtor as Debtor's
attorney-in-fact, irrevocably and coupled with an interest, for such purposes.
All notices, required or otherwise given by either party shall be in writing and
shall be delivered by hand, by registered or certified first class United States
mail, return receipt requested, or by overnight courier to the other party at
its address stated herein or at such other address as the other party may from
time to time designate by written notice. All notices shall be deemed given when
received, when delivery is refused or when returned for failure to be called
for. Each provision of this Agreement shall remain in full force and effect
until all of the Indebtedness is fully, finally and indefeasibly satisfied and,
notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Debtor and Secured Party set forth in Sections 2(p), 2(r),
2(s), 2(t), 9 and 12 shall survive the full, final and indefeasible satisfaction
of the Indebtedness.

        11. Joint and Several Obligation. If this Agreement is executed by more
than one person as Debtor, each such Debtor hereby acknowledges it is jointly
and severally liable for and unconditionally guarantees the prompt



                                       12

<PAGE>   13

and full payment and performance of all obligations of each other Debtor
hereunder and under the other Loan Documents.

12. WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING IN
CONNECTION WITH ANY OF THE LOAN DOCUMENTS. DEBTOR AND SECURED PARTY ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THE LOAN DOCUMENTS,
AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS. DEBTOR AND SECURED PARTY FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.

        13. Complete Agreement. The Loan Documents embody the entire agreement
among the parties hereto superseding all prior commitments, agreements,
representations, and understandings, whether written or oral relating to the
subject matter hereof, and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. The Loan Documents may not be altered, modified or terminated in
any manner except by a writing duly signed by the parties thereto. Debtor and
Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall remain
in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assign, s of the parties. The
Schedules are incorporated herein by this reference and made a part hereof.

        IN WITNESS WHEREOF, Secured Party and Debtor have each signed this
Agreement as of the day and year first above written.



HELLER FINANCIAL LEASING, INC.,           INTUITIVE SURGICAL, INC.
a Delaware corporation                    a Delaware corporation

By:     /s/  Clifford A. Lehman           By:    /s/  Susan Barnes
   --------------------------------          ----------------------------------

Name:   Clifford A. Lehman                Name:  Susan Barnes
     ------------------------------            --------------------------------

Title:  Senior Vice President             Title: CFO & Assistant Secretary
      -----------------------------             -------------------------------



                                       13

<PAGE>   14

                                    SCHEDULE

                            DESCRIPTION OF COLLATERAL


Description of Collateral (Full description including make, model and serial
number):

        SEE SCHEDULE A ATTACHED HERETO AND MADE A PART HEREOF

Place where Collateral is to be kept:

        INTUITIVE SURGICAL, INC.
        1340 WEST MIDDLEFIELD ROAD
        MOUNTAIN VIEW, CA 94043

Other liens, encumbrances or security interests to which Collateral is or may be
subject, if any:

        NONE.

Other Collateral

        NONE.

Other:

If Collateral is attached or to be attached to real estate, set forth:

Address of Real Estate (Including County, block number, lot number, etc.):

        N/A

Record Owner of Real Estate (Name and Address):

        N/A

If the real estate at which the Collateral is to be kept is leased:

Name and Address of Lessor of Real Estate:

        N/A



     SB
-------------
Initials



                                       14

<PAGE>   15


<PAGE>   16

                                    EXHIBIT A

                                       TO

                               SECURITY AGREEMENT

                         (ADDITIONAL EVENTS OF DEFAULT)


        The following shall constitute Events of Default under the Security
Agreement between Secured Party and Debtor, and upon its occurrence, Secured
Party shall have the right to exercise any one or more of the remedies provided
in the Security Agreement:

1. At any time (i) Debtor's net income before interest expense, income taxes,
depreciation, amortization and extraordinary gains, as determined in accordance
with GAAP ("EBITDA") as at the end of the most recent fiscal quarter of Debtor,
is less than $2,500,000, and (ii) Debtor's cash and cash equivalents on hand,
net of funded debt, is less than $10,000,000, and (iii) within thirty (30) days
thereof, Debtor fails to provide Secured Party a cash security deposit (on terms
satisfactory to Secured Party in its reasonable discretion) or stand-by letter
of credit in form and substance and issued by a financial institution acceptable
to Secured Party, in its reasonable discretion. (Secured Party agrees to review
(in its sole discretion) any request from Debtor to release any pledged amounts
or letter of credit provided by Debtor if Debtor's EBITDA exceeds $2,500,000 in
any two consecutive fiscal quarters or Debtor's cash and cash equivalents on
hand, net of funded debt, is more than $10,000,000.)

2. At any time Debtor's right to use any intellectual property licensed or
otherwise provided to Debtor by International Business Machines, Inc. or
Stanford Research Institute, or any successor thereto, shall be amended on
material adverse terms or cease, whether by termination, expiration or
cancellation or otherwise.



                                       SB



                                       15

<PAGE>   17

                                   SCHEDULE A
                                   PAGE 1 OF 1


Schedule annexed to and made a part of a certain Security Agreement dated the
20th day of May, 1999, or related documentation by and between the undersigned.

Description of Collateral (Quantity; New/Used; Model; General Description; and
if applicable, Engine and/or Serial Number), together with all products and
proceeds (including insurance proceeds) thereof, any, and if all increases,
substitutions, replacements, attachments, additions, and accessions thereto:

EQUIPMENT LOCATION: 1340 Middlefield Road, Mountain View, CA 94043



<TABLE>
<CAPTION>

    Qty.       General Description                                  Serial Number
-------------  ---------------------------------------------------  -------------------------------
<S>            <C>                                                  <C>
     5         Intuitive Surgical Development Surgical Systems      D1-10298, D2-10391, D3-10393,
                                                                    D4-10453, D5-10457
------------- ---------------------------------------------------   -------------------------------
</TABLE>


HELLER FINANCIAL LEASING, INC.,            INTUITIVE SURGICAL, INC.
Secured Party                              Debtor

By:     /s/ Clifford A. Lehman             By:    /s/ Susan Barnes
   ---------------------------------          ---------------------------------

Name:   Clifford A. Lehman                 Name:  Susan Barnes
     -------------------------------            -------------------------------

Title:  Senior Vice President              Title: CFO and Assistant Secretary
      ------------------------------             ------------------------------



                                       16

<PAGE>   18

                                                                Loan No: 1910193



                                 FIRST AMENDMENT
                                       TO
                               SECURITY AGREEMENT


1. Parties and Date. This First Amendment to Security Agreement (the
"Amendment") is entered into effective as of September 23, 1999, by and between
INTUITIVE SURGICAL, INC., a Delaware corporation ("Debtor"), and HELLER
FINANCIAL LEASING, INC., a Delaware corporation ("Secured Party").

2. Facts. Debtor and Secured Party have entered into a certain Security
Agreement dated May 20, 1999 (the "Security Agreement"). Debtor has requested
and Secured Party has agreed that the Security Agreement be amended on the terms
and conditions set forth in this Amendment. Capitalized terms used herein and
not otherwise defined shall have the meaning given to such terms in the Security
Agreement. Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows.

3. Amendment to Security Agreement. Debtor and Secured Party hereby agree that
the Security Agreement shall be and hereby is amended, as follows:

        (i)   The amount of One Million Five Hundred Thousand and 00/100 Dollars
              ($1,500,000.00) set forth in the second line of the first
              paragraph of Section 1 of the Security Agreement is hereby deleted
              and in place thereof is inserted the amount of Two Million Five
              Hundred Thousand and 00/100 ($2,500,000.00);

        (ii)  Addition of Collateral. Debtor hereby grants to Secured Party a
              valid and continuing first priority security interest in the
              equipment described on the attached Schedule A-2, which is hereby
              incorporated herein by this reference (the "New Collateral"), and
              Debtor and Secured Party agree that the New Collateral shall be
              covered by the Agreement as if the New Collateral were described
              on Schedule A to the Security Agreement dated May 20, 1999. Debtor
              shall, at its expense, do, execute and deliver such further acts
              and documents as Secured Party may from time to time reasonably
              require to assure and confirm the rights created or intended to be
              created hereunder and under the Agreement to carry out the
              intention or facilitate the performance of the terms of this
              Amendment, the Agreement and the Loan Documents (as defined in the
              Agreement) or to assure the validity, perfection, priority or
              enforceability of any title created thereunder. Debtor agrees to
              execute any instrument or instruments necessary or expedient for
              filing, recording, perfecting, notifying, foreclosing, and/or
              liquidating of Secured Party's title the equipment (including the
              New Collateral) upon request of, and as determined by Secured
              Party.



                                       17

<PAGE>   19

6. Acknowledgments, Ratifications and Reaffirmations by Debtor. Debtor hereby
acknowledges, ratifies and reaffirms that (i) as of the date hereof no Event of
Default has occurred or exists, (ii) Debtor has no defense, offset or
counterclaim to any of Debtor's obligations under the Loan Documents, and (iii)
the Notes, Security Agreement (as amended by this Amendment) and other Loan
Documents are in full force and effect and are fully enforceable against Debtor
in accordance with their respective terms.

7. Effectiveness of Loan Documents. Except as expressly amended by this
Amendment, the Security Agreement, as well as the Notes and all of the other
Loan Documents shall remain in full force and effect.

8. Entire Agreement. The parties acknowledge and agree that there are no other
agreements or representations, either oral or written, express or implied, in
connection with the Loans, that are not embodied in this Amendment, the Notes,
the Security Agreement and the other Loan Documents, which, together represent a
complete integration of all prior and contemporaneous agreements and
understandings of Debtor and Secured Party in any way related to the Loans. The
Security Agreement (as amended by this Amendment) may not be altered, modified
or terminated in any manner except by a writing duly executed by Debtor and
Secured Party. If any provision of the Security Agreement (as amended by this
Amendment) is held to be invalid or unenforceable, the remaining provisions
shall remain in effect without impairment.

IN WITNESS WHEREOF, Debtor and Secured Party have each executed this Agreement
to be effective as of the day and year first above written.



"DEBTOR"                                     "SECURED PARTY"

INTUITIVE SURGICAL, INC.,                    HELLER FINANCIAL LEASING, INC., a
a Delaware corporation                       Delaware corporation

By:     /s/ Susan Barnes                     By:    /s/ Clifford A. Lehman
   -------------------------------              --------------------------------

Name:                                        Name:  Clifford A. Lehman
     -----------------------------                ------------------------------

Title:                                       Title: Senior Vice President
      ----------------------------                 -----------------------------



                                       18

<PAGE>   20

                                  SCHEDULE A-2
                                   PAGE 1 OF 9


Schedule annexed to and made a part of a certain First Amendment to Security
Agreement, dated the _________ day of September, 1999, to that certain Security
Agreement No. 1910193, dated the 20th day of May, 1999, or related documentation
by and between the undersigned.

Description of Collateral:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>
                                                                LAB EQUIPMENT:
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
Newark Electronics                                              AMP Handtool Kit
-------------------------------------------------------------------------------------------------
X-Ray Connection                505                             Lifepak 6S w/internal paddles
-------------------------------------------------------------------------------------------------
VWR Scientific                  23105581, 23105590, 25524720    Utrasonic Pipette Cleaner
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     17038                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     16140                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     16140                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Test Equity                     25889                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
International Light             56582                           Radiometer-4798
-------------------------------------------------------------------------------------------------
Alpha Marketing Services        00983951                        Bookler Laproscopic Holder
-------------------------------------------------------------------------------------------------
Alpha Marketing Services        983918                          Bookler Laproscopic Holder
-------------------------------------------------------------------------------------------------
Genzyme Surgical Products       98055106                        Retractor, 80mm ang
-------------------------------------------------------------------------------------------------
Genzyme Surgical Products       98060953                        Retractor, 80mm ang
-------------------------------------------------------------------------------------------------
Heartport                       IN5519                          Forceps, 25 Degree
-------------------------------------------------------------------------------------------------
Heartport                       IN5519                          Forceps, Str, Dbl Act
-------------------------------------------------------------------------------------------------
McMaster-Carr                   5881613                         Precision Drill Press, Belt Drive
-------------------------------------------------------------------------------------------------
Momentum Data Systems, Inc.     912216                          ADSP-2181x EZ-ICE
-------------------------------------------------------------------------------------------------
Premier Vet Supply              289015                          Vaporizer VIP 3000
-------------------------------------------------------------------------------------------------
Tektronix                       MP417105, MP416556              Current Probe and Calibrator
-------------------------------------------------------------------------------------------------
Premier Vet Supply              288619                          Anesthesia Machine
-------------------------------------------------------------------------------------------------
Digital and Analog Concepts     042299                          7506660 Sentry 50
-------------------------------------------------------------------------------------------------
Momentum Data Systems, Inc.     912269                          In Circuit Emulator
-------------------------------------------------------------------------------------------------
VWR Scientific Products         46015440                        Over, Hafo, Medium
-------------------------------------------------------------------------------------------------
Mountz, Inc.                    INV123064                       M10-Ultra Torq Analyzer 110V
-------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>   21

                                  SCHEDULE A-2
                                   PAGE 2 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Mountz, Inc.                    INV127062                       S-320Z Torque Analyzer U.S. vers.
-------------------------------------------------------------------------------------------------
Ceibo                           98013162                        Circuit Emulator Development Sys.
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
                                                                MANUF. EQUIPMENT:
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
Steven Engineering              193826-00                       Panduit Pneum Crimper
-------------------------------------------------------------------------------------------------
Servicor                        34353                           Cleanroom Upgrades
-------------------------------------------------------------------------------------------------
Gardner Associates              227138                          MPC Control Digital Dispenser
-------------------------------------------------------------------------------------------------
Danco Machine                   I-44937                         Inverse Clevis Align Swager Assy
-------------------------------------------------------------------------------------------------
Danco Machine                   I-45014                         Dist, Inv Fixture
-------------------------------------------------------------------------------------------------
Computer Modules, Inc.          21183                           Cable Matrox
-------------------------------------------------------------------------------------------------
Test Equity                     23670                           Xantrex Power Supply
-------------------------------------------------------------------------------------------------
Servicor                        34390                           Cleanroom Upgrades
-------------------------------------------------------------------------------------------------
Intermec                        1320059                         Decoded Wired Wedge
-------------------------------------------------------------------------------------------------
Intermec                        1320059                         Decoded Wired Wedge
-------------------------------------------------------------------------------------------------
Intermec                        1320059                         Decoded Wired Wedge
-------------------------------------------------------------------------------------------------
Intermec                        1320059                         Decoded Wired Wedge
-------------------------------------------------------------------------------------------------
ArrK Product Development        6704702-DA                      Part #311092/311884
-------------------------------------------------------------------------------------------------
Bracker Corporation             53310                           Custom Riveting Fixture
-------------------------------------------------------------------------------------------------
Quadravox                       8889                            Power Supply #QV402P
-------------------------------------------------------------------------------------------------
Ronnigen R&D                    060544                          Engineering Change Samples
-------------------------------------------------------------------------------------------------
Van Drielen Machine             81015.1                         Body, 7075 aluminum
-------------------------------------------------------------------------------------------------
Bracker Corporation             52735                           Bracker Radial Riveter
-------------------------------------------------------------------------------------------------
Thermal Technologies            0010131-IN                      Machining Fixture
-------------------------------------------------------------------------------------------------
Nexlogic Technologies           4478                            6 Layers Fabrication-720225-01
-------------------------------------------------------------------------------------------------
Danco Machine                   I-45218                         Base Plate, Cube, Carrier
-------------------------------------------------------------------------------------------------
Almar Manufacturing & Eng       013443                          Base Plate, Bearing Press, SUJ
-------------------------------------------------------------------------------------------------
Westcor c/o Taarcom             128478                          Power Supply-PM1-02-514
-------------------------------------------------------------------------------------------------
Nextlogic Technologies          4513                            6 Layer Fabrication #720255/NRE
-------------------------------------------------------------------------------------------------
Acme Scale Co.                  0987957-IN                      Torque Gauge w/Sensor
-------------------------------------------------------------------------------------------------
Ronnigen R&D                    061838                          Engineering Change
-------------------------------------------------------------------------------------------------
Steven Engineering              283064-00                       Panduit Cimpring Tool
-------------------------------------------------------------------------------------------------
Steven Engineering              193826-00                       Panduit Pneum Crimper
-------------------------------------------------------------------------------------------------
Precision Interconnect          438061                          Eng change for new crimp contacts
-------------------------------------------------------------------------------------------------
National Instruments            517157                          DAQPAD for USB Cable
-------------------------------------------------------------------------------------------------
Danco Machine                   I-44238                         Dance Part 720195
-------------------------------------------------------------------------------------------------
Danco Machine                   I-44238                         720157 Assy
-------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>   22

                                  SCHEDULE A-2
                                   PAGE 3 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
White Mountain DSP              3264                            MTN-ICE JTAG EMU & POD
-------------------------------------------------------------------------------------------------
White Mountain DSP              3264                            MTN-ICE JTAG EMU & POD
-------------------------------------------------------------------------------------------------
Ronningen R&D                   060039                          Eng. Change for Chassis
-------------------------------------------------------------------------------------------------
Foam Molders & Specialties      00095600                        Single Cav Mold M1298-502
-------------------------------------------------------------------------------------------------
Acme Scale Co.                  0989844-IN                      Motorized Test Stand
-------------------------------------------------------------------------------------------------
Danco Machine                   1-43305                         Dance Part #720132-720134
-------------------------------------------------------------------------------------------------
Dependable Plastics             DEP09-02                        Cover Tooling
-------------------------------------------------------------------------------------------------
Dependable Plastics             21077                           Cover Tooling
-------------------------------------------------------------------------------------------------
Bay Area Shelving, Inc.         49264                           Rivetier Shelf
-------------------------------------------------------------------------------------------------
Axiom Medical, Inc.             0523911-IN                      Mold Part #330179 & 330183
-------------------------------------------------------------------------------------------------
Ronningen R&D                   62153                           Eng Change part #340000-07
-------------------------------------------------------------------------------------------------
Data I/O                        207024                          Optima S120/S207L
-------------------------------------------------------------------------------------------------
Bracker Corporation             52379/prepayment                Bracker Radial Riveter
-------------------------------------------------------------------------------------------------
General Foundry                 08778                           Cover Base/Top Link ECM
-------------------------------------------------------------------------------------------------
Thermal Technology              0010089-IN                      Production Mold
-------------------------------------------------------------------------------------------------
Thermal Technology, Inc.        0010146, 0010112                Production Mold for part #330000
-------------------------------------------------------------------------------------------------
Dependable Plastics             DEP09-01                        Cover Tooling
-------------------------------------------------------------------------------------------------
General Foundry                 08697                           Footpad, console
-------------------------------------------------------------------------------------------------
Thermal Technology, Inc.        0010170/0010126                 Tooling for part #330122-05
-------------------------------------------------------------------------------------------------
Thermal Technology, Inc.        0010169-IN                      Production Mold for part #330001
-------------------------------------------------------------------------------------------------
Thermal Technology              0010088-IN                      Production Mold
-------------------------------------------------------------------------------------------------
Dependable Plastics             21108                           Cover Tooling
-------------------------------------------------------------------------------------------------
Thermal Technology              0010078-IN                      Production Mold
-------------------------------------------------------------------------------------------------
Thermal Technology, Inc.        0010147-IN                      Production Mold for part #330133
-------------------------------------------------------------------------------------------------
Precision Tool Distributors     204775                          Ram Sprint 200, Z-Axis scale
-------------------------------------------------------------------------------------------------
General Foundry                 08779                           Link Vertical/Base ECM
-------------------------------------------------------------------------------------------------
Freetech Plastics               31293                           Cover HRSV Mold
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
                                                                COMP. EQUIPMENT
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051535                          17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051535                          17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46466                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46466                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46466                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48373                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48373                           17" Color Monitor
-------------------------------------------------------------------------------------------------
</TABLE>





<PAGE>   23

                                  SCHEDULE A-2
                                   PAGE 4 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48373                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48373                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48370                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48370                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48370                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48370                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48370                           17" Color Monitor
-------------------------------------------------------------------------------------------------
Octave Systems Inc.                                             Yamaha CDR400T
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            050797                          Laserjet 6PXI 8 PPM
-------------------------------------------------------------------------------------------------
Fry's Electronics                                               HP C3980A Laserjet 6P Printer
                                                                with Cable
-------------------------------------------------------------------------------------------------
Office Max                                                      HP Laserjet 6P Printer with Cable
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051535                          19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051535                          19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            049056                          19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            050797                          19" Color Monitor
-------------------------------------------------------------------------------------------------
The Mac Zone - France                                           Sony Monitor
-------------------------------------------------------------------------------------------------
Global Network Resources        981145                          19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45566                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46420                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46420                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46421                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46422                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46422                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46466                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46776, 46820                    Okidata printer w/tractor
-------------------------------------------------------------------------------------------------
Global Network Resources        980430                          Sony 20"Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            049208                          Laserjet 4000N w/Enet
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47351                           Anchorage Pentium MMX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46110                           20" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46569                           20" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            44370                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            44370                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            44370                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            44370                           19" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            49399                           ML395 24-pin Printer
-------------------------------------------------------------------------------------------------
Int'l Computing Sys             3354                            Viewsonic GA10 21" Monitor
-------------------------------------------------------------------------------------------------
</TABLE>






<PAGE>   24

                                  SCHEDULE A-2
                                   PAGE 5 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47188                           Laserjet 4000N w/ENET
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47188                           Laserjet 4000N w/ENET
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47188                           Laserjet 4000N w/ENET
-------------------------------------------------------------------------------------------------
Total Corporate Services                                        Total Corporate Services
                                                                Computer Workstation - J. Stern
-------------------------------------------------------------------------------------------------
Dell Catalog Sales                                              Dell DIS, MSCN, CLR, 20, D, D
                                                                2026T-HS, US
-------------------------------------------------------------------------------------------------
Global Source Line                                              Viewsonic PT813 Monitor
-------------------------------------------------------------------------------------------------
Global Source Line                                              Viewsonic PT813 Monitor
-------------------------------------------------------------------------------------------------
Global Source Line                                              Viewsonic PT813 Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48373                           21" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48373                           21" Color Monitor
-------------------------------------------------------------------------------------------------
International Computing System                                  Pentium 166MHz Computer System
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46059                           21" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46466                           20" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45878                           20" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45878                           20" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46466                           20" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            44370                           21" Color Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            43653                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            37312                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            33010                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            33010                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            33010                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48258                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48258                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48258                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48258                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            34699                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            34699                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            34699                           Color Monitor 20"
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            48257                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
I-O Solutions                   18575                           105SE w/rewind
-------------------------------------------------------------------------------------------------
Int'l Computing Sys             3378                            Pent 166 Computer, 15" Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051531                          Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051531                          Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051531                          Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051531                          Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
</TABLE>





<PAGE>   25

                                  SCHEDULE A-2
                                   PAGE 6 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051543                          Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            060668                          PII 230 SE440BX2 (no monitor)
-------------------------------------------------------------------------------------------------
ComputerWare (Svetcov)                                          Power Mac G3/266
-------------------------------------------------------------------------------------------------
International Computing System                                  International Computing System
                                                                Workstation
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            060088                          PII 230 SE440BX2 (no monitor)
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45992                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47014                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45992                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45992                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45992                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46270                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46270                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47014                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47014                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47014                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            47014                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Int'l Computing Sys             3366                            Pent 166 Computer, 17" Monitor
-------------------------------------------------------------------------------------------------
Dell Catalog Sales                                              Dell Dimension XPS 200MHz
                                                                Workstation
-------------------------------------------------------------------------------------------------
Dell Catalog Sales                                              Dell Dimension XPS 200MHz
                                                                Workstation
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051475                          Seattle Pentium II SE440BX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46288                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45993                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46288                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            46288                           Atlanta Pentium II AL440LX
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AI51604                         Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            45387                           Atlanta Pentium II AL440FX
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AN71484                         Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AO87440                         Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AK66160                         Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
Office Depot                    7540482                         UPS, Backup, Pro 650, lot of 10
-------------------------------------------------------------------------------------------------
Fry's Electronics, Svetcov      Svetcov                         Video Tape Header/Cleaner
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AC78638                         Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AF14171, AF40345, AI15157       Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
Dell Catalog Sales                                              Dell Dimension XPS H266MHz
                                                                Computer System
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            059932                          Tecra8000 PII266
-------------------------------------------------------------------------------------------------
</TABLE>





<PAGE>   26

                                  SCHEDULE A-2
                                   PAGE 7 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Total Corporate Svcs            059353                          Nightshade Dual PII N440BX
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            061553                          Laserjet 8100 DN
-------------------------------------------------------------------------------------------------
The Mac Zone - France           FA/CA005624                     Toshiba Tecra 550CDT P266
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            38301                           Toshiba 660CD 20" Monitor
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            051766                          550CDT P266MMX System
-------------------------------------------------------------------------------------------------
CDW Computer Centers            9524248                         Toshiba 32MB 4000
-------------------------------------------------------------------------------------------------
Powercom                        9709                            USA & FRANCE Intraport 2
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AC50414                         Toshiba Tecra 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
NetPower                        6617                            Symetra Work Station
-------------------------------------------------------------------------------------------------
CDW Computer Centers            AC30013/AC37457/AC78574         Toshiba 8000 6GB 64MB
-------------------------------------------------------------------------------------------------
Dell                            251037610                       Dell Dimension 433MHZ 8MB
-------------------------------------------------------------------------------------------------
Netpower                        6060                            Symetra Workstation
-------------------------------------------------------------------------------------------------
Total Corporate Svcs            6403                            Symetra Workstation
-------------------------------------------------------------------------------------------------
Netpower                        6060                            Symetra Workstation
-------------------------------------------------------------------------------------------------
Netpower                        6060                            Symetra Workstation
-------------------------------------------------------------------------------------------------
Network Appliance               20051                           Dual-Channel SCSI adapter
-------------------------------------------------------------------------------------------------
Dell                            232233817                       Dell Power Edge 4300
-------------------------------------------------------------------------------------------------
Total Corporate Services        31204                           Toshiba Computer System (2 of
                                                                3) 660CDT
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
                                                                OFFICE FURNITURE:
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
Smart Interiors, Inc.                                           Anderson Double Pedestal Desk,
                                                                30" x 60"
-------------------------------------------------------------------------------------------------
Smart Interiors, Inc.                                           Anderson Double Pedestal Desk -
                                                                T. Thaure
-------------------------------------------------------------------------------------------------
Smart Interiors, Inc.                                           Anderson Double Pedestal Desk,
                                                                30" x 60"
-------------------------------------------------------------------------------------------------
Clark Sales & Manufacturing     5729                            Eck Adams Task Chair, lot of 4
-------------------------------------------------------------------------------------------------
Levenger                        P21249540101                    Barrister, medium oak w/lock
-------------------------------------------------------------------------------------------------
Office Depot                                                    Safco Five Drawer Flat File -
                                                                lot of 2 @ $664.61 each
-------------------------------------------------------------------------------------------------
Smart Interiors                 81790                           Marketing Area Workspace
-------------------------------------------------------------------------------------------------
CB Technical Sources            2478                            Shelves, lot of 2
-------------------------------------------------------------------------------------------------
Office Depot                                                    United Troubador Chair in AM51
                                                                Blue - lot of 10 @ $162.00 each
-------------------------------------------------------------------------------------------------
Clark Sales & Manufacturing     5636                            Mid Height Chair w/Castors, lot
                                                                of 6
-------------------------------------------------------------------------------------------------
Office Depot                                                    FireKing 4-Drawer Lateral Fire
                                                                Resistant File
-------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>   27

                                  SCHEDULE A-2
                                   PAGE 8 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Smart Interiors, Inc.                                           U-Shaped Desk Configuration -
                                                                S. Barnes
-------------------------------------------------------------------------------------------------
Smart Interiors, Inc.                                           U-Shaped Desk Configuration -
                                                                L. Smith
-------------------------------------------------------------------------------------------------
Office Depot                    214179                          Troubabour Chair, lot of 15
-------------------------------------------------------------------------------------------------
Office Depot                                                    United Altura Chairs in AM25
                                                                Wine Color - lot of 8 @ $315.00
                                                                each
-------------------------------------------------------------------------------------------------
Clark Sales & Manufacturing     5642                            Eck Adams Task Chair, lot of 10
-------------------------------------------------------------------------------------------------
Clark Sales & Manufacturing     5704                            Four leg bench w/ESD, lot of 4
-------------------------------------------------------------------------------------------------
Smart Interiors                 81074                           Acoustical Panels for Eng
                                                                Bullpen
-------------------------------------------------------------------------------------------------
Clark Sales & Manufacturing     5629                            Four leg bench w/ESD, lot of 10
-------------------------------------------------------------------------------------------------
Smart Interiors                 80816                           Cubicles, lot of 2
-------------------------------------------------------------------------------------------------
Office Depot                                                    United Altura Chair in AM51
                                                                Blue - lot of 22 @ $315.00 each
-------------------------------------------------------------------------------------------------
Inside Source                   16511                           Bullpen area for 8 people
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
                                                                OFFICE EQUIPMENT:
-------------------------------------------------------------------------------------------------
Office Depot                                                    3M Overhead Projector
-------------------------------------------------------------------------------------------------
Fry's Electronics (Svetcov)                                     Epson Photo PC Color Digital
                                                                Camera
-------------------------------------------------------------------------------------------------
Selectric Signs                 S1176803.003                    Message Sign Board
-------------------------------------------------------------------------------------------------
Anderson's TV & Stereo          2784                            40" Television
-------------------------------------------------------------------------------------------------
Office Depot                                                    Quartet Ovonics Electronic Copy
                                                                Board
-------------------------------------------------------------------------------------------------
A2Z Business Sys                04370A                          Xerox 735 Faxcentre w/Aux tray
-------------------------------------------------------------------------------------------------
Castelle                        144235                          FP 3500 ETH 4L NT NDS
-------------------------------------------------------------------------------------------------
Minnesota Western               408207A                         S-VGA Multimedia Projector
-------------------------------------------------------------------------------------------------
Exhibit Group/Giltspur          A1194                           Marketing booth equipment
-------------------------------------------------------------------------------------------------
Exhibit group                    A1970, A1971                    Trade Show Nat'l
-------------------------------------------------------------------------------------------------
Wiltel                          Prepay                          Telephone Equipment
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
                                                                TEST EQUIPMENT:
-------------------------------------------------------------------------------------------------
Tektronic Inc.                  MP335584                        34 Channel Mass Term. Probe
-------------------------------------------------------------------------------------------------
Tektronic Inc.                  MP335584                        34 Channel Mass Term. Probe
-------------------------------------------------------------------------------------------------
Associated Research             0000434-IN                      AC Hypot 0 to 5000V, S/N:1778
-------------------------------------------------------------------------------------------------
Optimum Design Associates       99-247                          VSD2 Extender Board
-------------------------------------------------------------------------------------------------
Digital and Analog Concepts     042298                          Sentry 50 Tester
-------------------------------------------------------------------------------------------------
Sunin Precision Inc.            12276, 12279                    Part #311401-409
-------------------------------------------------------------------------------------------------
New Wave PDG                    42735                           32-bit PCI Support
-------------------------------------------------------------------------------------------------
</TABLE>





                                       19

<PAGE>   28

                                  SCHEDULE A-2
                                   PAGE 2 OF 9



<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------
<S>                             <C>                             <C>

-------------------------------------------------------------------------------------------------
Western Servo Design            131356                          Offset Tester
-------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
VENDOR                          INVOICE #                       ASSET DESCRIPTION
-------------------------------------------------------------------------------------------------

------------------------------- ------------------------------- ---------------------------------
AMP Packaging                   103855                          Text Fixture
-------------------------------------------------------------------------------------------------
Dynamic Details                 96129                           Part VSD2 Extender
-------------------------------------------------------------------------------------------------
QRS Medical Mktg                99482                           QA-90 Electrical Safety Analyzer
-------------------------------------------------------------------------------------------------
Robert E. MacKay                72998                           ARM TesterPCB Design
-------------------------------------------------------------------------------------------------
QRS Medical Marketing           99369                           QA-90 Electrical Safety Analyzer
-------------------------------------------------------------------------------------------------
Snader                          0135378                         Snell TPG-21 Test Pattern
                                                                Generator
------------------------------- ------------------------------- ---------------------------------
</TABLE>



together with all additions, attachments, accessories and accessions thereto,
replacements or substitutions therefor and all products and proceeds thereof, if
any, including insurance proceeds and any and all accounts, chattel paper,
contract rights and general intangibles arising from the sale, lease or other
disposition thereof or thereto.

EQUIPMENT LOCATION:  1340 Middlefield Road, Mountain View, CA  94043



HELLER FINANCIAL LEASING, INC.,           INTUITIVE SURGICAL, INC.
Secured Party                             Debtor

By:     /s/ Clifford A. Lehman            By:    /s/ Susan Barnes
   --------------------------------          ----------------------------------

Name:   Clifford A. Lehman                Name:  Susan Barnes
     ------------------------------            --------------------------------

Title:  Senior Vice President             Title: CFO and Assistant Secretary
      -----------------------------             -------------------------------




<PAGE>   29


                                                           Loan No: 1910193-0001
--------------------------------------------------------------------------------
HELLER FINANCIAL



                                 PROMISSORY NOTE



$1,500,000.00                                                       May 20, 1999


        FOR VALUE RECEIVED, INTUITIVE SURGICAL, INC., a Delaware corporation
("Maker"), promises to pay to the order of HELLER FINANCIAL LEASING, INC., a
Delaware corporation (together with any holder of this Note, "Payee"), at its
office located at 500 West Monroe Street, Chicago, Illinois 60661, or at such
other place as Payee may from time to time designate, the principal sum of One
Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00), together with
interest thereon at a fixed rate equal to Nine and 47/100 percent (9.47%) per
annum. Principal and interest shall be payable in thirty-six (36) consecutive
monthly installments commencing July 1, 1999, and continuing on the same day of
each consecutive calendar month thereafter until this Note is fully paid, each
such installment in the amount of Forty-eight Thousand Twenty-eight and 39/100
Dollars ($48,028.39); provided, however, that in any and all events the final
installment payment hereunder shall be in the amount of the entire then
outstanding principal balance hereunder, plus all accrued and unpaid interest,
charges and other amounts owing hereunder or under the Security Agreement
(defined below). All payments shall be applied first to interest and then to
principal. Interest shall be computed on the basis of a 360 day year comprised
of 30-day months. Maker shall make an interest only initial payment on June 1,
1999 of accrued interest from the loan disbursement date through May 31, 1999.

        Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.

        This Note is secured by the collateral described in the Security
Agreement dated May 20, 1999, between Maker and Payee (the "Security Agreement;"
and together with all related documents and instruments, the "Loan Documents")
to which reference is made for a statement of the nature and extent of
protection and security afforded, certain rights of Payee and certain rights and
obligations of Maker, including Maker's rights, if any, to prepay the principal
balance hereof; provided, however, that in addition to any other sum payable
hereunder, under the Security Agreement or any of the other Loan Documents, in
the event of a prepayment of the principal balance hereunder, whether voluntary,
following acceleration or otherwise, Maker shall pay to Payee together with such
prepayment a Breakage Fee (defined below), which Breakage Fee, together with the
amounts payable under Section 3(ii) of the Security Agreement, if any,
represents liquidated damages to Payee for the loss of its bargain and not a
penalty. As used herein, the term "Breakage Fee" shall mean the amount, if any,
by which (A) the present value, in the aggregate, of the then remaining
installments of principal and interest due hereunder, absent the prepayment,
using a discount rate equal to (i) the yield to maturity as of the date two (2)
days prior to the date of the prepayment on United States Treasury securities
with a final maturity approximately equal to the remaining term hereof, absent
the prepayment, as published in The Wall Street Journal, plus (ii) three percent
(3.00%), exceeds (B) the then outstanding principal balance hereunder, absent
the prepayment.

        Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or the Loan Documents is not paid when due, Maker
agrees to pay a late charge equal to the lesser of (i) five cents (5 cents) per
dollar on, and in addition to, the amount of each such payment, or (ii) the
maximum amount Payee is permitted to charge by law. In the event of the
occurrence of an Event of Default (as defined in the Security Agreement), then
the entire unpaid principal balance hereof with accrued and unpaid interest
thereon, together with all other sums payable under this Note or the Loan
Documents, shall, at the option of Payee and without notice or demand, become



                                       1

<PAGE>   30

immediately due and payable, such accelerated balance bearing interest until
paid at the rate of three percent (3%) per annum above the fixed rate set forth
in the first paragraph of this Note.

        Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.

        If there be more than one Maker, all the obligations, promises,
agreements and covenants of Maker under this Note are joint and several.

        THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO
THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN
TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.

        MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.



Witness/Attest:                         INTUITIVE SURGICAL, INC.



   /s/                                  By:    /s/ Susan Barnes
----------------------                     ------------------------------------

                                        Name:  Susan Barnes
                                             ----------------------------------

                                        Title: CFO and Assistant Secretary
                                              ---------------------------------



                                       2

<PAGE>   31

                                                          Loan No.: 1910193-0002
--------------------------------------------------------------------------------
HELLER FINANCIAL



                                 PROMISSORY NOTE


$500,000.00                                                   September 23, 1999


        FOR VALUE RECEIVED, INTUITIVE SURGICAL, INC., a Delaware corporation
("Maker"), promises to pay to the order of HELLER FINANCIAL LEASING, INC., a
Delaware corporation (together with any holder of this Note, "Payee"), at its
office located at 500 West Monroe Street, Chicago, Illinois 60661, or at such
other place as Payee may from time to time designate, the principal sum of Five
Hundred Thousand and 00/100 Dollars ($500,000.00), together with interest
thereon at a fixed rate equal to Nine and 78/100 percent (9.78%) per annum.
Principal and interest shall be payable in thirty-six (36) consecutive monthly
installments commencing November 1, 1999, and continuing on the same day of each
consecutive calendar month thereafter until this Note is fully paid, each such
installment in the amount of Sixteen Thousand Eighty-two and 00/100 Dollars
($16,082.00); provided, however, that in any and all events the final
installment payment hereunder shall be in the amount of the entire then
outstanding principal balance hereunder, plus all accrued and unpaid interest,
charges and other amounts owing hereunder or under the Security Agreement
(defined below). All payments shall be applied first to interest and then to
principal. Interest shall be computed on the basis of a 360 day year comprised
of 30-day months. Maker shall make an interest only initial payment on October
1, 1999 of accrued interest from the loan disbursement date through September
30, 1999.

        Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.

        This Note is secured by the collateral described in the Security
Agreement dated May 20, 1999, between Maker and Payee (the "Security Agreement;"
and together with all related documents and instruments, the "Loan Documents")
to which reference is made for a statement of the nature and extent of
protection and security afforded, certain rights of Payee and certain rights and
obligations of Maker, including Maker's rights, if any, to prepay the principal
balance hereof; provided, however, that in addition to any other sum payable
hereunder, under the Security Agreement or any of the other Loan Documents, in
the event of a prepayment of the principal balance hereunder, whether voluntary,
following acceleration or otherwise, Maker shall pay to Payee together with such
prepayment a Breakage Fee (defined below), which Breakage Fee, together with the
amounts payable under Section 3(ii) of the Security Agreement, if any,
represents liquidated damages to Payee for the loss of its bargain and not a
penalty. As used herein, the term "Breakage Fee" shall mean the amount, if any,
by which (A) the present value, in the aggregate, of the then remaining
installments of principal and interest due hereunder, absent the prepayment,
using a discount rate equal to (i) the yield to maturity as of the date two (2)
days prior to the date of the prepayment on United States Treasury securities
with a final maturity approximately equal to the remaining term hereof, absent
the prepayment, as published in The Wall Street Journal, plus (ii) three percent
(3.00%), exceeds (B) the then outstanding principal balance hereunder, absent
the prepayment.

        Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or the Loan Documents is not paid when due, Maker
agrees to pay a late charge equal to the lesser of (i) five cents (5 cents) per
dollar on, and in addition to, the amount of each such payment, or (ii) the
maximum amount Payee is permitted to charge by law. In the event of the
occurrence of an Event of Default (as defined in the Security Agreement), then
the entire unpaid principal balance hereof with accrued and unpaid interest
thereon, together with all other sums payable under this Note or the Loan
Documents, shall, at the option of Payee and without notice or demand, become



                                       1

<PAGE>   32

immediately due and payable, such accelerated balance bearing interest until
paid at the rate of three percent (3%) per annum above the fixed rate set forth
in the first paragraph of this Note.

        Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.

        If there be more than one Maker, all the obligations, promises,
agreements and covenants of Maker under this Note are joint and several.

        THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO
THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN
TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.

        MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.



Witness/Attest:                         INTUITIVE SURGICAL, INC.



   /s/                                  By:    /s/ Susan Barnes
----------------------                     ------------------------------------

                                        Name:  Susan Barnes
                                             ----------------------------------

                                        Title: CFO and Assistant Secretary
                                              ---------------------------------



                                       2

<PAGE>   33


                                                                Loan No: 1910193



                                SECOND AMENDMENT
                                       TO
                               SECURITY AGREEMENT


1. Parties and Date. This First Amendment to Security Agreement (the
"Amendment") is entered into effective as of March 2, 2000, by and between
INTUITIVE SURGICAL INC., a Delaware corporation ("Debtor"), and HELLER FINANCIAL
LEASING, INC., a Delaware corporation ("Secured Party").

2. Facts. Debtor and Secured Party have entered into a certain Security
Agreement dated May 20, 1999 (the "Security Agreement"). Debtor has requested
and Secured Party has agreed that the Security Agreement be amended on the terms
and conditions set forth in this Amendment. Capitalized terms used herein and
not otherwise defined shall have the meaning given to such terms in the Security
Agreement. Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows.

3. Amendment to Security Agreement. Debtor and Secured Party hereby agree that
the Security Agreement shall be and hereby is amended, as follows:

        (i)   Item 1(ii) of Exhibit A to the Security Agreement shall be
              restated to read: "(ii) Debtor's cash and cash equivalents plus
              short-term investments on hand, net of funded debt, is less than
              $10,000,000, and";

        (ii)  The final sentence Item 1 of Exhibit A to the Security Agreement
              shall be restated to read: "(Secured Party agrees to review (in
              its sole discretion) any request from Debtor to release any
              pledged amounts or letter of credit provided by Debtor if Debtor's
              EBITDA exceeds $2,500,000 in any two consecutive fiscal quarters
              or Debtor's cash and cash equivalents plus short-term investments
              on hand, net of funded debt, is more than $10,000,000.)"

4. Acknowledgments, Ratifications and Reaffirmations by Debtor. Debtor hereby
acknowledges, ratifies and reaffirms that (i) as of the date hereof no Event of
Default has occurred or exists, (ii) Debtor has no defense, offset or
counterclaim to any of Debtor's obligations under the Loan Documents, and (iii)
the Notes, Security Agreement (as amended by this Amendment) and other Loan
Documents are in full force and effect and are fully enforceable against Debtor
in accordance with their respective terms.

5. Effectiveness of Loan Documents. Except as expressly amended by this
Amendment, the Security Agreement, as well as the Notes and all of the other
Loan Documents shall remain in full force and effect.



                                       1

<PAGE>   34

6. Entire Agreement. The parties acknowledge and agree that there are no other
agreements or representations, either oral or written, express or implied, in
connection with the Loans, that are not embodied in this Amendment, the Notes,
the Security Agreement and the other Loan Documents, which, together represent a
complete integration of all prior and contemporaneous agreements and
understandings of Debtor and Secured Party in any way related to the Loans. The
Security Agreement (as amended by this Amendment) may not be altered, modified
or terminated in any manner except by a writing duly executed by Debtor and
Secured Party. If any provision of the Security Agreement (as amended by this
Amendment) is held to be invalid or unenforceable, the remaining provisions
shall remain in effect without impairment.

IN WITNESS WHEREOF, Debtor and Secured Party have each executed this Agreement
to be effective as of the day and year first above written.



"DEBTOR"                                "SECURED PARTY"

INTUITIVE SURGICAL, INC.,               HELLER FINANCIAL LEASING, INC., a
a Delaware corporation                  Delaware corporation

By: /s/ SUSAN BARNES                    By: /s/ Richard Petrucci
   -----------------------------           ------------------------------------
Name: Susan Barnes                      Name:  Richard Petrucci
     ---------------------------             ----------------------------------

Title:  CFO                             Title: AVP
      --------------------------              ---------------------------------



                                       2






<PAGE>   1
                                                                   EXHIBIT 10.8

                                LICENSE AGREEMENT

THIS LICENSE AGREEMENT dated as of December 20, 1995 (the "Agreement"), is
entered into between SRI INTERNATIONAL, a California nonprofit public benefit
corporation ("SRI"), having a place of business located at 333 Ravenswood
Avenue, Menlo Park, California 94025-3493, and INTUITIVE SURGICAL DEVICES, INC.,
a Delaware corporation ("ISD"), having a place of business located at Five Palo
Alto Square, 3000 El Camino Real, Palo Alto, California 94306-2155.

                              W I T N E S S E T H :

WHEREAS, SRI owns or has rights in certain patent rights and know-how regarding
Telepresence Surgical Technology (defined below), as described in the SRI
disclosures listed in Exhibit A hereto.

WHEREAS, SRI and John G. Freund, M.D. ("Dr. Freund"), entered into an Option
Agreement dated September 12, 1995 (the "Option Agreement"), pursuant to which
SRI granted to Dr. Freund an option to obtain a certain license under SRI's
rights in such patent rights and know-how.

WHEREAS, by exercising the option granted under the Option Agreement, Dr. Freund
desires that SRI convey to ISD a license under SRI's rights in such patent
rights and know-how to develop, make use and sell products for use in performing
surgery on humans and animals, on the terms and subject
 to the conditions of the
Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

For purposes of the Agreement, the terms defined in this article shall have the
respective meanings set forth below:

1.1 "AFFILIATE" shall mean, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by, or is under common control
with, such Person. A Person shall be regarded as in control of another Person if
it owns, or directly or indirectly controls, at least fifty percent (50%) of 


                                       1

<PAGE>   2

the voting stock or other ownership interest of the other Person, or if it
directly or indirectly possesses the power to direct or cause the direction of
the management and policies of the other Person by any means whatsoever.

1.2 "FIELD" shall mean the manipulation of tissues and medical devices for
animal and human medicine (including but not limited to surgery, laparoscopic
surgery and microsurgery).

1.3 "ISD KNOW-HOW" shall mean all inventions, discoveries, processes, methods,
compositions, formulae, procedures, protocols, techniques, results of
experimentation and testing, information and data, which have not been published
and otherwise are not generally known, which are necessary or useful to the
development, manufacture, use or sale of products utilizing or incorporating the
Telepresence Surgical Technology, or otherwise relate to or arise from the
Telepresence Surgical Technology, and which are first conceived or reduced to
practice solely or jointly by employees or other Persons on behalf of ISD prior
to September 12, 1997; all to the extent and only to the extent that ISD has the
right to grant licenses, immunities or other rights thereunder.

1.4 "ISD PATENT RIGHTS" shall mean (a) all patent applications, heretofore or
hereafter filed or having legal force in any country which claim a discovery or
invention which is (i) necessary or useful to the development, manufacture, use
or sale of products utilizing or incorporating the Telepresence Surgical
Technology or (ii) otherwise relates to or arises from the Telepresence Surgical
Technology, and which is first conceived or reduced to practice solely or
jointly by employees or other Persons on behalf of ISD prior to September 12,
1997, (b) all valid and enforceable patents that have issued or in the future
issue from the patent applications described in clause (a) above, including
utility, model and design patents and certificates of invention, and (c) all
divisionals, continuations, continuations-in-part, reissues, renewals,
extensions, registrations, confirmations, re-examinations or additions to any
such patent applications and patents; all to the extent and only to the extent
that ISD has the right to grant licenses, immunities or other rights thereunder.

1.5 "MILESTONE" shall mean the good faith filing by ISD, its Affiliate or
sublicensee of a Pre-Market Approval application or 510K application with the
Food and Drug Administration in the United States (or the equivalent application
with the governing health authority of any country in Europe), supported by the
information that in ISD's best judgment would give the greatest likelihood of
approval by the FDA (or the governing health authority of the applicable country
in Europe).

1.6 "PERSON" shall mean an individual, corporation, partnership, trust, business
trust, association, joint stock company, joint venture, pool, syndicate, sole
proprietorship, 


                                       2

<PAGE>   3

unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.

1.7 "PRODUCT" shall mean any product for use in the Field which if made, used or
sold would infringe one or more valid claims of the SRI Patent Rights if in an
issued patent but for the license granted by the Agreement, or which otherwise
uses, incorporates or was conceived, developed or reduced to practice using the
SRI Patent Rights or SRI Know-How.

1.8 "SRI FUTURE TECHNOLOGY RIGHTS" shall mean all intellectual property rights
of SRI in all inventions, discoveries, processes, methods, compositions,
formulae, procedures, protocols, techniques, results of experimentation and
testing, information and data regarding Telepresence Surgical Technology, which
are first conceived or reduced to practice solely or jointly by employees or
other Persons on behalf of SRI on or after September 12, 1997 and prior to
September 12, 1999; all to the extent and only to the extent that SRI has the
right to grant licenses, immunities or other rights thereunder.

1.9 "SRI KNOW-HOW" shall mean all inventions, discoveries, processes, methods,
compositions, formulae, procedures, protocols, techniques, results of
experimentation and testing, information and data, which have not been published
and otherwise are not generally known, regarding Telepresence Surgical
Technology in which SRI has an ownership or other interest as of the date of the
Agreement or which are first conceived or reduced to practice solely or jointly
by employees or other Persons on behalf of SRI prior to September 12, 1997; all
to the extent and only to the extent that SRI has the right to grant licenses or
other rights thereunder.

1.10 "SRI PATENT RIGHTS" shall mean (a) all patent applications, heretofore or
hereafter filed or having legal force in any country, regarding Telepresence
Surgical Technology, which claim a discovery or invention in which SRI has an
ownership or other interest as of the date of the Agreement or which is first
conceived or reduced to practice solely or jointly by employees or other Persons
on behalf of SRI prior to September 12, 1997, (b) all valid and enforceable
patents that have issued or in the future issue from the patent applications
described in clause (a) above, including utility, model and design patents and
certificates of invention, and (c) all divisionals, continuations,
continuations-in-part, reissues, renewals, extensions or additions to any such
patent applications and patents; all to the extent and only to the extent that
SRI has the right to grant licenses, immunities or other rights thereunder. A
list of the SRI Patent Rights as of the date of the Agreement is attached hereto
as Exhibit B.

1.11 "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement dated
the date hereof, among ISD, SRI and the other signatories thereto.

                                       3

<PAGE>   4

1.12 "TELEPRESENCE SURGICAL TECHNOLOGY" shall mean hardware, firmware and
software technology pertaining to the manipulation of tissues or medical devices
for human and animal medicine (including but not limited to surgery,
laparoscopic surgery and microsurgery) as described or contemplated in Exhibits
A and B to the Agreement and developed by SRI's Medical Technology Laboratory or
any successor SRI organization having the development of medical hardware,
firmware and software technology as its primary mission.

1.13 "THIRD PARTY" shall mean any Person other than SRI, ISD and their
respective Affiliates.

                                    ARTICLE 2

                         REPRESENTATIONS AND WARRANTIES

     Each party hereby represents and warrants to the other party as follows:

2.1 CORPORATE EXISTENCE AND POWER. Such party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it is incorporated; (b) has the corporate power and authority and the
legal right to own and operate its property and assets, to enter into the
Agreement and to perform its obligations hereunder, and to carry on its business
as it is now being conducted and (c) is in compliance with all requirements of
applicable law, except to the extent that any noncompliance would not have a
material adverse effect on the properties, business, financial or other
condition of it and would not materially adversely affect its ability to perform
its obligations under the Agreement.

2.2 AUTHORIZATION AND ENFORCEMENT OF OBLIGATIONS. Such party has taken all
necessary corporate action on its part to authorize the execution and delivery
of the Agreement and the performance of its obligations hereunder. The Agreement
has been duly executed and delivered on behalf of such party, and constitutes a
legal, valid, binding obligation, enforceable against such party in accordance
with its terms.

2.3 NO CONSENTS. All necessary consents, approvals and authorizations of all
governmental authorities and other Persons required to be obtained by such party
in connection with the Agreement have been obtained.

2.4 NO CONFLICT. The execution and delivery of the Agreement and the performance
of such party's obligations hereunder (a) do not conflict with or violate any
requirement of applicable laws or regulations, and (b) do not conflict with, or
constitute a default under, any contractual obligation of it.

                                       4

<PAGE>   5

2.5 SRI REPRESENTATIONS AND WARRANTIES. SRI hereby represents and warrants to
ISD that:

2.5.1 Except as otherwise specifically disclosed under the Agreement, it has not
granted any right to any Third Party under the SRI Patent Rights or and SRI
Technology.

2.5.2 It owns or controls under valid licenses with right of sublicense all of
the rights, title and interest in and to the patents and patent applications set
forth on Exhibit B attached hereto and the SRI Know-How, except as otherwise
provided herein.

2.5.3 It has disclosed to ISD all SRI invention disclosures regarding the
Telepresence Surgical Technology as of the date of the Agreement.

                                    ARTICLE 3

                                 LICENSE GRANTS

3.1 LICENSE GRANT TO ISD. Subject to the provisions of Section 5.3 below, SRI
hereby grants to ISD an exclusive, worldwide, royalty-free license (including
the right to grant sublicenses) under the SRI Patent Rights and SRI Know-How (a)
to conduct research and development with respect to Products for use in the
Field, and (b) to make, have made, use, market, distribute, import, offer for
sale and sell Products for use in the Field. Upon execution of the Agreement and
frequently thereafter until September 12, 1998, at mutually convenient times,
SRI shall disclose and make available to ISD all information available to SRI,
including without limitation SRI invention disclosures and SRI Know-How, as is
reasonably necessary for ISD's employees and consultants to understand and
practice the SRI Patent Rights and SRI Know-How in the Field, as such
information becomes available to SRI. ISD shall have the right, during normal
business hours upon reasonable notice, to review and make copies of those
portions of SRI employees' laboratory notebooks containing such information as
is reasonably necessary for ISD's employees and consultants to understand and
practice the SRI Patent Rights and SRI Know-How in the Field.

3.2 SUBLICENSES. Each sublicense by ISD under the Agreement shall be consistent
with the terms and conditions of the license granted to ISD by SRI and nothing
in such sublicense shall eliminate or reduce ISD's obligations to SRI under the
Agreement. Each sublicense by SRI under the Agreement shall be consistent with
the terms and conditions of the license granted to SRI by ISD and nothing in
such sublicense shall eliminate or reduce SRI's obligations to ISD under the
Agreement.

3.3 RESERVATION OF CERTAIN RIGHTS. Notwithstanding the foregoing, the license
granted to ISD by the Agreement is subject 

                                       5

<PAGE>   6

to the reservation of (a) the right of SRI to practice processes and methods,
and to make, use and sell products, which are covered by the SRI Patent Rights
or which are disclosed in or otherwise pertain to SRI Know-How, (i) for all
commercial and research purposes outside the Field and (ii) for SRI's internal
and collaborative non-commercial research purposes (including United States
Government sponsored research) in the Field; (b) certain rights held by or in
favor of the United States Government by applicable law or regulation; and (c)
the non-exclusive, worldwide, royalty-free right to use the SRI Patent Rights
and SRI Know-How for medical training and simulations, so long as products
created pursuant to such right are not used to perform medical procedures. To
the extent required by applicable United States laws or regulations, if at all,
ISD, its Affiliates and sublicensees shall manufacture the Products in the
United States or its territories.

3.4 DISCLAIMER OF WARRANTIES. NOTHING IN THE AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY SRI THAT ANY PATENT WILL ISSUE BASED
UPON ANY PENDING PATENT APPLICATION INCLUDED IN THE SRI PATENT RIGHTS, THAT ANY
PATENT INCLUDED IN THE SRI PATENT RIGHTS WHICH ISSUES WILL BE VALID, OR THAT THE
USE OF ANY SRI PATENT RIGHTS OR SRI KNOW-HOW WILL NOT INFRINGE THE PATENT OR
PROPRIETARY RIGHTS OF ANY OTHER PERSON. EXCEPT AS OTHERWISE SET FORTH IN SECTION
2.5 ABOVE, SRI MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO THE SRI PATENT RIGHTS OR SRI KNOW-HOW, INCLUDING WITHOUT LIMITATION,
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

3.5 LICENSE GRANT TO SRI. ISD hereby grants to SRI a non-exclusive, worldwide,
royalty-free license (including the right to grant sublicenses) to practice
methods and processes, and to make, use and sell products, which are covered by
the ISD Patent Rights or which are disclosed in or otherwise pertain to ISD
Know-How (a) for all commercial and research purposes outside the Field and (b)
for SRI's internal and collaborative non-commercial research purposes (including
United States Government sponsored research) in the Field. At least quarterly
prior to September 12, 1998, at mutually convenient times, ISD shall disclose
and make available to SRI information available to ISD regarding the use of the
ISD Patent Rights and ISD Know-How outside the Field, as such information
becomes available to ISD.

3.6 TECHNICAL ASSISTANCE. Prior to September 12, 1997, upon reasonable notice
and during normal business hours, SRI (a) shall provide such technical
assistance regarding the SRI Patent Rights and SRI Know-How as ISD reasonably
requests to conduct its activities contemplated by the Agreement, and (b) shall
make available to ISD such technical personnel of SRI as reasonably necessary to
provide the foregoing technical assistance. Except for services reasonably
required for the technology transfer as set forth in Section 3.1 above, ISD
shall reimburse SRI for its standard research or consulting costs for any such
technical 

                                       6

<PAGE>   7

assistance, determined in accordance with SRI's normal business practice applied
on a consistent basis, together with all reasonable out-of-pocket travel and
other expenses incurred by SRI in providing such technical assistance. At the
request of ISD, SRI shall provide ISD with estimates of the anticipated costs of
any requested technical assistance prior to undertaking such technical
assistance.

3.7 ACCESS. During the term of the Agreement prior to September 12, 1997,
subject to the limitations of this Section 3.7, ISD shall have the right to
visit SRI's facilities to inspect and use SRI Telepresence Surgical Technology
demonstration or prototype equipment. ISD's access to SRI facilities and use of
equipment shall be subject to the following conditions:

          (a)  ISD shall provide reasonable prior notice;

          (b) ISD's use of SRI facilities and equipment shall be during normal
          business hours at times mutually convenient to SRI and ISD, which do
          not conflict with SRI's normal business activities;

          (c)  ISD shall repair or replace any SRI equipment damaged by ISD; and

          (d) ISD's access to SRI facilities shall be subject to the execution
          by ISD of an agreement with standard SRI terms and conditions
          regarding access to SRI facilities by contractors and other
          non-employee Third Parties.

3.8 RIGHT OF FIRST NEGOTIATION. SRI shall not sell, assign, license or otherwise
transfer the SRI Future Technology Rights for use in the Field to any Third
Party unless SRI first (a) gives to ISD written notice of SRI's desire to do so,
(b) provides ISD with information available to SRI regarding the use of the SRI
Future Technology Rights in the Field, sufficient to permit ISD to evaluate and
understand such SRI Future Technology Rights, subject to the confidentiality
provisions of Article 6 below, solely to evaluate its interest in negotiating a
license under such rights, and (c) offers to ISD the opportunity to negotiate
with SRI to obtain a license under the SRI Future Technology Rights for use in
the Field. IF ISD fails to give written notice to SRI of its desire to negotiate
a license under such rights within 60 days after receipt of the written notice
from SRI under clause (a) above, or if the parties are unable after good faith
negotiations to reach a mutually acceptable agreement, thereafter SRI shall have
the right in its sole discretion to sell, assign, license or otherwise transfer
the SRI Future Technology Rights for use in the Field to any one or more Third
Parties.

                                       7

<PAGE>   8

                                    ARTICLE 4

                              CONSIDERATION TO SRI

4.1 ISSUANCE OF ISD SHARES. In consideration for the license granted to ISD
hereunder, concurrent with the execution of the Agreement, ISD shall issue to
SRI or SRI's designees five hundred eighty five thousand (585,000) shares of ISD
Common Stock on the terms and subject to the conditions of the Stock Purchase
Agreement.

4.2 REIMBURSEMENT OF CERTAIN SRI COSTS. Within five (5) business days following
the execution of the Agreement, ISD shall reimburse SRI for (a) all reasonable,
direct, out-of-pocket costs (not to exceed $116,000 in the aggregate) incurred
by SRI on or before the date of the Option Agreement in connection with the
preparation, filing, prosecution and maintenance of the patent applications and
patents included in the SRI Patent Rights; (b) all reasonable, direct,
out-of-pocket costs incurred by SRI after the date of the Option Agreement and
on or before the date of the Agreement in connection with the preparation,
filing, prosecution and maintenance of the patent applications and patents
included in the SRI Patent Rights, which are approved by ISD or Dr. Freund prior
to being incurred; and (c) all reasonable, outside counsel attorneys' fees and
costs (not to exceed $10,000 in the aggregate) incurred by SRI in connection
with the negotiation, drafting and execution of the Option Agreement, the
Agreement and the Stock Purchase Agreement; PROVIDED, HOWEVER, that no fees or
costs resulting from work performed by SRI in-house counsel shall be reimbursed
under this Section 4.2.

4.3 PAYMENT METHOD. All payments by ISD to SRI under the Agreement shall be paid
in United States dollars by bank wire transfer in immediately available funds to
such account as SRI shall designate before such payment is due.

                                    ARTICLE 5

                              DILIGENCE OBLIGATIONS

5.1 RESEARCH AND DEVELOPMENT EFFORTS. ISD shall use its commercially reasonable
and diligent efforts (a) to conduct such research, development and preclinical
and human clinical trials as necessary or desirable (in ISD's reasonable
discretion) to obtain regulatory approvals to manufacture and market Products
for use in the Field, and (b) to commence marketing and market each such Product
for use in the Field in such countries as ISD determines are commercially
desirable. ISD's obligation to commence marketing a Product in a country shall
not commence until all regulatory approvals necessary to market such Product in
such country have been obtained by ISD. ISD, at its sole expense and in its sole
discretion, shall fund the costs of all research, development, preclinical and
clinical trials, regulatory approval 

                                       8

<PAGE>   9

activities and commercialization of the Products, and SRI shall have no
obligation to fund any such activities.

5.2 REPORTS. Within ninety (90) days following the end of each calendar year
during the term of the Agreement, ISD shall prepare and deliver to SRI a summary
written report which shall summarize the status of the research, development and
testing of Products, and the status of obtaining the necessary approvals to
market Products.

5.3 FAILURE TO MEET THE MILESTONE. If ISD fails to achieve the Milestone on or
before September 12, 2002, then at SRI's election in its sole discretion, (a)
the license granted by SRI to ISD shall become non-exclusive, and (b) the right
to file and prosecute patent applications, to maintain and enforce any resulting
patents, included within the SRI Patent Rights under Article 7 below shall
revert to SRI, without any further action by ISD.

                                    ARTICLE 6

                                 CONFIDENTIALITY

6.1 CONFIDENTIAL INFORMATION. During the term of the Agreement, and for a period
of five (5) years following the expiration or earlier termination hereof, each
party shall exercise reasonable care to maintain in confidence all information
of the other party (including samples) disclosed by the other party and
identified as, or acknowledged to be, confidential (the "Confidential
Information"), and shall not use, disclose or grant the use of the Confidential
Information except on a need-to-know basis to those directors, officers,
employees, agents, permitted sublicensees and permitted assignees, to the extent
such disclosure is reasonably necessary in connection with such party's
activities as expressly authorized by the Agreement. To the extent that
disclosure is authorized by the Agreement, prior to disclosure, each party
hereto shall obtain the written agreement of any such Person, who is not
otherwise bound by fiduciary obligations to such party, to hold in confidence
and not make use of the Confidential Information for any purpose other than
those permitted by the Agreement. Each party shall notify the other promptly
upon discovery of any unauthorized use or disclosure of the other party's
Confidential Information.

6.2 PERMITTED DISCLOSURES. The nonuse and nondisclosure obligations contained in
this article shall not apply to the extent that (a) any receiving party (the
"Recipient") is required (i) to disclose information by law, order or regulation
of a governmental agency or a court of competent jurisdiction, or (ii) to
disclose information to any governmental agency for purposes of obtaining
approval to test or market a product, provided in either case that the Recipient
shall provide written notice thereof to the other party and sufficient
opportunity to object, time

                                       9

<PAGE>   10

permitting, to any such disclosure or to request confidential treatment thereof;
or (b) the Recipient can demonstrate that (i) the information was public
knowledge at the time of such disclosure by the Recipient, or thereafter became
public knowledge, other than as a result of acts attributable to the Recipient
in violation hereof; (ii) the information was rightfully known by the Recipient
(as shown by its written records) prior to the date of disclosure to the
Recipient by the other party hereunder; (iii) the information was disclosed to
the Recipient on an unrestricted basis from a Third Party not under a duty of
confidentiality to the other party; or (iv) the information was independently
developed by employees or agents of the Recipient without access to the
Confidential Information of the other party.

6.3 PUBLICATION. ISD acknowledges SRI's interest in publishing the results of
its research to obtain recognition within the scientific community and to
advance the state of scientific knowledge. SRI and ISD each recognize their
mutual interest in obtaining valid patent protection and protecting their
respective business interests. Consequently, if SRI, its employees or
consultants desire to make a publication (including any oral disclosure made
without obligation of confidentiality) relating to any discovery or invention
regarding the technology which is the subject of the Agreement (except (a) such
technology as described in Section 3.8 above which is not licensed to ISD, and
(b) such technology as is conceived or invented by ISD), SRI shall give ISD a
copy of the proposed written publication at least 30 days prior to submission
for publication, or an outline of such oral disclosure at least 30 days prior to
presentation. ISD shall have the right to request a reasonable delay in
publication or presentation, not to exceed 90 days, in order to protect
patentable information. If ISD requests such a delay, SRI shall delay submission
or presentation of the publication for a period of 90 days to enable ISD to file
the applicable patent applications protecting each parties' rights in such
discoveries or inventions to be filed in accordance with Article 7 below. Upon
the expiration of 30 days in the case of proposed written publications, or 30
days in the case of proposed oral presentations, from delivery to ISD, SRI shall
be free to proceed with the written publication or presentation, respectively,
unless ISD has requested the delay described above.

6.4 TERMS OF THE AGREEMENT. Except as otherwise provided in this article or as
otherwise required by applicable law, regulation or order of a governmental
agency or court of competent jurisdiction, neither party shall disclose any
terms or conditions of the Agreement to any Third Party without the prior
consent of the other party; PROVIDED, HOWEVER, that ISD may, at its election,
disclose terms or conditions of the Agreement to an investor in ISD or a bona
fide potential investor in ISD, without the prior consent of SRI.

6.5 NO USE OF NAME. Except as otherwise required by applicable law, regulation
or order of a governmental agency or 

                                       10

<PAGE>   11

court of competent jurisdiction, neither party shall use the name of the other
party or the other party's directors, officers or employees in any advertising,
news release or other publication, without the prior express written consent of
the other party; PROVIDED, HOWEVER, that ISD may, at its election, identify SRI
as the licensor of the Telepresence Surgical Technology (whether under that name
or under some other designation) and/or of certain technology on which the
Products are in part based.

6.6 DESCRIPTION OF TELEPRESENCE SURGICAL TECHNOLOGY. Notwithstanding the
provisions of Section 6.1, ISD may, at its election and in its sold discretion,
disclose a description of the Telepresence Surgical Technology (whether under
that name or some other designation) in financing documents, in marketing
literature and in such other publications as ISD reasonably deems necessary to
meet ISD's diligence obligations under Article 5 above; PROVIDED, HOWEVER, that
ISD may not disclose SRI Know-How without the prior express written consent of
SRI.

                                    ARTICLE 7

                             INVENTIONS AND PATENTS

7.1 OWNERSHIP OF INVENTIONS. The entire right and title in all inventions,
discoveries, processes, methods, compositions, formulae, techniques, information
and data regarding Telepresence Surgical Technology, whether or not patentable
(collectively, the "Inventions"), and any patent applications or patents based
thereon, conceived in the performance of the parties' activities during the term
of the Agreement (a) by employees or other Persons acting solely on behalf of
SRI, shall be owned solely by SRI ("SRI Inventions"), (b) by employees or other
Persons acting solely on behalf of ISD shall be owned solely by ISD ("ISD
Inventions"), and (c) jointly by employees or other Persons acting on behalf of
SRI and by employees or other Persons acting on behalf of ISD, shall be owned
jointly by SRI and ISD (the "Joint Inventions"). SRI and ISD each hereby
represents that all employees and other Persons acting on its behalf in
performing its obligations under the Agreement shall be obligated to assign to
it, or as it shall direct, all Inventions conceived by such employees or other
Persons.

7.2  SRI PATENT RIGHTS.

7.2.1 FILING, PROSECUTION, AND MAINTENANCE. ISD shall file and prosecute patent
applications included in the SRI Patent Rights in the United States, Japan, the
European Patent Office (designating the United Kingdom, France, Germany and
Italy) and such other countries as ISD may select in its sole discretion, and
shall maintain any resulting patents. At ISD's election in its sole discretion,
such foreign filing may be initiated through the Patent Cooperation Treaty
designating such countries. In so doing, ISD shall endeavor to obtain the
strongest commercially 

                                       11

<PAGE>   12

desirable patent protection (under the circumstances) regarding the Telepresence
Surgical Technology with respect to the Products and shall consider in good
faith the interests of SRI. ISD (a) shall supply SRI with a copy of each such
patent application as filed, together with notice of its filing date and serial
number; (b) shall consult with SRI regarding the prosecution and maintenance of
the SRI Patent Rights, and shall implement reasonable requests of SRI with
respect thereto; (c) shall provide SRI with copies of all filings, submissions,
correspondence, office actions and responses thereto with the applicable patent
authorities regarding the SRI Patent Rights; and (d) shall inform SRI promptly
of the allowance and issuance of each patent included in the SRI Patent Rights,
together with the date and patent number thereof, and shall provide SRI with a
copy of such patent as issued. SRI shall cooperate with ISD, execute all lawful
papers and instruments and make all rightful oaths and declarations and and
instruments and make all rightful oaths and declarations as may be necessary in
the preparation, prosecution and maintenance of all such patents and patent
applications, ISD shall reimburse SRI for its standard costs for any such
assistance, determined in accordance with SRI's normal business practice applied
on a consistent basis, together with all reasonable out-of-pocket travel and
other expenses incurred by SRI in providing such assistance; PROVIDED, HOWEVER,
that ISD shall not be obligated to reimburse SRI for any consultation with SRI
which ISD is obligated to undertake pursuant to this Article 7. At the request
of ISD, SRI shall provide ISD with estimates of the anticipated costs of any
requested assistance prior to undertaking such assistance.

7.2.2 FUTURE PATENT COSTS. Except as otherwise set forth in this section, ISD
shall pay all costs incurred after the date of the Agreement in connection with
the preparation, filing, prosecution and maintenance of the patent applications
and patents included in the SRI Patent Rights. If, during the term of the
Agreement, SRI grants a license to any one or more Third Parties under the SRI
Patent Rights for use outside the Field, SRI shall pay or cause each such Third
party to reimburse ISD for such Third Party's PRO RATA share of the actual
out-of-pocket costs paid by ISD (or reimbursed by ISD to SRI) in connection with
the preparation, filing, prosecution and maintenance of the patent applications
and patents included in the SRI Patent Rights; PROVIDED, HOWEVER, that SRI shall
have no obligation to reimburse ISD for any such Third Party's share of such
out-of-pocket costs paid through the effective date of the license agreement
with such Third Party in excess of the total consideration received by SRI from
such Third Party for the license agreement with such Third Party. Patent costs
incurred after the date(s) of such Third Party license agreement(s) shall be
shared on a PRO RATA basis by ISD and each such Third Party; PROVIDED, HOWEVER,
that ISD may, at is election, seek reimbursement directly from each such Third
Party, and SRI shall cause each such Third Party to make reimbursement directly
to ISD, for such Third Party's PRO RATA share of those patent costs incurred
after the date of such Third Party license agreement. Notwithstanding anything
to the contrary in this Section 7.2, if ISD desires to abandon or materially

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narrow any claim of the SRI Patent Rights which has application outside the
Field, then SRI shall have the right, in its sole discretion and at its sole
expense, to assume control of the prosecution, maintenance and enforcement of
such claim, provided that the respective rights of each party under the
Agreement with respect to such claim shall not otherwise be affected solely by
virtue of ISD abandoning and SRI assuming control thereof.

7.2.3 ENFORCEMENT. Each party promptly shall notify the other party of any
infringement known to such party of the SRI Patent Rights and shall provide the
other party with the available evidence, if any, of such infringement. ISD, at
its sole expense, shall have the right (but not the obligation) to determine the
appropriate course of action to enforce the SRI Patent Rights in the Field or
otherwise abate the infringement thereof in the Field, to take (or refrain from
taking) appropriate action to enforce the SRI Patent Rights in the Field, to
control any litigation or other enforcement action in the Field and to enter
into, or permit, the settlement of any such litigation or other enforcement
action with respect to the SRI Patent Rights in the Field, and shall consider,
in good faith, the interests of SRI in so doing. If, within one hundred twenty
(120) days of receipt of notice from SRI, ISD does not abate the infringement in
the Field or file suit to enforce the SRI Patent Rights against at least one
infringing party in the Field, SRI shall have the right to take whatever action
it deems appropriate to enforce the SRI Patent Rights in the Field. The party
controlling any such enforcement action shall not settle the action or otherwise
consent to an adverse judgment in such action that adversely affects the rights
or interests of the non-controlling party or imposes additional obligations on
the non-controlling party, without the prior written consent of the
non-controlling party. All monies recovered upon the final judgment or
settlement of any such suit by ISD to enforce the SRI Patent Rights in the Field
shall be retained by ISD. All monies recovered upon the final judgment or
settlement of any such suit by SRI to enforce the SRI Patent Rights in the Field
shall be retained by SRI. Notwithstanding the foregoing, SRI and ISD shall fully
cooperate with each other in the planning and execution of any action to enforce
the SRI Patent Rights in the Field.

7.3  ISD PATENT RIGHTS.

7.3.1 FILING, PROSECUTION, AND MAINTENANCE. ISD, at its sole expense, shall have
the right to file and prosecute patent applications included in the ISD Patent
Rights in the United States, Japan, the European Patent Office (designating the
United Kingdom, France, Germany and Italy) and such other countries as ISD may
select in its sole discretion, and to maintain any resulting patents. At ISD's
election in its sole discretion, such foreign filing may be initiated through
the Patent Cooperation Treaty designating such countries. ISD shall provide SRI
with copies of each such patent application as filed, 

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together with notice of its filing date and serial number, and copies of all
office actions and responses thereto.

7.3.2 ENFORCEMENT. ISD, at its sole expense, shall have the right (but not the
obligation) to determine the appropriate course of action to enforce the ISD
Patent Rights or otherwise abate the infringement thereof, to take (or refrain
from taking) appropriate action to enforce the ISD Patent Rights, to control any
litigation or other enforcement action and to enter into, or permit, the
settlement of any such litigation or other enforcement action with respect to
the ISD Patent Rights, and shall consider, in good faith, the interests of SRI
in so doing. All monies recovered upon the final judgment or settlement of any
such suit to enforce the ISD Patent Rights shall be retained by ISD.

7.4 PATENT MARKINGS. With respect to each Product which would infringe a valid
claim of an issued patent of the SRI Patent Rights but for the license granted
to ISD hereunder, ISD, its Affiliates and sublicensees shall mark each such
Product sold or otherwise disposed of by any of them with the appropriate
marking, giving notice to the public that such Product is patented, by fixing
thereon either the word "patent" or the abbreviation "pat", together the number
of such issued patent of the SRI Patent Rights.

                                    ARTICLE 8

                              TERM AND TERMINATION

8.1 EXPIRATION. Subject to the provisions of this article, the Agreement shall
expire on the later of (a) the expiration of the last to expire of the SRI
Patent Rights, or (b) the date seventeen (17) years after the date of the
Agreement.

8.2 TERMINATION BY SRI. SRI may terminate the Agreement, in its sole discretion,
upon thirty (30) days prior written notice to ISD, (a) if ISD fails to timely
reimburse SRI for the costs described in Section 4.2 above, and if ISD has not
cured such breach within thirty (30) days after written notice thereof by SRI;
or (b) except as otherwise provided in the article below regarding force
majeure, upon or after the material breach of its obligations under the Stock
Purchase Agreement or under Section 6.1, 6.2, 6.3, 6.4, 7.2, 7.3, 9.1, 9.2 or
9.3 of the Agreement, if ISD has not cured such breach within ninety (90) days
after written notice thereof by SRI.

8.3 TERMINATION BY ISD. Except as otherwise provided in the article below
regarding force majeure, if SRI materially breaches its obligations under
Section 3.1, 3.6 or 3.7 of the Agreement, and SRI has not cured such breach
within sixty (60) days after written notice thereof by ISD, then (a) ISD may
terminate the Agreement upon thirty (30) days prior written notice to SRI, and

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for the periods(s) specified in Section 2(a) of the Stock Purchase Agreement,
repurchase that portion of the shares of ISD Common Stock issued to SRI
specified in Section 2(a) of the Stock Purchase Agreement at the price and on
the terms and conditions set forth in the Stock Purchase Agreement, and (b) SRI
shall grant to ISD an exclusive, worldwide, royalty-free license with the right
to sublicense, under the SRI Patent Rights and SRI Know-How, to make, have made,
use, market, distribute, import, offer for sale and sell Products for use in the
Field.

8.4 CONVERSION TO NONEXCLUSIVE BY SRI. SRI may convert the license granted by
SRI to ISD to a nonexclusive license, in its sole discretion, upon thirty (30)
days prior written notice to ISD, (a) upon or after the material breach of ISD's
obligations under Section 5.1 of the Agreement, if ISD has not cured such breach
within sixty (60) days after written notice thereof by SRI; or (b) if ISD
voluntarily commences any action or seeks any relief regarding its liquidation,
reorganization, dissolution or similar act or under any bankruptcy, insolvency
or similar law; or (c) if a proceeding is commenced or an order, judgment or
decree is entered seeking the liquidation, reorganization, dissolution or
similar act or any other relief under any bankruptcy, insolvency or similar law
against ISD, without its consent, which continues undismissed or unstayed for a
period of sixty (60) days; PROVIDED, HOWEVER, that SRI shall not have the right
to terminate the Agreement solely by reason of the occurrence of any one or more
of the events described in this Section 8.4.

8.5 FAILURE TO ISSUE ISD SHARES. In the event that ISD fails to duly authorize,
validly issue and deliver to SRI or its designees the shares referenced in
Section 4.2 above concurrent with the execution of the Agreement, the Agreement
automatically shall terminate without further action by SRI.

8.6 EFFECT OF EXPIRATION OR TERMINATION. Expiration or termination of the
Agreement shall not relieve the parties of any obligation accruing prior to such
expiration or termination, and the provisions of Articles 6 and 9 shall survive
the expiration or termination of the Agreement. Upon ex