VidaMed, Inc.
                              46107 Landing parkway
                            Fremont, California 94538

                                  June 26, 1999

Mr. David Illingworth
President and Chief Executive Officer
VidaMed, Inc,
46107 Landing Parkway
Fremont, California 94538

Re: Transition to Employment as Executive Chairman

Dear Mr. Illingworth:

         This letter will  confirm the terms of your  transition  to the role of
Executive Chairman, such transition to be effective August 1, 1999 or earlier if
mutually  agreed upon by you and the new President and Chief  Executive  Officer
(the "Transition Date"). The terms under which such employment is offered are as
follows:

         1. Position and Responsibilities.  By the authority vested in the Board
of  Directors  under  Section 5.3 of the  "Bylaws of  VidaMed,  Inc. (a Delaware
corporation)" you are herewith appointed to the position of Executive  Chairman,
reporting to the President and Chief  Executive of the Company.  During the term
of your  service you shall  devote up to 50% of your working time to your duties
and  responsibilities  of your  employment  and shall  perform them  faithfully,
diligently and competently.  In addition,  you shall comply with and be bound by
the operating policies,  procedures and practices of VidaMed in effect or as may
be promulgated by the Company from time to time during your employment.

         In  particular,  your  responsibilities  as  Executive  Chairman  shall
include the  following:  (i)  assisting  with  smooth  transition  of Mr.  Randy
Lindholm  to his  position  as  President  and Chief  Executive  Officer  of the
Company, (ii) making personal visits with distribution partners during the third
quarter  of  1999,   (iii)   participating  in  fundraising   activities,   (iv)
participating in efforts to explore  strategic  relationships  and partnerships,
and (v) such other duties as may be assigned to you by the  President and CEO of
the  Company.  The term of your  service as  Executive  Chairman  will  continue
through  February  1,  2000  ("Termination  Date"),  unless  modified  by mutual
agreement in writing.

         It is noted that you shall continue to serve as Chairman of the VidaMed
Board of  Directors  and  participate  on the  nominating  committee of Board of
Directors   during  the  present  term  of  that  office.   Your  authority  and
responsibility  as Chairman  and member of the  VidaMed  Board of  Directors  is
herewith  recognized  as distinct from the duties and authority of the Executive
Chairman hereunder.

         2.       Compensation and Benefits.

                   (a) In consideration  of your services,  effective as of your
transition date of August 1, 1999, you will be paid a base salary of 50% of your
current base salary of $270.000.00 per annum payable twice monthly in accordance
with VidaMed's  standard payroll  practices.  If during any payroll period,  you
devote  greater than 50% of your  working  time to VidaMed  matters as Executive
Chairman, your salary for such period will be prorated accordingly.

                   (b) You will also be entitled to  participate  in the VidaMed
Performance  Improvement Plan ("PIP") under such term accorded the President and
Chief  Executive  Officer of the Company,  prorated  through August 1, 1999. You
will not be eligible to participate  in the PIP after August 1, 1999,  except to
the  extent  of the  proration  for  the  1999  fiscal  year.  For  purposes  of
calculating

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benefits  under the PIP, the  Operating  Plan shall be the "Steady  Growth Plan"
stated in the Minutes of the Board of Directors dated June 22, 1999.

                   (c) Upon  faithful  completion  of your  service as Executive
Chairman, the remaining balance of $62,500 loan made to you by the Company shall
be deemed earned and the note forgiven.

                   (d) You  will  also  be  entitled  to  receive  the  standard
employee  benefits made available by VidaMed to its employees to the full extent
of your  eligibility  therefor.  VidaMed will  reimburse you for all  reasonable
expenses actually incurred or paid by you in the performance of your services on
behalf of the company,  upon prior authorization and approval in accordance with
VidaMed's expense reimbursement policy then in effect and as may be amended from
time to time.

         3. Stock Options.  Your stock option for an aggregate of 250,000 shares
which was granted to you on October 9, 1998 (the "10/98  Option")  will continue
to vest on terms set forth in such option until  termination of your services as
Executive  Chairman.  Thereafter you will have thirty (30) days from termination
of such  service to  exercise  the shares  vested  under the 10/98  Option.  The
unvested portion of all your other unexercised VidaMed options will be cancelled
and returned to the VidaMed stock option plan on the Transition Date.

         4. Other Agreements. Your change of control agreement with VidaMed will
remain  in  effect  for so long as you are  serving  as  Executive  Chairman  in
accordance with this Agreement. Your indemnification agreement with VidaMed will
remain in effect for so long as you are serving as Executive Chairman of VidaMed
or as a member of VidaMed's  Board of Directors.  Your employee  confidentiality
agreement with VidaMed will remain in effect in accordance with its terms.

         5.  Conflicting  Employment.  You agree  that,  during the term of your
service as  Executive  Chairman,  you will not  engage in any other  employment,
occupation,  consulting  or other  business  activity  directly  related  to the
business in which VidaMed is now involved or becomes involved during the term of
your employment,  nor will you engage in any other activities that conflict with
your obligation to VidaMed.

         6.        General Provisions.

                  (a) This  letter  will be governed by the laws of the State of
California,  applicable to agreements  made and to be performed  entirely within
such state.

                   (b) This  letter  agreement  sets the  entire  agreement  and
understanding  between  VidaMed and you  relating to your  service as  Executive
Chairman and supersedes all prior verbal discussions between us.

                   (c)  This   agreement   will  be  binding  upon  your  heirs,
executors,  administrators and other legal  representatives  and will be for the
benefit of VidaMed and its respective successors and assigns.

         Please  acknowledge  and  confirm  your  acceptance  of this  letter by
signing and returning the enclosed copy of this letter as soon as possible.
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                                    VIDAMED, INC.



                                    By _________________________________________
                                       Robert Erra, Member of Board of Directors

Agreed to and accepted this 26th day of June 1999.


  By______________________________________
               David J. Illingworth

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