Vidamed, Inc.
                              46107 Landing Parkway
                            Fremont, California 94538


                                February 20, 1998

Mr. David Illingworth
c/o Contemporary Resort Hotel, Room 8125
Walt Disney World
via facsimile:  (407) 824-3539

                                           Re: Terms of Employment Offer

Dear Mr. Illingworth:

         This letter will  confirm  the terms of your offer of  employment  with
Vidamed, Inc. Such terms are as follows:

         1.  Position  and  Responsibilities.  You will serve in the position of
Chairman,  President  and Chief  Executive  Officer,  reporting  to the Board of
Directors of the Company. You will assume and discharge such responsibilities as
are commensurate  with such position.  During the term of your  employment,  you
shall  devote  your  full  time,   skill  and   attention  to  your  duties  and
responsibilities 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  from time to time  during your
employment.

         2.       Compensation.

                  (a) In  consideration  of your services,  effective as of your
employment  start  date of April 6,  1998,  you  will be paid a base  salary  of
$270,000 per annum,  payable twice monthly in accordance with Vidamed's standard
payroll  practices.  Your  base  salary is  normally  reviewed  annually  by the
compensation committee of the Board of Directors of Vidamed.

                  (b) In  addition  to your  base  salary,  you will  receive  a
one-time  signing bonus of $30,000 upon  commencement  of your  employment  with
Vidamed.

                  (c) In addition to your base  salary,  you will be entitled to
participate  in such incentive  compensation  or bonus plan which may be adopted
for senior  management of Vidamed.  You understand that the adoption of any such
plan, the eligibility  and measurement  criteria and all other terms shall be at
the sole  discretion  of the  compensation  committee  and board of directors of
Vidamed.

                  (d) In connection  with your  employment  by Vidamed,  Vidamed
will retire the existing  loan with Nellcor  Puritan  Bennett on March 16, 1998.
You will execute a promissory note in favor of Vidamed in the amount of $250,000
at the time of retirement of such loan.  Your loan from Vidamed will be forgiven
on the following schedule (which shall be set forth in the note): 50% of the



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loan balance will be forgiven on the date of  commencement  of your  employment,
25%of the loan balance will be forgiven on the first  anniversary of the date of
commencement  of  your  employment  (provided  that  you  have  not  voluntarily
terminated your employment with Vidamed on or prior to such date) and 25% of the
loan  balance  will  be  forgiven  on the  second  anniversary  of the  date  of
commencement  of  your  employment  (provided  that  you  have  not  voluntarily
terminated  your  employment  with Vidamed on or prior to such date).  This loan
will be pursuant to a promissory note  incorporating the foregoing terms,  which
will be sent to you separately.

         3.  Other  Benefits.  You will be  entitled  to  receive  the  standard
employee  benefits made available by Vidamed to its employees to the full extent
of your  eligibility  therefor.  You shall be entitled to _______  weeks of paid
vacation per year (which shall be consistent with Vidamed's  vacation policy and
which  shall not  accrue  in excess of  _______  weeks per  year).  During  your
employment,  you shall be permitted,  to the extent eligible,  to participate in
any group medical,  dental,  life insurance and disability  insurance  plans, or
similar  benefit  plan  of  Vidamed  that is  available  to  executive  officers
generally.  Participation in any such plan shall be consistent with your rate of
compensation  to the extent that  compensation  is a  determinative  factor with
respect to coverage under any such plan.

                  Vidamed  shall  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 as from time to time in effect.

         4. Stock Option.  Pursuant to Board  approval,  and under the terms and
conditions  of the  Vidamed  Stock  Option  Plan  and  Stock  Option  Agreement,
including the stock vesting provisions contained therein, you will be granted an
option to purchase 750,000 shares of common stock of Vidamed.  Your stock option
will be granted in two separate  tranches as follows:  (i) tranche 1 for 500,000
shares  will be granted to you upon  commencement  of your  employment  and (ii)
tranche 2 will be granted to you on the date of  Vidamed's  1998 annual  meeting
stockholders,  subject to stockholder approval at such meeting of an increase in
the shares reserved for issuance under Vidamed's Stock Option Plan. The exercise
price for each tranche will equal the fair market value of Vidamed  Common Stock
on the respective  grant dates.  Both tranches will vest over a four year period
beginning on the date of commencement of your  employment,  with  one-quarter of
the  shares  vesting  on the  first  anniversary  of the  commencement  of  your
employment and the remaining  shares vesting on a cumulative  monthly basis.  In
the  event  of a  merger  or  acquisition  involving  Vidamed,  or the  sale  of
substantially all of Vidamed's  assets,  which results in a change of control of
Vidamed (a "Change of Control Transaction"),  50% of your unvested stock options
shall become  vested upon the  occurence of the Change of Control.  In the event
that  within  12  months  following  the  Change of  Control  Transaction,  your
employment  duties are  substantially  changed by the acquiring party or you are
required to relocate to a new place of employment  outside the San Francisco Bay
Area, all remaining  unvested stock options shall vest. The Vidamed Stock Option
Plan, including the Stock Option Agreement, will be sent to you separately.

         5.  Confidential  Information.   You  agree  that  your  employment  is
contingent  upon your  execution of, and delivery to,  Vidamed of an Employment,
Confidential Information and Invention Assignment Agreement in the standard form
utilized by Vidamed.

         6.  Conflicting  Employment.  You agree  that,  during the term of your
employment  with  Vidamed,   you  will  not  engage  in  any  other  employment,
occupation,  consulting  or other  business

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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 obligations to Vidamed.

         7.       General Provisions.

                  (a) This  offer  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 offer  letters  sets forth the entire  agreement  and
understanding  between  Vidamed and you relating your  employment and supersedes
all prior verbal discussion between us. Any subsequent change or changes in your
duties,  salary or other  compensation  will not affect the validity or scope of
this agreement.

                  (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  offer  letter  as soon as
possible.  If you have any  questions  about this offer  letter,  please call me
directly. I can be reached today at (530) 426-0316.


                                           VIDAMED, INC.


                                           By __________________________________
                                           David Douglass, Chairman of the Board


ACCEPTANCE:

         I accept the terms of my  employment  with  Vidamed,  Inc. as set forth
herein.  I understand  that this offer letter does not  constitute a contract of
employment for any specified period of time, and that my employment relationship
may be  terminated  by either  party,  with or without cause and with or without
notice.


                                                               February __, 1998
-----------------------------------------                      -----------------
David Illingworth                                                    Date

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