Document:

<PAGE>   1
                                                                  EXECUTION COPY

                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG
                         AMERICAN MEDICAL SYSTEMS, INC.
                              PERSUADE MERGER CORP.
                                 INFLUENCE, INC.
                           GLOBERMAN ENGINEERING LTD.
                                   UROTEK LTD.
                                  KATSUMI ONEDA
                                       AND
                                  LEWIS C. PELL

                          DATED AS OF NOVEMBER 12, 1999

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>

<S>                                                                                                              <C>
     ARTICLE  1...................................................................................................1
       1.1    Definitions.........................................................................................1
     ARTICLE  2...................................................................................................7
       2.1    The Merger..........................................................................................7
       2.2    Effective Time......................................................................................7
       2.3    Closing of the Merger...............................................................................8
       2.4    Effects of the Merger...............................................................................8
       2.5    Certificate of Incorporation and Bylaws.............................................................8
       2.6    Directors...........................................................................................8
       2.7    Officers............................................................................................8
       2.8    Merger Consideration................................................................................8
       2.9    Cancellation and Conversion of Company Securities at the Effective Time............................10
       2.10   Contingent Merger Consideration....................................................................11
       2.11   Dissenting Shares..................................................................................16
       2.12   Escrow Procedure; Exchange of Certificates.........................................................17
       2.13   Contributions at Closing...........................................................................19
     ARTICLE  3..................................................................................................19
       3.1    Corporate Organization and Power...................................................................20
       3.2    Authorization......................................................................................20
       3.3    Capitalization of the Company......................................................................21
       3.4    Non-Contravention..................................................................................22
       3.5    Consents and Approvals.............................................................................22
       3.6    Financial Statements; Undisclosed Liabilities......................................................23
       3.7    Absence of Certain Changes.........................................................................24
       3.8    Assets and Properties..............................................................................25
       3.9    Manufacturing Compliance...........................................................................25
       3.10   Inventories........................................................................................25
       3.11   Receivables and Payables...........................................................................26
       3.12   Litigation.........................................................................................27
       3.13   Contracts..........................................................................................27
       3.14   Permits............................................................................................29
       3.15   Compliance with Applicable Laws....................................................................29
       3.16   Benefit Plans......................................................................................29
       3.17   Labor and Employment Matters.......................................................................32
       3.18   Israeli Labor Matters..............................................................................33
       3.19   Intellectual Property..............................................................................34
       3.20   Environmental Compliance...........................................................................35
       3.21   Insurance..........................................................................................37
       3.22   Tax Matters........................................................................................37
       3.23   Grants, Incentives and Subsidies...................................................................39
       3.24   Year 2000..........................................................................................40
       3.25   Bank Accounts; Powers of Attorney..................................................................40
       3.26   Orders, Commitments and Returns....................................................................40
       3.27   Product Liability Claims...........................................................................40
</TABLE>

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<TABLE>

<S>                                                                                                             <C>
       3.28   Warranties.........................................................................................41
       3.29   Relations with Suppliers and Customers.............................................................41
       3.30   Absence of Certain Business Practices..............................................................41
       3.31   Brokers............................................................................................42
       3.32   Minute Books.......................................................................................42
       3.33   Business Generally.................................................................................42
       3.34   Irrevocable Proxies................................................................................42
       3.35   Voting Agreement...................................................................................42
     ARTICLE  4..................................................................................................43
       4.1    Corporate Existence and Power......................................................................43
       4.2    Authorization......................................................................................43
       4.3    Consents and Approvals.............................................................................43
       4.4    Acquisition of Company Common Stock for Investment.................................................44
       4.5    Available Capital Resources........................................................................44
       4.6    No Additional Representations or Warranties........................................................44
       4.7    Disclosure.........................................................................................44
       4.8    Non-Contravention..................................................................................45
       4.9    Brokers............................................................................................45
     ARTICLE  5..................................................................................................45
       5.1    Conduct of the Business............................................................................45
       5.2    Company's Agreements as to Specified Matters.......................................................45
       5.3    Full Access to Parent..............................................................................47
       5.4    Confidentiality....................................................................................47
       5.5    Filings; Consents; Removal of Objections...........................................................48
       5.6    Further Assurances; Cooperation; Notification......................................................48
       5.7    Approval of Stockholders...........................................................................49
       5.8    No Solicitation....................................................................................49
       5.9    Supplements to Disclosure Schedule.................................................................49
       5.10   Sale of Certain Assets of  ENT Business and German Subsidiary......................................49
       5.11   Public Announcements...............................................................................50
       5.12   Preparation of Tax Returns; Tax Matters............................................................50
       5.13   Severance Benefits.................................................................................53
       5.14   Exchange of Stock..................................................................................53
     ARTICLE  6..................................................................................................53
       6.1    Representations and Warranties True................................................................53
       6.2    Performance........................................................................................53
       6.3    Required Approvals and Consents....................................................................54
       6.4    No Proceeding or Litigation........................................................................54
       6.5    Legislation........................................................................................54
       6.6    Certificates.......................................................................................54
       6.7    Opinions of Company Counsel........................................................................54
       6.8    Escrow Agreement...................................................................................54
       6.9    Employment Agreements..............................................................................54
       6.10   Bick Consulting Agreement..........................................................................54
       6.11   Machek Consulting Agreement........................................................................54
       6.12   Sale of ENT Business and German Subsidiary.........................................................55
</TABLE>

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<TABLE>

<S>                                                                                                             <C>
       6.13   Dissenting Shares..................................................................................55
       6.14   Resignation and Release............................................................................55
       6.15   Voting Agreement...................................................................................55
       6.16   J & J Agreements...................................................................................55
       6.17   Cancellation of Options............................................................................55
       6.18   1998 and 1999 Financial Statements.................................................................55
       6.19   Interim Financial Statements.......................................................................55
       6.20   Jessco Agreement...................................................................................55
       6.21   Yozma Agreement....................................................................................55
       6.22   SLP Agreement......................................................................................55
       6.23   Service Agreements.................................................................................56
       6.24   Employee Loan......................................................................................56
       6.25   1998 Tax Return....................................................................................56
       6.26   Transfer of IMT Subsidiary Stock...................................................................56
       6.27   Intellectual Property Transfer Agreement...........................................................56
     ARTICLE  7..................................................................................................56
       7.1    Representations and Warranties True................................................................56
       7.2    Performance........................................................................................57
       7.3    Corporate Approvals................................................................................57
       7.4    No Proceeding or Litigation........................................................................57
       7.5    Legislation........................................................................................57
       7.6    Certificates.......................................................................................57
       7.7    Opinion of Parent Counsel..........................................................................57
       7.8    Escrow Agreement...................................................................................57
       7.9    Dissenting Shares..................................................................................57
     ARTICLE  8..................................................................................................58
       8.1    Methods of Termination.............................................................................58
       8.2    Procedure Upon Termination.........................................................................58
       8.3    Effect of Termination..............................................................................59
       8.4    Reimbursement of Expenses..........................................................................59
     ARTICLE  9..................................................................................................59
       9.1    Survival...........................................................................................59
       9.2    Indemnification by Parent..........................................................................60
       9.3    Indemnification by Principal Stockholders..........................................................60
       9.4    Claims for Indemnification.........................................................................61
       9.5    Indemnification Limits.............................................................................62
       9.6    Right of Off-Set...................................................................................63
       9.7    Release of Prior Claims............................................................................63
       9.8    Principal Stockholder's Right of Contribution......................................................63
     ARTICLE  10.................................................................................................63
       10.1   Dispute............................................................................................63
       10.2   Mediation..........................................................................................64
       10.3   Arbitration........................................................................................64
     ARTICLE  11.................................................................................................65
       11.1   Notices............................................................................................65
       11.2   Amendments; No Waivers.............................................................................66
</TABLE>

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<TABLE>

<S>                                                                                                             <C>
       11.3   Expenses...........................................................................................66
       11.4   Successors and Assigns.............................................................................67
       11.5   Governing Law......................................................................................67
       11.6   Counterparts; Effectiveness........................................................................67
       11.7   Entire Agreement...................................................................................67
       11.8   Captions...........................................................................................67
       11.9   Severability.......................................................................................67
       11.10  Construction.......................................................................................67
       11.11  Cumulative Remedies................................................................................68
       11.12  Third Party Beneficiaries..........................................................................68
       11.13  Appointment of Stockholders'Representatives; Enforcement of Rights, Benefits and Remedies..........68
</TABLE>

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<PAGE>   6

                          AGREEMENT AND PLAN OF MERGER

         THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
November 12, 1999, is by and among American Medical Systems, Inc., a Delaware
corporation ("Parent"), Persuade Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and Influence, Inc., a
Delaware corporation ("Company"), and Globerman Engineering Ltd., an Israeli
company, Urotek Ltd., an Israeli company, Katsumi Oneda, an individual residing
in the State of New Jersey, and Lewis C. Pell, an individual residing in the
State of New York (collectively referred to herein as the "Principal
Stockholders").

         WHEREAS, the Board of Directors of each of the Company, Parent and
Merger Subsidiary have (i) determined that the Merger (as defined below) is fair
and in the best interests of their respective stockholders and (ii) approved the
Merger of Merger Subsidiary with and into the Company, with the Company
surviving, in accordance with the terms and conditions of this Agreement.

         WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.

         NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent, Merger Subsidiary and
the Principal Stockholders hereby agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

1.1      Definitions. The following terms, as used herein, have the following
meanings:

         "Affiliate" means, with respect to any Person, (a) any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other Person, through the ownership of all or part of any
Person, or (b) any Person who may be deemed to be an "affiliate" under Rule 145
of the Securities Act of 1933, as amended.

         "Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local common law or duty, caselaw or ruling, statute,
law, ordinance, policy, guidance, rule, administrative interpretation,
regulation, code, order, writ, injunction, directive, judgment, decree or other
requirement of any Governmental Authority (including any Environmental, Safety
and Health Laws) applicable to such Person or any of its Affiliates or Plan
Affiliates or any of their respective properties, assets, officers, directors,
employees, consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates or Plan Affiliates).

         "Benefit Plan" means all Pension Plans, Welfare Plans and Compensation
Plans.

<PAGE>   7

         "Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Minneapolis, Minnesota are authorized or required
by law to close.

         "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, as set forth in Section 4980B of the Code, part 6 of Title I
of ERISA and applicable regulations issued thereunder.

         "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.

         "Company" means, unless the context otherwise specifically requires,
the Company and its consolidated Subsidiaries.

         "Company Common Stock" means the common stock, par value $0.001 per
share, of the Company.

         "Company Preferred Stock" means the Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company.

         "Company Stock Option Plans" means the Company's 1998 Long-Term
Incentive Plan and the Company's 1995 Stock Option Plan.

         "Compensation Plan" means any material benefit or arrangement that is
not either a Pension Plan or a Welfare Plan, including, without limitation, (a)
each employment or consulting agreement, (b) each arrangement providing for
insurance coverage or workers' compensation benefits, (c) each bonus, incentive
bonus or deferred bonus arrangement, (d) each arrangement providing termination
allowance, severance or similar benefits, (e) each equity compensation plan, (f)
each current or deferred compensation agreement, arrangement or policy, and (g)
each compensation policy and practice maintained by the Company or any ERISA
Affiliate of the Company covering the employees, former employees, directors and
former directors of the Company and the beneficiaries of any of them.

         "Contingent Merger Consideration" shall have the meaning set forth in
Section 2.8(c).

         "Contracts" means all contracts, agreements, options, leases, licenses,
sales and accepted purchase orders, commitments and other instruments of any
kind, whether written or oral, to which the Company is a party on the Closing
Date, including the Scheduled Contracts.

         "Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement (net of
insurance proceeds actually received or accrued and net of any tax effect
arising out of any of the foregoing), including, but not limited to, (a)
interest on cash disbursements in respect of any of the foregoing at the
Reference Rate in effect from time to time from the date each such cash
disbursement is made until the Person incurring the same shall have been
indemnified in respect thereof, and (b) reasonable costs, fees and expenses of
attorneys, accountants, bankers and other agents of the Person incurring such
expenses.

                                       2

<PAGE>   8

         "Environmental, Safety and Health Laws" means all Applicable Laws in
any way relating to Environmentally Regulated Materials, toxic torts,
occupational health and safety, or the environment, including, without
limitation, the Safe Drinking Water and Toxic Enforcement Act ("Proposition
65"), the Federal Resource Conservation and Recovery Act ("RCRA"), the Federal
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
the Federal Clean Air Act, the Federal Water Pollution Control Act, the Federal
Safe Drinking Water Act, the Federal Toxic Substances Control Act ("TSCA"), the
Federal National Environmental Policy Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Emergency Planning and Community Right to Know Act,
the Federal Hazard Communication Act, the Federal Occupational Safety and Health
Act, any requirements promulgated pursuant to these Applicable Laws, amendments,
or restatements thereof or similar enactments thereof, as is now or at any time
hereafter may be in effect, or any analogous foreign, state or local Applicable
Laws.

         "Environmental Liabilities" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties, or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.

         "Environmentally Regulated Material" means any element, compound,
waste, pollutant, contaminant, substance, material or any mixture thereof: (a)
the presence of which requires investigation or remediation under any Applicable
Law; (b) that is defined as a "hazardous waste" or "hazardous substance," or
chemicals known to cause cancer or reproductive toxicity under any Applicable
Law; (c) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic or mutagenic or otherwise hazardous and is regulated
by any Governmental Authority having or asserting jurisdiction over the Company;
(d) the presence of which causes a nuisance, trespass or other tortious
condition; (e) the presence of which poses a hazard to the health or safety of
Persons; (f) without limitation, that contains gasoline, diesel fuel or other
petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos, (g) that
gives rise to any exposure prohibition or warning requirement under any
Environmental Law; or (h) that is otherwise regulated in any way under any
Environmental Law.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

         "ERISA Affiliate" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA or the Code, was
or is required to be treated as a single employer under Section 414 of the Code
or Section 4001(b)(1) of ERISA.

         "Escrow Agent" shall have the meaning set forth in Section 2.12.

         "Escrow Agreement" means the agreement to be entered into by and among
Parent, the Company, the Principal Stockholders and the Escrow Agent, pursuant
to which a portion of the Initial Merger Consideration will be held in escrow in
accordance with Section 2.10(e).

         "Exchange Agent" shall have the meaning set forth in Section 2.12.

         "FDA" means the United States Food and Drug Administration.

         "GAAP" means generally accepted accounting principles in the United
States.

                                       3

<PAGE>   9

         "Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.

         "Group Health Plan" means any group health plan, as defined in Section
5000(b)(1) of the Code.

         "Holdback Merger Consideration" shall have the meaning set forth in
Section 2.8(b).

         "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

         "IRS" means the Internal Revenue Service.

         "IMT Subsidiary" means Influence Medical Technologies Ltd., a company
organized under the laws of the State of Israel and a wholly owned subsidiary of
the Company.

         "Initial Merger Consideration" shall have the meaning set forth in
Section 2.8(a).

         "Knowledge" shall mean, with respect to the Company or any of its
Subsidiaries, the knowledge of the members of the Board of Directors and the
knowledge after due inquiry of the senior officers of the Company.

         "Liability" or "Liabilities" means any liabilities, obligations or
claims of any kind whatsoever whether absolute, accrued or unaccrued, fixed or
contingent, matured or unmatured, asserted or unasserted, known or unknown,
direct or indirect, contingent or otherwise and whether due or to become due,
including without limitation any foreign or domestic tax liabilities or deferred
tax liabilities incurred in respect of or measured by the Company's or any
Subsidiary's income, or any other debts, liabilities or obligations relating to
or arising out of any act, omission, transaction, circumstance, sale of goods or
services, state of facts or other condition which occurred or existed on or
before the date hereof, whether or not known, due or payable, whether or not the
same is required to be accrued on the financial statements or is disclosed on
the Disclosure Schedule.

         "Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance, adverse claim or charge of any kind in respect of such asset.

         "Loans" means all indebtedness to third parties for borrowed money owed
by the Company or any of its Subsidiaries, together with any accrued and unpaid
interest thereon.

         "Material Adverse Effect" means an individual or cumulative adverse
change in or effect on the business, customers, customer relations, operations,
properties, working capital condition (financial or otherwise), assets,
properties or liabilities of the Company or any of its

                                       4

<PAGE>   10

Subsidiaries which (a) is reasonably expected to be materially adverse to the
business, properties, working capital condition (financial or otherwise),
assets, or liabilities of the Company or any of its Subsidiaries taken as a
whole or (b) would prevent the Company, any of its Subsidiaries or any of the
Principal Stockholders from consummating the transactions contemplated hereby.

         "Merger Consideration" means the aggregate consideration that becomes
payable to the Stockholders under this Agreement.

         "No-Tac" means the product which is designed by the Company to create
an arc-like cavity in the pubic bone passing the suture through the bone cavity
as part of a transvaginal delivery system in a minimally invasive procedure, as
generally described in Israeli Patent Application Serial No. 130307, filed June
4, 1999, entitled "Bone Suturing Device."

         "Pension Plan" means an "employee pension benefit plan" as such term is
defined in Section 3(2) of ERISA.

         "Permitted Liens" means (a) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (c) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(d) Liens and Encumbrances specifically identified in the Latest Audited Balance
Sheet; (e) Liens securing executory obligations under any lease that constitutes
an "operating lease" under GAAP; and (f) other Liens set forth on the Disclosure
Schedule; provided, however, that, with respect to each of clauses (a) through
(e), to the extent that any such Lien on any of the Company's or its
Subsidiaries' assets arose prior to the date of the Latest Audited Balance Sheet
and relates to, or secures the payment of, a Liability that is required to be
accrued for under GAAP, such Lien shall not be a Permitted Lien unless all such
Liabilities have been fully accrued or otherwise reflected on the Latest Audited
Balance Sheet. Notwithstanding the foregoing, no Lien arising under the Code or
ERISA with respect to the operation, termination, restoration or funding of any
Benefit Plan sponsored by, maintained by or contributed to by the Company or any
of its ERISA Affiliates or arising in connection with any excise tax or penalty
tax with respect to such Benefit Plan shall be a Permitted Lien.
         "Person" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization,
including a Governmental Authority.

         "Plan Affiliate" means, with respect to any Person, any Benefit Plan
sponsored by, maintained by or contributed to by such Person, and with respect
to any Benefit Plan, any Person sponsoring, maintaining or contributing to such
plan or arrangement.

         "Pro Rata Share," with respect to each share of Company Common Stock
and Company Preferred Stock, shall mean a portion of the Merger Consideration or
Stockholder Expenses determined as follows:

                  (A) when used in reference to a share of Company Common Stock
shall mean:

                                       5

<PAGE>   11

                           (1) with respect to Initial Merger Consideration and
                  the Contingent Consideration, a fraction equal to one divided
                  by the total number of shares of Company Common Stock
                  outstanding immediately prior to the Effective Time
                  ("Outstanding Common Stock"); and

                           (2) with respect to Holdback Consideration, a
                  fraction equal to the quotient of (x) one divided by (y) the
                  sum of Outstanding Common Stock and the total number of shares
                  of Company Common Stock issuable upon conversion of all
                  outstanding shares of Preferred Stock into Company Common
                  Stock ("Total Outstanding Shares"); and

                  (B) when used in reference to a share of Company Preferred
         Stock shall mean, with respect to Holdback Consideration, a fraction
         equal to the quotient of one divided by Total Outstanding Shares; and

                  (C) when used in reference to a portion of Stockholder
         Expenses attributable to a share of Company Common Stock or Company
         Preferred Stock, a fraction equal to the quotient of one divided by
         Total Outstanding Shares.

         "Reference Rate" means the London Interbank Offered Rate for three
month deposits in United States dollars publicly announced from time to time by
Chase Manhattan Bank. Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of such
change. Notwithstanding the foregoing, in no event shall the rate of interest
payable by any party hereto under this Agreement exceed the maximum rate
permitted by Applicable Law with respect to such payments under this Agreement.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Scheduled Contracts" shall have the meaning set forth in Section
3.13(a).

         "Shares" means shares of Company Common Stock and Company Preferred
Stock.

         "Staple-Tac" means the product which is designed by the Company to
place an anchor in the pubic bone which is used to attach a sling material with
a fixation of the sling to the anchor without the use of sutures using a
transvaginal delivery system in a minimally invasive procedure, as generally
described in the 510(k) application number K992277 filed with the FDA and in
Israeli Patent Application Serial No. 127,978, filed January 8, 1999, entitled
"Incontinence Device."

         "Stockholders" means the Persons who hold of record immediately prior
to the Effective Time the Company Common Stock and Company Preferred Stock.

         "Stockholder Expenses" mean expenses to be borne by the Stockholders
pursuant to Section 11.3 or otherwise as authorized and approved by the
Stockholders' Representatives.

         "Stockholders' Representatives" has the meaning set forth in Section
11.13.

                                       6

<PAGE>   12

         "Subsidiary" or "Subsidiaries" mean each corporation or other legal
entity as to which more than fifty percent (50%) of the outstanding equity
securities having ordinary voting rights or power at the time of determination
is being made is owned or controlled, directly or indirectly, by the Company.

         "Tax" or "Taxes" means all taxes imposed of any nature including
federal, state, local or foreign net income tax, alternative or add-on minimum
tax, profits or excess profits tax, franchise tax, gross income, adjusted gross
income or gross receipts tax, employment related tax (including employee
withholding or employer payroll tax, FICA or FUTA), real or personal property
tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty, any
withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, environmental tax, intangibles tax or
occupation tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (domestic or foreign)
responsible for the imposition of any such tax. The term Tax shall also include
any Liability of the Company or the Subsidiaries for the Taxes of any other
Person under U.S. Treasury Regulations Section 1.1502-6 (or similar provisions
of state, local or foreign law), as a transferee or successor by contract or
otherwise.

         "Tax Return" means all returns, declarations, reports, estimates,
forms, information returns and statements or other information required to be
filed with respect to any Tax.

         "U.S. Government" means the United States Government, including any
agencies, commissions, branches, instrumentalities and departments thereof.

         "Welfare Plan" means an "employee welfare benefit plan" as such term is
defined in Section 3(1) of ERISA (including without limitation a plan excluded
from coverage by Section 4 of ERISA).

                                    ARTICLE 2
                        THE MERGER; CONVERSION OF SHARES

2.1      The Merger. At the Effective Time (as defined below) and upon the terms
         and subject to the conditions of this Agreement and in accordance with
         the Delaware General Corporation Law (the "DGCL"), Merger Subsidiary
         shall be merged with and into the Company, and following the merger,
         the Company shall continue as the surviving corporation (the "Surviving
         Corporation"), the separate corporate existence of Merger Subsidiary
         shall cease and the Surviving Corporation shall continue to be governed
         by the laws of the State of Delaware (the "Merger").

2.2      Effective Time. Subject to the terms and conditions set forth in this
         Agreement, on the Closing Date (as defined below) the Company and
         Merger Subsidiary will file, or cause to be filed, with the Secretary
         of State of the State of Delaware a Certificate of Merger (the
         "Certificate of Merger"), in the form as required by, and executed and
         acknowledged in accordance with, the applicable provisions of the DGCL,
         and will be substantially in the form attached hereto as Exhibit A. The
         Merger shall become effective at the date and time the Certificate of
         Merger is filed or, if agreed to by the Parent and the Company, such
         later date or time set forth in the Certificate of Merger (the
         "Effective Time").

                                       7

<PAGE>   13

2.3      Closing of the Merger. Unless this Agreement shall have been terminated
         and the transactions contemplated herein abandoned pursuant to Article
         8 hereof, the closing of the Merger (the "Closing") will take place on
         December 9, 1999 (the "Closing Date"), provided that all of the
         conditions to closing set forth in Articles 6 and 7 have been satisfied
         or waived by the party or parties entitled to waive the same, at 10:00
         a.m., local time, at the offices of Oppenheimer, Wolff & Donnelly LLP,
         45 South Seventh Street, Suite 3400, Minneapolis, Minnesota 55402,
         unless another time, date, place or manner (e.g., by telecopy exchange
         of signature pages with originals to follow by overnight delivery) is
         agreed to in writing by the parties hereto; provided, however, that
         that in no event shall the Closing occur later than January 31, 2000
         (the "Termination Date").

2.4      Effects of the Merger. The Merger shall have the effects set forth in
         the DGCL. Without limiting the generality of the foregoing and subject
         thereto, at the Effective Time all the properties, rights, privileges,
         powers and franchises of the Company and Merger Subsidiary shall vest
         in the Surviving Corporation and all debts, liabilities and duties of
         the Company and Merger Subsidiary shall become the debts, liabilities
         and duties of the Surviving Corporation.

2.5      Certificate of Incorporation and Bylaws. The Certificate of
         Incorporation set forth in the Certificate of Merger shall be the
         Certificate of Incorporation of the Surviving Corporation after the
         Effective Time until thereafter amended in accordance with Applicable
         Law. The bylaws of Merger Subsidiary in effect at the Effective Time
         shall be the bylaws of the Surviving Corporation until thereafter
         amended in accordance with Applicable Law.

2.6      Directors. The directors of Merger Subsidiary at the Effective Time
         shall be the initial directors of the Surviving Corporation, each to
         hold office in accordance with the Certificate of Incorporation and
         bylaws of the Surviving Corporation until such director's successor is
         duly elected or appointed and qualified.

2.7      Officers. The officers of Merger Subsidiary at the Effective Time shall
         be the initial officers of the Surviving Corporation, each to hold
         office in accordance with the Certificate of Incorporation and bylaws
         of the Surviving Corporation until such officer's successor is duly
         elected or appointed and qualified.

2.8      Merger Consideration. Subject to adjustment pursuant to Section 2.8(a),
         the Side Letter, as defined in Section 2.8(b), Section 2.10 (Contingent
         Merger Consideration), Section 2.12 (Dissenting Shares) and Section 9.6
         (Right of Off-Set), the consideration to be paid for all of the Company
         Common Stock and Company Preferred Stock issued and outstanding
         immediately prior to the Effective Time will consist of Forty-Six
         Million U.S. Dollars ($46,000,000), which shall be payable as follows:

         (a)      Twenty-Five Million U.S. Dollars ($25,000,000), less the sum
                  of (A) all Loans outstanding at the Effective Time, (B) an
                  amount equal to fifty percent (50%) of all outstanding and
                  unpaid accounts payable that are as of five (5) Business Days
                  prior to the Closing Date more than 60 days past due or that
                  relate to services that were performed more than 90 days prior
                  to the Closing Date, all of which are, or

                                       8

<PAGE>   14

                  will be, listed on Schedule 3.11(b) of the Disclosure
                  Schedule; provided, however, if that such accounts payable are
                  greater than $400,000, then an amount equal to the positive
                  difference of (x) all outstanding and unpaid accounts payable
                  that are as of five (5) Business Days prior to the Closing
                  Date more than 60 days past due or that relate to services
                  that were performed more than 90 days prior to the Closing
                  Date minus (y) $200,000, (C) all fees and expenses associated
                  with terminating the Investment Agreement, dated August 17,
                  1998, between the Company and Johnson & Johnson Development
                  Corporation and the Distribution Agreement, dated August 17,
                  1998, among the Company, IMT Subsidiary, and Indigo Medical,
                  Incorporated (collectively, the "J & J Agreements") and (D)
                  the consideration that would have been payable to Dissenting
                  Shareholders (as defined below) if they had not perfected
                  their rights as Dissenting Shareholders will be payable at the
                  Effective Time (the "Initial Merger Consideration") to the
                  Exchange Agent for distribution to the Stockholders in
                  accordance with the terms of the Escrow Agreement.

         (b)      Up to Eleven Million U.S. Dollars ($11,000,000) will be
                  payable to the extent, but only to the extent, set forth in
                  the letter agreement, dated the date hereof (the "Side
                  Letter"), among the parties, and in accordance with the terms
                  of the Escrow Agreement (the "Holdback Merger Consideration").

         (c)      Up to Ten Million U.S. Dollars ($10,000,000) will be payable
                  to the extent, but only to the extent, set forth in Section
                  2.10 and will be payable to the holders of Company Common
                  Stock and former Optionholders (as defined below) in
                  accordance with the terms of Section 2.9 and the Escrow
                  Agreement (the "Contingent Merger Consideration").

         (d)      Assuming an aggregate adjustment to the Initial Merger
                  Consideration and Stockholder Expenses of $3,000,000 and based
                  on the number of shares of Company Common Stock and Company
                  Preferred Stock outstanding on the date hereof (and the number
                  of shares of Company Common Stock estimated by the Company to
                  be issued immediately prior to the Effective Time of the
                  Merger in connection with the exercise or cancellation of
                  Company Stock Options (as defined below): (i) the maximum
                  aggregate per share amount that could be paid to the holders
                  of Company Common Stock and holders of Company Stock Options
                  is $4.49 per share of Company Common Stock, consisting of
                  Initial Merger Consideration of $2.16 per share of Company
                  Common Stock, Holdback Merger Consideration of up to $1.15 per
                  share of Company Common Stock and Contingent Merger
                  Consideration of up to $1.18 per share of Company Common
                  Stock; and (ii) the maximum aggregate per share amount that
                  could be paid to the holders of Company Preferred Stock is
                  $7.00 per share of Company Preferred Stock, consisting of
                  Initial Merger Consideration of $5.21 per share of Company
                  Preferred Stock and Holdback Merger Consideration of up to
                  $1.79 per share of Company Preferred Stock. If, however, the
                  number of shares of Company Common Stock or Company Preferred
                  Stock changes or is inaccurate in any way, the per share
                  merger consideration amount will be adjusted, but in no event
                  will

                                       9

<PAGE>   15

                  the aggregate merger consideration be increased to more than
                  Forty-Six Million U.S. Dollars ($46,000,000).

2.9      Cancellation and Conversion of Company Securities at the Effective
         Time. As of the Effective Time, by virtue of the Merger and without any
         action on the part of any holder of any share of capital stock of the
         Company or Merger Subsidiary:

         (a)      Subject to the terms and conditions of Section 2.12, each
                  share of Company Common Stock, issued and outstanding
                  immediately prior to the Effective Time (other than (1)
                  Company Common Stock held in the Company's treasury or by any
                  of the Company's Subsidiaries, (2) Company Common Stock held
                  by Parent, Merger Subsidiary or any other Subsidiary of
                  Parent, and (3) Dissenting Shares) shall automatically be
                  converted into the right to receive (x) a Pro Rata Share of
                  the Initial Merger Consideration, (less the amount of such
                  Initial Merger Consideration payable, before expenses, to
                  holders of Company Preferred Stock pursuant to Section 2.9(b)
                  below) and (y) a Pro Rata Share of any Holdback Merger
                  Consideration and Contingent Merger Consideration, if any,
                  which becomes payable under this Agreement, less any portion
                  of the Contingent Merger Consideration off-set by Parent
                  pursuant to Section 9.6, and, in each case, less a Pro Rata
                  Share of any Stockholder Expenses;

         (b)      Subject to the terms and conditions of Section 2.12, each
                  share of Company Preferred Stock, issued and outstanding
                  immediately prior to the Effective Time (other than (1)
                  Preferred Stock held in the Company's treasury or by any of
                  the Company's Subsidiaries, (2) Company Preferred Stock held
                  by Parent, Merger Subsidiary or any other Subsidiary of
                  Parent, and (3) Dissenting Shares) shall automatically be
                  converted into the right to receive (x) a portion of the
                  Initial Merger Consideration equal to the greater of (I)
                  $5.00, or (II) an amount equal to the product of (a) 1.56
                  multiplied by (b) an amount equal to (1) the sum of the
                  Initial Merger Consideration plus the Contingent Merger
                  Consideration (assuming that 100% of the Contingent Merger
                  Consideration is earned), multiplied by (2) a fraction, the
                  numerator of which is one and the denominator of which is the
                  number of Total Outstanding Shares, and (y) a Pro Rata Share
                  of any Holdback Merger Consideration, if any, which becomes
                  payable in accordance with this Agreement, and, in each case,
                  less a Pro Rata Share of any Stockholder Expenses;

         (c)      Each outstanding option evidencing the right to purchase
                  Company Common Stock immediately prior to the Effective Time
                  as set forth in the Capitalization Certificate (as defined
                  below) (a "Company Stock Option" or collectively "Company
                  Stock Options") issued pursuant to any Company Stock Option
                  Plan shall be cancelled and shall be validly exercised by the
                  holder of such Company Stock Option or shall be converted into
                  and exchanged for the number of shares of Company Common Stock
                  that would be issuable to the holder of such Company Stock
                  Option upon a cashless exercise of such Company Stock Option
                  calculated on a basis determined by the Board of Directors of
                  the Company to be fair to such holders of Company Stock
                  Options. Except as otherwise agreed to in writing by the
                  parties hereto, the Company Stock Option Plans and any other

                                       10

<PAGE>   16

                  plan, program or arrangement providing for the issuance or
                  grant of any interest in respect of the capital stock of the
                  Company shall terminate as of the Effective Time, and the
                  Company shall ensure that following the Effective Time no
                  holder of a Company Stock Option (an "Optionholder or
                  collectively "Optionholders") shall have any right thereunder
                  to acquire any equity securities of the Company, Parent or
                  Merger Subsidiary.

         (d)      Each share of the common stock, par value $.01 per share, of
                  Merger Subsidiary ("Merger Subsidiary Common Stock"), issued
                  and outstanding at the Effective Time of the Merger shall be
                  converted into one share of common stock, par value $.001 per
                  share, of the Surviving Corporation ("Surviving Corporation
                  Common Stock").

         (e)      Each share of Company Common Stock and Company Preferred Stock
                  held in the treasury of the Company and each share of Company
                  Common Stock and Company Preferred Stock held by Parent,
                  Merger Subsidiary or any Subsidiary of Parent, Merger
                  Subsidiary or the Company immediately prior to the Effective
                  Time will, by virtue of the Merger and without any action on
                  the part of Merger Subsidiary, the Company or the holder
                  thereof, be canceled, retired and cease to exist without
                  payment of any consideration therefore and without any
                  conversion thereof.

2.10     Contingent Merger Consideration. Subject to the Parent's and Surviving
         Corporation's right to offset, if any, pursuant to Section 9.6, against
         any Contingent Merger Consideration amounts otherwise due and owing the
         holders of Company Common Stock (other than Dissenting Shares) under
         this Section 2.10, the Parent shall pay, at the times set forth below,
         to the Exchange Agent or the Escrow Agent, as the case may be, for
         distribution to the Stockholders in accordance with the terms and
         conditions of the Escrow Agreement the amounts set forth in this
         Section 2.10, less any amount that would have been payable to
         Dissenting Shareholders if they had not perfected their rights as
         Dissenting Shareholders (the "Contingent Purchase Price Amount"),
         following completion, to the Principal Stockholder's and Parent's
         reasonable satisfaction, of the milestones (the "Milestones") set forth
         in this Section 2.10. The Parent, the Company and the IMT Subsidiary
         shall at all relevant times use reasonable efforts to cooperate with
         and assist the Company, the IMT Subsidiary, the Principal Stockholders,
         the Stockholders' Representatives or the listed individual, as
         applicable, to enable such person to achieve the Milestones in a timely
         manner, and each of the Parent, the Company and the IMT Subsidiary
         shall use reasonable efforts to take such actions, including actively
         pursuing regulatory exemptions, clearances and approvals. Parent shall
         provide the Stockholders' Representatives with reasonable notice as
         soon as practicable but in any event no later than ten (10) Business
         Days prior to the determination date or deadline for the satisfaction
         of any Milestone described in this Section 2.10 of any deficiency known
         to Parent in the satisfaction of such milestone.

         (a)      One Million U.S. Dollars ($1,000,000) upon (i) completion of
                  the Staple-Tac product design which shall be capable of being
                  manufactured in commercial quantities and sold as a
                  commercially viable product including, but not limited to,

                                       11

<PAGE>   17

                  commercialization free of claims for infringement of third
                  party intellectual property rights, (ii) receipt of feedback
                  from at least three (3) key physicians, who shall be mutually
                  selected by Parent and either Mordechay Beyar, M.D., ("Beyar")
                  or Oren Globerman, ("Globerman"), after testing the Staple-Tac
                  product on an aggregate of at least ten (10) patients to the
                  effect that that product is satisfactory for its intended use
                  without further material design changes and (iii) receipt by
                  Parent or Company of FDA clearance or approval to market the
                  Staple-Tac product in the U.S. All of the foregoing shall be
                  completed within six (6) months of the Closing Date, provided
                  that if Parent requests additional design changes, such
                  completion date may be extended by the Stockholders'
                  Representatives for a reasonable period of time in order to
                  complete requested design changes, but in no event shall such
                  completion date be extended beyond January 31, 2001.

         (b)      One Million U.S. Dollars ($1,000,000) upon (i) completion of
                  the No-Tac product design which shall be capable of being
                  manufactured in commercial quantities and sold as a
                  commercially viable product including, but not limited to,
                  commercialization free of claims for infringement of third
                  party intellectual property rights, (ii) receipt of feedback
                  from at least three (3) key physicians, who shall be mutually
                  selected by Parent and either Beyar or Globerman, after
                  testing the No-Tac product on an aggregate of at least ten
                  (10) patients to the effect that that product is satisfactory
                  for its intended use without further material design changes
                  and (iii) receipt by Parent or Company of FDA exemption
                  status, clearance or approval to market the No-Tac product in
                  the U.S. All of the foregoing shall be completed within six
                  (6) months of the Closing Date, provided that if Parent
                  requests additional design changes, such completion date may
                  be extended by the Stockholders' Representatives for a
                  reasonable period of time in order to complete requested
                  design changes, but in no event shall such completion date be
                  extended beyond January 31, 2001.

         (c)      For each of the following Milestones successfully completed,
                  to the Principal Stockholders' Representatives and Parent's
                  reasonable satisfaction, by the respective completion date set
                  forth below, the Parent will pay to the Exchange Agent or the
                  Escrow Agent, as the case may be, for distribution to the
                  Stockholders in accordance with the terms and conditions of
                  the Escrow Agreement, Five Hundred Thousand U.S. Dollars
                  ($500,000) (an aggregate of $4,000,000 if all of the following
                  Milestones are successfully completed by their respective
                  completion dates) within 30 days of completion of each such
                  Milestone; provided, however, in no event will a payment be
                  due with respect to a Milestone under this Section 2.10(c)
                  that is not completed by its respective completion date:

                  (i)      On or before December 31, 1999, Parent shall have
                           received from the Company's current research and
                           development staff design history files, design
                           documentation and regulatory filings, correspondence
                           and approvals (to the extent received) on all of the
                           Company's current products, whether commercially
                           available or under development.

                                       12

<PAGE>   18

                  (ii)     On or before December 31, 1999, Parent shall have
                           received from the Company's current research and
                           development staff documentation of all of its current
                           intellectual property ideas including, but not
                           limited to, patents granted, pending and/or in
                           process of submission.

                  (iii)    Following completion of the Milestones in (i) and
                           (ii) above and on or before March 31, 2000, Beyar and
                           Globerman, will have cross-trained the Parent's
                           research and development personnel on all of the
                           Company's research and development projects and
                           current products through a five-day visit to the
                           Parent's headquarters in Minnetonka, Minnesota, all
                           reasonable expenses of such visit to be paid by
                           Parent.

                  (iv)     Prior to the Closing Date, the Company shall have
                           provided to Parent in writing a list of all
                           salespersons, regional managers, and clinical
                           specialists and technicians currently involved with
                           selling the Company's products and shall provide the
                           Parent with an indication of which of those persons
                           the Company believes Parent should retain and suggest
                           methods to retain such persons. Such list shall also
                           provide Parent reasonable detail on all such persons'
                           capabilities and sensitivities.

                  (v)      Prior to or within forty-five (45) days after the
                           Closing Date, Peter A. Bick, M.D., the Chief
                           Executive Officer and President of the Company
                           ("Bick") or Ric Cote, the Company's Director of Sales
                           ("Cote") shall have completed in person meetings with
                           each of the Company's salespersons, regional
                           managers, and clinical specialists and technicians
                           (collectively, the "Sales Personnel") identified by
                           the Parent on Exhibit B attached to this Agreement
                           (the "Parent Retention List") and, subject to prior
                           review by the Company, deliver the Parent's
                           "retention message" resulting in the retention of at
                           least 50% of the Sales Personnel identified on the
                           Parent Retention List six months after the Effective
                           Time. If Parent terminates for performance reasons
                           any of the Sales Personnel on the Parent Retention
                           List, the percentage retained shall be calculated as
                           if such person was not initially included on the
                           Parent Retention List. However, there will be no
                           obligation to retain Sales Personnel as of six months
                           after the Effective Time who are not offered
                           reasonably obtainable target compensation goals of
                           approximately $100,000 - $110,000 for the year 2000.

                  (vi)     The Company's personnel will be actively involved in
                           planning and conducting, at Parent's expense, two
                           domestic and one international training seminars of
                           the Parent's sales force on the Company's current
                           products. Such training seminars must be completed by
                           January 31, 2000, if Parent holds sales meeting by
                           such date, or by such later date as Parent holds
                           sales meetings, but no later than March 31, 2000. In
                           order to complete this Milestone, however, Beyar must
                           attend, at Parent's request, at least one United
                           States and one international training seminar.

                                       13
<PAGE>   19

                  (vii)    Beyar will be available to travel, at Parent's
                           expense, in the United States and internationally to
                           meet with key customers, for such number of days, not
                           to exceed ten (10) business days, as Parent may
                           reasonably request with reasonable prior notice
                           during the period beginning on the Closing Date and
                           ending on January 31, 2001.

                  (viii)   The Parent or the Company will have filed U.S.
                           patents for the Staple-Tac and No-Tac products with
                           material claims that are reasonably satisfactory to
                           Parent's patent counsel and Globerman. The Parent or
                           the Company shall file these patents at a mutually
                           agreed upon time, but not later than December 31,
                           1999.

         (d)      For each of the following Milestones successfully completed,
                  to the Principal Stockholder's and Parent's reasonable
                  satisfaction, by January 31, 2001, the Parent will pay to the
                  Exchange Agent or the Escrow Agent, as the case may be, for
                  distribution to the Stockholders in accordance with the terms
                  and conditions of the Escrow Agreement, Five Hundred Seventy
                  One Thousand Four Hundred Twenty Eight Dollars ($571,428) (an
                  aggregate of $4,000,000 if all of the following Milestones are
                  successfully completed by January 31, 2001) within 30 days of
                  completion of each such Milestone; provided, however, in no
                  event will a payment be due with respect to a Milestone under
                  this Section 2.10(d) that is not completed by January 31,
                  2001:

                  (i)      Parent shall have received from Beyar and Globerman
                           all written documentation of all new gynecology and
                           urology product ideas conceived prior to January 31,
                           2001. In order to satisfy this Milestone, all such
                           ideas must be accompanied by reasonable concept
                           descriptions, a description of the strategic fit of
                           the idea, and concept drawings. In addition, if
                           Parent decides to pursue any such ideas, Beyar and
                           Globerman shall have assisted and cooperated with
                           Parent in developing prototypes and generating animal
                           or human data reasonably substantiating the
                           functionality of such ideas during the period prior
                           to January 31, 2001.

                  (ii)     At least 75% of Israeli personnel listed on the
                           Parent Retention List must be retained through
                           January 31, 2001. However, if Parent or IMT
                           Subsidiary, with Parent's prior consent, terminates
                           for performance reasons any person on the Parent
                           Retention List and is able to replace such person at
                           no additional compensation cost to Parent or if any
                           person is terminated by Parent for non-performance
                           reasons, such replacement will be counted toward the
                           75% requirement.

                  (iii)    At a minimum, either Beyar or Globerman must attend,
                           at Parent's expense, and be involved in the Parent's
                           booth at one annual meeting of each of American
                           Urological Association, European Association of
                           Urology, and International Continence Society between
                           the Effective Time and January 31, 2001.

                                       14

<PAGE>   20
               (iv) Production of the Company's In-Fast product, as it is
                    produced on the date hereof, at Parent's facility is
                    operating in substantial compliance with all Applicable Laws
                    pertaining to medical devices including, but not limited to,
                    the United States Food, Drug and Cosmetic Act (the "FDC
                    Act") and the regulations promulgated thereunder, and the
                    Good Manufacturing Practices/Quality System Regulations
                    ("GMP/QSR Regulations") promulgated under the FDC Act and
                    ISO 9001, 9002, EN 29001, 46001 requirements in order to
                    manufacture the Company's In-Fast product. Prior to transfer
                    of production of the Company's products to Parent's
                    facility, the Company shall have continued to manufacture
                    products in quantities sufficient to meet demand (based on
                    three month rolling projections of expected demand) without
                    any material backorders. Notwithstanding the foregoing, this
                    Milestone shall be deemed to have been achieved if (A)
                    Parent decides not to transfer production of the Company's
                    products to Parent's facility by January 31, 2001, (B) the
                    Company has not had any material backorders prior to January
                    31, 2001, and (C) Parent's decision not to transfer
                    manufacturing is not based on the inability to obtain the
                    foregoing regulatory approvals.

               (v)  During the two (2) years following the Effective Time, none
                    of the officers or directors of the Company or any of its
                    Subsidiaries shall have alone, or in any capacity with
                    another firm or entity, employed, attempted to employ (by
                    soliciting or assisting anyone else in the solicitation of)
                    or engaged as an independent contractor or otherwise any
                    person who was an employee of the Company or any Subsidiary
                    on and immediately following the Closing Date. The foregoing
                    restriction shall not prevent (A) the hiring of any such
                    employees who are terminated by Parent or by the Company or
                    the IMT Subsidiary, with the prior written consent of
                    Parent, after the Closing Date or (B) the hiring of an
                    employee who voluntarily leaves Parent, the Company or the
                    IMT Subsidiary, provided that such employees who voluntarily
                    leave are not hired for a period of nine (9) months, unless
                    Parent agrees to a shorter period with respect to any
                    particular employee who voluntarily leaves.

               (vi) Beyar, Globerman and Bick, shall be available at the
                    Parent's prior reasonable request to attend meetings in the
                    United States, at Parent's expense, and by telephone for the
                    purpose of resolving any litigation involving Boston
                    Scientific Corporation ("BSC Litigation"), including
                    planning and negotiating settlement, until such BSC
                    Litigation is finally resolved. The Parent will not require
                    more than ten (10) business days of travel time in the
                    United States from each such person, and the Parent will pay
                    all reasonable travel expenses for such persons.

              (vii) Beyar, Globerman, Bick and Howard Machek, the Chief
                    Financial Officer of the Company ("Machek") shall be
                    available at the Parent's prior reasonable request to attend
                    meetings or court proceedings in the United States, at
                    Parent's expense, and by telephone for the purpose of
                    planning

                                       15

<PAGE>   21

                    and defending any BSC Litigation. Such persons must attend
                    any and all court proceedings involving any BSC Litigation,
                    as requested by Parent, including, without limitation, any
                    depositions of any person, arbitrations, mediations,
                    settlement conferences, hearings and trials; provided,
                    however, that Parent will not require more than ten (10)
                    business days of time in the United States from each such
                    person (in addition to any days of travel time pursuant to
                    sub-paragraph (vi) above) to prepare and plan for such court
                    proceedings. Parent will pay all reasonable travel expenses
                    for such persons.

         (e)   Except as described below, any Contingent Purchase Price Amounts
               that become payable under this Section 2.10 shall be paid by the
               Parent to the Exchange Agent and distributed to the Stockholders
               in accordance with the terms and conditions of the Escrow
               Agreement. One hundred percent (100%) of the first Two Million
               Dollars ($2,000,000) of the Contingent Merger Consideration
               earned pursuant to Sections 2.10(c) and (d) and fifty percent
               (50%) any additional Contingent Merger Consideration earned
               pursuant to Sections 2.10(c) and (d) (the "Escrow Funds") shall
               be paid to the Escrow Agent and held in escrow as a nonexclusive
               (except as otherwise provided in this Agreement) means to secure
               any obligation of the Principal Stockholders or the Stockholders
               in respect of any Indemnification Liability, as defined in
               Section 9.3; provided that during the term of the Escrow
               Agreement, any indemnification or other claim by Parent hereunder
               shall be satisfied out of the Escrow Funds in accordance with the
               Escrow Agreement before any such claim is made directly against
               any Principal Stockholder. The Escrow Funds shall not be
               distributed to the Stockholders until eighteen (18) months after
               the Effective Time and shall only be distributed in accordance
               with the terms and conditions of the Escrow Agreement. In the
               event that Parent shall have perfected, prior to the expiration
               of such 18 month period, a claim for indemnification pursuant to
               Section 9.4, the Stockholders' Representatives and the Parent
               shall endeavor in good faith to determine a reasonable estimate
               of the maximum amount of such claim and shall instruct the Escrow
               Agent to deliver any excess amount of Escrow Funds to the
               Exchange Agent for distribution to the Stockholder in accordance
               with the Escrow Agreement.

         (f)   Nothing contained in this Section 2.10 shall be deemed to require
               that any individual named in this Section perform any services
               except in accordance with all Applicable Laws, including those
               related to the transfer of technology from any jurisdiction.

2.11     Dissenting Shares.

         (a)   Notwithstanding any provision of this Agreement to the contrary,
               any Shares issued and outstanding immediately prior to the
               Effective Time that are held by any holder of Shares who has not
               voted in favor of the Merger (if entitled to vote) and has
               properly exercised and perfected appraisal rights in accordance
               with Section 262 of the DGCL (such holders are referred to as
               "Dissenting

                                       16

<PAGE>   22

               Stockholders" and such shares are referred to as "Dissenting
               Shares") will not be converted into the right to receive the
               Merger Consideration, but will become entitled to the right to
               receive such consideration as may be determined to be due to the
               holders of such Dissenting Shares pursuant to the DGCL; provided,
               however, that any holder of Dissenting Shares who will have
               failed to perfect or who effectively will have withdrawn or lost
               such rights of appraisal under the DGCL will forfeit the right to
               appraisal of such Shares, and such Shares will no longer be
               Dissenting Shares and, as of the Effective Time, will be deemed
               to have been converted into the right to receive the Merger
               Consideration.

         (b)   The Company will give Parent and Merger Subsidiary prompt notice
               of any written demands for appraisal, withdrawals of demands for
               appraisal and any other related instruments received by the
               Company and, Parent will have the right to participate in all
               negotiations and proceedings with respect to such demands. Prior
               to the Effective Time, the Company will not, except with the
               prior written consent of Parent, make any payment with respect
               to, or settle or offer to settle, any such demands.
               Notwithstanding anything to the contrary in this Section 2.11 if
               (i) the Merger is terminated, rescinded or abandoned or (ii) if
               the Stockholders revoke the authority to effect the Merger, then
               the right of any Stockholder to be paid the fair value of such
               Stockholder's Shares will cease. The Surviving Corporation will
               comply with all obligations of the DGCL with respect to
               Dissenting Stockholders.

         (c)   The holders of shares of Parent Common Stock shall not be
               entitled to appraisal rights.

2.12     Escrow Procedure; Exchange of Certificates.

         (a)   Wells Fargo Bank or such other bank as the parties may agree
               shall act as the exchange agent (in such capacity, the "Exchange
               Agent") and escrow agent (in such capacity, the "Escrow Agent")
               pursuant to the Escrow Agreement, for the benefit of the holders
               of Company Common Stock and Company Preferred Stock for the
               purpose of exchanging certificates which immediately prior to the
               Effective Time represented Company Common Stock or Company
               Preferred Stock (the "Certificates") for the Merger
               Consideration.

         (b)   At the Closing, Parent shall deposit, or shall cause to be
               deposited, with the Exchange Agent pursuant to the Escrow
               Agreement, for the benefit of the Stockholders, cash in U.S.
               dollars in an amount equal to the Initial Merger Consideration
               plus any Contingent Merger Consideration earned by Closing.

         (c)   To the extent that sums are released by the Exchange Agent to the
               Stockholders or the Parent in accordance with this Agreement or
               the Escrow Agreement, the pro-rata portion of any accumulated
               interest shall be distributed therewith.

         (d)   As soon as reasonably practicable after the Effective Time, the
               Exchange Agent shall mail to each holder of record of
               Certificates: (i) a letter of transmittal

                                       17

<PAGE>   23

               (which shall specify that delivery shall be effected, and risk of
               loss and title to the Certificates shall pass, only upon delivery
               of the Certificates to the Exchange Agent and shall be in such
               form and have such other provisions as Merger Subsidiary and the
               Company may reasonably specify) and (ii) instructions for use in
               effecting the surrender of the Certificates in exchange for a
               cash payment of the proper Merger Consideration when and if it
               becomes payable under this Agreement. Upon surrender of a
               Certificate for cancellation to the Exchange Agent or to such
               other agent or agents as may be appointed by Merger Subsidiary,
               together with such letter of transmittal, duly executed, the
               holder of such Certificate shall be entitled to receive in
               exchange therefor by check an amount equal to the proper Merger
               Consideration when and if it becomes payable under this
               Agreement, and the Certificate so surrendered shall forthwith be
               canceled. No interest shall be paid or accrued on any Merger
               Consideration upon the surrender of any Certificates. In the
               event of a transfer of ownership of Company Common Stock or
               Company Preferred Stock which is not registered in the transfer
               records of the Company, payment of the proper Merger
               Consideration when and if it becomes payable under this Agreement
               may be paid to a transferee if the Certificate representing such
               Company Common Stock or Company Preferred Stock, as applicable,
               is presented to the Exchange Agent, accompanied by all documents
               required to evidence and effect such transfer and by evidence
               that any applicable stock transfer or other taxes required as a
               result of such payment to a Person other than the registered
               holder of such shares have been paid. Until surrendered and
               exchanged as contemplated by this Section 2.12, each Certificate
               shall be deemed at any time after the Effective Time to represent
               only the right to receive upon such surrender an amount equal to
               the proper Merger Consideration when and if it becomes payable
               under this Agreement.

          (e)  In the event that any Certificate shall have been lost, stolen or
               destroyed, the Exchange Agent will, upon the making of an
               affidavit of that fact by the holder claiming such Certificate to
               have been lost, stolen or destroyed, pay the proper Merger
               Consideration as may be required pursuant to this Agreement, but
               for the failure to deliver such Certificate to the Exchange
               Agent; provided, however, that the Surviving Corporation may, in
               its discretion and as a condition precedent to the issuance
               thereof, require the owner of such lost, stolen or destroyed
               Certificate to deliver a bond in such sum as it may reasonably
               direct as indemnity against any claim that may be made against
               the Surviving Corporation with respect to the Certificate alleged
               to have been lost, stolen or destroyed.

         (f)   The Merger Consideration paid upon the surrender of Certificates
               for exchange of Company Common Stock and Company Preferred Stock
               in accordance with the terms hereof shall be deemed to have been
               paid in full satisfaction of all rights pertaining to such
               Company Common Stock and Company Preferred Stock. After the
               Effective Time, there shall be no further registration of
               transfers on the stock transfer books of the Surviving
               Corporation of the Company Common Stock or Company Preferred
               Stock which were outstanding immediately prior to the Effective
               Time. If, after the Effective Time, Certificates are presented to
               the

                                       18

<PAGE>   24

               Surviving Corporation for any reason, they shall be canceled and
               exchanged as provided in this Article 2, except as otherwise
               provided by Applicable Law.

         (g)   Any portion of the Merger Consideration set aside for
               distribution pursuant to this Section 2.12 to any holder of
               Company Common Stock or Company Preferred Stock that remains
               undistributed to any such holder for four years after the
               Effective Time shall be delivered to the Parent, upon demand, and
               any such holders who have not theretofore complied with this
               Article 2 shall thereafter look only to the Parent for payment of
               their claim for any Merger Consideration.

         (h)   Notwithstanding Section 2.12(e), neither the Surviving
               Corporation nor Parent shall be liable to any holder of Company
               Common Stock or Company Preferred Stock for any Merger
               Consideration delivered to a public official pursuant to any
               applicable abandoned property, escheat or similar law.

         (i)   Any amounts of Merger Consideration remaining unclaimed by any
               holder of Company Common Stock or Company Preferred Stock four
               years after the Effective Time (or such earlier date immediately
               prior to such time as such amounts would otherwise escheat to or
               become property of any governmental entity) shall to the extent
               permitted by Applicable Law, become the property of the Parent
               free and clear of any claim or interest of any Person previously
               entitled thereto.

2.13     Contributions at Closing. On the Closing Date, Parent shall contribute
         an amount to the Company equal to the amount of outstanding Loans and
         shall cause the Company to repay the Loans at the Closing. Within 30
         days of the Closing Date, Parent shall pay or cause the Company to pay
         all accounts payable in respect of which an adjustment to the Initial
         Merger Consideration is made pursuant to Section 2.8(a), except for
         those accounts with respect to which Parent has a good faith objection,
         in which case the amount to be deducted pursuant to Section 2.8(a)
         shall be appropriately adjusted.

                                   ARTICLE 3
                        REPRESENTATIONS AND WARRANTIES OF
                   THE COMPANY and the principal stockholders

         As an inducement to Parent and Merger Subsidiary to enter into this
Agreement and to consummate the transactions contemplated herein, the Company
represents and warrants to Parent and Merger Subsidiary, as of the date of this
Agreement and as of the Closing Date, that the statements contained in this
Article 3 are true and correct, and the Principal Stockholders, jointly and
severally, represent and warrant to Parent and Merger Subsidiary, as of the date
of this Agreement and as of the Closing Date, that the statements contained in
Section 3.2(b) are true and correct, in each case except as set forth in (a) the
disclosure schedule attached hereto as Exhibit C which the Company has prepared
and delivered to Parent and Merger Subsidiary prior to the date of this
Agreement (the "Disclosure Schedule") or (b) with respect to Section 3.3 a
certificate of an officer of the Company delivered to Parent (the
"Capitalization Certificate"). The Disclosure Schedule is arranged in sections
corresponding to the sections and subsections of this Article 3, and disclosure
in one section of the Disclosure Schedule shall constitute disclosure

                                       19

<PAGE>   25

for all sections of the Disclosure Schedule only to the extent to which the
applicability of such disclosure is reasonably apparent.

3.1      Corporate Organization and Power. The Company and each Subsidiary is a
         corporation duly organized, validly existing and in good standing under
         the laws of its respective jurisdiction of incorporation, and has all
         requisite corporate power and authority, and all governmental licenses,
         governmental authorizations, governmental consents and governmental
         approvals, required to carry on its business as now conducted and to
         own, lease and operate the assets and properties of the Company and
         each Subsidiary as now owned, leased and operated. The Company and each
         Subsidiary is duly qualified or licensed to do business as a foreign
         corporation and is in good standing in every jurisdiction in which the
         character or location of its properties and assets owned, leased or
         operated by the Company or any Subsidiary or the nature of the business
         conducted by the Company or any Subsidiary requires such qualification
         or licensing, except where the failure to be so qualified, licensed or
         in good standing in such other jurisdiction could not, individually or
         in the aggregate, have a Material Adverse Effect on the Company or its
         Subsidiaries. The Company has heretofore delivered to Parent complete
         and accurate copies of its Certificate of Incorporation and bylaws and
         the organizational and governing documents for each Subsidiary, as
         currently in effect. Except as set forth in the Disclosure Schedule,
         neither the Company nor any Subsidiary, directly or indirectly, owns or
         controls or has any capital, equity, partnership, participation or
         other ownership interest in any corporation, partnership, joint venture
         or other business association or entity, except for the Company's
         ownership of its Subsidiaries. The Disclosure Schedule contains a list
         of the name and jurisdiction of incorporation of each Subsidiary and
         all jurisdictions in which the Company and each Subsidiary is qualified
         or licensed to do business. Except as set forth in the Disclosure
         Schedule, in the case of each Subsidiary: (i) all outstanding capital
         stock and other equity securities are owned or controlled directly or
         indirectly by Company free and clear of all Liens; (ii) there are no
         contractual or consensual limitations on Company's ability to vote or
         alienate such securities; (iii) there are no outstanding options,
         warrants or other rights to purchase or acquire securities of such
         Subsidiary; (iv) there are no other contractual or consensual charges
         or impediments which would materially limit or impair the ownership of
         such equity interests or the ability effectively to exercise the full
         rights of ownership or control of such equity interests, including
         without limitation, any voting trusts, voting agreements, or rights of
         first refusal or first option; (v) there are no contracts, commitments,
         understandings, arrangements or restrictions by which any such
         corporation is bound to issue, sell, transfer or to purchase or acquire
         any shares of its capital stock or other equity securities or options,
         warrants or rights; and (vi) all of the outstanding capital stock of
         such corporation is duly authorized, validly issued, fully paid,
         nonassessable and was not issued in violation of preemptive rights.

3.2      Authorization.

         (a)   The Company has the full corporate power and authority to enter
               into this Agreement and to carry out the transactions
               contemplated herein. The Board of Directors of the Company have
               taken, and prior to the Closing the Stockholders will have taken,
               all action required by law, the Company's Certificate of

                                       20

<PAGE>   26

               Incorporation and bylaws and otherwise to duly and validly
               authorize and approve the execution, delivery and performance by
               the Company of this Agreement and the consummation by the Company
               of the transactions contemplated herein and no other corporate
               proceedings on the part of the Company or any Subsidiary are, or
               will be, necessary to authorize this Agreement or to consummate
               the transactions contemplated hereby. The affirmative vote of a
               majority of the holders of Company Common Stock is the only vote
               of the holders of any class or series of the Company's capital
               stock necessary to approve and adopt this Agreement and to
               consummate the Merger. This Agreement has been, and the
               agreements, if any, required by Article 6 will be, duly and
               validly executed and delivered by the Company and constitutes the
               legal, valid and binding obligations of the Company, enforceable
               against it in accordance with their terms, subject to laws of
               general application relating to bankruptcy, insolvency,
               reorganization, moratorium or other similar laws affecting
               creditors' rights generally and rules of law governing specific
               performance, injunctive relief or other equitable remedies.

         (b)   The Principal Stockholders, and each of them, have the legal
               capacity to enter into this Agreement and to carry out the
               transactions contemplated herein, including without limitation
               the legal capacity to execute, deliver and perform the agreements
               or contracts, if any, required by Article 6 to be executed and
               delivered by each of them as a condition to Closing. This
               Agreement has been, and the agreements, if any, required by
               Article 6 will be, duly and validly executed and delivered by the
               Principal Stockholders and constitute the legal, valid and
               binding obligations of the Principal Stockholders, enforceable
               against them in accordance with their terms, subject to laws of
               general application relating to bankruptcy, insolvency,
               reorganization, moratorium or other similar laws affecting
               creditors' rights generally and rules of law governing specific
               performance, injunctive relief or other equitable remedies. All
               issued and outstanding Shares owned by the Principal Stockholders
               are owned (of record and beneficially) solely by each respective
               Principal Stockholder in the exact amounts as shown on stock
               ledger of the Company previously made available to Parent.

3.3      Capitalization of the Company. The authorized capital stock of the
         Company consists of (i) 30,000,000 shares of Company Common Stock,
         7,286,679 shares of which are issued and outstanding, and (ii) 850,000
         shares of preferred stock, 100,000 shares of which are undesignated,
         and 750,000 shares of which are designated as Company Preferred Stock,
         713,000 shares of which are issued and outstanding and convertible into
         1,112,280 shares of Company Common Stock. All of the issued and
         outstanding Shares are duly authorized, validly issued, fully paid,
         nonassessable and free of preemptive rights. All issued and outstanding
         Shares are owned (of record) solely by the Stockholders in the exact
         amounts as shown on the Capitalization Certificate. There are 1,675,963
         shares of Company Common Stock issuable upon or otherwise deliverable
         in connection with the exercise of outstanding Company Stock Options.
         Except as set forth on the Disclosure Schedule, there are outstanding
         (i) no shares of capital stock or other voting securities of the
         Company, (ii) no securities of the Company or the Subsidiaries
         convertible into or exchangeable for shares of capital stock or voting
         securities of the Company, (iii) no options, warrants, conversion
         privileges, contracts, understandings, agreements or other

                                       21

<PAGE>   27

         rights to purchase or acquire from the Company, the Subsidiaries or the
         Principal Stockholders, and, no obligations of the Company or the
         Subsidiaries to issue, any capital stock, voting securities or
         securities convertible into or exchangeable for capital stock or voting
         securities of the Company, and (iv) no equity equivalent interests in
         the ownership or earnings of the Company or the Subsidiaries or other
         similar rights (collectively, "Company Securities"). Except as set
         forth on the Disclosure Schedule, there are no outstanding obligations
         of the Company to repurchase, redeem or otherwise acquire any Company
         Securities. Except as set forth in the Disclosure Schedule, there are
         no stockholder agreements, voting trusts or other agreements or
         understandings to which the Company or any Principal Stockholder is a
         party or by which they are bound relating to the voting or registration
         of any shares of capital stock of the Company.

3.4      Non-Contravention. Except as set forth in the Disclosure Schedule,
         neither the execution, delivery and performance by the Company or
         Principal Stockholders of this Agreement nor the consummation of the
         transactions contemplated herein will (i) contravene or conflict with
         the Certificate of Incorporation or bylaws of the Company or any
         charter documents or bylaws of any Subsidiary, (ii) except as would not
         have a Material Adverse Effect, contravene or conflict with or
         constitute a violation of any provision of any Applicable Law binding
         upon or applicable to the Company, any Subsidiary, the Principal
         Stockholders, or any of the Company's or Subsidiary's assets; (iii)
         result in the creation or imposition of any Lien on any of the
         Company's or Subsidiary's assets, other than Permitted Liens or (iv) be
         in conflict with, constitute (with or without due notice or lapse of
         time or both) a default under, result in the loss of any material
         benefit under, or give rise to any right of termination, cancellation,
         increased payments or acceleration under any terms, conditions or
         provisions of any note, bond, lease, mortgage, indenture, license,
         contract, franchise, permit, instrument or other agreement or
         obligation to which the Company, any Subsidiary or any Principal
         Stockholders is a party, or by which any of their respective properties
         or assets may be bound.

3.5      Consents and Approvals. Except as set forth in the Disclosure Schedule
         and subject to the approval of the Stockholders, no consent, approval,
         order or authorization of or from, or registration, notification,
         declaration or filing with (hereinafter sometimes separately referred
         to as a "Consent" and sometimes collectively as "Consents") any
         individual or entity, including without limitation any Governmental
         Authority or Person, is required in connection with the execution,
         delivery or performance of this Agreement by the Company or any
         Principal Stockholder or the consummation by the Company or any
         Principal Stockholder of the transactions contemplated herein. The
         Company is the "acquired person" within the meaning of Rule 801.2(b)
         promulgated pursuant to the HSR Act and does not within the meaning of
         Rule 801.1 of the HSR Act directly or indirectly control (as defined in
         Rule 801.1(b)) any entities, trusts, partnerships or other business
         organizations. The Company had total assets as of the date of its last
         regularly prepared balance sheet (as determined in accordance with Rule
         801.11 of the HSR Act) of less than Ten Million Dollars ($10,000,000)
         and annual net sales for its most recent fiscal year (as determined in
         accordance with Rule 801.11 of the HSR Act) of less than Ten Million
         Dollars ($10,000,000). To the knowledge of the Company, there are no
         facts

                                       22

<PAGE>   28

         relating to the identity or circumstances of the Company that would
         prevent or materially delay obtaining any of the Consents.

3.6      Financial Statements; Undisclosed Liabilities

         (a)   The Company has previously provided Parent with, or Parent has
               otherwise obtained, true and complete copies of the audited
               balance sheets and related statements of operations and cash
               flows for the Company and the Subsidiaries as of and for the
               fiscal years ended December 31, 1996 and 1997 (collectively, the
               "1996 and 1997 Financial Statements"). At least five (5) days
               prior to the Closing Date, the Company shall deliver to Parent
               (i) the audited balance sheets and related statements of
               operations and cash flows for the Company and the Subsidiaries as
               of and for the for fiscal year ended December 31, 1998 and the
               six (6) month period ended June 30, 1999 (collectively, the "1998
               and 1999 Financial Statements") and (ii) unaudited balance sheets
               and related statements of operations and cash flows for the
               Company and the Subsidiaries as of and for the quarter ended
               September 30, 1999 (the "Interim Financial Statements"). All of
               the foregoing audited financial statements are collectively
               referred to as the "Financial Statements" and, the June 30, 1999
               audited balance sheet is referred to herein as the "Latest
               Audited Balance Sheet."

         (b)   Each of the 1996 and 1997 Financial Statements (i) has been
               prepared based on the books and records of the Company and the
               Subsidiaries in accordance with GAAP and the Company's normal
               accounting practices, consistent with past practice and with each
               other, and present fairly the financial condition, results of
               operations of the Company as of the dates indicated or for the
               periods indicated; (ii) contains and reflects all necessary
               adjustments, accruals, provisions and allowances for a fair
               presentation of its financial condition and the results of its
               operations for the periods covered by 1996 and 1997 Financial
               Statements; (iii) to the extent applicable, contains and
               reflects, if and to the extent required by GAAP, adequate
               provisions for all reasonably anticipated liabilities for all
               Taxes with respect to the periods then ended and all prior
               periods; and (iv) with respect to contracts and commitments for
               the sale of goods or the provision of services by the Company,
               contains and reflects, if and to the extent required by GAAP,
               adequate reserves for all reasonably anticipated losses and costs
               and expenses in excess of expected receipts.

         (c)   The 1998 and 1999 Financial Statements and the Interim Financial
               Statements (i) will be prepared based on the books and records of
               the Company and the Subsidiaries in accordance with GAAP and the
               Company's normal accounting practices, consistent with past
               practice and with each other, and will present fairly the
               financial condition, results of operations of the Company as of
               the dates indicated or for the periods indicated; (ii) will
               contain and reflect all necessary adjustments, accruals,
               provisions and allowances for a fair presentation of its
               financial condition and the results of its operations for the
               periods covered by the 1998 and 1999 Financial Statements and the
               Interim Financial Statements; (iii) to the extent applicable,
               will contain and reflect, if and to the extent required by

                                       23

<PAGE>   29

               GAAP, adequate provisions for all reasonably anticipated
               liabilities for all Taxes with respect to the periods then ended
               and all prior periods; and (iv) with respect to contracts and
               commitments for the sale of goods or the provision of services by
               the Company, will contain and reflect, if and to the extent
               required by GAAP, adequate reserves for all reasonably
               anticipated losses and costs and expenses in excess of expected
               receipts.

         (d)   There are no Liabilities of the Company or any Subsidiary
               including Liabilities which may become known or which arise only
               after the Closing and which result from acts, omissions or
               occurrences of the Company or any Subsidiary prior to the Closing
               other than: (i) Liabilities and obligations which are fully
               reflected or reserved for in the Latest Audited Balance Sheet;
               (ii) Liabilities for express executory obligations to be
               performed after the Closing (other than any express executory
               obligations that might arise due to any default or other failure
               of performance by the Company or any Subsidiary prior to the
               Closing Date) under the Scheduled Contracts (as defined below);
               (iii) Liabilities incurred by the Company or any Subsidiary in
               the ordinary course of business since the Latest Audited Balance
               Sheet (none of which results from, arises out of, relates to, is
               in the nature of, or was caused by any breach of contract, breach
               of warranty, tort, infringement, or violation of Applicable Law);
               and (iv) Liabilities disclosed on the Disclosure Schedule.

3.7      Absence of Certain Changes. Except as set forth in the Disclosure
         Schedule or as otherwise authorized by this Agreement, since the date
         of the Latest Audited Balance Sheet, the Company and each Subsidiary
         has owned and operated its assets, properties and businesses in the
         ordinary course of business and consistent with past practice. Without
         limiting the generality of the foregoing:

         (a)   neither Company nor any Subsidiary has experienced any change
               since the date of the Latest Audited Balance Sheet which has had
               a Material Adverse Effect or experienced any event or failed to
               take any action which reasonably could be expected to result in a
               Material Adverse Effect;

         (b)   neither Company nor any Subsidiary has suffered any material
               loss, damage, destruction of property or assets or other casualty
               to property or assets (whether or not covered by insurance);

         (c)   neither Company nor any Subsidiary has suffered any loss of
               officers, directors, employees, dealers, distributors,
               independent contractors, customers or suppliers which had or may
               reasonably be expected to result in a Material Adverse Effect;
               and

         (d)   no event has taken place which if consummated following the date
               hereof would constitute a violation of Section 5.2 of this
               Agreement.

                                       24

<PAGE>   30

3.8      Assets and Properties.

         (a)   The Company and each Subsidiary has good and valid right, title
               and interest in and to or, in the case of leased properties or
               properties held under license, good and valid leasehold or
               license interests in, all of its assets and properties,
               including, but not limited to, all of the machinery, equipment,
               terminals, computers, vehicles, and all other assets and
               properties (real, personal or mixed, tangible or intangible)
               reflected in the Latest Audited Balance Sheet and all of the
               assets purchased or otherwise acquired since the date of the
               Latest Audited Balance Sheet, except those assets and properties
               disposed of in the ordinary course of business after the date of
               the Latest Audited Balance Sheet. Except as disclosed in the
               Disclosure Schedule, the Company or each Subsidiary holds title
               to each such property and asset free and clear of all Liens,
               except Permitted Liens.

         (b)   Except as disclosed in the Disclosure Schedule, (i) to the
               Company's knowledge, the current use and operation of all real
               property is in compliance with all Applicable Laws (including
               without limitation laws relating to parking, zoning and land use)
               and public and private covenants and restrictions, (ii) the
               Company has not received notice of non-compliance with any
               Applicable Laws and (iii) to the Company's knowledge, the
               utilities, access and parking, if any, for each such real
               property are adequate for the current use and operation of each
               such real property. Except as disclosed in the Disclosure
               Schedule, there are no zoning, building code, occupancy
               restriction or other land-use regulation proceedings or, to the
               knowledge of the Company, any proposed change in any Applicable
               Laws, which could materially detrimentally affect the use or
               operation of any real property, nor has the Company received any
               notice of any special assessment proceedings affecting the real
               property, or applied for any change to the zoning or land use
               status of the real property. The Company has obtained all
               licenses, permits, approvals, easements and rights of way (and
               all such items are currently in full force and effect) required
               from any Governmental Authority having jurisdiction over each
               real property or from private parties for the current use and
               operation of each real property. Except as set forth in the
               Disclosure Schedule, neither the Company, any Subsidiary nor any
               Principal Stockholder is a foreign person, as the term foreign
               person is defined in Section 1445(f)(3) of the Code.

3.9      Manufacturing Compliance. All products manufactured and sold by the
         Company or any Subsidiary were designed, manufactured, labeled,
         packaged and sold in accordance with all Applicable Laws pertaining to
         medical devices including, but not limited to, the FDC Act and the
         regulations promulgated thereunder, and the GMP/QSR Regulations
         promulgated under the FDC Act. Except as set forth in the Disclosure
         Schedule, (i) all of the manufacturing facilities of the Company and
         the Subsidiaries are in compliance with all GMP/QSR Regulations and ISO
         9001, 9002, EN 29001, 46001 requirements and (ii) the Company and each
         Subsidiary has obtained all approvals and consents required to mark the
         Company's products with the "CE" mark.

3.10     Inventories. Except as set forth in the Disclosure Schedule, all
         inventories of the Company and each Subsidiary reflected in the Latest
         Audited Balance Sheet (i) consist of

                                       25

<PAGE>   31

         items of merchantable quality and quantity usable and salable in the
         ordinary course of business, (ii) are salable at prevailing market
         prices that are not less than the book value amounts thereof or the
         price customarily charged by the Company or the applicable Subsidiary
         therefor, (iii) conform to the specifications established therefor, and
         (iv) have been manufactured in accordance with all Applicable Laws. The
         quantities of all inventories, materials and supplies of the Company
         and each Subsidiary are not obsolete, damaged, slow-moving, defective
         or excessive and the present quantities of all inventory, materials and
         supplies of the Company and each Subsidiary are reasonable in the
         present circumstances of the business of the Company, as a whole, as
         currently conducted, except for items that are obsolete or below
         standard quality, all of which are immaterial to the overall financial
         condition of the Company, taken as a whole, and have been adequately
         reserved for in the Financial Statements.

3.11     Receivables and Payables.

         (a)   The Disclosure Schedule contains a summary of the receivables
               (including an aging schedule of accounts receivables) of the
               Company and each Subsidiary and such summary is complete and
               accurate as of October 31, 1999, and the listing of all of the
               receivables (including an aging schedule of accounts receivables)
               of the Company and each Subsidiary as of September 30, 1999
               previously provided to the Parent is complete and accurate as of
               such date. The Disclosure Schedule will be supplemented pursuant
               to Section 5.9 to contain a list of all of the receivables
               (including an aging schedule of accounts receivables) of the
               Company and each Subsidiary as of the last day of the month
               preceding the Closing. Except as set forth in the Disclosure
               Schedule, (i) the Company and each Subsidiary has good right,
               title and interest in and to all its accounts receivables of any
               kind or nature whatsoever whether reflected on the Latest Audited
               Balance Sheet or acquired or generated since the date of the
               Latest Audited Balance Sheet (except those paid since the date of
               the Latest Audited Balance Sheet), (ii) none of such receivables
               is subject to any Lien (whether or not of record), except
               Permitted Liens, (iii) all of the receivables owing to the
               Company and each Subsidiary constitute valid and enforceable
               claims arising from bona fide transactions in the ordinary course
               of business, and neither the Company nor any Subsidiary has
               received any written or oral claims or refusals to pay (as
               opposed to ability to pay), or granted any rights of set-off,
               against any thereof, (iv) to the knowledge of the Company there
               is no reason why any receivable will not be collected in
               accordance with its terms, other than for receivables which are
               not in excess of the reserves established therefor and reflected
               in the Latest Audited Balance Sheet; and (v) no account or note
               debtor is delinquent in payment by more than 60 days.

         (b)   The Disclosure Schedule contains a listing of Loans and all
               outstanding and unpaid accounts payable that are as of September
               30, 1999 more than 60 days past due or that relate to services
               that were performed more than 90 days prior to September 30,
               1999. The Disclosure Schedule will be supplemented pursuant to
               Section 5.9 to contain a listing of Loans and all such
               outstanding and unpaid accounts payable that are as of five (5)
               Business Days prior to the Closing Date more than 60 days past
               due or that relate to services that were performed more

                                       26

<PAGE>   32

               than 90 days prior to the Closing Date. All such payables arose
               from bona fide transactions in the ordinary course of the
               Company's business.

3.12     Litigation. Except as set forth in the Disclosure Schedule, (i) there
         are no actions, suits, claims, hearings, arbitrations, proceedings
         (public or private) or governmental investigations that have been
         brought by or against any Governmental Authority or any other Person
         (collectively, "Proceedings"), nor any investigations or reviews by any
         Governmental Authority against or affecting the Company or any
         Subsidiary, pending or, to the knowledge of the Company, threatened,
         against or by the Company or any Subsidiary or any of their assets or
         which seek to enjoin or rescind the transactions contemplated by this
         Agreement; and (ii) to the knowledge of the Company or any Subsidiary,
         there are no existing orders, judgments or decrees of any Governmental
         Authority naming the Company or any Subsidiary as an affected party or
         otherwise affecting any of the assets or the business of the Company or
         any Subsidiary.

3.13     Contracts.

         (a)   The Disclosure Schedule sets forth a complete list of all
               existing Contracts of the Company and the Subsidiaries, including
               without limitation the following (collectively, the "Scheduled
               Contracts"):

               (i)  Each Contract relating to all real property in which the
                    Company or any Subsidiary has a leasehold or other interest
                    or which is used by Company or any Subsidiary in connection
                    with the operation of their respective businesses, together
                    with a description of each lease, sublease, license, or any
                    other instrument under which the Company or such Subsidiary
                    claims or holds such leasehold or other interest or right to
                    the use thereof or pursuant to which the Company or such
                    Subsidiary has assigned, sublet or granted any rights
                    therein, such description to be limited to identifying the
                    parties thereto, the rental or other payment terms,
                    expiration date and cancellation and renewal terms thereof.

               (ii) Each Contract relating to all machinery, tools, equipment,
                    motor vehicles, rolling stock and other tangible personal
                    property (other than inventory and supplies) owned, leased
                    or used by the Company or a Subsidiary, except for items
                    having a value of less than $10,000 which do not, in the
                    aggregate, have a total value of more than $25,000, setting
                    forth with respect to all such listed property a summary
                    description of all leases, Liens, restrictions, covenants
                    and conditions relating thereto, identifying the parties
                    thereto, the rental or other payment terms, expiration date
                    and cancellation and renewal terms thereof.

               (iii) Each Contract to which the Company or any Subsidiary is a
                    party that could reasonably be expected to involve payments
                    by or to the Company or any Subsidiary in excess of $25,000,
                    or would have a Material Adverse Effect, or that was not
                    made in the ordinary course of business.

                                       27

<PAGE>   33

               (iv) All Contracts relating to, or evidences of, or guarantees
                    of, or providing security for, indebtedness or the deferred
                    purchase price of property (whether incurred, assumed,
                    guaranteed or secured by any asset).

               (v)  Every independent sales representative, buy-sell, letter of
                    credit, OEM, supply, sales, distribution, commission,
                    manufacturers' representative, dealer, agency, lease,
                    licensing, franchise, marketing, technical assistance or
                    similar agreements relating to or providing for the
                    marketing and/or sale of the products or services,
                    development, joint development, research and development or
                    similar Contracts.

               (vi) All acquisition, partnership, joint venture, teaming
                    arrangements or other similar Contracts.

              (vii) Each Contract restricting or otherwise affecting the
                    ability of the Company or any Subsidiary to conduct its
                    business.

             (viii) All Benefit Plans.

               (ix) All Contracts with any "disqualified individual" (as defined
                    in Section 280G(c) of the Code) which contains any severance
                    or termination pay liabilities which would result in a
                    disallowance of the deduction for any "excess parachute
                    payment" (as defined in Section 280G(b)(1) of the Code)
                    under Section 280G of the Code.

               (x)  Every Contract between the Company or any Subsidiary and any
                    of the Company's officers, directors or more than 5%
                    stockholders, or any entity in which any of the Company's
                    officers, directors or more than 5% stockholders has a
                    greater than 2% equity interest.

               (xi) All Contract with surgeons, inventors, trainers,
                    consultants, educators, advisory and clinical agents who
                    performed or are performing any services related to the
                    products of the Company and the Subsidiaries, excluding any
                    such Contracts that are limited to non-disclosure of
                    confidential information.

         (b)   The Company has delivered to Parent true and correct copies (or
               summaries, in the case of any oral Contracts) of all such
               Scheduled Contracts. Except as otherwise specified in the
               Disclosure Schedule, none of the Scheduled Contracts contain a
               provision requiring the consent of any party with respect to the
               consummation of the transaction contemplated herein. No notice of
               material default arising under any Scheduled Contract has been
               delivered to or by the Company or the Subsidiaries. Each
               Scheduled Contract is a legal, valid and binding obligation of
               the Company or a Subsidiary, as applicable, and each other party
               thereto, enforceable against each such party thereto in
               accordance with its terms, except as may be limited by applicable
               bankruptcy, insolvency, reorganization, moratorium or similar
               laws affecting creditors' rights generally

                                       28

<PAGE>   34

               and subject to general principles of equity, and neither the
               Company, the Subsidiaries or the other party thereto is in
               breach, violation or default thereunder.

3.14     Permits. The Disclosure Schedule sets forth all approvals,
         authorizations, certificates, consents, licenses, orders and permits
         and other similar authorizations of all Governmental Authorities (and
         all other Persons) materially necessary for the Company and each
         Subsidiary to conduct their respective businesses and own and operate
         their respective properties (the "Permits"). Except as set forth in the
         Disclosure Schedule, each Permit is valid and in full force and effect
         and none of the Permits will be terminated, revoked, modified or become
         terminable or impaired in any respect for any reason, except as would
         not have a Material Adverse Effect. The Company and each Subsidiary has
         conducted its business in compliance with all material terms and
         conditions of the Permits.

3.15     Compliance with Applicable Laws. Except as set forth in the Disclosure
         Schedule, neither the Company nor any Subsidiary has violated or
         infringed, nor is it in violation or infringement of, any Applicable
         Law or any order, writ, injunction or decree of any Governmental
         Authority in connection with its activities and the activities of each
         of its Subsidiaries, except for such violations or infringements which
         would not have a Material Adverse Effect. The Company and each
         Subsidiary, and each of their respective officers, directors, agents
         and employees have complied with all Applicable Laws, including, but
         not limited to, Applicable Laws of Israel relating to the design,
         development, manufacture, marketing or sale of the products of the
         Company except where such failure to comply would not have a Material
         Adverse Effect. No claims have been filed against the Company or any
         Subsidiary alleging a violation of any Applicable Law.

3.16     Benefit Plans.  Except as set forth in the Disclosure Schedule:

         (a)   Neither the Company nor any Subsidiary sponsors, maintains or
               contributes to, or has at any time ever sponsored, maintained,
               contributed to or been required to contribute to any Pension
               Plan, including, without limitation, solely for purposes of this
               subsection, a plan excluded from coverage by Section 4 of ERISA
               and, including without limitation any such Pension Plan which is
               a "Multiemployer Plan" within the meaning of Section 4001(a)(3)
               of ERISA. Each such Pension Plan is in compliance in all material
               respects with the applicable provisions of ERISA for which
               deadlines for compliance have passed, the applicable provisions
               of the Code for which deadlines of compliance have passed and all
               other Applicable Law. No Pension Plan is subject to Title IV of
               ERISA or to Section 412 of the Code.

         (b)   Neither the Company nor any Subsidiary has ceased operations at
               any facility or withdrawn from any Pension Plan or otherwise
               acted or omitted to act in a manner which could subject it to
               liability under Section 4062, Section 4063, Section 4064 or
               Section 4069 of ERISA and there are no facts of circumstances
               which present a material risk of giving rise to any liability of
               the Company or any Subsidiary to the Pension Benefit Guaranty
               Corporation ("PBGC") under Title IV of ERISA or

                                       29

<PAGE>   35

               which could reasonably be anticipated to result in any claims
               being made against Parent, a Subsidiary or the Company by the
               PBGC. Neither the Company nor any Subsidiary has incurred any
               withdrawal liability (including without limitation any contingent
               or secondary withdrawal liability) within the meaning of Section
               4201 and Section 4204 of ERISA to any Multiemployer Plan. Neither
               the Company nor any Subsidiary has, with respect to any Pension
               Plan which is a Multiemployer Plan, suffered or otherwise caused
               a "complete withdrawal" or a "partial withdrawal," as such terms
               are defined respectively in Sections 4201, 4203, 4204 and 4205 of
               ERISA. The Company and the Subsidiaries, collectively and
               individually, had no liability to any such Multiemployer Plan in
               the event of a complete or partial withdrawal therefrom as of the
               close of the most recent fiscal year of any such Multi-employer
               Plan ended prior to the date hereof.

         (c)   Neither the Company nor any Subsidiary sponsors, maintains,
               contributes to, or has at any time ever sponsored, maintained,
               contributed to, or been required to contribute to any Welfare
               Plan, whether insured or otherwise, and any such Welfare Plan
               maintained by the Company is in compliance in all material
               respects with the provisions of ERISA and all other Applicable
               Laws, including without limitation Code Section 4980B. Neither
               the Company nor any Subsidiary has established or contributed to
               any "voluntary employees' beneficiary association" within the
               meaning of Section 501(c)(9) of the Code.

         (d)   Except as set forth on the Disclosure Schedule, neither the
               Company nor any Subsidiary maintains or contributes to any
               Benefit Plans.

         (e)   Neither any Benefit Plan nor any trust created or insurance
               contract issued thereunder nor any trustee or administrator
               thereof nor any officer, director or employee of the Company or
               any Subsidiary, custodian or any other "disqualified person"
               within the meaning of Section 4975(e)(2) of the Code, or "party
               in interest" within the meaning of Section 3(14) of ERISA, with
               respect to any such Benefit Plans or any such trust or insurance
               contract or any trustee, custodian or administrator thereof, or
               any disqualified person, party in interest or person or entity
               dealing with such Benefit Plans or any such trust, insurance
               contract or any trustee has engaged in any conduct that could
               reasonably be expected to subject the Company or any Subsidiary
               to a tax or penalty on prohibited transactions imposed by Section
               4975 of the Code or to a civil penalty imposed by Section 502 of
               ERISA. There are no facts or circumstances which could subject
               the Company or any Subsidiary to any excise tax under Section
               4972 or Sections 4976 through 4980, both inclusive, of the Code.
               The Company has complied in all material respects with the
               requirements of COBRA with respect to each Welfare Plan which is
               a Group Health Plan and there are no facts or circumstances which
               could subject the Company or any Subsidiary to any excise tax
               under Section 4980B of the Code.

          (f)  Full payment has been made of all amounts which the Company or
               any Subsidiary is required, under Applicable Law, with respect to
               any Benefit Plan, or any agreement relating to any Benefit Plan,
               to have paid as a contribution thereto.

                                       30

<PAGE>   36

               No accumulated funding deficiency (as defined in Section 302 of
               ERISA and Section 412 of the Code), whether or not waived, exists
               with respect to any Pension Plan. Neither the Company nor any
               Subsidiary sponsors, maintains or contributes to, or has ever
               sponsored, maintained or contributed to or been required to
               contribute to, any Pension Plan subject to Part 3 of Title I of
               ERISA or Section 412(n) of the Code. The Company and each
               Subsidiary has made adequate provisions for reserves, to the
               extent required by GAAP, to meet contributions which have not
               been made because they are not yet due under the terms of any
               Benefit Plan or related agreements. All Pension Plans which the
               Company or a Subsidiary operates as plans that are qualified
               under the provisions of Section 401(a) of the Code satisfy in all
               material respects the requirements of Section 401(a) and all
               other sections of the Code incorporated therein, including
               without limitation Section 401(k) of the Code; and the IRS has
               issued favorable determination letters with respect to all
               Pension Plans and, to the Company's knowledge, nothing has
               occurred since the issuance of any such letters that present a
               material risk of adversely affecting such favorable
               determination. There will be no change on or before Closing in
               the operation of any Benefit Plan or any documents with respect
               thereto which will result in a material increase in the benefit
               liabilities under such plans, except as may be required by
               Applicable Law or the terms of the Benefits Plan.

         (g)   The Company and each Subsidiary has complied with the reporting
               and disclosure obligations with respect to the Benefit Plans
               imposed by Title I of ERISA or other Applicable Law.

         (h)   There are no pending or, to the Company's knowledge, threatened
               claims, suits or other proceedings against the Company or any
               Subsidiary or any other party by present or former employees of
               the Company or any Subsidiary, plan participants, beneficiaries
               or spouses of any of the above, including without limitation
               claims against the assets of any trust, involving any Benefit
               Plan, or any rights or benefits thereunder, other than the
               ordinary and usual claims for benefits by participants or
               beneficiaries.

         (i)   The transactions contemplated by this Agreement do not, by
               themselves, result in, and are not a condition to, the
               acceleration or accrual, vesting, funding or payment of any
               contribution or benefit under any Benefit Plan.

         (j)   No action or omission of the Company or any Subsidiary or any
               director, officer, employee, or agent thereof in any way
               restricts, impairs or prohibits Parent or the Company or any
               Subsidiary or any successor from amending, merging, or
               terminating any Benefit Plan in accordance with the express terms
               of any such plan and Applicable Law.

         (k)   The Disclosure Schedule lists, and the Company has delivered to
               Parent, true and complete copies of: (i) all Benefit Plans and
               related trust agreements or other agreements or contracts
               evidencing any funding vehicle with respect thereto; (ii) the
               most recent annual reports on Treasury Form 5500, including all
               schedules

                                       31

<PAGE>   37

               and attachments thereto, with respect to any Benefit Plan for
               which such a report is required; (iii) the most recent actuarial
               reports with respect to any Pension Plan that is a "defined
               benefit plan" within the meaning of Section 414(j) of the Code;
               (iv) the form of summary plan description, including any summary
               of material modifications thereto or other modifications
               communicated to participants, currently in effect with respect to
               each Benefit Plan; (v) the most recent determination letter with
               respect to each Pension Plan intended to qualify under Section
               401(a) of the Code and the full and complete application therefor
               submitted to the IRS; and (vi) all professional opinions,
               material internal memoranda, material correspondence with
               regulatory authorities and administrative policies, manuals,
               interpretations and the like with respect to each Benefit Plan.

3.17     Labor and Employment Matters.

         (a)   The Disclosure Schedule sets forth a list of the current
               employees, officers and directors of the Company and IMT
               Subsidiary, separated by entity, and identifies for each such
               employee, officer and director all compensation and benefits paid
               or payable by the Company or IMT Subsidiary, as applicable, and
               the terms and conditions of employment for such employees and
               officers of the Company and IMT Subsidiary. The Disclosure
               Schedule identifies all employees who are currently on leave for
               any reason or receiving disability or workers' compensation or
               any other similar type of benefit from the Company or IMT
               Subsidiary.

         (b)   Except as set forth in the Disclosure Schedule, the Company and
               each Subsidiary is and has been in compliance in all material
               respects with all Applicable Laws respecting employment and
               employment practices, terms and conditions of employment and
               wages and hours, including without limitation any such Applicable
               Laws respecting employment discrimination and occupational safety
               and health requirements, and has not and is not engaged in any
               unfair labor practice. There is no unfair labor practice
               complaint against the Company or any Subsidiary pending or, to
               Company's knowledge, threatened before the National Labor
               Relations Board or any other comparable Governmental Authority.
               There is no labor strike, dispute, slowdown or stoppage actually
               pending or, to the Company's knowledge, threatened against or
               directly affecting the Company or any Subsidiary. No labor
               representation question exists respecting the employees of the
               Company or any Subsidiary and there is not pending or, to the
               Company's knowledge, threatened any activity intended or likely
               to result in a labor representation vote respecting the employees
               of the Company or any Subsidiary. No grievance or any arbitration
               proceeding arising out of or under collective bargaining
               agreements is pending and no claims therefor exist or, to the
               Company's knowledge, have been threatened. No collective
               bargaining agreement is binding and in force against the Company
               or any Subsidiary or currently being negotiated by the Company or
               any Subsidiary. The Company and its Subsidiaries have not
               experienced any significant work stoppage or other significant
               labor difficult. The Company and its Subsidiaries are not
               delinquent in payments to any persons for any wages, salaries,
               commissions, bonuses or other

                                       32

<PAGE>   38

               direct or indirect compensation for any services performed by
               them or amounts required to be reimbursed to such persons,
               including without limitation any amounts due under any Benefit
               Plan. Upon termination of the employment of any person, neither
               the Company, any Subsidiary, Parent or any subsidiary of Parent
               will, by reason of any agreement or understanding to which the
               Company or any Subsidiary is a party, be liable to any of such
               persons for so-called "severance pay" or any other payments,
               except as may be set forth in the Disclosure Schedule. Within the
               twelve-month period prior to the date hereof there has not been
               any expression of intention to the Company or any Subsidiary by
               any officer or key employee to terminate such employment.

         (c)   All individuals who are performing or have performed services for
               the Company or any of its Affiliates and who are or were
               classified by the Company or any of its Affiliates as
               "independent contractors" qualify for such classification under
               Section 530 of the Revenue Act of 1978 or Section 1706 of the Tax
               Reform Act of 1986, as applicable, except for such instances
               which would not, in the aggregate, have a Material Adverse
               Effect, and such individuals are not entitled to any benefits
               under the Benefit Plans maintained by the Company or any
               Subsidiary.

3.18     Israeli Labor Matters.

         (a)   All the personal employment agreements of the employees of each
               of the IMT Subsidiary are substantially in the form attached to
               the Disclosure Schedule. Other than as listed in Disclosure
               Schedule, there is no person or entity (including, without
               limitation, "agents", "distributors", "independent contractors",
               "consultants" or employees of manpower companies or other service
               providers) that may be deemed to be an employee of the IMT
               Subsidiary.

         (b)   The IMT Subsidiary is not a party to any collective labor
               agreement and does not have any other agreement or arrangement
               with any trade union or other body representing any of its
               employees. The IMT Subsidiary has not recognized or received a
               demand for recognition from any collective bargaining
               representative with respect to any of its or their employees.
               Other than as set forth in the Disclosure Schedule, or pursuant
               to applicable employment laws and regulations and extension
               orders ("zavei harhav"), the IMT Subsidiary is not subject to,
               nor do employees of any such corporation benefit from any
               agreement, arrangement, understanding or custom with respect to
               employment. Other than as expressly set forth in the Disclosure
               Schedule, the IMT Subsidiary does not have any custom with
               respect to termination of employment.

         (c)   Except for the employment agreements listed on the Disclosure
               Schedule hereto, there are no agreements between the IMT
               Subsidiary and any of its directors, officers, executives or
               employees which cannot be terminated by the IMT Subsidiary on
               three months notice or less without giving rise to a claim for
               damages or compensation (except for statutory severance pay or
               other statutory payments).

                                       33

<PAGE>   39

         (d)   Other than as set forth in the Disclosure Schedule, there is no
               outstanding claim or complaint (including, without limitation,
               any claim resulting from a bonus arrangement), against the IMT
               Subsidiary by any person who is now or has been an officer or
               employee of the IMT Subsidiary. Without limiting the generality
               of the above, there are no unfair labor practice claims or
               charges pending, or to the knowledge of the IMT Subsidiary,
               threatened against the IMT Subsidiary. With respect to the
               employees of the IMT Subsidiary, individually and in the
               aggregate, no event has occurred and, to the best knowledge of
               the Company, there exists no condition or set of circumstances,
               in connection with which the IMT Subsidiary could be subject to
               any liability that is reasonably likely to have a Material
               Adverse Effect.

         (e)   The severance pay due to the employees of the IMT Subsidiary is
               fully funded or provided for in accordance with GAAP,
               consistently applied, all liabilities of the IMT Subsidiary in
               connection with its respective employees (excluding illness pay)
               were adequately accrued in the Financial Statements (in
               accordance with GAAP), and the Company is not aware of any
               circumstance whereby any employee of the IMT Subsidiary might
               demand (whether legally entitled to or not) any claim for
               compensation on termination of employment beyond the statutory
               severance pay or other statutory payments to which such employee
               is entitled.

         (f)   All amounts which the IMT Subsidiary is legally or contractually
               required to deduct from its employees' salaries and/or transfer
               to such employees' pension or provident, life insurance,
               incapacity insurance, continuing education fund or otherwise have
               been duly paid into the appropriate fund or funds, and the IMT
               Subsidiary does not have any outstanding obligation to make any
               such transfer or provision.

         (g)   Except as disclosed in Disclosure Schedule, the consummation of
               the Merger and the other transactions contemplated by this
               Agreement will not, either alone or in connection with an
               employee's termination of employment or other event, result in an
               increase in the amount of compensation or benefits or accelerate
               the vesting or timing of payment of any benefits or compensation
               payable to or in respect of any employee of the IMT Subsidiary.

3.19     Intellectual Property.  Except as set forth in the Disclosure Schedule:

         (a)   The Company and each Subsidiary of the Company owns or has the
               unrestricted right to use all intellectual property rights,
               including without limitation the patents, patent applications,
               patent rights, registered and unregistered trademarks, trademark
               applications, trade names, service marks, service mark
               applications, copyrights, brand mark or brand name or any pending
               application related thereto, computer programs and other computer
               software, inventions, know-how, trade secrets, technology,
               proprietary processes and formulae used in connection with the
               business of the Company and its Subsidiaries or for the design,
               development, manufacture, marketing, importing, offering for
               sale, sale or other disposition of

                                       34

<PAGE>   40

               the Company's products (collectively, "Intellectual Property
               Rights"), free and clear of all Liens, except Permitted Liens.

         (b)   All of the Intellectual Property Rights owned or used by the
               Company or its Subsidiaries are subsisting, unexpired, have not
               been abandoned and have been properly and validly filed,
               submitted or maintained to the applicable government agency if
               such filing, submission or maintenance is necessary in order to
               perfect such rights. Neither the Company nor any of its
               Subsidiaries has knowingly misappropriated the trade secrets,
               technology, know-how, inventions or the like of any third party.
               No judgment, decree, injunction, rule or order, directly or
               indirectly relating to the Company's or its Subsidiaries' rights
               in and to the Intellectual Property Rights has been rendered by
               any governmental entity which would limit, cancel or question the
               validity of or their respective rights in and to, any of the
               Intellectual Property Rights. Neither the Company nor any of its
               Subsidiaries has received written notice, and do not otherwise
               have knowledge, of any pending or threatened suit, action or
               proceeding that either does or would limit, cancel or question
               the validity of, or the Company's or its Subsidiaries' rights in
               and to, any of the Intellectual Property Rights. Neither the
               Company nor any of its Subsidiaries has received notice, and do
               not otherwise have knowledge, of any allegations, assertions or
               other indications that the manufacturing, marketing or selling of
               any of the products of the Company or its Subsidiaries infringe
               the intellectual property rights of a third party.

         (c)   The Company and its Subsidiaries have taken all reasonable
               measures to maintain the confidentiality of all of the
               Intellectual Property Rights the value of which is contingent, in
               whole or in part, upon maintenance of the confidentiality
               thereof. Except as described in the Disclosure Schedule, neither
               the Company nor its Subsidiaries (i) own or use any Intellectual
               Property Rights pursuant to any written license agreement; and
               (ii) has granted any person or entity any rights, pursuant to
               written license agreement or otherwise, to use the Intellectual
               Property Rights.

         (d)   Neither the Company nor any of its Subsidiaries has entered into
               any agreements or understandings, written or oral, with any third
               party permitting the sale or distribution of any of their
               products anywhere in the world, except for such agreements and
               understanding that have been validly terminated. The Company and
               each Subsidiary has the sole exclusive right to market and sell
               their products anywhere in the world and no third party has any
               rights or claims to prevent such activities of the Company and
               the Subsidiaries.

         (e)   The Disclosure Schedule sets forth a complete and correct list of
               all patents, patent applications, trademarks, trademark
               applications and licenses (other than licenses for commercially
               available software) that are a part of the Intellectual Property
               Rights of the Company and each Subsidiary.

3.20     Environmental Compliance.  Except as set forth in the Disclosure
Schedule:

                                       35

<PAGE>   41
         (a)      Neither the Company or any Subsidiary, nor any previous owner,
                  tenant, occupant or user of any property owned or leased by or
                  to the Company or a Subsidiary (the "Properties") engaged in
                  or permitted, direct or indirect, operations or activities
                  upon, or any use or occupancy of the Properties, or any
                  portion thereof, for the purpose of or in any way involving
                  the handling, manufacture, treatment, storage, use,
                  generation, emission, release, discharge, refining, dumping or
                  disposal of any Environmentally Regulated Materials (whether
                  legal or illegal, accidental or intentional, direct or
                  indirect) on, under, in or about the Properties, or
                  transported any Environmentally Regulated Materials to, from
                  or across the Properties, nor are any Environmentally
                  Regulated Materials presently constructed, deposited, stored,
                  placed or otherwise located on, under, in or about the
                  Properties, nor have any Environmentally Regulated Materials
                  migrated from the Properties upon or beneath other properties,
                  nor have any Environmentally Regulated Materials migrated or
                  threatened to migrate from other properties upon, about or
                  beneath the Properties. The Properties do not contain any: (i)
                  underground or aboveground storage tanks; (ii) asbestos; (iii)
                  equipment containing polychlorinated biphenyls ("PCBs"); (iv)
                  underground injection wells; or (v) septic tanks in which
                  process waste water or any Environmentally Regulated Materials
                  have been disposed.

         (b)      No violation or noncompliance with any Environmental Law has
                  occurred with respect to the Properties or to the operations
                  conducted on the Properties by the Company or any Subsidiary;
                  the Company and each Subsidiary has obtained all required
                  Permits, and the Company, the Subsidiaries, and the Properties
                  are in compliance with all Environmental, Safety and Health
                  Laws including, without limitation, all applicable
                  restrictions, conditions, standards, limitations,
                  prohibitions, requirements, obligations, schedules and
                  timetables contained in the Environmental, Safety and Health
                  Laws or contained in any regulation, code, plan, order,
                  decree, judgment, injunction, notice or demand letter issued,
                  entered, promulgated or approved thereunder.

         (c)      No enforcement, investigation, cleanup, removal, remediation
                  or response or other governmental or regulatory actions have
                  been, asserted or threatened with respect to operations
                  conducted on the Properties by the Company or any Subsidiary
                  or against the Company or the Subsidiaries with respect to or
                  in any way regarding the Properties pursuant to any
                  Environmental Law;

         (d)      There are no past or present events, conditions,
                  circumstances, incidents, actions or omissions relating to or
                  in any way affecting the Company or any Subsidiary or their
                  business or assets that violate, or may violate after the
                  Closing, any Environmental Law, or that may give rise to any
                  Environmental Liability, or otherwise form the basis of any
                  claim, action, demand, suit, Proceeding, hearing, study or
                  investigation (i) under any Environmental Law, (ii) based on
                  or related to the manufacture, processing, distribution, use,
                  treatment, storage (including without limitation underground
                  storage tanks), disposal, transport or handling, or the
                  emission, discharge, release or threatened release of any
                  Environmentally Regulated Material, (iii) resulting exposure
                  to workplace hazards or (iv) resulting

                                       36
<PAGE>   42

                  from any alleged exposure of any kind to any Environmentally
                  Regulated Material and/or relating to any warning or asserted
                  failure to warn of any exposure or potential exposure to any
                  Environmentally Regulated Material.

         (e)      With regard to the Company, the Subsidiaries and the
                  Properties, there are no past or present events, conditions,
                  circumstances, activities, practices, incidents, actions or
                  plans which may interfere with or prevent compliance or
                  continued compliance with Environmental, Safety and Health
                  Laws.

         (f)      All machinery, tools, devices and equipment of any kind
                  operated by the Company or any Subsidiary on the Properties
                  have been operated in compliance with all Environmental,
                  Safety and Health Laws, and all such equipment currently is
                  operational, nondefective and in the condition required that
                  will allow for continued operation in compliance with all
                  Environmental, Safety and Health Laws.

         (g)      The Company has delivered to Parent all environmental
                  documents, studies and reports in its possession or under its
                  control relating to: (i) any facilities or real property ever
                  owned, operated or leased by the Company; or (ii) any actual
                  or potential Environmental Liability of the Company or any
                  Subsidiary.

3.21     Insurance. The Disclosure Schedule contains an accurate and complete
         list of all insurance policies owned or held by the Company and the
         Subsidiaries, including, but not limited to, fire and other casualty,
         general liability, theft, life, workers' compensation, health,
         directors and officers, business interruption and other forms of
         insurance owned or held by the Company and the Subsidiaries, specifying
         the insurer the policy number, and the term of the coverage. All
         present policies are in full force and effect and all premiums with
         respect thereto have been paid. The Company has not been denied any
         form of insurance and no policy of insurance has been revoked or
         rescinded during the past five years, except as described on the
         Disclosure Schedule.

3.22     Tax Matters.

         (a)      Except as set forth in the Disclosure Schedule, the Company
                  and each Subsidiary, combined or unitary group of which the
                  Company or any Subsidiary is or was a member of, has prepared
                  and timely filed all Tax Returns it is required to have filed
                  on or prior to the Closing Date. As of the time of filing,
                  such Tax Returns were accurate and correct in all respects and
                  did not contain a disclosure statement under Section 6662 of
                  the Code (or any predecessor provision or comparable provision
                  of state, local or foreign law). Any Tax Returns filed after
                  the date hereof, but on or before the Closing Date, will
                  conform with the provisions of this Section 3.22.

         (b)      The Company and each Subsidiary has paid or adequately
                  provided for (on its Latest Audited Balance Sheet in
                  accordance with GAAP) all Taxes (whether or not shown on any
                  Tax Return) they are required to have paid or to pay with

                                       37
<PAGE>   43

                  respect to all taxable periods (or portions thereof ) ending
                  on or before the Closing Date.

         (c)      Except as set forth in the Disclosure Schedule, no claim for
                  assessment or collection of Taxes is presently being asserted
                  against the Company or any Subsidiary, and neither the Company
                  nor any Subsidiary is a party to any pending action,
                  proceeding, or investigation by any governmental taxing
                  authority, nor does the Company have knowledge of any such
                  threatened action, proceeding or investigation. No claim has
                  been made in any jurisdiction where the Company and the
                  Subsidiaries do not file Tax Returns that the Company or
                  Subsidiaries may be subject to Tax by that jurisdiction

         (d)      Except as set forth in the Disclosure Schedule, neither the
                  Company, nor any Subsidiary is a party to any agreement,
                  contract, arrangement or plan that has resulted or would
                  result, separately or in the aggregate, in connection with
                  this Agreement or any change of control of the Company or any
                  Subsidiary, in the payment of any "excess parachute payments"
                  within the meaning of Section 280G of the Code.

         (e)      All deficiencies and assessments of Taxes of the Company and a
                  Subsidiary resulting from an examination of any Tax Returns by
                  any Governmental Authority have been paid and there are no
                  pending examinations currently being made by any Governmental
                  Authority nor has there been any written or oral notification
                  to the Company or any Subsidiary of any intention to make an
                  examination of any Taxes by any Governmental Authority. There
                  are no outstanding agreements or waivers extending the
                  statutory period of limitations applicable to any Tax Return
                  for any period.

         (f)      For purposes of computing Taxes and the filing of Tax Returns,
                  neither the Company nor any Subsidiary of the Company has
                  failed to treat as "employees" any individual providing
                  services to the Company or a Subsidiary who would be
                  classified as an "employee" under the applicable rules or
                  regulations of any Governmental Authority with respect to such
                  classification.

         (g)      The Company and each Subsidiary complied with all Applicable
                  Laws relating to the withholding of Taxes and the payment
                  thereof (including, without limitation, withholding of Taxes
                  under Sections 1441 and 1442 of the Code, or similar
                  provisions under any foreign laws), and timely and properly
                  withheld from individual employee wages and paid over to the
                  proper Governmental Authority all amounts required to be so
                  withheld and paid over under all Applicable Laws.

         (h)      Neither the Company nor any Subsidiary is a party to any Tax
                  allocation or sharing agreement.

         (i)      Except as set forth in the Disclosure Schedule, neither the
                  Company nor any Subsidiary has requested any extension of time
                  within which to file any Tax Return, which Tax Return has not
                  since been filed.

                                       38
<PAGE>   44

         (j)      No property of the Company or any Subsidiary is property that
                  the Company or any Subsidiary is required to treat as being
                  owned by another person under the provisions of Section
                  168(f)(8) of the Code (as in effect prior to amendment by the
                  Tax Reform Act of 1986) or is "tax-exempt use property" within
                  the meaning of Section 168 of the Code.

         (k)      Neither the Company nor any Subsidiary is required to include
                  in income any adjustment under Section 481(a) of the Code by
                  reason of a voluntary change in accounting method initiated by
                  the Company or any Subsidiary.

         (l)      Neither the Company nor any Subsidiary made an election under
                  Section 341(f) of the Code for any taxable years not yet
                  closed for statute of limitation purposes.

         (m)      The Company and the Subsidiaries are, and at all times have
                  been, corporations or associations taxable as corporations for
                  United States income tax purposes.

         (n)      Neither the Company nor any Subsidiary is, or has been at any
                  time, a United States real property holding company within the
                  meaning of Section 897(c) of the Code.

         (o)      The Disclosure Schedule lists each tax incentive to which the
                  IMT Subsidiary is entitled under the laws of the State of
                  Israel, and the nature of such tax incentive. The IMT
                  Subsidiary has complied with all requirements of Israeli law
                  necessary to be entitled to claim the tax incentive. Except as
                  disclosed in the Disclosure Schedule no consent or approval of
                  any governmental authority is required prior to consummation
                  of the Merger in order to preserve the entitlement of the IMT
                  Subsidiary to any such incentive.

3.23     Grants, Incentives and Subsidies. The Disclosure Schedule sets forth a
         complete list of all pending and outstanding grants, incentives and
         subsidies (collectively, "Grants") from the Government of the State of
         Israel or any agency thereof, or from any foreign governmental or
         administrative agency, to the Company or any Subsidiary including,
         without limitation, (i) Approved Enterprise Status from the Investment
         Center of the Israeli Ministry of Industry and Trade and (ii) grants
         from the Office of Chief Scientist of the Israeli Ministry of Industry
         and Trade (the "OCS"). The Company has delivered to the Parent correct
         copies of all applications for Grants submitted by the Company or any
         Subsidiary and of all letters of approval, and supplements thereto,
         granted to the Company or any Subsidiary. The Disclosure Schedule also
         details all material undertakings of the Company or any Subsidiary
         given in connection with the Grants, and includes the aggregate amounts
         of each Grant, and the aggregate outstanding obligations thereunder of
         the Company or any Subsidiary with respect to royalties, or the
         outstanding amounts to be paid by the OCS to the Company or any
         Subsidiary and the composition of such obligations or amount by product
         or product family to which it relates. The Company and each Subsidiary
         are in compliance, in all material respects, with the terms and
         conditions of their respective Grants and, except as disclosed in the
         Disclosure Schedule, have duly fulfilled, in all material respects, all
         the undertakings relating thereto. Neither the Company nor any
         Subsidiary is aware of any event or other set of

                                       39
<PAGE>   45

         circumstances which might lead to the revocation or material
         modification of any of the Grants.

3.24     Year 2000. The Company is aware of the millennium rollover event, also
         known as the Year 2000 ("Y2K") issue, and its potential impact on the
         Company as a whole, its products and its customers. Except as set forth
         in the Disclosure Schedule, all internal computer of the Company and
         the Subsidiaries are Y2K compliant or are scheduled for replacement
         and/or upgrade prior to the year 2000 without any additional material
         costs to the Company. The Company has delivered to each of its material
         suppliers a request for confirmation that the supply of goods and
         services will not be interrupted due to Y2K non-compliance, the form of
         which has been previously provided to Parent, and no supplier has
         responded to the effect that the supply of goods and services would be
         interrupted due to Y2K non-compliance. Except as set forth in the
         Disclosure Schedule, the Company has not made any representations in
         contracts for services or equipment regarding Y2K compliance. The
         Disclosure Schedule sets forth (i) a description of any significant
         non-compliant internal computer systems, and (ii) an estimate of the
         capital expenditures necessary to make such systems Y2K compliant.

3.25     Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth:
         (i) the names of all financial institutions, investment banking and
         brokerage houses, and other similar institutions at which the Company
         or its Subsidiaries maintain accounts, deposits, safe deposit boxes of
         any nature, and the names of all persons authorized to draw thereon or
         make withdrawals therefrom and a description of such accounts; and (ii)
         the names of all persons or entities holding general or special powers
         of attorney from the Company or any of its Subsidiaries and copies
         thereof.

3.26     Orders, Commitments and Returns. Except as set forth in the Disclosure
         Schedule, all accepted and unfulfilled orders for the sale of products
         and the performance of services entered into by the Company or any of
         its Subsidiaries and all outstanding contracts or commitments for the
         purchase of supplies, materials and services by or from the Company or
         any of its Subsidiaries were made in bona fide transactions in the
         ordinary course of business. Except as set forth in the Disclosure
         Schedule, there are no material claims against the Company or any of
         its Subsidiaries to return products by reason of alleged
         over-shipments, defective products or otherwise, or of products in the
         hands of customers, retailers or distributors under an understanding
         that such products would be returnable.

3.27     Product Liability Claims. Neither the Company nor any Subsidiary has
         ever received a claim, or incurred any uninsured or insured liability,
         for or based upon failure to warn, Proposition 65, breach of product
         warranty (other than warranty service and repair claims incurred in the
         ordinary course of business and expensed as warranty expense on the
         Financial Statements for the period in which incurred), strict
         liability in tort, general negligence, negligent manufacture of
         product, negligent provision of services or any other allegation of
         liability, including or resulting in, but not limited to, product
         recalls, arising from the materials, design, testing, manufacture,
         packaging, labeling (including instructions for use) or sale of its
         products or from the provision of services ("Product

                                       40
<PAGE>   46

         Liability Claim"). The Company has disclosed to Parent each Product
         Liability Claim received by the Company or any Subsidiary.

3.28     Warranties. All products manufactured or sold, and all services
         provided, by the Company or any Subsidiary have materially complied,
         and are in material compliance with all contractual requirements,
         warranties or covenants, express or implied, applicable thereto, and
         with all applicable governmental, trade association or regulatory
         specifications therefor or applicable thereto, except to the extent
         that the failure to so comply would not have a Material Adverse Effect
         on the Company taken as a whole. No product or service manufactured,
         sold, delivered or performed by the Company or any Subsidiary is
         subject to any guaranty, warranty or other indemnity beyond the
         applicable standard terms and conditions set forth in the Disclosure
         Schedule. The terms of all standard and all material non-standard
         product and service warranties and product return, sales credit,
         discount, warehouse allowance, advertising allowance, demo sales and
         credit policies of the Company and each Subsidiary are specifically set
         forth in the Disclosure Schedule. The Company has delivered to Parent
         prior to the date hereof complete and accurate copies of all such
         warranties and policies.

3.29     Relations with Suppliers and Customers. No material current supplier of
         the Company or any Subsidiary has canceled any contract or order for
         provision of, and, to the knowledge of the Company, there has been no
         threat by any such supplier not to provide, raw materials, products,
         supplies or services to the businesses of the Company and its
         Subsidiaries either prior to or following the Effective Time. Except as
         specifically set forth in the Disclosure Schedule, neither the Company
         nor any Subsidiary has, to the knowledge of the Company, received any
         information from any customer that accounted for more than 5% of the
         consolidated revenues of the Company and its Subsidiaries during the
         last full fiscal year to the effect that such customer intends to
         materially decrease the amount of business it does with the businesses
         of the Company and its Subsidiaries either prior to or following the
         Effective Time. The Disclosure Schedule lists each supplier to the
         Company or any Subsidiary that is the sole source of a particular raw
         material, product, supply or service with respect to which locating and
         qualifying a replacement source would involve significant cost or
         delay.

3.30     Absence of Certain Business Practices. Neither the Company, the
         Subsidiaries nor any director, officer, employee or agent of the
         Company or the Subsidiaries, nor any other person acting on behalf of
         the Company or the Subsidiaries, has, directly or indirectly, within
         the past five (5) years given or agreed to give any gift or similar
         benefit or agreed to make or made any payment to any customer,
         supplier, governmental employee or other person who is or may be in a
         position to help or hinder the business of the Company, taken as a
         whole (or assist it in connection with any actual or proposed
         transaction) which (i) might subject the Company, the Subsidiaries,
         Parent or Merger Subsidiary to any damage or penalty in any civil,
         criminal or governmental litigation proceeding, (ii) if not given in
         the past, might have had a Material Adverse Effect on the assets,
         business or operations of the Company, taken as a whole, as reflected
         in the Financial Statements, (iii) if not continued in the future,
         might adversely affect the assets, business, operations or prospects of
         the Company and the Subsidiaries or which might subject the Company,
         the Subsidiaries, Parent or Merger Subsidiary to suit or penalty in any
         private or

                                       41
<PAGE>   47

         governmental litigation or proceeding or (iv) materially violated or
         violates any Applicable Law.

3.31     Brokers. Except as set forth in the Disclosure Schedule, neither the
         Company nor its Subsidiaries, nor any of their directors, officers or
         employees has employed any broker, finder, or financial advisor or
         incurred any liability for any brokerage fee or commission, finder's
         fee or financial advisory fee, in connection with the transactions
         contemplated hereby, nor is there any basis known to Company for any
         such fee or commission to be claimed by any person or entity. Any such
         fees and expenses shall be paid by the Stockholders pursuant to Section
         11.3 and the Escrow Agreement.

3.32     Minute Books. The minute books of the Company and each Subsidiary, as
         previously made available to Parent and its representatives, contain,
         in all material respects, complete and accurate records of all meetings
         of and corporate actions or written consents by the stockholders,
         Boards of Directors, and committees of the Boards of Directors of the
         Company and each Subsidiary.

3.33     Business Generally. To Company's knowledge, except as set forth in the
         Disclosure Schedule, there has been no event, transaction or
         information which has come to the attention of the Company which, as it
         relates directly to the businesses of Company and the Subsidiaries,
         could, individually or in the aggregate, reasonably be expected to have
         a Material Adverse Effect on the Company taken as a whole.

3.34     Irrevocable Proxies. Concurrently with the execution and delivery of
         this Agreement, the Company has delivered to Parent irrevocable proxies
         (in substantially the form attached hereto as Exhibit D) (the
         "Irrevocable Proxies") from Stockholders holding a number of shares of
         Company Common Stock sufficient to adopt and approve this Agreement and
         the Merger under the DGCL as of the record date established for holders
         of Company Common Stock entitled to consider and vote on the adoption
         and approval of this Agreement and the Merger (the "Record Date"), and
         the Irrevocable Proxies grant Lewis C. Pell ("Pell"), Beyar and
         Globerman the right to vote such shares of Company Common Stock (i) in
         favor of approval of this Agreement and the Merger, (ii) against
         approval of any proposal made in opposition to or competition with the
         consummation of the Merger and (iii) against, or to abstain with regard
         to, any merger, consolidation, sale of assets, reorganization or
         recapitalization of the Company with any party other than Parent or its
         Affiliates.

3.35     Voting Agreement. Concurrently with the execution and delivery of this
         Agreement, the Company, Pell, Beyar and Globerman have delivered to
         Parent a voting agreement (in substantially the form of Exhibit E)
         agreeing to vote all Irrevocable Proxies, as well as any shares of
         Company Common Stock owned (of record or beneficially) by the Company,
         Pell, Beyar and Globerman, as set forth in the Irrevocable Proxies (the
         "Voting Agreement").

                                       42
<PAGE>   48

                                   ARTICLE 4
                        REPRESENTATIONS AND WARRANTIES OF
                          PARENT AND MERGER SUBSIDIARY

         As an inducement to the Company and the Principal Stockholders to enter
into this Agreement and to consummate the transactions contemplated herein,
Parent and Merger Subsidiary hereby represent and warrant, as of the date of
this Agreement and as of the Closing Date, to the Company and the Principal
Stockholders that:

4.1      Corporate Existence and Power. Parent and Merger Subsidiary are
         corporations duly organized, validly existing and in good standing
         under the laws of their respective states of incorporation and each has
         all requisite corporate power and authority to own, operate and lease
         their respective properties and to carry on their respective businesses
         as now being conducted and are duly qualified or licensed to do
         business and are in good standing in each jurisdiction in which their
         ownership or leasing of property or the conduct of their business
         require such licensing or qualification, except where the failure to be
         so qualified could not reasonably be expected to have a Material
         Adverse Effect on Parent or Merger Subsidiary. Merger Subsidiary is a
         recently-formed Delaware corporation that has not conducted, and prior
         to the Effective Time will not conduct, any activities other than those
         incident to its formation and in connection with the consummation of
         the Merger.

4.2      Authorization. Parent and Merger Subsidiary have the requisite
         corporate power and authority to enter into this Agreement and to carry
         out their respective obligations hereunder. The execution and delivery
         by Parent and Merger Subsidiary of this Agreement and the performance
         by each of them of their respective obligations hereunder and the
         consummation by each of them of the transactions contemplated hereby
         are within their respective corporate powers and have been duly
         authorized by their respective Boards of Directors and by Parent, as
         the sole shareholder of Merger Subsidiary, and no other corporate
         proceeding on their part is necessary for the execution and delivery of
         this Agreement, and the performance of their respective obligations
         hereunder, and the consummation by each of them of the transactions
         contemplated hereby. This Agreement has been duly and validly executed
         and delivered by each of them and it is a legal, valid and binding
         obligation of Parent and Merger Subsidiary enforceable against each of
         them in accordance with its terms, subject to laws of general
         application relating to bankruptcy, insolvency, reorganization,
         moratorium or other similar laws affecting creditors' rights generally
         and rules of law governing specific performance, injunctive relief or
         other equitable remedies.

4.3      Consents and Approvals. No Consent by any individual or entity,
         including without limitation any Governmental Authority or Person, is
         required in connection with the execution, delivery or performance of
         this Agreement by Parent and Merger Subsidiary or the consummation by
         Parent and Merger Subsidiary of the transactions contemplated herein,
         other than (i) requirements of the DGCL for filing of appropriate
         documents to effect the Merger, or (ii) where the failure to make any
         such filing, or to obtain such permit, authorization, consent or
         approval, would not prevent or delay consummation of

                                       43
<PAGE>   49

         the Merger or would not otherwise prevent Parent or Merger Subsidiary
         from performing their obligations under this Agreement.

4.4      Acquisition of Company Common Stock for Investment.

         (a)      The Company Common Stock being purchased by the Parent
                  pursuant to Article 2 is being acquired for investment only
                  and not with a view to any public distribution thereof.
                  Without limiting, modifying, qualifying or in any other manner
                  affecting the representations and warranties of the Company
                  set forth in Article 3, the Parent acknowledges that the
                  Parent has had access to all documentation and information
                  referenced in the Disclosure Schedule and has had the
                  opportunity to interview and discuss such documentation and
                  information with employees of the Company and its
                  Subsidiaries. The Parent is an "Accredited Investor" within
                  the meaning of Rule 501 of Regulation D under the Securities
                  Act.

         (b)      The Parent understands that the Company Common Stock being
                  purchased by the Parent pursuant to Article 2 constitute
                  "restricted securities" under the Securities Act and have not
                  been registered under the Securities Act or the laws of any
                  other jurisdiction requiring any filing, listing or
                  registration, satisfaction of any prospectus or similar
                  document, information, or delivery requirement in connection
                  with any offer or sale of securities.

4.5      Available Capital Resources. The Parent has existing cash reserves,
         borrowing capacity under existing credit facilities and commitments
         from existing shareholders necessary to pay the Merger Consideration
         and satisfy the obligations of Parent and Merger Subsidiary hereunder.

4.6      No Additional Representations or Warranties. The Parent acknowledges
         that neither the Company nor any other Person has made any
         representation or warranty, express or implied, as to the accuracy or
         completeness of any information regarding the Company and its
         Subsidiaries, except as expressly set forth in this Agreement or the
         Disclosure Schedule. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
         EXPRESSLY SET FORTH IN ARTICLE 3, THE COMPANY AND THE PRINCIPAL
         STOCKHOLDERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT
         LAW OR IN EQUITY, IN RESPECT OF THE COMPANY AND ITS SUBSIDIARIES OR ANY
         OF THEIR RESPECTIVE ASSETS, LIABILITIES OR OPERATIONS, INCLUDING,
         WITHOUT LIMITATION, ANY IMPLIED REPRESENTATION OR WARRANTY AS TO THE
         CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR
         PURPOSE, AND THE COMPANY AND THE PRINCIPAL STOCKHOLDERS DISCLAIM ANY
         SUCH REPRESENTATION OR WARRANTY.

4.7      Disclosure. No representation or warranty by Parent or Merger
         Subsidiary in this Agreement and no statement contained or to be
         contained in any document, certificate or other writing furnished or to
         be furnished by either Parent or Merger Subsidiary to the Company,
         contains or will contain any untrue statement of a material fact or
         omits or will

                                       44
<PAGE>   50

         omit to state any material fact necessary in order to make the
         statements therein, in the light of the circumstances under which they
         were made, not misleading.

4.8      Non-Contravention. The execution, delivery and performance by Parent
         and Merger Subsidiary of this Agreement does not and will not (i)
         contravene or conflict with the respective Certificate of Incorporation
         or Bylaws of Parent and Merger Subsidiary; or (ii) contravene or
         conflict with or constitute a violation of any provision of any
         Applicable Law binding upon or applicable to Parent or Merger
         Subsidiary.

4.9      Brokers. Except for the engagement of US Bancorp Piper Jaffray, whose
         fees and expenses shall be paid by Parent pursuant to Section 11.3,
         neither Parent nor Merger Subsidiary, nor any of their directors,
         officers or employees has employed any broker, finder, or financial
         advisor or incurred any liability for any brokerage fee or commission,
         finder's fee or financial advisory fee, in connection with the
         transactions contemplated hereby, nor is there any basis known to
         Parent or Merger Subsidiary for any such fee or commission to be
         claimed by any person or entity.

                                   ARTICLE 5
                                   COVENANTS

5.1      Conduct of the Business. The Company shall maintain and cause each
         Subsidiary to maintain its assets and properties and carry on its
         businesses and operations only in ordinary course in substantially the
         same manner as planned and previously operated; and the Company shall
         use and cause each Subsidiary to use its best efforts to preserve
         intact its business organizations, existing business relationships
         (including without limitation its relationships with officers,
         employees, dealers, distributors, independent contractors, customers
         and suppliers), good will and going concern value. The Company shall be
         entitled to dispose of the ENT Business as contemplated by Section
         5.10.

5.2      Company's Agreements as to Specified Matters. Except (i) as
         specifically set forth on the Disclosure Schedule, (ii) in the ordinary
         course of business and consistent with past practice, and (iii) as may
         be otherwise agreed in writing by Parent, from the date hereof until
         the Closing, neither the Company nor any of its Subsidiaries shall:

         (a)      Amend its articles or certificate of incorporation or bylaws
                  (or other similar governing instruments);

         (b)      Borrow or agree to borrow any funds other than Loans;

         (c)      Incur, assume, suffer or become subject to, whether directly
                  or by way of guarantee or otherwise, any claims, obligations,
                  liabilities or loss contingencies which, individually or in
                  the aggregate, are material to the conduct of the businesses
                  of Company and its Subsidiaries or have or would have a
                  Material Adverse Effect on the financial condition of Company
                  and its Subsidiaries;

         (d)      Pay, discharge or satisfy any claims, liabilities or
                  obligations other than the repayment of Loans;

                                       45
<PAGE>   51

         (e)      Permit or allow any of its properties or assets which are
                  material to the operation of their businesses to be subjected
                  to any Lien, except Permitted Liens;

         (f)      Write down the value of any inventory or write off as
                  uncollectible any notes or accounts receivable or any trade
                  accounts or trade notes;

         (g)      Cancel or amend any debts, waive any claims or rights or sell,
                  transfer or otherwise dispose of any properties or assets,
                  other than for such debts, claims, rights, properties or
                  assets which, individually or in the aggregate, are not
                  material to the conduct of their businesses;

         (h)      License, sell, transfer, pledge, modify, disclose, dispose of
                  or permit to lapse any right to the use of any Intellectual
                  Property Rights other than for such Intellectual Property
                  Rights which, individually or in the aggregate, are not
                  material to the conduct of their businesses, except as
                  contemplated by Section 5.10;

         (i)      Sell, assign, lease, license, transfer or otherwise dispose
                  of, or mortgage, pledge or encumber (other than with Permitted
                  Liens), any of their respective assets except as contemplated
                  by Section 5.10;

         (j)      (A) Terminate, enter into, adopt, institute or otherwise
                  become subject to or amend in any material respect any
                  collective bargaining agreement or employment or similar
                  agreement or arrangement with any of its directors, officers
                  or employees; (B) terminate, enter into, adopt, institute or
                  otherwise become subject to or amend in any material respect
                  any Benefit Plan; (C) contribute, set aside for contribution
                  or authorize the contribution of any amounts for any such
                  Benefit Plan except as required (and not discretionary) by the
                  terms of such Benefit Plan; or (D) grant or become obligated
                  to grant any bonus or general increase in the compensation of
                  any directors, officers or employees (including without
                  limitation any such increase pursuant to any Benefit Plan);

         (k)      Make or enter into any commitment for capital expenditures for
                  additions to property, plant or equipment individually in
                  excess of $25,000.00;

         (l)      Except as contemplated by this Agreement, (A) declare, pay or
                  set aside for payment any dividend or other distribution in
                  respect of its capital stock or other securities (including
                  without limitation distributions in redemption or liquidation)
                  or redeem, purchase or otherwise acquire any shares of its
                  capital stock or other securities; (B) issue, grant or sell
                  any shares of its capital stock or equity securities of any
                  class, or any options, warrants, conversion or other rights to
                  purchase or acquire any such shares or equity securities or
                  any securities convertible into or exchangeable for such
                  shares or equity securities, except issuance of Company Common
                  Stock pursuant to the exercise of Company Stock Options
                  outstanding on the date hereof; (C) become a party to any
                  merger, exchange, reorganization, recapitalization,
                  liquidation, dissolution or other similar corporate
                  transaction; or (D) organize any new subsidiary, acquire any
                  capital

                                       46
<PAGE>   52

                  stock or other equity securities or other ownership
                  interest in, or assets of, any person or entity or otherwise
                  make any investment by purchase of stock or securities,
                  contributions to capital, property transfer or purchase of any
                  properties or assets of any person or entity;

         (m)      Pay, lend or advance any amounts to, or sell, transfer or
                  lease any properties or assets to, or enter into any agreement
                  or arrangement with, any director, officer, employee or
                  shareholder;

         (n)      Terminate, enter into or amend in any material respect any
                  Scheduled Contract, or take any action or omit to take any
                  action which will cause a breach, violation or default
                  (however defined) under any Scheduled Contract; or

         (o)      Agree, whether in writing or otherwise, to take any action
                  described in this subsection.

5.3      Full Access to Parent. The Company shall afford to Parent and its
         directors, officers, employees, counsel, accountants, investment
         advisors and other authorized representatives and agents at Parent's
         expense, reasonable access to the facilities, properties, books and
         records of the Company and its Subsidiaries in order that Parent may
         have full opportunity to make such investigations as it shall desire to
         make of the affairs of the Company and its Subsidiaries; provided,
         however, that any such investigation shall be conducted in such a
         manner as not to interfere unreasonably with business operations; and
         the Company and its Subsidiaries shall furnish such additional
         financial and operating data and other information as Parent shall,
         from time to time, reasonably request, including without limitation
         access to the working papers of their independent certified public
         accountants; and, provided, further, that any such investigation shall
         not affect or otherwise diminish or obviate in any respect any of the
         representations and warranties of the Company or Principal Stockholders
         herein.

5.4      Confidentiality. Each of the parties hereto agrees that it will not
         use, or permit the use of, any of the information relating to any other
         party hereto furnished to it in connection with the transactions
         contemplated herein ("Information") in a manner or for a purpose
         detrimental to such other party or otherwise than in connection with
         the transaction, and that they will not disclose, divulge, provide or
         make accessible (collectively, "Disclose"), or permit the Disclosure
         of, any of the Information to any person or entity, other than their
         responsible directors, officers, employees, investment advisors,
         accountants, counsel and other authorized representatives and agents,
         except as may be required by judicial or administrative process or, in
         the opinion of such party's regular counsel, by other requirements of
         Applicable Law; provided, however, that prior to any Disclosure of any
         Information permitted hereunder, the disclosing party shall first
         obtain the recipients' undertaking to comply with the provisions of
         this subsection with respect to such information. The term
         "Information" as used herein shall not include any information relating
         to a party which the party disclosing such information can show: (i) to
         have been in its possession prior to its receipt from another party
         hereto; (ii) to be now or to later become generally available to the
         public through no fault of the disclosing party; (iii) to have been
         available to the public at the time of its receipt by the disclosing
         party;

                                       47
<PAGE>   53

         (iv) to have been received separately by the disclosing party in
         an unrestricted manner from a person entitled to disclose such
         information; or (v) to have been developed independently by the
         disclosing party without regard to any information received in
         connection with this transaction. Each party hereto also agrees to
         promptly return to the party from whom originally received all original
         and duplicate copies of written materials containing Information should
         the transactions contemplated herein not occur. A party hereto shall be
         deemed to have satisfied its obligations to hold the Information
         confidential if it exercises the same care as it takes with respect to
         its own similar information.

5.5      Filings; Consents; Removal of Objections. Subject to the terms and
         conditions herein, the parties hereto shall use their best efforts to
         take or cause to be taken all actions and do or cause to be done all
         things necessary, proper or advisable under Applicable Laws to
         consummate and make effective, as soon as reasonably practicable, the
         transactions contemplated hereby, including without limitation
         obtaining all Consents of any person or entity, whether private or
         governmental, required in connection with the consummation of the
         transactions contemplated herein. In furtherance, and not in limitation
         of the foregoing, it is the intent of the parties to consummate the
         transactions contemplated herein at the earliest practicable time, and
         they respectively agree to exert their best efforts to that end,
         including without limitation: (i) the removal or satisfaction, if
         possible, of any objections to the validity or legality of the
         transactions contemplated herein; and (ii) the satisfaction of the
         conditions to consummation of the transactions contemplated hereby.

5.6      Further Assurances; Cooperation; Notification.

         (a)      Each party hereto shall, before, at and after Closing, execute
                  and deliver such instruments and take such other actions as
                  the other party or parties, as the case may be, may reasonably
                  require in order to carry out the intent of this Agreement
                  including the satisfaction of all conditions contained in
                  Articles 6 and 7 of this Agreement.

         (b)      The Company shall cooperate with Parent to promptly develop
                  plans for the management of the businesses after the Closing,
                  including without limitation plans relating to productivity,
                  marketing, operations and improvements, and the Company shall
                  further cooperate with Parent to provide for the
                  implementation of such plans as soon as practicable after the
                  Closing. Subject to Applicable Law, Company shall confer on a
                  regular and reasonable basis with one or more representatives
                  of Parent to report on material operational matters and the
                  general status of ongoing operations.

         (c)      At all times from the date hereof until the Closing, each
                  party shall promptly notify the other in writing of the
                  occurrence of any event which it reasonably believes will or
                  may result in a failure by such party to satisfy the
                  conditions specified in Article 6 and Article 7 hereof.

                                       48
<PAGE>   54

5.7      Approval of Stockholders. As promptly as practicable after the
         execution of this Agreement, the Company will take all action necessary
         in accordance with the DGCL and its Certificate of Incorporation and
         Bylaws to convene a meeting of the Stockholders to consider and vote
         upon or to solicit consent in writing and the adoption and approval of
         this Agreement and the consummation of the transactions contemplated
         hereby. The Company shall not mail proxy materials to the Stockholders
         until the conditions set forth in Sections 6.16 and 6.27 have been
         satisfied or waived by Parent. The Board of Directors of the Company
         has on the date of this Agreement adopted a resolution recommending
         that the Stockholders vote to adopt and approve the Merger and this
         Agreement and the consummation of the transactions contemplated herein.
         The Company will use its best efforts to have the Stockholders adopt
         and approve the Merger and this Agreement and will take all other
         action reasonably necessary or, in the reasonable opinion of Parent,
         helpful to secure a vote in favor of the Merger and the adoption and
         approval of this Agreement.

5.8      No Solicitation. The Company agrees (i) it will negotiate exclusively
         with Parent and its authorized representatives regarding the
         transaction contemplated hereby and will not, directly or indirectly,
         encourage or solicit the submission of, entertain inquiries, proposals
         or offers from, or enter into any agreement or negotiate with any
         person or entity (other than Parent) for the acquisition of the Company
         (whether by merger, combination, sale of assets, sale of stock or
         otherwise) or other disposition of assets or technology other than in
         the ordinary course of business, and (ii) it will not furnish to any
         person any information with respect to any transaction prohibited by
         this Section 5.8. The Company and the Principals Stockholders agree to
         take the necessary steps to promptly inform any such third party of the
         obligations undertaken in this Section 5.8 and this Agreement. The
         Company and the Principals Stockholders agree to immediately inform
         Parent of any such inquiry from any such third party, including the
         terms thereof and the identity of the Person making such inquiry, and
         to keep the Parent informed, on a current basis, of the status and
         terms of any such proposals or offers.

5.9      Supplements to Disclosure Schedule. Prior to the Closing, the Company
         shall supplement or amend the Disclosure Schedule with respect to any
         event or development which is necessary to correct any information on
         the Disclosure Schedule or in any representation and warranty of the
         Company or Principal Stockholders which has been rendered inaccurate by
         reason of such event or development. No such supplement or amendment
         will be deemed to cure any inaccuracy in any representation and
         warranty of the Company or Principal Stockholders for purposes of
         Section 6.1. If, however, the Closing occurs, all such supplements or
         amendments will cure for all purposes any inaccuracy in any
         representation and warranty of the Company or Principal Stockholders
         which would have existed without such amendment or supplement.

5.10     Sale of Certain Assets of ENT Business and German Subsidiary. On or
         before the Closing Date, each of the Company, the IMT Subsidiary and
         Discotech Medical Technologies Ltd. shall have entered into the
         Purchase and Sale Agreement in the form attached as Exhibit F to this
         Agreement, with an effective date of November 1, 1999, and shall have
         consummated the transactions contemplated thereby and executed the
         other agreements referred to therein. In connection therewith, the
         Orthopaedic License

                                       49
<PAGE>   55

         Agreement and the ENT License Agreement attached as exhibits to the
         Purchase and Sale Agreement shall have been executed and delivered by
         the parties thereto. Except as specifically contemplated by the
         Purchase and Sale Agreement, the transactions contemplated therein
         shall not create any additional Liabilities to the Company or any
         Subsidiary, including, but not limited to, Liabilities for Taxes.

5.11     Public Announcements. None of the parties hereto shall make any public
         announcement with respect to the transactions contemplated herein
         without the prior written consent of the other parties, which consent
         shall not be unreasonably withheld or delayed. The parties shall
         maintain this Agreement and the terms hereof in strict confidence, and
         neither party shall disclose this Agreement or any of its terms to any
         third party unless specifically ordered to do so by a court of
         competent jurisdiction after consulting with the other party.
         Notwithstanding the foregoing, the parties may, on a confidential
         basis, advise and release information regarding the existence and
         content of this Agreement or the transactions contemplated hereby to
         their respective Affiliates or any of their agents, accountants,
         attorneys and prospective lenders or investors in connection with or
         related to the transactions contemplated by this Agreement.

5.12     Preparation of Tax Returns; Tax Matters.

         (a)      The Company shall file at Parent's expense, on or prior to the
                  due date thereof, all Tax Returns required to be filed by the
                  Company or any Subsidiary for all Tax periods ending on or
                  before the Closing Date; provided, however, that the Company
                  shall not file any such Tax Returns, or other returns,
                  elections, claims for refund or information statements with
                  respect to any liabilities for Taxes (other than federal,
                  state or local sales, use, property, withholding or employment
                  tax returns or statements) for any Tax period without prior
                  written consent from Parent. Such Tax Returns shall be
                  prepared by Ernst & Young LLP at the direction of the
                  Stockholders' Representatives and shall be signed by Peter
                  Bick.

         (b)      Parent will file (or cause to be filed) all Tax Returns of the
                  Company and any Subsidiary for all Tax periods ending after
                  the Closing Date. After the Closing Date, Parent, to the
                  extent permitted by Applicable Laws, shall have the right to
                  amend, modify or otherwise change all Tax Returns of the
                  Company and Subsidiaries for all Tax periods. In the event,
                  Parent amends, modifies or changes any Tax Returns of the
                  Company or any Subsidiary for any Tax period that includes a
                  day prior to, or including, the Closing Date, Parent shall
                  give written notice thereof to the Stockholders'
                  Representatives. In the event, such amendment, modification or
                  changes results in a Tax refund, Parent shall cooperate with
                  the Stockholders' Representatives in determining whether such
                  Tax Refund, or any such part, relates to the days prior to, or
                  including the Closing Date. In the event, it is determined
                  that the Tax refund or any such part is attributable to days
                  prior to, or including the Closing Date, the Parent shall pay
                  such Tax Refund to the Exchange Agent for distribution to the
                  Stockholders in accordance with the Escrow Agreement. Neither
                  Parent nor its Affiliates or representatives shall take any
                  action (i) inconsistent with the tax treatment of the Merger
                  as a sale of stock by the Stockholders or (ii) which has the
                  direct or

                                       50
<PAGE>   56

                  indirect effect of treating the Merger as a purchase
                  of assets by Parent or the Merger Subsidiary.

         (c)      Promptly after receipt by Parent of a written notice of a
                  proposed audit, claim, assessment or other dispute which would
                  or might give rise to a claim or the commencement (or
                  threatened commencement) of any action, proceeding or
                  investigation with respect to which indemnification is or will
                  be sought by Parent or its Affiliates in respect of any matter
                  concerning Taxes, but not including the receipt of a request
                  for information ("Asserted Tax Liability"), Parent shall give
                  written notice thereof (the "Tax Claim Notice") to the
                  Stockholders' Representatives.

                  (i)      A Tax Claim Notice shall contain factual information
                           (to the extent known to Parent) generally describing
                           the Asserted Tax Liability in question and shall
                           include copies of any notice or other document
                           received from any taxing Governmental Authority in
                           respect of such Asserted Tax Liability. Failure by
                           Parent to give the Stockholders' Representatives
                           prompt notice of an Asserted Tax Liability shall not
                           reduce or otherwise affect Parent's right to seek
                           indemnification hereunder; provided, however, that if
                           such failure to give prompt notice results in a
                           material detriment to the Stockholders, then any
                           amount that Parent otherwise may be entitled to as
                           indemnification hereunder with respect to such
                           Asserted Tax Liability shall be reduced by the amount
                           that is solely and directly attributable to such
                           failure to give prompt notice.

                  (ii)     In the event that the Stockholders' Representatives
                           shall have furnished Parent with an opinion of
                           independent tax counsel satisfactory to Parent to the
                           effect that there is a reasonable basis for
                           contesting an Asserted Tax Liability, then the
                           Stockholders' Representatives may elect to direct
                           through counsel of their own choosing, and at their
                           own expense, a compromise or contest, either
                           administratively or in the courts, of any Asserted
                           Tax Liability; provided, however, that the foregoing
                           shall apply only if the Stockholders' Representatives
                           have, notwithstanding any other provision hereof to
                           the contrary, acknowledged in writing an obligation
                           to indemnify Parent in accordance with this Agreement
                           with respect to such an Asserted Tax Liability, and
                           provided further that Parent, in its sole and
                           absolute discretion, may notify the Stockholders'
                           Representatives at any time that any such compromise
                           or contest must be immediately terminated, in which
                           case the foregoing obligation to make indemnity
                           payments hereunder with respect to such Asserted Tax
                           Liability shall thereupon terminate.

                  (iii)    If, in accordance with the foregoing, the
                           Stockholders' Representatives elect to direct the
                           compromise or contest of any Asserted Tax Liability,
                           they shall, within 30 calendar days after receiving
                           the Tax Claim Notice with respect to such Asserted
                           Tax Liability (or sooner if the nature of the
                           Asserted Tax Liability so requires) notify Parent of
                           their intent to do so,

                                       51
<PAGE>   57

                           and Parent shall cooperate, at the Stockholders'
                           Representatives' sole expense, in the compromise or
                           contest of such Asserted Tax Liability.

                  (iv)     The Stockholders' Representatives may enter into a
                           settlement agreement with respect to or otherwise
                           resolve any Asserted Tax Liability but only with the
                           prior written consent of Parent, which consent may
                           not unreasonably be withheld.

                  (v)      In the event that, and in accordance with the
                           foregoing, the Stockholders' Representatives attempt
                           to compromise or contest any Asserted Tax Liability,
                           Parent may participate at its own expense in all
                           proceedings, either administratively or in the
                           courts. For all purposes hereof, the right to
                           participate in all proceedings, either
                           administratively or in the courts, relating to an
                           Asserted Tax Liability shall include the right to
                           attend and be kept fully informed of all such
                           proceedings.

                  (vi)     Parent and Stockholders' Representatives shall
                           cooperate with each other and with each other's
                           agents, in connection with compromise or contests of
                           any Asserted Tax Liability. Any information or
                           documents provided by the parties shall be kept
                           confidential by the party receiving such information
                           or documents, except as may otherwise be necessary in
                           connection with administrative or judicial
                           proceedings relating to Taxes.

                  (vii)    The procedures set forth in this Section with respect
                           to matters concerning Taxes shall apply in the event
                           of any conflict between the provisions of this
                           Section and those of Article 9.

                  (viii)   Following the Merger, Parent and the Company shall,
                           upon reasonable request, afford to the Stockholders'
                           Representatives and their authorized representatives
                           reasonable access during normal business hours to the
                           books, records and other data of or relating to the
                           Company and Subsidiaries, and permit the
                           Stockholders' Representatives and their authorized
                           representatives to make copies thereof at their own
                           expense, with respect to periods or portions thereof
                           ending prior to the Merger, to the extent that such
                           access may be reasonably required to prepare federal,
                           state, local and foreign tax returns referred to in
                           Section 5.12(a) or by the Stockholders'
                           Representatives to defend an Asserted Tax Liability.

                  (ix)     The Company and Parent agree to retain all books and
                           records with respect to Tax matters pertinent to the
                           Company and its Subsidiaries until 90 days after the
                           expiration of the relevant statute of limitations
                           (and any extensions thereof) of the respective
                           taxable periods or portions thereof ending on or
                           prior to the Closing Date, and to abide by all record
                           retention agreements entered into with any taxing
                           authority.

                  (x)      Notwithstanding any provision in this Section 5.12 to
                           the contrary, the terms and conditions of Sections
                           9.3, 9.4, 9.5 and 9.6 (to the extent not

                                       52
<PAGE>   58

                           inconsistent with this Section 5.12) shall apply to
                           any indemnification obligation of the Shares with
                           respect to the Tax matters described in this Section
                           5.12.

5.13     Severance Benefits. Parent will provide to all employees of the Company
         based in its San Francisco, California office (a) whose employment is
         terminated by the Company within six (6) months after the Closing Date
         due to elimination of positions or the closing of the Company's San
         Francisco office, (b) who do not have a contractual right to receive
         severance benefits, and (c) who sign a release reasonably acceptable to
         Parent, cash severance equal to four (4) weeks base pay if such
         employee does not terminate his or her employment within thirty (30)
         days after the Closing Date and an additional four (4) weeks base pay
         if such employee does not terminate his or her employment prior to
         closing of the Company's San Francisco office.

5.14     Exchange of Stock. Prior to mailing proxy materials to the
         Stockholders, as contemplated by Section 5.7, Parent and Beyar shall
         have reached agreement in principle regarding the terms and conditions
         under which Beyar shall retain following the Merger up to 340,000
         shares of the Company Common Stock owned by Beyar, and Parent or Beyar
         would have the right to require under specified circumstances that such
         shares of Company Common Stock be exchanged for shares of capital stock
         of Parent. Notwithstanding any other provision of this Agreement, this
         Section 5.14 shall not be a condition to Closing for any party.

                                   ARTICLE 6
                           CONDITIONS TO PARENT'S AND
                         MERGER SUBSIDIARY'S OBLIGATIONS

         Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions:

6.1      Representations and Warranties True. The representations and warranties
         of the Company and the Principal Stockholders contained in this
         Agreement, including without limitation in the Disclosure Schedule
         initially delivered to Parent (and not including any changes or
         additions delivered to Parent pursuant to Section 5.9), shall be in all
         material respects true and correct as of the date when made and at and
         as of the Closing as though such representations and warranties were
         made at and as of such time, except for changes specifically permitted
         or contemplated by this Agreement, and except insofar as the
         representations and warranties relate expressly and solely to a
         particular date or period, in which case they shall be true and correct
         in all material respects at the Closing with respect to such date or
         period.

6.2      Performance. The Company and Principal Stockholders shall have
         performed and complied in all material respects with all agreements,
         covenants, obligations and conditions required by this Agreement to be
         performed or complied with by the Company and the Principal
         Stockholders on or prior to the Closing.

                                       53
<PAGE>   59

6.3      Required Approvals and Consents.

         (a)      All action required by law and otherwise to be taken by the
                  Board of Directors of the Company and the Stockholders to
                  authorize the execution, delivery and performance of this
                  Agreement and the consummation of the transactions
                  contemplated hereby shall have been duly and validly taken.

         (b)      All Consents of or from all Governmental Authorities required
                  hereunder to consummate the transactions contemplated herein,
                  and all Consents of or from all persons and entities other
                  than Governmental Authorities that are identified in the
                  Disclosure Schedule shall have been delivered, made or
                  obtained, and Parent shall have received copies thereof.

6.4      No Proceeding or Litigation. No suit, action, investigation, inquiry or
         other proceeding by any Governmental Authority or other person or
         entity shall have been instituted or threatened which questions the
         validity or legality of the transactions contemplated hereby or which
         is reasonably expected either individually or in the aggregate, to have
         a Material Adverse Effect on the Company and its Subsidiaries taken as
         a whole.

6.5      Legislation. No Applicable Law shall have been enacted which prohibits,
         restricts or delays the consummation of the transactions contemplated
         hereby or any of the conditions to the consummation of such
         transaction.

6.6      Certificates. Parent shall have received such certificates of the
         Company's officers and of the Principal Stockholders, in a form and
         substance reasonably satisfactory to Parent, dated the Closing Date, to
         evidence compliance with the conditions set forth in this Article 6 and
         such other matters as may be reasonably requested by Parent.

6.7      Opinions of Company Counsel. Parent shall have received an opinion from
         Arnold & Porter, counsel to the Company and the Principal Stockholders
         dated the Closing Date, in form and substance reasonably satisfactory
         to Parent. Parent shall have received an opinion from S. Horowitz,
         counsel to the IMT Subsidiary, dated the Closing Date, in form and
         substance reasonably satisfactory to Parent.

6.8      Escrow Agreement. The parties thereto shall have executed and delivered
         the Escrow Agreement.

6.9      Employment Agreements. Parent shall have received executed Employment
         Agreements in substantially the form of Exhibit G from Beyar and
         Globerman.

6.10     Bick Consulting Agreement. Parent shall have received an executed
         Consulting Agreement in substantially the form of Exhibit H from Bick.

6.11     Machek Consulting Agreement. Parent shall have received an executed
         Consulting Agreement in substantially the form of Exhibit I from
         Machek.

                                       54
<PAGE>   60

6.12     Sale of ENT Business and German Subsidiary. The Company shall have
         completed the sale of the ENT Business pursuant to Section 5.10, on
         terms reasonably acceptable to Parent.

6.13     Dissenting Shares. Not more than five percent (5.0%) of the issued and
         outstanding shares of Company Common Stock as of the Closing Date shall
         be Dissenting Shares.

6.14     Resignation and Release. Parent shall have received Letters of
         Resignation and Release of Claims, dated effective as of the Effective
         Time, in substantially the form of Exhibit J from the officers and
         directors of the Company and its Subsidiaries.

6.15     Voting Agreement. Parent shall have received the Voting Agreement
         executed by Pell, Beyar and Globerman.

6.16     J & J Agreements. The J & J Agreements shall have been terminated and
         the Company and the IMT Subsidiary shall have been released from any
         claims or further obligations thereunder.

6.17     Cancellation of Options. All Company Stock Options shall have been
         cancelled or exercised in accordance with Section 2.9(c).

6.18     1998 and 1999 Financial Statements. Parent shall have received the 1998
         and 1999 Financial Statements, including an unqualified opinion of
         Ernst & Young LLP, with the exception of footnote disclosure regarding
         stock options.

6.19     Interim Financial Statements. Parent shall have received the Interim
         Financial Statements reflecting that the Company revenues, excluding
         revenues generated by the ENT Business, for the third quarter of 1999
         were at least $2.7 million, operating expenses for the third quarter of
         1999 were not more than $3.3 million, total assets did not decrease by
         more than five percent (5.0%) from June 30, 1999 and total liabilities
         did not increase by more than five percent (5.0%) from June 30, 1999,
         excluding from the June 30, 1999 balance sheet and the September
         30,1999 balance sheet all Loans and expenses incurred in connection
         with the transactions contemplated hereby.

6.20     Jessco Agreement. The Consulting Agreement, dated April 1, 1996,
         between the Company and Jessco Medical Supply shall have been
         terminated and the Company shall have been released from any claims or
         further obligations thereunder.

6.21     Yozma Agreement. The Agreement, dated September 8, 1999, among Yozma
         Venture Capital Ltd., the Company and the IMT Subsidiary shall have
         been terminated and the Company and IMT Subsidiary shall have been
         released from any claims or further obligations thereunder.

6.22     SLP Agreement. The Investment and Share Purchase Agreement, dated April
         18, 1999, between SLP Scientific Laboratory Products Ltd. ("SLP") and
         the Company shall have been assigned with the written consent of SLP,
         and the Company shall have been released from any claims or further
         obligations thereunder including any contingent

                                       55
<PAGE>   61

         obligation to issue any shares of capital stock or options to purchase
         shares of capital stock.

6.23     Service Agreements. The Service Agreement, dated March 1, 1998, between
         the IMT Subsidiary and Discotech Medical Technologies Ltd. shall have
         been terminated and the parties thereto shall have entered into a
         replacement service agreement on terms reasonably satisfactory to
         Parent. The Service Agreement, dated December 1, 1998, between the IMT
         Subsidiary and Bypass Ltd. shall have been terminated and the parties
         thereto shall have entered into a replacement service agreement on
         terms reasonably satisfactory to Parent.

6.24     Employee Loan. The loan from the IMT Subsidiary to Ari DeRowe in the
         amount of NIS 515,000 shall have been repaid.

6.25     1998 Tax Return. The Company shall have filed with the Internal Revenue
         Service its tax return for 1998 and paid all taxes, interest and
         penalties due therewith.

6.26     Transfer of IMT Subsidiary Stock. Beyar shall have entered into a
         letter agreement, in form and content reasonably satisfactory to
         Parent, pursuant to which Beyar agrees to transfer to Parent or its
         designee, upon Parent's request, the one (1) share of stock of the IMT
         Subsidiary held by Beyar as nominee.

6.27     Intellectual Property Transfer Agreement. Parent and S. Robert Kovac,
         M.D. ("Kovac") shall have entered into definitive agreements which
         shall contain substantially the terms and conditions set forth in the
         term sheet executed on November 8, 1999 between Parent and Kovac,
         pursuant to which Kovac shall transfer all of his right, title and
         interest in certain intellectual property rights involving sling
         products and technology for treating urinary incontinence to Parent.

                                   ARTICLE 7
                           CONDITIONS TO COMPANY'S AND
                       PRINCIPAL STOCKHOLDERS OBLIGATIONS

         Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Principal Stockholders to effect the
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions:

7.1      Representations and Warranties True. The representations and warranties
         of Parent and Merger Subsidiary contained in this Agreement shall be in
         all material respects true and correct as of the date when made and at
         and as of the Closing, as though such representations and warranties
         were made at and as of such time, except for changes permitted or
         contemplated in this Agreement, and except insofar as the
         representations and warranties relate expressly and solely to a
         particular date or period, in which case they shall be true and correct
         in all material respects at the Closing with respect to such date or
         period.

                                       56

<PAGE>   62
7.2      Performance. Parent shall have performed and complied in all material
         respects with all agreements, covenants, obligations and conditions
         required by this Agreement to be performed or complied with by Parent
         at or prior to the Closing.

7.3      Corporate Approvals. The Board of Directors of the Company and Merger
         Subsidiary shall have approved the transactions contemplated hereby.
         All action required to be taken by Parent to authorize the execution,
         delivery and performance of this Agreement by Parent and the
         consummation of the transactions contemplated hereby shall have been
         duly and validly taken.

7.4      No Proceeding or Litigation. No suit, action, investigation, inquiry or
         other proceeding by any Authority or other person or entity shall have
         been instituted or threatened which questions the validity or legality
         of the transactions contemplated hereby.

7.5      Legislation. No Applicable Law shall have been enacted which prohibits,
         restricts or delays the consummation of the transactions contemplated
         hereby or any of the conditions to the consummation of such
         transaction.

7.6      Certificates. Parent shall have furnished the Company and the Principal
         Stockholders with such certificates of Company officers, in a form and
         substance reasonably acceptable to Company and Principal Stockholders,
         dated the Closing Date, to evidence compliance with the conditions set
         forth in this Article 7 and such other matters as may be reasonably
         requested by the Company.

7.7      Opinion of Parent Counsel. Parent shall have delivered to Company an
         opinion from Oppenheimer Wolff & Donnelly LLP, counsel to Parent, dated
         the Closing Date, in form and substance reasonably satisfactory to the
         Company.

7.8      Escrow Agreement. The parties thereto shall have executed and delivered
         the Escrow Agreement and the appropriate funding obligations with
         respect thereto shall have been satisfied.

7.9      Dissenting Shares. Not more than five percent (5.0%) of the issued and
         outstanding shares of Company Common Stock as of the Closing Date shall
         be Dissenting Shares.

7.10     OEM Agreement. IMT Subsidiary and Influ-ENT Ltd. shall have entered
         into an OEM agreement, pursuant to which IMT agrees to manufacture and
         sell to Influ-ENT Ltd. the Company's Repose product on terms and
         conditions that are reasonably satisfactory to Parent and Influ-ENT
         Ltd.

7.11     1998 and 1999 Financial Statements. The Company shall have received the
         1998 and 1999 Financial Statements, including an unqualified opinion of
         Ernst & Young LLP, with the exception of footnote disclosure regarding
         stock options.

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                                   ARTICLE 8
                                  TERMINATION

8.1      Methods of Termination. Subject to the other provisions of this Article
         8, this Agreement may be terminated and the transactions contemplated
         herein may be abandoned at any time notwithstanding approval thereof by
         the Stockholders, but not later than the Termination Date:

         (a)      By mutual written consent of Parent, Merger Subsidiary, the
                  Company and the Principal Stockholders; or

         (b)      By Parent and Merger Subsidiary on or after the Termination
                  Date, or such later date as may be established pursuant to
                  Section 2.3, if any of the conditions provided for in Article
                  6 of this Agreement have not been satisfied or waived in
                  writing by Parent prior to such date; or

         (c)      By the Company and the Principal Stockholders on or after the
                  Termination Date, or such later date as may be established
                  pursuant to Section 2.3, if any of the conditions provided for
                  in Article 7 of this Agreement have not been satisfied or
                  waived in writing by the Company and the Principal
                  Stockholders prior to such date; or

         (d)      By the Parent and Merger Subsidiary if there has been a
                  material breach of any representation, warranty, covenant or
                  agreement on the part of Company, any Subsidiary or Principal
                  Stockholder set forth in this Agreement; or

         (e)      By Company and the Principal Stockholders if there has been a
                  material breach of any representation, warranty, covenant or
                  agreement on the part of Parent or Merger Subsidiary set forth
                  in this Agreement; or

         (f)      By either party if any court of competent jurisdiction or any
                  other governmental body has issued an order, decree or ruling
                  or taken any other action permanently enjoining, restraining
                  or otherwise prohibiting the transactions contemplated hereby
                  and such order, decree, ruling or other action has become
                  final and nonappealable; or

         (g)      By Parent, Merger Subsidiary, the Company or the Principal
                  Stockholders if the condition set forth in Section 6.27 has
                  not been satisfied or waived on or before November 24, 1999.

8.2      Procedure Upon Termination. In the event of termination and abandonment
         pursuant to Section 8.1, written notice thereof will forthwith be given
         to the other party or parties, and the provisions of this Agreement
         (except for Sections 5.4, 8.3, 8.4 11.3 and Article 10 which shall
         survive termination of this Agreement) will terminate, and the
         transactions contemplated herein will be abandoned, without further
         action by any party hereto.

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<PAGE>   64

8.3      Effect of Termination. If this Agreement is terminated as provided
         herein:

         (a)      each party will, upon request, return all documents, work
                  papers and other material of any other party (and all copies
                  thereof) relating to the transactions contemplated herein,
                  whether so obtained before or after the execution hereof, to
                  the party furnishing the same; and

         (b)      the confidentiality obligations of Section 5.4 will continue
                  to be applicable.

8.4      Reimbursement of Expenses.

         (a)      Reimbursement by Parent. In the event that Parent and Merger
                  Subsidiary fail or refuse to consummate the transactions
                  contemplated by this Agreement in violation of this Agreement,
                  or this Agreement is terminated by Company pursuant to Section
                  8.1(e), then, in addition to any other rights or remedies
                  which may be available to the Company in law or in equity,
                  Parent shall reimburse the Company within five (5) business
                  days after written request its reasonable and documented
                  out-of-pocket costs (including legal and accounting fees and
                  costs, and travel expenses) incurred by Company in connection
                  with this Agreement, not to exceed an aggregate of One Million
                  U.S. Dollars ($1,000,000).

         (b)      Reimbursement by Company. In the event that Company fails or
                  refuses to consummate the transactions contemplated by this
                  Agreement in violation of this Agreement, or this Agreement is
                  terminated by Parent pursuant to Section 8.1(d), then, in
                  addition to any other rights or remedies which may be
                  available to the Parent in law or in equity, the Company shall
                  reimburse Parent within five (5) business days after written
                  request its reasonable and documented out-of-pocket costs
                  (including legal and accounting fees and costs, and travel
                  expenses) incurred by Parent connection with this Agreement,
                  not to exceed an aggregate of One Million U.S. Dollars
                  ($1,000,000).

                                   ARTICLE 9
                          SURVIVAL AND INDEMNIFICATION

9.1      Survival. The representations, warranties, covenants, agreements and
         obligations of each party contained in this Agreement, and all claims
         in respect of any breach of any representation, warranty, covenant,
         agreement or obligation of party contained in this Agreement, will
         survive the Closing and shall expire eighteen (18) months after the
         Closing Date, except that representations and warranties set forth in
         Sections 3.16 (Benefit Plans), 3.20 (Environmental Compliance) and 3.22
         (Tax Matters) shall survive until six (6) months after the expiration
         of the applicable statute of limitations. The right to indemnification
         or any other remedy based on representations, warranties, covenants and
         obligations in this Agreement will not be affected by any investigation
         conducted with respect to, or any knowledge acquired (or capable of
         being acquired) at any time, whether before or after the execution and
         delivery of this Agreement or the Closing Date, with respect to the
         accuracy or inaccuracy of or compliance with, any such representation,
         warranty, covenant or obligation. The waiver of any condition based on

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<PAGE>   65

         the accuracy of any representation or warranty, or on the performance
         of or compliance with any covenant or obligation, will not affect the
         right to indemnification or any other remedy based on such
         representations, warranties, covenants and obligations.

9.2      Indemnification by Parent. Subject to Section 9.5, Parent agrees to
         indemnify, defend and hold harmless each of the Principal Stockholders
         from and against any and all Damages asserted against, relating to,
         imposed upon, suffered or incurred by the Principal Stockholders in
         connection with enforcing their indemnification rights pursuant to this
         Section 9.2 by reason of or resulting from (i) any untrue
         representation of, or breach of warranty by, Parent or Merger
         Subsidiary in any part of this Agreement, (ii) any nonfulfillment of
         any covenant, agreement or undertaking of Parent or Merger Subsidiary
         in any part of this Agreement which by its terms is to remain in effect
         after the Closing and has not been specifically waived in writing at
         the Closing by the party or parties hereof entitled to the benefits
         thereof; (iii) any liability of the Company arising out of the
         operation of the Company or the IMT Subsidiary or any of their
         respective businesses after the Closing Date; (iv) any Liabilities for
         Taxes of the Company, the IMT Subsidiary or any respective predecessor
         in interest with respect to any tax period or part thereof beginning
         after the Closing Date; and (v) any Product Liability Claim or other
         third party claim relating to the Company or the IMT Subsidiary,
         arising from acts, events, conditions or circumstances existing or
         occurring after the Effective Time.

9.3      Indemnification by Principal Stockholders. Subject to Section 9.5, the
         Principal Stockholders, jointly and severally, agree to indemnify,
         defend and hold harmless Parent, its directors, officers, employees and
         agents, from and against any and all Damages asserted against, relating
         to, imposed upon, suffered or incurred by Parent, Merger Subsidiary,
         its officers, directors, employees, agents and Affiliates, in
         connection with enforcing their indemnification rights pursuant to this
         Section 9.3 by reason of or resulting from (i) any untrue
         representation of, or breach of warranty by, the Company, its
         Subsidiaries or the Principal Stockholders in any part of this
         Agreement, (ii) any nonfulfillment of any covenant, agreement or
         undertaking of the Company, its Subsidiaries or the Principal
         Stockholders in any part of this Agreement which by its terms is to
         remain in effect after the Closing and has not been specifically waived
         in writing at the Closing by the party or parties hereof entitled to
         the benefits thereof, (iii) any Liabilities for Taxes of the Company,
         the Subsidiaries or any respective predecessor in interest with respect
         to any tax period or part thereof prior to the Closing Date in excess
         of amounts accrued for Taxes on the Financial Statements, regardless of
         whether such Liabilities for Taxes arise out of or constitute a breach
         of any representation, warranty or covenant in this Agreement, (iv) any
         Product Liability Claim or other third party claim relating to the
         Company or its Subsidiaries, whether presently in existence or arising
         hereafter from acts, events, conditions or circumstances existing or
         occurring on or before the Effective Time, regardless of whether such
         Product Liability Claim or third party claim arises out of or
         constitutes a breach of any representation, warranty or covenant in
         this Agreement, (v) any payments made to Dissenting Shareholders
         pursuant to the DGCL in excess of the Merger Consideration per share of
         Company Common Stock or Company Preferred Stock held by Dissenting
         Shareholders; (vi) any liability to holders of Company Preferred Stock
         arising out of the transactions contemplated by this Agreement; and
         (vii) any use of the name "In-Fast" by the

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<PAGE>   66

         Company prior to the Closing Date or by Parent or the Company during
         the six (6) month period following the Closing Date (each of the above
         shall be referred to herein as an "Indemnification Liability").
         Notwithstanding any other provision of this Agreement, the Principal
         Stockholders shall have no personal liability and the Escrow Fund shall
         be Parent's sole and exclusive source of recourse for any claims made
         pursuant to clauses (iii), (iv) and (v) of this Section 9.3; provided,
         however, that the foregoing shall not limit the personal liability of
         the Principal Stockholders for any claims made pursuant to clauses (i)
         and (ii) of this Section 9.3.

9.4      Claims for Indemnification.

         (a)      Subject to Section 9.4(c) and Section 9.1, whenever any claim
                  arises for indemnification hereunder the party seeking
                  indemnification (the "Indemnified Party"), will promptly
                  notify the party from whom indemnification is sought (the
                  "Indemnifying Party") of the claim and, when known, the facts
                  constituting the basis for such claim. In the case of any such
                  claim for indemnification hereunder resulting from or in
                  connection with any claim or legal proceedings of a third
                  party (a "Third Party Claim"), the notice to the Indemnifying
                  Party will specify, if known, the amount or an estimate of the
                  amount of the liability arising therefrom. The Indemnifying
                  Party shall have the right to dispute and defend all Third
                  Party Claims and thereafter so defend and pay any adverse
                  final judgment or award or settlement amount in regard
                  thereto. Such defense shall be controlled by the Indemnifying
                  Party, and the cost of such defense shall be borne by the
                  Indemnifying Party, except that the Indemnified Party shall
                  have the right to participate in such defense at its own
                  expense, and provided, however that the Indemnifying Party
                  must first acknowledge that the claim is a bona fide
                  indemnification claim under this Agreement. The Indemnified
                  Party shall cooperate in all reasonable respects in the
                  defense of any such claim, including making personnel, books,
                  and records relevant to the claim available to the
                  Indemnifying Party, without charge, except for reasonable
                  out-of-pocket expenses. If the Indemnifying Party fails to
                  take action within thirty (30) days as set forth above, then
                  the Indemnified Party shall have the right to pay, compromise
                  or defend any Third Party Claim and to assert the amount of
                  any payment on the Third Party Claim plus the reasonable
                  expenses of defense or settlement as the claim. The
                  Indemnified Party shall also have the right, exercisable in
                  good faith, to take such action as may be necessary to avoid a
                  default prior to the assumption of the defense of the Third
                  Party Claim by the Indemnifying Party, and any reasonable
                  expenses incurred by Indemnified Party so acting shall be paid
                  by the Indemnifying Party. Except as otherwise provided
                  herein, the Indemnified Party will not settle or compromise
                  any Third Party Claim for which it is entitled to
                  indemnification hereunder without the prior written consent of
                  the Indemnifying Party, which will not be unreasonably
                  withheld. The parties intend that all indemnification claims
                  be made as promptly as practicable.

         (b)      If the Indemnifying Party is of the opinion that the
                  Indemnified Party is not entitled to indemnification, or is
                  not entitled to indemnification in the amount claimed in such
                  notice, the Indemnifying Party will deliver, within ten (10)

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<PAGE>   67

                  business days after the receipt of such notice, a written
                  objection to such claim and written specifications in
                  reasonable detail of the aspects or details objected to, and
                  the grounds for such objection. If the Indemnifying Party
                  filed timely written notice of objection to any claim for
                  indemnification, the validity and amount of such claim will be
                  determined by arbitration pursuant to Article 10. If timely
                  notice of objection is not delivered or if a claim by an
                  Indemnified Party is admitted in writing by an Indemnifying
                  Party or if an arbitration award is made in favor of an
                  Indemnified Party, the Indemnified Party, as a non-exclusive
                  remedy, will have the right to set-off the amount of such
                  claim or award against any amount yet owed, whether due or to
                  become due, by the Indemnified Party or any subsidiary thereof
                  to any Indemnifying Party by reason of this Agreement or any
                  agreement or arrangement or contract to be entered into at the
                  Closing.

         (c)      The remedies provided herein are cumulative and will not
                  preclude assertion by any party of any rights or the seeking
                  of any other remedies against any other party.

9.5      Indemnification Limits.

         (a)      Except as expressly provided otherwise herein, and subject to
                  the provisions of Section 9.4, neither of the Principal
                  Stockholders nor the Parent, as the case may be, will be
                  entitled to indemnification for any Damages under this Article
                  9 unless the aggregate of all Damages is more than Two Hundred
                  Fifty Thousand U.S. Dollars ($250,000) (the "Basket Amount").
                  When the aggregate amount of all such Damages hereunder equals
                  or exceeds the Basket Amount, the Parent or the Principal
                  Stockholders, as the case may be, will be entitled to full
                  indemnification of all claims, including the Two Hundred Fifty
                  Thousand U.S. Dollars ($250,000) that amounted to the Basket
                  Amount. The parties hereto agree that the Basket Amount is not
                  a deductible amount, nor that the Basket Amount will be deemed
                  to be a definition of "material" for any purpose in this
                  Agreement.

         (b)      Except as set forth in section 9.5(c), each Principal
                  Stockholder's liability under Section 9.3 shall be limited to
                  the portion of the Merger Consideration that such Principal
                  Stockholder is entitled to receive determined pursuant to the
                  terms of this Agreement (the "Maximum Amount").

         (c)      If any of the Principal Stockholders or the Company have
                  breached a representation, warranty, covenant or agreement,
                  and such breaching party had actual knowledge of the breach of
                  the representation, warranty, covenant or agreement herein, or
                  had actual knowledge of the potential or probable loss,
                  liability or damage (based on actual knowledge of the facts
                  and circumstances giving rise to such loss, liability or
                  damage) without disclosing such in the Disclosure Schedule on
                  or prior to the Closing Date, the Principal Stockholders will
                  jointly and severally promptly pay Parent the full
                  indemnification claim without regard to the Basket Amount or
                  the Maximum Amount set forth in this Section 9.5.

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9.6      Right of Off-Set. All payments of Contingent Merger Consideration and
         Holdback Merger Consideration shall be made without set-off or
         deduction of any kind, except that the Parent shall be entitled to
         set-off against any such amounts owing by the Parent to the
         Stockholders, any amounts that have been determined by a final decision
         or judgement of an arbitrator to be due and owing by the Principal
         Stockholders based on a claim for indemnification by the Parent under
         this Article 9. Neither the exercise of, nor the failure to exercise,
         such right of set-off will constitute an election of remedies nor limit
         Parent in any manner in the enforcement of any other remedies that may
         be available to it.

9.7      Release of Prior Claims. The Principal Stockholders hereby release the
         Parent, Merger Subsidiary and the Company and their respective
         subsidiaries, officers, directors, stockholders, employees and
         Affiliates (collectively, the "Released Parties") of and from any and
         all claims, complaints, causes of action or demands of whatever kind,
         known or unknown (collectively, the "Claims"), which any of the
         Principal Stockholders has or may have against the Released Parties for
         any actions, conduct, decisions, behavior or events relating to or
         arising out of either of the Principal Stockholders' status or
         relationship as an employee, officer, director or shareholder of the
         Company, except for claims arising under this Agreement. The Principal
         Stockholders understand that this release extends to, but is not
         limited to, Claims for breach of contract, breach of any express or
         implied promise, retaliation, breach of public policy, negligence,
         intentional infliction of emotional distress, defamation or any other
         tortious conduct or any Claims under the federal or state securities
         laws.

9.8      Principal Stockholder's Right of Contribution. In the event that any
         Principal Stockholder shall make any cash payment in respect of a claim
         for indemnification by the Parent pursuant to Section 9.3, such
         Principal Stockholder shall be entitled to contribution from the other
         Stockholders in an amount equal to such Stockholder's Pro Rata Share of
         the cash amount so paid to the Parent; provided that any contribution
         obligation by a Stockholder (other than a Principal Stockholder) shall
         be satisfied solely and exclusively out of the Escrow Fund and any
         other amounts, if any, held by the Exchange Agent for distribution to
         such contributing Stockholder.

                                   ARTICLE 10
                                   ARBITRATION

10.1     Dispute. Except for any controversy, claim or dispute arising out of
         the failure by any party to this Agreement to consummate the Merger and
         the transactions contemplated by this Agreement and subject to the last
         sentence of this Section 10.1, any controversy, claim or dispute of
         whatever nature arising between the parties under this Agreement or in
         connection with the transactions contemplated hereunder, including
         those arising out of or relating to the breach, termination,
         enforceability, scope or validity hereof, whether such claim existed
         prior to or arises on or after the Effective Time (a "Dispute"), shall
         be resolved by mediation or, failing mediation, by binding arbitration.
         The agreement to mediate and arbitrate contained in this Article 10
         shall continue in full force and effect despite the expiration,
         rescission or termination of this Agreement. Notwithstanding the
         foregoing, either party may seek injunctive relief with respect to any
         controversy or claim

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         arising out of or relating to any provision of this Agreement in any
         court of competent jurisdiction.

10.2     Mediation. No party shall commence an arbitration proceeding pursuant
         to the provisions set forth below unless such party shall first give a
         written notice (a "Dispute Notice") to the other parties setting forth
         the nature of the Dispute. The parties shall attempt in good faith to
         resolve the Dispute by mediation under the CPR Institute for Dispute
         Resolution ("CPR") Model Mediation Procedure for Business Disputes (the
         "CPR Procedure") in effect at the time of the Dispute. If the parties
         cannot agree on the selection of a mediator within 20 days after
         receipt of the Dispute Notice, the mediator will be selected in
         accordance with the CPR Procedure.

10.3     Arbitration.

         (a)      If the Dispute has not been resolved by mediation as provided
                  in Sections 10.1 and 10.2 within 60 days after receipt of the
                  Dispute Notice or such greater period as the parties may agree
                  upon in writing, or if a party fails to participate in a
                  mediation, then the Dispute shall be determined by binding
                  arbitration in Minneapolis, Minnesota. The arbitration shall
                  be conducted in accordance with the Commercial Arbitration
                  Rules of the American Arbitration Association ("AAA") in
                  effect on the date on which the Dispute Notice is sent,
                  subject to any modifications contained in this Agreement. The
                  Dispute shall be determined by one arbitrator, except that if
                  the Dispute involves an amount in excess of $250,000
                  (exclusive of interest and costs), three arbitrators shall be
                  appointed. Persons eligible to serve as arbitrators shall be
                  members of the AAA Large, Complex Case Panel or a CPR Panel of
                  Distinguished Neutrals, or persons who have professional
                  credentials similar to those persons listed on such AAA or CPR
                  panels. The arbitrator(s) shall have the right to appoint an
                  independent expert (including an independent accounting firm)
                  and the costs and expenses of such expert, together with the
                  costs and expenses of the arbitrator(s), shall be born
                  one-half by the Principal Stockholders and one-half by Parent.
                  The award shall be in writing and include the findings of fact
                  and conclusions of law upon which it is based.

         (b)      The arbitration shall be governed by the substantive laws of
                  the State of Minnesota, without regard to conflicts-of-law
                  rules, and by the arbitration law of the Federal Arbitration
                  Act (Title 9, U.S. Code). Judgment upon the award rendered may
                  be entered in any court having jurisdiction.

         (c)      Except as otherwise required by law, the parties and the
                  arbitrator(s) agree to keep confidential and not disclose to
                  third parties any information or documents obtained in
                  connection with the arbitration process, including the
                  resolution of the Dispute. If a party fails to proceed with
                  arbitration as provided in this Agreement, or unsuccessfully
                  seeks to stay the arbitration, or fails to comply with the
                  arbitration award, or is unsuccessful in vacating or modifying
                  the award pursuant to a petition or application for judicial
                  review, the other party or parties, as applicable, shall be
                  entitled to be awarded costs, including reasonable attorneys'

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                  fees, paid or incurred in successfully compelling such
                  arbitration or defending against the attempt to stay, vacate
                  or modify such arbitration award and/or successfully defending
                  or enforcing the award.

                                   ARTICLE 11
                                  MISCELLANEOUS

11.1     Notices. All notices, requests, demands, claims and other
         communications hereunder shall be in writing. Any notice, request,
         demand, claim, or other communication hereunder shall be deemed duly
         given (i) if personally delivered, when so delivered, (ii) if mailed,
         two Business Days after having been sent by registered or certified
         mail, return receipt requested, postage prepaid and addressed to the
         intended recipient as set forth below, (iii) if given by facsimile,
         once such notice or other communication is transmitted to the facsimile
         number specified below and electronic confirmation is received,
         provided that such notice or other communication is promptly thereafter
         mailed in accordance with the provisions of clause (ii) above or (iv)
         if sent through an overnight delivery service in circumstances to which
         such service guarantees next day delivery, the day following being so
         sent:

         If to Company prior to Closing or to the Principal Stockholders:

                  To:      Lewis C. Pell, Chairman
                           Influence, Inc.
                           40 Ramland Road
                           Orangeburg, New York
                           Fax:  (914) 359-2251

                  With a copy to:

                           Arnold & Porter
                           399 Park Avenue
                           New York, NY 1002
                           Attn:  Paul I. Rachlin, Esq.
                           Fax:  (212) 715-1399

         If to the Company after Closing
         or to the Parent or Merger Subsidiary:

                  To:      American Medical Systems, Inc.
                           10700 Bren Road West
                           Minnetonka, Minnesota 55343
                           Attn:  Chief Executive Officer
                           Fax:  (612) 930-6695

                  With a copy to:

                           Oppenheimer Wolff & Donnelly LLP

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<PAGE>   71

                           Plaza VII
                           45 South Seventh Street, Suite 3400
                           Minneapolis, Minnesota 55402
                           Attn:  Thomas A. Letscher, Esq.
                           Fax:  (612) 607-7100

         Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.

11.2     Amendments; No Waivers.

         (a)      Subject to Applicable Law, any provision of this Agreement may
                  be amended or waived if, and only if, such amendment or waiver
                  is in writing and signed, in the case of an amendment, by all
                  parties hereto, or in the case of a waiver, by the party
                  against whom the waiver is to be effective.

         (b)      No waiver by a party of any default, misrepresentation or
                  breach of warranty or covenant hereunder, whether intentional
                  or not, shall be deemed to extend to any prior or subsequent
                  default, misrepresentation or breach of warranty or covenant
                  hereunder or affect in any way any rights arising by virtue of
                  any prior or subsequent occurrence. No failure or delay by a
                  party in exercising any right, power or privilege hereunder
                  shall operate as a waiver thereof nor shall any single or
                  partial exercise thereof preclude any other or further
                  exercise thereof or the exercise of any other right, power or
                  privilege. The rights and remedies herein provided shall be
                  cumulative and not exclusive of any rights or remedies
                  provided by law.

11.3     Expenses. All costs, fees and expenses incurred in connection with the
         negotiation, preparation, execution, delivery and performance of this
         Agreement and in closing and carrying out the transactions contemplated
         hereby shall be paid by the party incurring such cost or expense.
         Without limiting the generality of the first sentence of this Section
         11.3, the fees, costs and expenses of the accountants, attorneys and
         other financial advisors (including, without limitation, Company's
         attorneys, bankers and accountants) to the Company in connection with
         the preparation or negotiation of, or consummation of the transactions
         contemplated by, this Agreement shall be borne by the Stockholders and
         paid in accordance with the Escrow Agreement; none of such fees, costs
         or expenses shall be paid or assumed by Parent or the Company. Without
         limiting the generality of the first sentence of this Section 11.3, the
         fees, costs and expenses of the accountants, attorneys and other
         financial advisors (including, without limitation, attorneys, bankers
         and accountants) to Parent in connection with the preparation or
         negotiation of, or consummation of the transactions contemplated by,
         this Agreement shall be borne by Parent and none of such fees, costs or
         expenses shall be paid by the Company or the

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         Principal Stockholders. This Section 11.3 shall survive the termination
         of this Agreement.

11.4     Successors and Assigns. This Agreement shall be binding upon and inure
         to the benefit of the parties hereto and their respective successors
         and permitted assigns. No party hereto may assign either this Agreement
         or any of its rights, interests or obligations hereunder without the
         prior written approval of each other party.

11.5     Governing Law. This Agreement shall be governed by, construed and
         enforced in accordance with the internal laws of the State of Minnesota
         (regardless of the laws that might otherwise govern under applicable
         principles of conflicts of law).

11.6     Counterparts; Effectiveness. This Agreement may be signed in any number
         of counterparts and the signatures delivered by facsimile, each of
         which shall be an original, with the same effect as if the signatures
         thereto and hereto were upon the same instrument. This Agreement shall
         become effective when each party hereto shall have received a
         counterpart hereof signed by the other parties hereto.

11.7     Entire Agreement. This Agreement (including the Disclosure Schedule,
         the Side Letter and all Exhibits referred to herein which are hereby
         incorporated by reference and the other agreements executed
         simultaneously herewith) constitutes the entire agreement between the
         parties with respect to the subject matter hereof and supersedes all
         prior agreements, understandings and negotiations, both written and
         oral, between the parties with respect to the subject matter of this
         Agreement. This Agreement supersedes all prior and contemporaneous oral
         and written agreements and understandings between the parties with
         respect to the transaction or transactions contemplated by this
         Agreement (including without limitation the letter of intent dated
         September 2, 1999 between Parent and the Company and all amendments and
         extensions thereof). Neither this Agreement nor any provision hereof is
         intended to confer upon any Person other than the parties hereto any
         rights or remedies hereunder.

11.8     Captions. The captions herein are included for convenience of reference
         only and shall be ignored in the construction or interpretation hereof.
         All references to an Article or Section include all subparts thereof.

11.9     Severability. If any provision of this Agreement, or the application
         thereof to any Person, place or circumstance, shall be held by a court
         of competent jurisdiction to be invalid, unenforceable or void, the
         remainder of this Agreement and such provisions as applied to other
         Persons, places and circumstances shall remain in full force and effect
         only if, after excluding the portion deemed to be unenforceable, the
         remaining terms shall provide for the consummation of the transactions
         contemplated hereby in substantially the same manner as originally set
         forth at the later of the date this Agreement was executed or last
         amended.

11.10    Construction. The parties hereto intend that each representation,
         warranty and covenant contained herein shall have independent
         significance. If any party has breached any representation, warranty or
         covenant contained herein in any respect, the fact that there

                                       67
<PAGE>   73

         exists another representation, warranty or covenant relating to the
         same subject matter (regardless of the relative levels of specificity)
         that the party has not breached shall not detract from or mitigate the
         fact that the party is in breach of the first representation, warranty
         or covenant.

11.11    Cumulative Remedies. The rights, remedies, powers and privileges herein
         provided are cumulative and not exclusive of any rights, remedies,
         powers and privileges provided by law.

11.12    Third Party Beneficiaries. No provision of this Agreement shall create
         any third party beneficiary rights in any Person, including any
         employee of Parent or Merger Subsidiary or employee or former employee
         of the Company or any Affiliate thereof (including any beneficiary or
         dependent thereof).

11.13    Appointment of Stockholders' Representatives; Enforcement of Rights,
         Benefits and Remedies.

         (a)      By adopting this Agreement, the Stockholders hereby
                  irrevocably constitute and appoint each of Lewis Pell, Oren
                  Globerman, and Motti Beyar as the Stockholders'
                  Representatives (the "Stockholders' Representatives") for the
                  purpose of performing and consummating the transactions
                  contemplated by this Agreement and the Escrow Agreement. The
                  appointment of each of such Stockholders' Representatives is
                  coupled with an interest and all authority hereby conferred
                  shall be irrevocable and such Stockholders' Representatives is
                  hereby authorized and directed to perform and consummate all
                  of the transactions contemplated by this Agreement. Not by way
                  of limiting the authority of the Stockholders'
                  Representatives, each and all of the Stockholders, by their
                  adoption of this Agreement, for themselves and their
                  respective heirs, executors, administrators, successors and
                  assigns hereby authorize the Stockholders' Representatives to:

                  (i)      effect any amendment to this Agreement or the Escrow
                           Agreement which the Stockholders' Representatives
                           deems necessary or desirable,

                  (ii)     execute and deliver on their behalf all documents and
                           instruments which may be executed and delivered
                           pursuant to this Agreement or the Escrow Agreement,
                           except that all stock powers and letters of
                           transmittal with respect to the transfer of the
                           Company Common Stock or Company Preferred Stock shall
                           be personally executed by the Stockholders,

                  (iii)    make and receive notices and other communications
                           pursuant to this Agreement or the Escrow Agreement
                           and service of process in any legal action or other
                           proceeding arising out of or related to this
                           Agreement or the Escrow Agreement or any of the
                           transactions hereunder,

                  (iv)     settle any dispute, claim, action, suit or proceeding
                           arising out of or related to this Agreement or the
                           Escrow Agreement or any of the transactions

                                       68
<PAGE>   74

                           hereunder, including, without limitation, the
                           calculation of the Merger Consideration,

                  (v)      receive and distribute the Contingent Merger
                           Consideration and Holdback Merger Consideration,

                  (vi)     appoint or provide for successor agents, and

                  (vii)    pay expenses incurred or which may be incurred by or
                           on behalf of the Stockholders (and to be reimbursed
                           by the Stockholders for their Pro Rata Share of such
                           expenses out of the sums held by the Exchange Agent
                           pursuant to the Escrow Agreement) in connection with
                           this Agreement and the Escrow Agreement.

                  In the event of the death or disability of any Stockholders'
                  Representative, a majority of the remaining Stockholders'
                  Representatives shall promptly appoint one of the other
                  Principal Stockholders as a replacement. No person serving as
                  the Stockholders' Representatives under this Agreement shall
                  have any personal liability to any Stockholder or its
                  permitted assigns in respect of any claim arising under or
                  based upon this Agreement or the transactions hereunder except
                  to the extent that such person may have liability as a
                  Stockholder hereunder.

         (b)      Any claim, action, suit, or other proceeding, whether in law
                  or equity, to enforce any right, benefit or remedy granted to
                  Stockholders under this Agreement or the Escrow Agreement
                  shall be asserted, brought, prosecuted or maintained only by
                  the Stockholders' Representatives. With respect to any matter
                  contemplated by this Section 11.13, the Stockholders shall be
                  bound by any determination in favor of or against the
                  Stockholders' Representatives or the terms of any settlement
                  or release to which the Stockholders' Representatives shall
                  become a party.

         (c)      All actions to be taken by the Stockholders' Representatives
                  may be taken by any two Stockholders' Representatives acting
                  together.

                     (Following Page is the Signature Page)

                                       69
<PAGE>   75

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

AMERICAN MEDICAL SYSTEMS, INC.    INFLUENCE, INC.
a Delaware corporation            a Delaware corporation

By:      /s/ Douglas W. Kohrs     By:      /s/ Peter A. Bick
   ----------------------------      -------------------------------------------

Name:    Douglas W. Kohrs         Name:    Peter A. Bick, M.D.
     --------------------------        -----------------------------------------

Title:   President and CEO        Title:   President and Chief Executive Officer
      -------------------------         ----------------------------------------

PERSUADE MERGER CORP.             GLOBERMAN ENGINEERING LTD.
a Delaware corporation            an Israeli company

By:      /s/ Douglas W. Kohrs     By:      /s/ Oren Globerman
   ----------------------------      -------------------------------------------

Name:    Douglas W. Kohrs         Name:    Oren Globerman
     --------------------------        -----------------------------------------

Title:   President and CEO        Title:   Manager
      -------------------------         ----------------------------------------

                                  UROTEK LTD.
                                  an Israeli company

                                  By:      Mordechay Beyar
                                     -------------------------------------------
                                  Name:    Mordechay Beyar, M.D.
                                       -----------------------------------------
                                  Title:   Director
                                        ----------------------------------------

                                  KATSUMI ONEDA

                                  /s/ Katsumi Oneda
                                  ----------------------------------------------

                                  LEWIS C. PELL

                                  /s/ Lewis C. Pell
                                  ----------------------------------------------

                                       70

<PAGE>   76

                                   GUARANTIES

American Medical Systems, Inc. hereby absolutely and unconditionally guarantees
the prompt payment and performance of all of the agreements, covenants and
indemnification obligations of Persuade Merger Corp. under the foregoing
Agreement and Plan of Merger, among American Medical Systems, Inc., Persuade
Merger Corp., Influence, Inc., Globerman Engineering Ltd., Urotek Ltd., Katsumi
Oneda and Lewis C. Pell.

AMERICAN MEDICAL SYSTEMS, INC.
a Delaware corporation

By:      /s/ Douglas W. Kohrs
   -----------------------------

Name:    Douglas W. Kohrs
     ---------------------------

Title:   President and CEO
      --------------------------

Oren Globerman hereby absolutely and unconditionally guarantees the prompt
payment and performance of all of the agreements, covenants and indemnification
obligations of Globerman Engineering Ltd. under the foregoing Agreement and Plan
of Merger, among American Medical Systems, Inc., Persuade Merger Corp.,
Influence, Inc., Globerman Engineering Ltd., Urotek Ltd., Katsumi Oneda and
Lewis C. Pell.

/s/ Oren Globerman
--------------------------------
OREN GLOBERMAN

Mordechay Beyar, M.D. hereby absolutely and unconditionally guarantees the
prompt payment and performance of all of the agreements, covenants and
indemnification obligations of Urotek Ltd. under the foregoing Agreement and
Plan of Merger, among American Medical Systems, Inc., Persuade Merger Corp.,
Influence, Inc., Globerman Engineering Ltd., Urotek Ltd., Katsumi Oneda and
Lewis C. Pell.

/s/ Mordechay Beyar
--------------------------------
MORDECHAY BEYAR, M.D.

                                       71
<PAGE>   77

                                  EXHIBIT INDEX

EXHIBIT A         Form of Certificate of Merger

EXHIBIT B         Parent Retention List

EXHIBIT C         Disclosure Schedule

EXHIBIT D         Form of Irrevocable Proxy

EXHIBIT E         Form of Voting Agreement

EXHIBIT F         Form of ENT Purchase and Sale Agreement

EXHIBIT G         Form of Beyar/Globerman Employment Agreement

EXHIBIT H         Form of Bick Consulting Agreement

EXHIBIT I         Form of Machek Consulting Agreement

EXHIBIT J         Form of Resignation and Release<PAGE>   1

                                                                  EXECUTION COPY
                               FIRST AMENDMENT TO
                          AGREEMENT AND PLAN OF MERGER

         THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Amendment"), dated as of December 15, 1999, is by and among (i) American
Medical Systems, Inc., a Delaware corporation ("Parent"), (ii) Persuade Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Subsidiary"), (iii) Influence, Inc., a Delaware corporation ("Company"), (iv)
Globerman Engineering Ltd., an Israeli company, Urotek Ltd., an Israeli company,
Katsumi Oneda, an individual residing in the State of New Jersey, and Lewis C.
Pell, an individual residing in the State of New York (collectively referred to
herein as the "Principal Stockholders") and (v) the Stockholders Representatives
(as defined in the Merger Agreement).

         WHEREAS, the parties have entered into an Agreement and Plan of Merger,
dated as of November 12, 1999 (the "Merger Agreement").

         WHEREAS, the parties, together with the Stockholders Representatives,
desire to amend the Merger Agreement as set forth herein.

         ACCORDINGLY, the parties and the Stockholders Representatives hereby
agree as follows:

1.       Reduction of Merger Consideration. As a result of the proposed
         execution of the Exchange Agreement, dated as of December 15, 1999,
         between Parent and Urotek Ltd., (the "Exchange Agreement") the parties
         agree that Section 2.8 is hereby amended as follows:

         A.       By deleting the first part of Section 2.8, before paragraph
                  (a) of Section 2.8, and inserting in lieu thereof the
                  following:

                  "Subject to adjustment pursuant to Sections 2.8(a) and 2.8(e),
                  the Side Letter, as defined in Section 2.8(b), Section 2.10
                  (Contingent Merger Consideration), Section 2.12 (Dissenting
                  Shares) and Section 9.6 (Right of Off-Set), the consideration
                  to be paid for all of the Company Common Stock and Company
                  Preferred Stock issued and outstanding immediately prior to
                  the Effective Time will consist of Forty-Six Million U.S.
                  Dollars ($46,000,000), which shall be payable as follows:"

                  and;

         B.       By adding a new subparagraph (e), as follows:

                           (e) The amount of Merger Consideration to be paid by
                  Parent in connection with the Merger consisting of the Initial
                  Merger Consideration, Contingent Merger Consideration and
                  Holdback Merger Consideration shall be
<PAGE>   2

                  reduced and retained by Parent by an amount equal to the
                  product of (x) the amount of the Merger Consideration payable
                  pursuant to this Agreement, multiplied by (y) the Retained
                  Percentage. The "Retained Percentage" for purposes of this
                  Section 2.8(d) shall mean: (i) with respect to the Initial
                  Merger Consideration, a fraction equal to 0.022507 or such
                  other amount as AMS and the Stockholders Representative shall
                  agree represents that portion of the Initial Merger
                  Consideration that would have been distributable pursuant to
                  the Escrow Agreement to Urotek Ltd. ("Urotek") in respect of
                  the 225,000 shares of Company Common Stock owned by Urotek
                  that is subject to the Exchange Agreement (the "Urotek
                  Retained Shares"); (ii) with respect to the Contingent Merger
                  Consideration, a fraction equal to 0.025797; and (iii) with
                  respect to the Holdback Merger Consideration, a fraction equal
                  to 0.022879.

                  and;

         C.       Section 2.8(a) of the Merger Agreement is hereby amended to
                  the extent necessary to provide that, in addition to the
                  deductions set forth therein, an aggregate of $560.590.70
                  shall be deducted from the initial payment of Twenty-Five
                  Million U.S. Dollars ($25,000,000) to satisfy withholding
                  obligations for federal, state and local income and
                  employment-related taxes ("Withholding Obligations") arising
                  from the exercise or conversion of Company Stock Options held
                  by U.S. employees into shares of Company Common Stock and the
                  subsequent conversion thereof into the right to receive Merger
                  Consideration. Parent shall cause such amounts to be paid to
                  the appropriate taxing authorities through Company's payroll
                  service.

2.       Cancellation and Conversion of Company Common Stock. Sections 2.9(a)
         and 2.9(d) of the Merger Agreement are hereby amended in their entirety
         to read as follows:

         (a)      Subject to the terms and conditions of Section 2.12, each
                  share of Company Common Stock, issued and outstanding
                  immediately prior to the Effective Time (other than (1)
                  Company Common Stock held in the Company's treasury or by any
                  of the Company's Subsidiaries, (2) Company Common Stock held
                  by Parent, Merger Subsidiary or any other Subsidiary of
                  Parent, (3) Dissenting Shares and (4) the Urotek Retained
                  Shares) shall automatically be converted into the right to
                  receive (x) a Pro Rata Share of the Initial Merger
                  Consideration, (less the amount of such Initial Merger
                  Consideration payable, before expenses, to holders of Company
                  Preferred Stock pursuant to Section 2.9(b) below) and (y) a
                  Pro Rata Share of any Holdback Merger Consideration and
                  Contingent Merger Consideration, if any, which becomes payable
                  under this Agreement, less any portion of the Contingent
                  Merger Consideration off-set by Parent pursuant to Section
                  9.6, and, in each case, less a Pro Rata Share of any
                  Stockholder Expenses;

                                       2
<PAGE>   3

         (d)      Each share of the common stock, par value $.01 per share, of
                  Merger Subsidiary ("Merger Subsidiary Common Stock"), issued
                  and outstanding at the Effective Time of the Merger shall be
                  converted into Ten Thousand (10,000) shares of common stock,
                  par value $.001 per share, of the Surviving Corporation
                  ("Surviving Corporation Common Stock").

3.       Exchange Agreement. Section 2.9 of the Merger Agreement is hereby
         amended by adding a new Section 2.9(f) at the end thereof as follows:

         (f)      The Urotek Retained Shares shall be exchangeable into shares
                  of Series A Non-Voting Preferred Stock, par value $.01 per
                  share, of Parent and Series D Convertible Voting Preferred
                  Stock, par value $.01 per share, of Parent pursuant to the
                  Exchange Agreement.

4.       Tax Matters.

         (a)      Section 5.12(b) of the Merger Agreement is hereby amended to
                  the extent necessary to provide that notwithstanding any other
                  provision of Section 5.12(b), Parent shall be entitled to
                  retain any Tax refund or Tax benefit arising from amendments
                  to any Tax Return for the years ended December 31, 1997 and
                  1998 and the Tax period ending on the Closing Date.

         (b)      Section 5.12(c)(x) is hereby amended in its entirety to read
                  as follows: "Notwithstanding any provision in this Section
                  5.12 to the contrary, the terms and conditions of Sections
                  9.3, 9.4, 9.5 and 9.6 (to the extent not inconsistent with
                  this Section 5.12) shall apply to any indemnification
                  obligation of the Principal Stockholders with respect to the
                  Tax Matters described in this Section 5.12."

         (c)      The parties acknowledge and agree that for purposes of
                  calculating the cashless exercise of Company Stock Options and
                  the amount of Withholding Obligations, the fair market value
                  of the Merger Consideration payable for the outstanding shares
                  of Company Common Stock and Company Preferred Stock is equal
                  to Thirty-Five Million U.S. Dollars ($35,000,000). Such fair
                  market value shall also be used for calculating the
                  compensation deduction related to the cashless exercise of
                  Company Stock Options and subsequent conversion into a Pro
                  Rata Share of Merger Consideration to which the Company will
                  be entitled for the Tax period ending on Closing Date. An
                  aggregate of 1,210,257 shares of Company Common Stock will be
                  issued in connection with the cashless exercise of all
                  outstanding Company Stock Options.

5.       Indemnification by Principal Stockholders. Section 9.3 of the Merger
         Agreement is hereby amended to the extent necessary to provide that,
         notwithstanding any other provision of the Merger Agreement, the
         Principal Stockholders shall not be subject to any claim for
         indemnification by the Parent under Section 9.3(iii) or arising out of
         or based upon any Tax Liability arising from the amendments prior to
         the Closing as reflected in

                                       3

<PAGE>   4

         that certain Amendment No. 1 to Services Agreement, dated effective
         January 1, 1998, between the Company and IMT.

6.       Parent Loans. Parent will offer to provide loans ("Loans") to the U.S.
         employees of Company that Parent intends to retain to cover the
         estimated Tax Liability (assuming a combined federal and state income
         tax rate of 35%) incurred by such employees in connection with the
         cashless exercise of Company Stock Options into shares of Company
         Common Stock and the subsequent conversion thereof into the right to
         receive a Pro Rata Share of Merger Consideration, but only to the
         extent that such liability relates to the difference between the fair
         market value of Merger Consideration established pursuant to Section
         4(c) above and the Initial Merger Consideration paid at Closing.

7.       Milestones. The parties agree that due to the need for additional time
         by the parties to determine whether or not the Milestone described in
         Section 2.10(c)(iv) has been satisfied, the parties agree that the
         completion date for the satisfaction of such Milestone shall be
         extended to December 23, 1999; provided that AMS shall provide prompt
         notice of any deficiency in such Milestone after the date hereof.

8.       Defined Terms. Capitalized words that are not defined herein shall have
         the meaning given to them in the Merger Agreement.

9.       No Other Amendments. Except as amended herein, the Merger Agreement
         shall remain in full force and effect in accordance with its original
         terms.

10.      Counterparts. This Amendment may be signed in any number of
         counterparts and the signatures delivered by facsimile, each of which
         shall be an original, with the same effect as if the signatures thereto
         and hereto were upon the same instrument.

                     (Following Page is the Signature Page)

                                       4
<PAGE>   5

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
         duly executed by their respective authorized officers as of the day and
         year first above written.

AMERICAN MEDICAL SYSTEMS, INC.                     INFLUENCE, INC.
a Delaware corporation                             a Delaware corporation

By:      /s/ Douglas W. Kohrs                      By:      /s/ Peter Bick
   --------------------------                         --------------------------
Name:    Douglas W. Kohrs                          Name:    Peter Bick
     ------------------------                           ------------------------
Title:   President and CEO                         Title:   President and CEO
      -----------------------                            -----------------------

PERSUADE MERGER CORP.                              GLOBERMAN ENGINEERING LTD.
a Delaware corporation                             an Israeli company

By:      /s/ Douglas W. Kohrs                      By:      /s/ Oren Globerman
   --------------------------                         --------------------------
Name:    Douglas W. Kohrs                          Name:    Oren Globerman
     ------------------------                           ------------------------
Title:   President and CEO                         Title:   Director
      -----------------------                            -----------------------

UROTEK LTD.
an Israeli company
                                                   /s/ Katsumi Oneda
                                                   -----------------------------
By:      /s/ Mordechay Beyar                       Katsumi Oneda
   -------------------------
Name:    Mordechay Beyar
     ------------------------
Title:   Director                                  /s/ Lewis C. Pell
      -----------------------                      -----------------------------
                                                   Lewis C. Pell

STOCKHOLDERS REPRESENTATIVES:
The Stockholder's Representatives consent to and
adopt the foregoing Amendment to the Merger Agreement
on and as of the date first above written

/s/ Lewis C. Pell
------------------------------------
Lewis C. Pell,
  as Stockholders Representative

/s/ Mordechay Beyar
------------------------------------
Mordechay Beyar,
  as Stockholders Representative

/s/ Oren Globerman
------------------------------------
Oren Globerman,
  as a Stockholders' Representative

                                       5

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