Document:

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                                                                     Exhibit 4.3
                                 VIDAMED, INC.

                               PURCHASE AGREEMENT

     This Purchase Agreement (the "Agreement") is made as of May 20, 1998 (the
"Agreement Date"), by and between VidaMed, Inc., a Delaware corporation (the
"Company") with its principal office at 46107 Landing Parkway, Freemont,
California 94538, and the purchasers set forth on Exhibit A hereto (individually
a "Purchaser" and collectively the "Purchasers").

                                  Section 1.

                Purchase and Sale of Common Stock and Warrants
                ----------------------------------------------

     1.1  Purchase and Sale of Common Stock.  Each Purchaser, severally and not
          ---------------------------------
jointly, agrees to purchase from the Company, and the Company agrees to issue
and sell to such Purchaser, the number of shares (the "Shares") of Common Stock,
$0.00l par value (the "Common Stock") of the Company set forth on opposite such
Purchaser's name on Exhibit A hereto.  The purchase price for one Share of
Common Stock (the "Purchase Price") pursuant to this Agreement shall be $4.00.

     1.2  Issuance of Warrants.  The Company shall issue to each Purchaser a
          --------------------
warrant (individually a "Warrant" and collectively the "Warrants") exercisable
for one fourth (1/4) of the number of Shares purchased by such Purchaser. Each
Warrant, the form of which is attached hereto as Exhibit B, entitles the
registered holder thereof to purchase Common Stock at a price of $5.00 per share
(which equals 1.25 times the Purchase Price), subject to adjustment in certain
circumstances, commencing on the date hereof until three years from the Closing
(as defined below). The Shares, the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") are herein
collectively referred to as the "Securities."

                                  Section 2.

                            Closing Date; Delivery
                            ----------------------

     2.1  Closing Date.  The completion of the purchase and sale of the Shares
          ------------
and the Warrants will be held at such place and time agreed upon by the
Placement Agents (as defined below) and the Company, and the Purchasers will
receive prior notification of the Closing by facsimile, telex, cable or by other
means deemed appropriate by the Company (the "Closing"). The date of the Closing
is hereinafter referred to as the "Closing Date."

     2.2  Delivery.  At the Closing, the Company will deliver to each Purchaser
          --------
the certificates evidencing the Shares and Warrants purchased by such Purchaser
as shown on Exhibit A and an opinion of Wilson Sonsini Goodrich & Rosati,
counsel to the Company, in the form of Exhibit C. Such delivery shall be against
payment of the Purchase Price for the Shares by wire transfer of immediately
available funds to the Company's bank account (in accordance with instructions
furnished by the Company).
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                                  Section 3.

                 Representations and Warranties of the Company
                 ---------------------------------------------

     The Company represents and warrants to the Purchasers as follows:

     3.1  Organization and Standing.  The Company is a corporation duly
          -------------------------
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing as a domestic corporation under the laws of
said state, and has the requisite corporate power and authority to own its
properties and to carry on its business as now being conducted. Other than as
disclosed in the SEC Documents (as defined below), the Company has no
subsidiaries or direct or indirect ownership in any firm, corporation or
business which either, individually or in the aggregate, is material to the
business of the Company. The Company is qualified to do business and is in good
standing as a foreign corporation in every jurisdiction in which its ownership
of property or conduct of business requires it so to be qualified and in which
the failure to so qualify would have a material adverse effect on the financial
condition or business of the Company.

     3.2  Corporate Power; Authorization.  The Company has all requisite legal
          ------------------------------
and corporate power and authority and has taken all requisite corporate action
to duly authorize, execute and deliver this Agreement, to sell and issue the
Shares and the Warrants and to carry out and perform all of its obligations
under and contemplated by this Agreement. This Agreement has been duly executed
and delivered by an authorized officer of the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as limited by applicable bankruptcy, insolvency, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights
generally.

     3.3  Issuance and Delivery.  The Shares and the Warrants have been duly
          ---------------------
authorized, and, when issued and delivered in compliance with this Agreement,
will be duly and validly issued and delivered and will be outstanding, fully
paid, nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, and will conform to the description thereof contained in the
Registration Statement (or incorporated by reference therein).  The Warrant
Shares have been duly authorized and reserved for issuance upon exercise of the
Warrants, and such shares, when issued upon such exercise in accordance with the
terms of the Company's Certificate of Incorporation and the Warrants,
respectively, and when the price is paid upon exercise of the Warrants, shall be
fully paid and non-assessable.  No preemptive rights, or other rights to
subscribe for or purchase, exist with respect to the issuance and sale of the
Securities by the Company pursuant to this Agreement.  No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Securities to be sold by the Company
as contemplated herein.

     3.4  SEC Documents; Financial Statements; Subsequent Events.  The Company
          ------------------------------------------------------
has filed in a timely manner all documents that the Company was required to file
with the Securities and Exchange Commission ("SEC") under Sections 13, 14(a) and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
during the twelve (12) months preceding the date of this Agreement and all rules
and regulations thereunder. As of their respective filing dates, all documents
filed by the Company with the SEC (the "SEC

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Documents") complied in all material respects with the requirements of the
Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"),
as applicable and all rules and regulations thereunder. None of the SEC
Documents contained, as of their respective dates, any untrue statement of
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, and such SEC Documents, when read as
a whole, do not contain any untrue statements of a material fact and do not omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents (the "Financial
Statements") comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto. The Financial Statements have been prepared in accordance with
United States generally accepted accounting principles consistently applied and
fairly present the financial position of the Company and any subsidiaries at the
dates thereof and the results of the Company's operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
adjustments). By virtue of certain issuances of Common Stock by the Company
during April 1998, the exercise price under certain outstanding warrants of the
Company issued in September 1997 will be reduced from $6.33 per share to an
exercise price equal to the Purchase Price.

     3.5  Registration Statement.
          ----------------------
          (a)  The Company has filed with the SEC a registration statement on
Form S-3 (File No. 333-45895), which has become effective, for the registration
under the Securities Act of the Shares and the Warrant Shares. The Company
proposes to file with the SEC pursuant to Rule 424 under the Securities Act a
supplement to the form of prospectus included in such registration statement
relating to the Shares and the Warrant Shares and the plan of distribution
thereof and has previously advised the Purchasers of all further information
(financial and other) with respect to the Company to be set forth therein. Such
registration statement, including the exhibits thereto, as amended at the date
of this Agreement, is hereinafter called the "Registration Statement"; such
prospectus in the form in which it appears in the Registration Statement is
hereinafter called the "Basic Prospectus" and supplemented form of prospectus,
in the form in which it shall be filed with the SEC pursuant to Rule 424(b)
(including the Basic Prospectus as so supplemented) is hereinafter called the
"Final Prospectus." Any reference herein to the Registration Statement, the
Basic Prospectus or the Final Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the date of this Agreement,
or the issue date of the Basic Prospectus or the Final Prospectus, as the case
may be; and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement, the Basic Prospectus or
the Final Prospectus shall be deemed to refer to and include the filing of any
document under the Exchange Act after the date of this Agreement, or the issue
date of the Basic Prospectus or the Final Prospectus, as the case may be, and
deemed to be incorporated therein by reference.

          (b)  As of the date hereof, when the Final Prospectus is filed
pursuant to Rule 424(b) under the Securities Act, when, prior to the Closing
Date, any amendment to the Registration Statement becomes effective (including
the filing of any document incorporated by reference in the Registration
Statement), when any supplement to the Final Prospectus is filed

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with the SEC and at the Closing Date, (i) the Registration Statement, as amended
as of any such time and the Final Prospectus, as amended or supplemented as of
any such time, complies or will comply in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and the
respective rules thereunder and (ii) neither the Registration Statement, as
amended as of any such time, nor the Final Prospectus, as amended or
supplemented as of any such time, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading .

     3.6  Governmental Consents.  No consent, approval, order or authorization
          ---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement except for the
filing of a Nasdaq National Market Notification Form (pursuant to Rule 10b-17
promulgated under the Exchange Act) with the Nasdaq National Market, each of
which will be filed in a timely manner.

     3.7  Exempt Transactions.  Subject to the accuracy of the Purchasers'
          -------------------
representations and warranties in Section 4 of this Agreement, the offer, sale
and issuance of the Warrants in conformity with the terms of this Agreement
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act and from the registration or qualification requirements of
the laws of any applicable state or United States jurisdiction.

     3.8  No Material Adverse Change.  Except as otherwise disclosed herein,
          --------------------------
since March 31, 1998, there have not been any changes in the assets,
liabilities, financial condition, business or operations of the Company from
that reflected in the Financial Statements except (i) changes in the ordinary
course of business which have not been, either individually or in the aggregate,
materially adverse and (ii) the Company's continued incurrence of operating
losses and negative cash flow, which have occurred at a rate not materially in
excess of the rate at which operating losses and negative cash flows were
incurred from January 1, 1997 to March 31, 1998.

     3.9  Intellectual Property.  The Company owns or possesses adequate rights
          ---------------------
to use all patents, patent rights, inventions, trademarks, trade names,
copyrights, licenses, governmental authorizations, trade secrets and know-how
that are used or necessary for the conduct of its business as described in the
SEC Documents; except as described in the SEC Documents, neither the Company nor
any of its subsidiaries has received any notice of, or has any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent right, invention, trademarks, trade names, copyrights, licenses,
governmental authorizations, trade secret or know-how that, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries considered
as a whole.

     3.10  Authorized Capital Stock.  The authorized capital stock of the
           ------------------------
Company conforms, as of the dates for which such information is given, in all
material respects to the statements relating thereto contained in the SEC
Documents. The issued and outstanding shares of capital stock of the Company
have been duly authorized, validly issued and are fully paid and

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nonassessable; except as set forth or referred to in the SEC Documents, no
warrants, options or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company. All of the above securities of the Company were issued in compliance
with all applicable federal and state securities laws and were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities. No holder of any security of the Company is entitled
to any preemptive or similar rights to purchase any securities of the Company.

     3.11  Litigation.  There are no actions, suits, proceedings or
           ----------
investigations pending or, to the best of the Company's knowledge, threatened
against the Company or any of its properties before or by any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable likelihood (in the judgment of the Company) of an adverse decision
that (a) would have a material adverse effect on the Company's properties or
assets or the business of the Company as presently conducted or proposed to be
conducted or (b) would impair the ability of the Company to perform in any
material respect its obligations under this Agreement. The Company is not in
default with respect to any judgment, order or decree of any court or
governmental agency or instrumentality which, individually or in the aggregate,
would have a material adverse effect on the assets, properties or business of
the Company.

     3.12  Preemptive and Registration Rights.  There are no preemptive rights,
           ----------------------------------
rights of first refusal, repurchase rights or any other right of the Company or
any third party as to the Securities which have not been satisfied or waived.

     3.13  Compliance With Other Instruments.  The business and operations of
           ---------------------------------
the Company have been and are being conducted in accordance with all applicable
laws, rules and regulations of all governmental authorities, except for such
violations of applicable laws, rules and regulations which would not,
individually or in the aggregate, have a material adverse effect on the assets,
properties, financial condition or business of the Company. Neither the
execution and delivery of, nor the performance or compliance with, this
Agreement and the transactions contemplated hereby, will, with or without the
giving of notice or the passage of time, (i) result in any breach of, or
constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of the Company pursuant to, any agreement
or other instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or effected, except for such breach or
default or the imposition of any such lien or encumbrance which, either
individually or in the aggregate, would not have a material adverse effect on
the assets, properties, financial condition or business of the Company or (ii)
violate the Certificate of Incorporation or Bylaws of the Company, or any law,
rule, regulation, judgment, order or decree. The Company is not in violation of
its Certificate of Incorporation or Bylaws nor in violation of, or in default
under, any lien, indenture, mortgage, lease, agreement, instrument, commitment
or arrangement, except for such defaults which would not, individually or in the
aggregate, have a material adverse effect on the assets, properties, financial
condition or business of the Company, or subject to any restriction which would
prohibit the Company from entering into or performing its obligations under the
Agreement.

     3.14  Brokers or Finders.  To the knowledge of the Company and except for
           ------------------
claims of Musket Research, Inc. and Moness Crespi (the "Placement Agents") in
connection with this

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transaction, no person, firm or corporation has or will have, as a result of any
act or omission of the Company, any right, interest or valid claim against the
Purchasers for any commission, fee or other compensation as a finder or broker
in connection with the transactions contemplated by this Agreement. The fees and
commissions payable to the Placement Agents shall be paid by the Company and the
Company shall indemnify and hold each Purchaser harmless for any claims made by
the Placement Agents concerning the purchase of the Securities.

     3.15  Compliance with Environmental Laws.  Except as disclosed in the SEC
           ----------------------------------
Documents, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and,
to the best of the Company's knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
To the best of the Company's knowledge, the Company does not have any material
liability to any governmental authority or other third party arising under or as
a result of any such past or existing statute, law or regulation.

     3.16  No Implied Representations.  All of the Company's representations and
           --------------------------
warranties are contained in this Agreement and no other representations or
warranties by the Company shall be implied.

     3.17  Contracts.  The contracts so described in the SEC Documents or
           ---------
incorporated by reference therein are in full force and effect on the date
hereof, except for contracts the termination or expiration of which would,
individually or in the aggregate, not have a material adverse effect on the
business, properties or assets of the Company, and neither the Company nor any
of its subsidiaries, nor to the Company's knowledge, any other party is in
breach of or default under any of such contracts.

     3.18  Properties.  The Company has good and marketable title to all the
           ----------
properties and assets reflected as owned in the financial statements included in
the SEC Documents, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except (i) those, if any, reflected in such financial statements, or
(ii) those which are not material in amount and do not adversely affect the use
made and promised to be made of such property by the Company and its
subsidiaries.  The Company and any applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company and the
subsidiaries.  Except as disclosed in the SEC Documents, the Company owns or
leases all such properties as are necessary to its operations as now conducted
or as proposed to be conducted.

     3.19  Compliance.  The Company has not been advised, and has no reason to
           ----------
believe, that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business; except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries.

     3.20  Taxes.  The Company and its subsidiaries have filed all necessary
           -----
federal, state and foreign income and franchise tax returns and have paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of any
tax deficiency which has been or might be

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asserted or threatened against the Company or its subsidiaries which could
materially and adversely affect the business, operations or properties of the
Company and its subsidiaries.

     3.21  Transfer Taxes.  On the Closing Date, all stock transfer or other
           --------------
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Securities to be sold to the Purchasers hereunder
will be, or will have been, fully paid or provided for by the Company and all
laws imposing such taxes will be or will have been complied with fully.

     3.22  Investment Company.  The Company is not an "investment company"
           ------------------
within the meaning of the Investment Company Act of 1940, as amended.

     3.23  Insurance.  Each of the Company and its subsidiaries maintains
           ---------
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering all real and
personal property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.

     3.24  Contributions.  Neither the Company nor any of its subsidiaries has,
           -------------
directly or indirectly, at any time during the last five years (i) made any
unlawful contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.

                                  Section 4.

          Representations, Warranties and Covenants of the Purchasers
          -----------------------------------------------------------

     Each Purchaser, severally and for itself only, hereby represents and
warrants to the Company as follows:

     4.1  Authorization.  (i) The Purchaser has all requisite legal and
          -------------
corporate or other power and capacity and has taken all requisite corporate or
other action to execute and deliver this Agreement, to purchase the Securities
to be purchased by it and to carry out and perform all of its obligations under
this Agreement; and (ii) this Agreement constitutes the legal, valid and binding
obligation of the Purchaser, enforceable in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, or similar
laws relating to or affecting the enforcement of creditors' rights generally and
(b) as limited by equitable principles generally.

     4.2  Investment Experience.  The Purchaser is an "accredited investor" as
          ---------------------
defined in Rule 501(a) under the Securities Act.  The Purchaser is aware of the
Company's business affairs and financial condition and has had access to and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Securities.  The Purchaser has such
business and financial experience as is required to give it the capacity to
protect its own interests in connection with the purchase of the Securities.

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     4.3  Investment Intent.  The Purchaser is purchasing the Warrants for its
          -----------------
own account as principal, for investment purposes only, and not with a present
view to, or for, resale, distribution or fractionalization thereof, in whole or
in part, within the meaning of the Securities Act. The Purchaser understands
that its acquisition of the Warrants has not been registered under the
Securities Act or registered or qualified under any state securities law in
reliance on specific exemptions therefrom, which exemptions may depend upon,
among other things, the bona fide nature of the Purchase's investment intent as
expressed herein. The Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Shares, the Warrants and
the Warrant Shares except in compliance with the Securities Act, and the rules
and regulations promulgated thereunder.

     4.4  Registration or Exemption Requirements.  The Purchaser further
          --------------------------------------
acknowledges and understands that the Warrants may not be resold or otherwise
transferred except in a transaction registered under the Securities Act or
unless all exemption from such registration is available. The Purchaser
understands that the certificate(s) evidencing the Warrants will be imprinted
with a legend that prohibits the transfer of such securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the
Securities Act and, if the Company shall so request in writing, an opinion of
counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.

     4.5  No Legal, Tax or Investment Advice.  The Purchaser understands that
          ----------------------------------
nothing in this Agreement or any other materials presented to the Purchaser in
connection with the purchase of the Securities constitutes legal, tax or
investment advice. The Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Securities and understands that the
Placement Agents have acted as placement agents for the Company and not in any
of the foregoing capacities on behalf of the Purchaser.

                                  Section 5.

                      Conditions to Closing of Purchasers
                      -----------------------------------

     The obligation of each Purchaser to purchase the Shares and the Warrants at
the Closing is subject to the fulfillment as of the Closing Date of the
following conditions:

     5.1  Representations and Warranties.  The representations and warranties
          -------------------------------
made by the Company in Section 3 hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.

     5.2  Covenants.  All covenants, agreements and conditions contained in this
          ---------
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.

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<PAGE>

     5.3  Compliance Certificate.  The President or Chief Financial Officer of
          ----------------------
the Company shall have delivered to the Purchasers and the Placement Agents a
certificate, dated as of the Closing Date, certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled and stating that since
March 31, 1998, there shall have been no material adverse change in the assets,
liabilities, financial condition, business or operations of the Company from
that reflected in the Financial Statements except (i) changes in the ordinary
course of business which have not been, either individually or in the aggregate,
materially adverse and (ii) the Company's continued incurrence of operating
losses and negative cash flow which have occurred at a rate not materially in
excess of the rate at which operating losses and negative cash flows were
incurred from January 1, 1997 to March 31, 1998.

     5.4  Nasdaq Listing.  The Shares and the Warrant Shares shall have been
          --------------
approved for listing on the Nasdaq National Market upon notice of issuance.

     5.5  Legal Opinion of Company Counsel.  Wilson Sonsini Goodrich & Rosati,
          --------------------------------
counsel to the Company, shall have delivered a legal opinion, addressed to the
Purchasers, in the form attached as Exhibit C hereto.

     5.6  Registration Statement.  The Registration Statement shall be effective
          ----------------------
and no stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall have been
instituted or be pending.

     5.7  Minimum Sale.  The Company shall have obtained gross proceeds of at
          ------------
least $6 million from the sale of the Shares and Warrants at the Closing.

     5.8  Closing Date.  The Closing shall have occurred on or prior to May 31,
          ------------
1998.

                                  Section 6.

                       Conditions to Closing of Company
                       --------------------------------

     The Company's obligation to sell and issue the Shares and the Warrants at
the Closing to a Purchaser is subject to the fulfillment or waiver of the
following conditions:

     6.1  Representations and Warranties.  The representations and warranties
          ------------------------------
made by such Purchaser in Section 4 hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of such date.

      6.2  Covenants.  All covenants, agreements and conditions contained in
this Agreement to be performed by such Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects.

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<PAGE>

                                  Section 7.

                      Affirmative Covenants of the Company
                      ------------------------------------

     The Company hereby covenants and agrees as follows:

     7.1  Registration Statement.
          ----------------------

          (a)  The Company will use its best efforts to: (i) keep the
Registration Statement effective until the earlier of (A) the third anniversary
of the Closing Date or (B) such date as all of the Warrant Shares have been
issued upon exercise of the Warrants; (ii) prepare and file with the SEC such
amendments and post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable period
specified in this Section 7.1(a); (iii) cause the related prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; (iv) furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Purchaser from time to time may reasonably request, and the Company hereby
consents to the use of such prospectus or each amendment and supplement thereto
by each of the Purchasers the underwriters, if any, in connection with the
offering and sale of the Shares and Warrant Shares covered by such prospectus or
any amendment or supplement thereto; (vi) cause the Shares and the Warrant
Shares to be listed on each securities exchange and quoted on each quotation
service on which similar securities issued by the Company are then listed or
quoted and maintain the listing of the Shares and Warrant Shares; (vii) provide
a transfer agent and registrar for the Shares and the Warrant Shares registered
pursuant to the Registration Statement and a CUSIP number for such Shares and
Warrant Shares; (viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC; and (ix) file the documents
required of the Company and otherwise use its best efforts to maintain requisite
blue sky clearance in (A) all jurisdictions in which any of the Securities are
originally sold and (B) all other states specified in writing by a Purchaser,
provided as to clause (B), however, that the Company shall not be required to
qualify to do business or consent to service of process in any state in which it
is not now so qualified or has not so consented.

          (b)  The Company shall furnish to each Purchaser upon request a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary in order to facilitate the issuance and the
public sale or other disposition of all or any of the Shares and the Warrant
Shares held by such Purchaser.

           (c)  The Company shall notify each Purchaser and (if requested by
such Purchaser) confirm such notice in writing, (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other federal
or state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to the Registration
Statement or related prospectus or for additional information relating to the
Registration Statement, (iii) of the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings

                                      -10-
<PAGE>

for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event which makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in the Registration Statement or prospectus so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and (vi) of the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate.

          (d)  The Company may, upon written notice to the Purchasers of (i) the
happening of any event of the kind described in Section 7.1(c)(ii), 7.l(c)(iii),
7.1(c)(iv), 7.1(c)(v) or 7.l(c)(vi) hereof or (ii) that, in the judgement of the
Company's Board of Directors, it is advisable to suspend use of the prospectus
for a discrete period of time due to pending corporate developments, public
filings with the SEC or similar events, temporarily discontinue issuance of
Warrant Shares upon exercise of the Warrants until copies of the supplemented or
amended prospectus contemplated by Section 7.1(i) hereof are distributed to the
Purchasers, or until the Purchasers are advised in writing by the Company that
the use of the applicable prospectus may be resumed, and the Purchasers have
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such prospectus. The Company shall not
suspend use of a prospectus or Registration Statement under this Section 7.1(d)
for more than 30 days at a time and more than twice in any 12-month period. Any
period for which use of a prospectus or Registration Statement is suspended
under this Section 7.1(d) shall be added to the time for which the Company is
required to maintain the effectiveness of such Registration Statement, including
the prospectus constituting a part thereof, under Section 7.1(a).

          (e)  The Company shall use every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Securities for sale in any jurisdiction, at
the earliest possible moment.

          (f)  The Company shall, upon the occurrence of any event contemplated
by Section 7.1(c)(v) or 7.1(c)(vi) above, prepare a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Shares and Warrant Shares being sold thereunder, such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

                                      -11-
<PAGE>

     7.2  Indemnification and Contribution.
          --------------------------------

          (a)  The Company agrees to indemnify and hold harmless the Purchasers
from and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which the Purchasers may become subject
(under the Securities Act or otherwise) insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any prospectus (preliminary or
final), as amended on the applicable date, thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or arise out of any failure by the Company to fulfill any undertaking included
in the Registration Statement or any prospectus (preliminary or final), as
amended on the applicable date thereof, and the Company will, as incurred,
reimburse the Purchasers for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that the Company shall not be liable in any such case
to the extent that such loss, claim, damage or liability arises out of, or is
based upon (i) an untrue statement or an omission made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Purchaser specifically for use in
preparation of the Registration Statement, or (ii) any untrue statement or the
omission of a material fact in any prospectus that is corrected in any
subsequent prospectus that was delivered to a Purchaser prior to the pertinent
sale or sales by such Purchaser.

          (b)  Each Purchaser, severally and not jointly, agrees to indemnify
and hold harmless the Company from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which the Company
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon (i) an untrue statement or an alleged
untrue statement of a material fact made in such Registration Statement or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Purchaser specifically for use in preparation of
the Registration Statement, provided, however, that a Purchaser shall not be
liable in any such case for any untrue statement or alleged untrue statement or
the omission or alleged omission that has been corrected, in writing, by such
Purchaser, delivered to the Company before the sale from which such loss
occurred, or (ii) any untrue statement or alleged untrue statement or the
omission or alleged omission in any prospectus that is corrected in any
subsequent prospectus that was delivered to a Purchaser prior to the pertinent
sale or sales by such Purchaser, and such Purchaser, severally and not jointly,
will, as incurred, reimburse the Company for any legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim; provided, however, that each Purchaser's
indemnification obligation shall be limited to the net proceeds received from
its sale of the Securities.

          (c)  Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 7.2, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and,

                                      -12-
<PAGE>

subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person and the indemnifying person shall have
been notified thereof, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall wish, to assume the defense thereof,
with counsel reasonably satisfactory to the indemnified person. After notice
from the indemnifying person to such indemnified person of the indemnifying
person's election to assume the defense thereof, the indemnifying person shall
not be liable to such indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the defense thereof;
provided, however, that if there exists or shall exist a conflict of interest
that would make it inappropriate in the reasonable judgment of the indemnified
person for the same counsel to represent both the indemnified person and such
indemnifying person or any affiliate or associate thereof, the indemnified
person shall be entitled to retain its own counsel at the expense of such
indemnifying person.

          (d)  If the indemnification provided for in this Section 7.2 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as the result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Purchasers
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or a Purchaser on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, or liabilities (or actions in respect thereof) referred to
above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), a Purchaser shall not be required to
contribute any amount in excess of the amount by which the net amount received
by such Purchaser from the sale of the Securities to which such loss relates
exceeds the amount of any damages which such Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each Purchaser's obligations in this subsection (d) to
contribute is several in proportion to its sale of Securities to which such loss
relates and not joint.

          (e)  The obligations of the Company and the Purchasers under this
Section 7.2 shall be in addition to any liability which the Company and the
Purchasers may otherwise have and shall extend, upon the same terms and
conditions, to directors, officers, employees and

                                      -13-
<PAGE>

agents of the Company and the Purchasers and to each person, if any, who
controls the Company or any Purchaser within the meaning of the Act.

                                  Section 8.

                 Restrictions on Transferability of Securities
                 ---------------------------------------------

                        Compliance with Securities Act
                        ------------------------------

     8.1  Restrictions on Transferability.  The Warrants shall not be
          -------------------------------
transferable in the absence of a registration under the Securities Act or an
exemption therefrom or in the absence of compliance with any term of this
Agreement.

     8.2  Restrictive Legend.  Each certificate representing the Warrants shall
          ------------------
bear substantially the following legends (in addition to any legends required
under applicable securities laws):

     THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
     PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
     ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.

     ADDITIONALLY, THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS SUBJECT
     TO CERTAIN RESTRICTIONS SPECIFIED IN THE PURCHASE AGREEMENT DATED MAY 20,
     1998 BETWEEN THE COMPANY AND THE ORIGINAL PURCHASER, AND NO TRANSFER OF THE
     SECURITIES SHALL BE VALID OR EFFECTIVE ABSENT COMPLIANCE WITH SUCH
     RESTRICTIONS.  COPIES OF THE PURCHASE AGREEMENT MAY BE OBTAINED AT NO COST
     BY WRITTEN REQUEST MADE BY THE REGISTERED HOLDER OF THIS CERTIFICATE TO THE
     SECRETARY OF THE COMPANY.

     8.3  Transfer of Securities After Registration.  Each Purchaser hereby
          -----------------------------------------
covenants with the Company not to make any sale of the Warrants except either
(i) in accordance with Rule 144, in which case Purchaser covenants to comply
with Rule 144, or (ii) in accordance with another exemption from the
registration requirements of the Securities Act. The legend set forth in Section
8.2 will be removed from a certificate representing the Securities following and
in connection with any sale of the Warrants pursuant to subsection (i) or (ii)
hereof, and also will be removed at such time that the Securities may be sold
under Rule 144 without restriction as to volume and manner of sale.

                                  Section 9.

                                 Miscellaneous
                                 -------------

     9.1  Waivers and Amendments.  Neither this Agreement nor any provisions
          ----------------------
hereof shall be waived, modified, changed or discharged or terminated except by
an instrument in

                                      -14-
<PAGE>

writing signed by the party against whom any waiver, modification, change,
discharge or termination is sought.

     9.2  Broker's Fee.  The Purchasers acknowledge that the Company intends to
          ------------
pay a fee to the Placement Agents in respect of the sale of the Securities to
certain of the Purchasers. Each of the parties hereto hereby represents that, on
the basis of any actions and agreements by it, there are no other brokers or
finders entitled to compensation in connection with the sale of the Units to the
Purchasers.

     9.3  Governing Law.  This Agreement shall be governed in all respects by
          -------------
and construed in accordance with the laws of the State of Delaware without any
regard to conflicts of laws principles.

     9.4  Survival.  The representations, warranties, covenants and agreements
          --------
made in this Agreement shall survive any investigation made by the Company or
the Purchasers and the Closing.

     9.5  Successors and Assigns.  The provisions hereof shall inure to the
          ----------------------
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement.

     9.6  Entire Agreement.  This Agreement, including all exhibits, schedules
          ----------------
and appendices hereto constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.

     9.7  Notices, etc.  All notices and other communications required or
          ------------
permitted under this Agreement shall be effective upon receipt and shall be in
writing and may be delivered in person, by telecopy, overnight delivery service
or registered or certified United States mail, addressed to the Company or the
Purchasers, as the case may be, at their respective addresses set forth at the
beginning of this Agreement or on Schedule 1, or at such other address as the
Company or a Purchaser shall have furnished to the other party in writing. All
notices and other communications shall be effective upon the earlier of actual
receipt thereof by the person to whom notice is directed or (i) in the case of
notices and communications sent by personal delivery or telecopy, one business
day after such notice or communication arrives at the applicable address or was
successfully sent to the applicable telecopy number, (ii) in the case of notices
and communications sent by overnight delivery service, at noon (local time) on
the second business day following the day such notice or communication was sent,
and (iii) in the case of notices and communications sent by United States mail,
seven days after such notice or communication shall have been deposited in the
United States mail.

     9.8  Severability of this Agreement.  If any provision of this Agreement
          ------------------------------
shall be judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

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

                                      -15-
<PAGE>

     9.10  Further Assurances.  Each party to this Agreement shall do and
           ------------------
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as the other party hereto may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

     9.11  Expenses.  The Company and each the Purchaser shall bear its own
           --------
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.

     9.12  Currency.  All references to "dollars" or "$" in this Agreement shall
           --------
be deemed to refer to United States dollars.

                  (Remainder of page intentionally left blank)

                                      -16-
<PAGE>

     The foregoing agreement is hereby executed as of the date first above
written.

                              "COMPANY"

                              VIDAMED, INC.
                              a Delaware corporation

                              By: /s/ Richard D. Brounstein
                                 ------------------------------

                              Title: VP Finance and CFO
                                    ---------------------------

                              "PURCHASERS"

                              [Various Purchasers - See Exhibit A - Schedule of
                               Investors]
                              --------------------------------------------------
                              (Print Name of Purchaser)

                              By:______________________________

                              Title:___________________________

                                      -17-
<PAGE>

                                   EXHIBIT A

                             Schedule of Investors
                             ---------------------

<TABLE>
<CAPTION>

              Name and Address                          No. of         Purchase           No. of
                                                        Shares          Price         Warrant Shares
--------------------------------------------        --------------  --------------  ------------------
Principal Investors:
<S>                                               <C>             <C>             <C>
Zesiger Capital Group Accounts                           105,024      $  420,096              26,256
Arthur D. Little Employee Investment Plan
c/o Zesiger Capital Group LLC
320 Park Avenue, 30th Floor
New York, NY 10022
Attn:  Andrew D. Zacks
      Mary Estabil

Public Employee Retirement System of Idaho               149,988      $  599,952              37,497
c/o Zesiger Capital Group LLC
320 Park Avenue, 30th Floor
New York, NY 10022
Attn:  Andrew D. Zacks
        Mary Estabil

State of Oregon PERS/ZCG                                 494,988      $1,979,952             123,747
c/o Zesiger Capital Group LLC
320 Park Avenue, 30th Floor
New York, NY 10022
Attn: Andrew D. Zacks
Mary Estabil

Les Daniels                                              125,000      $  500,000              31,250
c/o CAI
767 Fifth Avenue, 5th Floor
New York, NY 10153

Les Daniels Trust                                        125,000      $  500,000              31,250
c/o CAI
767 Fifth Avenue, 5th Floor
New York, NY 10153

ProMed Partners, L.P.                                    102,500      $  400,000              25,625
c/o Musket Research Associates, Inc.
125 Cambridgepark Drive
Cambridge, MA 02140
Attn:  David B. Musket
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>

              Name and Address                          No. of         Purchase           No. of
                                                        Shares          Price         Warrant Shares
--------------------------------------------        --------------  --------------  ------------------
<S>                                               <C>             <C>             <C>
Knowlton Brothers Accounts                                30,000      $  120,000               7,500
Knowlton Associates, Inc.
c/o Knowlton Brothers
530 Fifth Avenue, 2nd Floor
New York, NY 10036
Attn:  Winthrop Knowlton

Stanley Knowlton                                          20,000      $   80,000               5,000
c/o Knowlton Brothers
530 Fifth Avenue, 2nd Floor
New York, NY 10036

Winthrop Knowlton & Erica Knowlton, TTEES                 12,000      $   48,000               3,000
U/W/O Hugh Knowlton FBO Erica Knowlton
c/o Knowlton Brothers
530 Fifth Avenue, 2nd Floor
New York, NY 10036
Attn:  Winthrop Knowlton

Christopher Knowlton                                       4,000      $   16,000               1,000
c/o Knowlton Brothers
530 Fifth Avenue, 2nd Floor
New York, NY 10036

David B. Musket                                          132,500      $  530,000             333,125
Musket Research Associates, Inc.
125 Cambridgepark Drive
Cambridge, MA 02140

Thomas Nigra, M.D.                                         6,252      $   25,008               1,563
c/o Dermatology Associates, P.C.
Washington Hospital Center
11.0 Irving Street
Washington, D.C. 200 10-2975

HPB Associates, L.P.                                     250,000      $1,000,000              62,500
888 Seventh Avenue, 46th Floor
New York, NY 10106
Ann:  Howard Berkowitz
</TABLE>

                                      -2-

                                       19
<PAGE>

<TABLE>
<CAPTION>

              Name and Address                          No. of         Purchase           No. of
                                                        Shares          Price         Warrant Shares
--------------------------------------------        --------------  --------------  ------------------
<S>                                               <C>             <C>             <C>
The President and Fellows of Harvard College           1,000,000      $4,000,000             250,000
Harvard Management, Inc.
600 Atlantic Avenue, 15th Floor
Boston, MA 02110
Attn:  Nawal Ahmed

Pacific Edge Investment Management, Inc.                 500,000      $2,000,000             125,000
285 Hamilton Avenue, Suite 330
Palo Alto, CA 94301
Ann:  Karen Payne

MeesPierson Investments, Inc.                            200,000      $   80,000              50,000
3 Stamford Plaza
301 Tresser Blvd.
Stamford, CT 06901
Ann:  Joe Mescari

Circle F Ventures LLC & Affiliates                       350,000      $1,400,000              87,500
Fleming Securities
14988 North 78th Way, Suite 200
Scottsdale, AZ 85260

Peter L. Hauser                                           25,000      $  100,000               6,250
1201 Yale Place, #1009
Minneapolis, MN 55403-1958

Cypress Growth Fund                                      125,000      $  500,000              31,250
3000 Sand Hill Road
Building 1, Suite 140
Menlo Park, CA 94025
Ann:  Heidi Gerster

Carlos M. de la Cruz, Sr.                                150,000      $  600,000              37,500
c/o Donaldson Lufkin & Jenrette Securities
Corp.
2 So. Biscayne Blvd., Suite 3600
Miami, FL 33131
Attn:  Margarita Costa Suarez
</TABLE>

                                      -3-

                                       20
<PAGE>

<TABLE>
<CAPTION>

              Name and Address                          No. of         Purchase           No. of
                                                        Shares          Price         Warrant Shares
--------------------------------------------        --------------  --------------  ------------------
Company Affiliates:
<S>                                               <C>             <C>             <C>
Smith Barney                                              25,000      $  100,000               6,250
Custodian for the IRA of
Richard D. Brounstein
21550 Oxnard Street
Main Plaza
Woodland Hills, CA 91367

Charles Schwab & Co., Inc.                                20,000      $   80,000               5,000
FBO David Illingworth
UTA Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Ann:  Ltd. Partnership Dept.

Charles Schwab & Co., Inc.                                12,500      $   50,000               3,125
FBO John Hendrick IRA Rollover
UTA Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Ann: Ltd. Partnership Dept.

BT Alex Brown                                              9,752      $   39,008               2,438
As Custodian for the Benefit of
Carol Chludzinski, IRA
101 California St., 48th Floor
San Francisco, CA 94111

Robin Bush                                                 5,000      $   20,000               1,250
35301 Farmham Drive
Newark, CA 94560

Thomas Waugh                                               2,500      $   10,000                 625
22293 De Anza Circle North
Cupertino, CA 95014

BT Alex Brown                                              2,500      $   10,000                 625
As Custodian for the benefit of
Patricia Garfield, IRA
101 California St., 48th Floor
San Francisco, CA 94111
</TABLE>

                                      -4-

                                       21
<PAGE>

<TABLE>
<CAPTION>

              Name and Address                          No. of         Purchase           No. of
                                                        Shares          Price         Warrant Shares
--------------------------------------------        --------------  --------------  ------------------
<S>                                               <C>             <C>             <C>
William J.P. Weiland                                       2,000      $    8,000                 500
VidaMed, Inc.
46107 Landing Parkway
Fremont, CA 94538

Michael Spindler                                           3,000      $   12,000                 750
67 Orchard Hills
Atherton, CA 94027

John V. Scibelli                                           3,000      $   12,000                 750
2343 Country Club Loop
Denver, CO 80234

Stuart D. Edwards                                          2,500      $   10,000                 625
658 West Ridge Drive
Portola Valley, CA 94028

Robert J. Erra and Barbara A. Erra                         2,500      $   10,000                 625
13335 Arroya Vista Road
Poway, CA 92604

Debra Roe                                                  2,500      $   10,000                 625
5311 Elsmere Avenue
Beheads, MD 20814

Franklin D. Brown                                          2,500      $   10,000                 625
33691 Magellan Isle
Monarch Beach, CA 92629

Monness, Crespi, Hardt & Co., Inc.                         2,500      $   10,000                 625
Ann:  Jeffrey Kaufman
767 Third Avenue
New York, NY 10017

Michael F. Price                                         250,000      $1,000,000              62,500
1180 Larger Cross Road
Far Hills, NJ 07931

Clarion Capital Corporation                               62,500      $  250,000              15,625
Ann:  Morton A. Cohen
Ohio Savings Plaza, Suite 510
1801 E. Ninth Street
Cleveland, OH 44114
</TABLE>

                                      -5-

                                       22
<PAGE>

<TABLE>
<CAPTION>

              Name and Address                          No. of         Purchase           No. of
                                                        Shares          Price         Warrant Shares
--------------------------------------------        --------------  --------------  ------------------
<S>                                               <C>             <C>             <C>
Clayton, Dubilier & Rice                                  25,000      $  100,000               6,250
Ann:  Charles P. Pieper                                ---------      ----------             -------
375 Park Avenue
New York, NY 10152

        Total
</TABLE>

                                      -6-

                                       23
<PAGE>

                                   EXHIBIT B

                                    WARRANT

                                       24
<PAGE>

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF.  THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.

                             STOCK PURCHASE WARRANT
                     To Purchase Shares of Common Stock of
                                  VIDAMED, INC

     THIS CERTIFIES that, for value received, FIELD (Name) (the "Investor"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, at
any time on or prior to the close of business on the date three (3) years after
the date hereof, but not thereafter, to subscribe for and purchase, from
VIDAMED, INC., a Delaware corporation (the "Company"), [#] (Shares) shares of
Common Stock.  The purchase price of one share of Common Stock under this
Warrant shall be $____ per share.  The purchase price and the number of shares
for which the Warrant is exercisable shall be subject to adjustment as provided
herein.  This Warrant has been issued pursuant to a Purchase Agreement dated May
20, 1998 among the Company and the Purchasers named therein (the "Purchase
Agreement").  Capitalized terms not defined herein shall have the meanings
ascribed to them in the Purchase Agreement.

     1.  Title of Warrant.  Prior to the expiration hereof and subject to
         ----------------
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company,
referred to in Section 2 hereof, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant together with the Assignment
Form annexed hereto properly endorsed.

     2.  Exercise of Warrant.
         -------------------

         (a)  The purchase rights represented by this Warrant are exercisable by
the registered holder hereof, in whole or in part, at any time before the close
of business on the date three (3) years after the date hereof, by delivery of
the Notice of Exercise form annexed hereto duly executed at the office of the
Company, in Fremont, California (or such other office or agency of the Company
as it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the company), and upon payment
of the purchase price of the shares thereby purchased (by cash or by check or
bank draft payable to the order of the Company); whereupon the holder of this
Warrant shall be entitled to receive a certificate for the number of shares of
Common Stock so purchased. The Company agrees that if at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised as
aforesaid. If this Warrant should be exercised in part only, the

                                      -2-

                                       25
<PAGE>

Issuer shall, upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the holder hereof to purchase the balance of the
Warrant Shares purchasable hereunder.

         (b)  In lieu of the cash payment set forth in paragraph 2(a) above, the
Holder shall have the right ("Conversion Right") to convert this Warrant in its
entirety (without payment of any kind) into that number of shares of Common
Stock equal to the quotient obtained by dividing the Net Value (as defined
below) of the Shares issuable upon exercise of this Warrant by the Fair Market
Value (as defined below) of one share of Common Stock. As used herein, (A) the
Net Value of the Shares means the aggregate Fair Market Value of the shares of
Common Stock subject to this Warrant minus the aggregate exercise price; and (B)
the Fair Market Value of one share of Common Stock means:

              (i)   if the exercise occurs at a time during which the Company's
Common Stock is traded on a national securities exchange or on the Nasdaq
National Market or the Nasdaq Small Cap Market, the Fair Market Value of one
share of Common Stock means the average last reported or closing sale price for
the Company's Common Stock on such exchange or market for the ten (10) trading
days ending one business day before the exercise of this Warrant;

              (ii)  if the exercise is in connection with a merger, sale of
assets or other reorganization transaction as described in Section 9(a) below,
the Fair Market Value of one share of Common Stock means the value received by
the holders of the Company's Common Stock pursuant to such transaction; and

              (iii) in all other cases, the Fair Market Value of one share of
Common Stock shall be determined in good faith by the Company's Board of
Directors.

         (c)  Certificates for shares purchased hereunder shall be delivered to
the holder hereof promptly after this Warrant shall have been exercised as
aforesaid. The Company covenants that all shares of Common Stock which may be
issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).

    3.  No Fractional Shares or Scrip. No fractional shares or scrip
        -----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise of
the Warrant, an amount equal to such fraction multiplied by the then Fair Market
Value shall be paid in cash to the holder of this Warrant.

    4.  Charges, Taxes and Expenses.  Issuance of certificates for shares of
        ---------------------------
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
                        --------- -------
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this

                                      -3-

                                       26
<PAGE>

Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof.

    5.  No Rights as Shareholders.  This Warrant does not entitle the holder
        -------------------------
hereof to any voting rights or other rights as a stockholder of the Company
prior to the exercise thereof.

    6.  Exchange and Registry of Warrant.  This Warrant is exchangeable, without
        --------------------------------
charge, upon the surrender hereof by the registered holder at the above-
mentioned office or agency of the Company, for a new Warrant of like tenor and
dated as of such exchange.

        The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at such office or agency of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.

    7.  Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt by the
        -------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor and dated as of such cancellation, in lieu of this
Warrant.

    8.  Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the
        ---------------------------------
taking of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
legal holiday.

    9.  Early Termination, Antidilution Adjustments and Registration Statement
        ----------------------------------------------------------------------
Adjustments.
-----------

        (a)  Merger, Sale of Assets, etc., In case of any consolidation of the
             ----------------------------
Company with, or merger of the Company into, any other corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
in which no change occurs in its outstanding Common Stock), or in case of any
sale or transfer of all or substantially all of the assets of the Company, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company, except where the Company is the surviving entity
and no change occurs in its outstanding Common Stock), the corporation formed by
such consolidation or the corporation resulting from or surviving such merger or
the corporation which shall have acquired such assets or securities of the
Company, as the case may be, shall execute and deliver to the Holder
simultaneously therewith a new Warrant, satisfactory in form and substance to
the Holder, together with such other documents as the Holder may reasonably
request, entitling the Holder thereof to receive upon exercise of such Warrant
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale, transfer, or exchange of
securities, or upon the dissolution following such sale or other transfer, by a
holder of the number of shares of Common Stock purchasable upon exercise of this
Warrant immediately prior to such consolidation, merger, sale, transfer, or
exchange. Such new Warrant

                                      -4-

                                       27
<PAGE>

shall contain the same basic other terms and conditions as this Warrant and
shall provide for adjustments which, for events subsequent to the effective date
of such written instrument shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 9. The above provisions of this
paragraph (a) shall similarly apply to successive consolidations, mergers,
exchanges, sales or other transfers covered hereby. Notwithstanding the
foregoing, in the event the consideration to be paid to holders of Company
capital stock in any transaction of the nature referred to above in this Section
9(a) (a "Transaction") consists of cash or cash equivalents, then, provided that
the Company shall have given the holder hereof the notice required by Section
10, this Warrant shall, to the extent it has not been exercised by the effective
date of such Transaction, terminate upon the completion of such Transaction.

         (b)  Dilutive Financing.  If at any time prior to the first anniversary
              ------------------
of the date of issuance of this Warrant, the Company effects a sale of
securities in a Financing Transaction (as defined below) at a purchase price per
share that is less than the per share purchase price of the Common Stock
purchased by the Purchasers pursuant to the Investment Agreement, then the
purchase price for one share of Common Stock (the "Exercise Price") pursuant to
this Warrant shall be reduced to the per share purchase price for the securities
issued in such Purchase Transaction. For purposes hereof, a Financing
Transaction shall consist of any sale or a series of sales of equity securities
or securities convertible into equity securities of the Company for aggregate
consideration of at least $500,000.00.

         (c)  Reclassification, etc.  If the Company at any time shall, by
              ----------------------
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change. If shares of the Company's Common Stock are subdivided or combined into
a greater or smaller number of shares of Common Stock, the purchase price under
this Warrant shall be proportionately reduced in case of subdivision of shares
or proportionately increased in the case of combination of shares, in both cases
by the ratio which the total number of shares of Common Stock to be outstanding
immediately after such event bears to the total number of shares of Common Stock
outstanding immediately prior to such event.

         (d)  Cash Distributions.  Except as set forth herein, no adjustment on
              ------------------
account of cash dividends on the Company's Common Stock or other securities
purchasable hereunder will be made to the purchase price under this Warrant.

         (e)  Authorized Shares.  The Company covenants that during the period
              -----------------
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company further covenants and agrees (i) that it will not, by
amendment of its Certificate of Incorporation

                                      -5-

                                       28
<PAGE>

or through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act, avoid or seek to avoid the observation or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, (ii) promptly to take such action as may
be required of the Company to permit the Holder to exercise this Warrant and the
Company duly and effectively to issue shares of its Common Stock or other
securities as provided herein upon the exercise hereof and (iii) promptly to
take all action required or provided herein to protect the rights of the Holder
granted hereunder against dilution.

         (f)  If the Company declares a dividend on Common Stock, or makes a
distribution to holders of Common Stock, and such dividend or distribution is
payable or made in Common Stock or securities convertible into or exchangeable
for Common Stock, or rights to purchase Common Stock or securities convertible
into or exchangeable for Common Stock, the number of shares of Common Stock for
which this Warrant may be exercised shall be increased, as of the record date
for determining which holders of Common Stock shall be entitled to receive such
dividend or distribution, in proportion to the increase in the number of
outstanding shares (and shares of Common Stock issuable upon conversion of all
such securities convertible into Common Stock) of Common Stock as a result of
such dividend or distribution, and the Exercise Price shall be adjusted so that
the aggregate amount payable for the purchase of all the Warrant Shares issuable
hereunder immediately after the record date for such dividend or distribution
shall equal the aggregate amount so payable immediately before such record date.

         (g)  If the Company declares a dividend on Common Stock (other than a
dividend covered by subsection (f) above) or distributes to holders of its
Common Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any shares of its capital stock, any evidence of
indebtedness or any cash or other of its assets (other than Common Stock or
securities convertible into or exchangeable for Common Stock), the Holder shall
receive notice of such event as set forth in Section 11 below.

         (h)  If the Company shall, at any time before the expiration of this
Warrant, sell all or substantially all of its assets and distribute the proceeds
thereof to the Company's stockholders, the Holder shall, upon exercise of this
Warrant have the right to receive, in lieu of the shares of Common Stock of the
Company that the Holder otherwise would have been entitled to receive, the same
kind and amount of assets as would have been issued, distributed or paid to the
Holder upon any such distribution with respect to such shares of Common Stock of
the Company had the Holder been the holder of record of such shares of Common
Stock receivable upon exercise of this Warrant on the date for determining those
entitled to receive any such distribution. If any such distribution results in
any cash distribution in excess of the Exercise Price provided by this Warrant
for the shares of Common Stock receivable upon exercise of this Warrant, the
Holder may, at the Holder's option, exercise this Warrant without making payment
of the Exercise Price and, in such case, the Company shall, upon distribution to
the Holder, consider the Exercise Price to have been paid in full and, in making
settlement to the Holder, shall obtain receipt of the Exercise Price by
deducting an amount equal to the Exercise Price for the shares of Common Stock
receivable upon exercise of this Warrant from the amount payable to the Holder.
Notwithstanding the foregoing, in the event the consideration to be paid to
holders of Company capital stock in any transaction of the nature referred to
above in this Section 9(h) (an "Asset Sale Transaction") consists of cash or
cash equivalents and the consideration payable per share of Common Stock of the
Company is less than the Exercise Price hereunder, then,

                                      -6-

                                       29
<PAGE>

provided that the Company shall have given the holder hereof the notice required
by Section 10, this Warrant shall, to the extent it has not been exercised by
the effective date of such Transaction, terminate upon the completion of such
Transaction.

         (i)  The term "Common Stock" shall mean the Common Stock of the Company
as the same exists as of the date hereof, or as such stock may be constituted
from time to time, except that for the purpose of this Section 9, the term
"Common Stock" shall include any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company.

         (j)  Whenever the number of Warrant Shares or the Exercise Price shall
be adjusted as required by the provisions of this Section 9, the Company
forthwith shall file in the custody of its secretary or an assistant secretary,
at its principal office, and furnish to each Holder hereof, a certificate
prepared by its Chief Financial Officer, showing the adjusted number of Warrant
Shares and the adjusted Exercise Price and setting forth in reasonable detail
the circumstances requiring the adjustments.

         (k)  No adjustment in the Exercise Price in accordance with the
provisions of this Section 9 need be made if such adjustment would amount to a
change in such Exercise Price of less than $.01; provided however, that the
                                                 -------- -------
amount by which any adjustment is not made by reason of the provisions of this
paragraph (k) shall be carried forward and taken into account at the time of any
subsequent adjustment in the Exercise Price.

         (l)  If an adjustment is made under this Section 9 and the event to
which the adjustment relates does not occur, then any adjustments in accordance
with this Section 9 shall be readjusted to the Exercise Price and the number of
Warrant Shares which would be in effect had the earlier adjustment not been
made.

    10.  Notice of Adjustment.  So long as this Warrant shall be outstanding,
         --------------------
(a) if the Company shall propose to pay any dividends or make any distribution
upon the Common Stock, or (b) if the Company shall offer generally to the
holders of Common Stock the right to subscribe to or purchase any shares of any
class of Common Stock or securities convertible into Common Stock or any other
similar rights, or (c) if there shall be any proposed capital reorganization of
the Company in which the Company is not the surviving entity, recapitalization
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or other transfer of all or
substantially all of the property and assets of the Company, or voluntary or
involuntary dissolution, liquidation or winding up of the Company, or (d) if the
Company shall give to its stockholders any notice, report or other communication
respecting any significant or special action or event, then in such event, the
Company shall give to the Holder, at least ten (10) days prior to the relevant
date described below, a notice containing a description of the proposed action
or event and stating the date or expected date on which a record of the
Company's stockholders is to be taken for any of the foregoing purposes, and the
date or expected date on which any such dividend, distribution, subscription,
reclassification, reorganization, consolidation, combination, merger,
conveyance, sale, lease or transfer, dissolution, liquidation or winding up is
to take place and the date or expected date, if any is to

                                      -7-

                                       30
<PAGE>

be fixed, as of which the holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such event.

         11.  Notice.  Any notice to be given or to be served upon any party in
              ------
connection with the Warrant must be in writing and will be deemed to have been
given and received upon confirmed receipt, if sent by facsimile, or two (2) days
after it has been submitted for delivery by Federal Express or an equivalent
carrier, charges prepaid and addressed to the following addresses with a
confirmation of delivery:

          If to the Company, to:

               VidaMed, Inc.
               46107 Landing Parkway
               Fremont, California 94538
               Attn.:  Richard Brounstein
               Telephone:  (510) 492-4940
               Facsimile:  (510) 492-4999

          If to the Holder, to:

               FIELD (Name/Address)

Any party may, at any time by giving written notice to the other party,
designate any other address in substitution of an address established pursuant
to the foregoing to which such notice will be given.

    12.  Miscellaneous.
         -------------

         (a)  Issue Date.  The provisions of this Warrant shall be construed and
              ----------
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company.

         (b)  Restrictions.  The holder hereof acknowledges that the Common
              ------------
Stock acquired upon the exercise of this Warrant may have restrictions upon its
resale imposed by state and federal securities laws.

         (c)  Governing Law.  This Agreement shall be governed in all respects
              -------------
by and construed in accordance with the laws of the State of Delaware without
any regard to conflicts of laws principles.

         (d)  Successors and Assigns.  Except as otherwise contemplated hereby,
              ----------------------
this Warrant shall be binding upon and inure to the benefit of any successors
and assigns of the Company.

                  (remainder of page intentionally left blank)

                                      -8-

                                       31
<PAGE>

     IN WITNESS WHEREOF, VIDAMED, INC. has caused this Warrant to be executed by
its officers thereunto duly authorized.

Dated: May 20, 1998

                              VIDAMED, INC.

                              By:___________________________________

                              Title:________________________________

                                      -9-

                                       32
<PAGE>

                               NOTICE OF EXERCISE
                               ------------------

To:  VIDAMED, INC.

     (1) The undersigned hereby elects to purchase___________ shares of Common
Stock of VIDAMED, INC. pursuant to the terms of the attached Warrant, and

     _________ tenders herewith payment of the purchase price in full.

     _________ is electing to convert the Warrant on a "net exercise" basis in
accordance with Section 2(b) hereof.

          [please check one of the foregoing lines]

     (2) Please issue a certificate of certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:

                    ______________________________________
                                    (Name)

                    ______________________________________

                    ______________________________________
                                   (Address)

     (3) The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares; provided, that such representation shall not be required at such time as
the shares of Common Stock underlying this Warrant are registered under the
Securities Act of 1933.

____________________________            _______________________________________
(Date)                                  (Signature)

                                     -10-

                                       33
<PAGE>

                                ASSIGNMENT FORM
                                ---------------

                   (To assign the foregoing warrant, execute
                   this form and supply required information.
                   Do not use this form to purchase shares.)

     FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to

________________________________________________________________________________
                                 (Please Print)

whose address is _______________________________________________________________
                                 (Please Print)

________________________________________________________________________________

                                          Dated:_______________________, 19____.

                         Holder's Signature:____________________________________

                         Holder's Address:______________________________________

Signature Guaranteed:___________________________________________________________

NOTE:  The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

                                     -11-

                                       34
<PAGE>

                                  May 20, 1998

To the Purchasers of
VidaMed, Inc. Common Stock and Warrants
pursuant to Purchase Agreement
dated May 20, 1998

Ladies and Gentlemen:

     Reference is made to the Purchase Agreement, dated as of May 20, 1998 (the
"Agreement"), complete with all listed exhibits thereto, by and among VidaMed,
Inc., a Delaware corporation (the "Company") and the investors named therein
(the "Investors"), which provides for the issuance by the Company to the
Investors of shares of Common Stock of the Company (the "Shares") and warrants
to purchase additional shares of Common Stock (the "Warrants").  This opinion is
rendered to you pursuant to Agreement, and all terms used herein have the
meanings defined for them in the Agreement unless otherwise defined herein.

     We have acted as counsel for the Company in connection with the negotiation
of the Agreement and the issuance of the Shares and the Warrants.  As such
counsel, we have made such legal and factual examinations and inquiries as we
have deemed advisable or necessary for the purpose of rendering this opinion.
In addition, we have examined, among other things, originals or copies of such
corporate records of the Company, certificates of public officials and such
other documents and questions of law that we consider necessary or advisable for
the purpose of rendering this opinion.  In such examination we have assumed the
genuineness of all signatures on original documents, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.

     As used in this opinion, the expression "to our knowledge" with reference
to matters of fact means that, after an examination of documents made available
to us by the Company, and after inquiries of officers of the Company, but
without any further independent factual investigation, we find no reason to
believe that the opinions expressed herein are factually incorrect.  Further,
the expression "to our knowledge" with reference to matters of fact refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreement and the
transactions contemplated thereby.  Except to the extent expressly set forth
herein or as we otherwise believe to be necessary to our opinion, we have not
undertaken any independent investigation to determine the existence or

                                       35
<PAGE>

absence of any fact, and no inference as to our knowledge of the existence or
absence of any fact should be drawn from our representation of the Company or
the rendering of the opinion set forth below.

     For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate or
partnership action, to execute and deliver the Agreement, and we are assuming
that the representations and warranties made by the Investors in the Agreement
and pursuant thereto are true and correct.  We are also assuming that the
Investors have acquired the Shares and Warrants, and will acquire the Warrant
Shares (as hereinafter defined), for value, in good faith and without notice of
any adverse claims within the meaning of the California Uniform Commercial Code.

     The opinions hereinafter expressed are subject to the following
qualifications:

          (a) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
affecting the rights of creditors and secured parties, including, without
limitation, federal, state or other laws regarding fraudulent transfers;

          (b) We express no opinion as to the effect or availability of rules of
law governing specific performance, injunctive relief or other equitable
remedies (regardless of whether any such remedy is considered in a proceeding at
law or in equity);

          (c) We express no opinion as to compliance with applicable anti-fraud
provisions of federal or state securities laws;

          (d) We express no opinion as to the enforceability of the
indemnification provisions of Section 7 of the Agreement to the extent the
provisions thereof may be subject to limitations of public policy and the effect
of applicable statutes and judicial decisions; and

          (e) We are members of the Bar of the State of California and, except
as set forth in paragraph 7 below with respect to the securities laws of other
states, we are not expressing any opinion as to any matter relating to the laws
of any jurisdiction other than the federal laws of the United States of America
and the laws of the State of California and the General Corporation Law of the
State of Delaware.  To the extent this opinion addresses applicable securities
laws of states other than the State of California, we have not retained or
relied upon the opinions of counsel admitted to the bars of such states, but
rather have relied upon compilations of the securities laws of such states
contained in reporting services currently available to us.

     Based upon and subject to the foregoing, and except as set forth in the
Agreement, we advise you that in our opinion:

     1.  The Company is a corporation duly organized and validly existing under,
and by virtue of, the laws of the State of Delaware and is in good standing
under such laws.  The Company has requisite corporate power to own and operate
its properties and assets, and to conduct its business.  The Company is
qualified to do business as a foreign corporation in each

                                      -2-

                                       36
<PAGE>

jurisdiction in which the failure to be so qualified would have a material
adverse effect on the Company's business, financial condition or results of
operations.

     2.  The Company has all requisite legal and corporate power to execute and
deliver the Agreement and the Warrants, to sell and issue the Shares and issue
the Warrants under the Agreement, to issue the shares of Common Stock issuable
upon exercise of the Warrants (the "Warrant Shares"), and to carry out and
perform its obligations under the terms of the Agreement.

     3.  As of the date hereof, the authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock.  The Shares and the Warrants issued under the Agreement are, and the
Warrant Shares when issued pursuant to the terms of the Warrants will be,
validly issued, fully paid and nonassessable and free of any liens, encumbrances
and preemptive or similar rights contained in the Restated Certificate of
Incorporation or Bylaws of the Company, or, to our knowledge, in any agreement
identified to us as material by which the Company is bound, except as provided
or referred to in the Agreement; provided, however, that the Shares, the
Warrants and the Warrant Shares (and the Common Stock issuable upon conversion
thereof) may be subject to restrictions on transfer under state and/or federal
securities laws as set forth in the Agreement.  To our knowledge, except for
rights described in the Agreement, the SEC Documents, the Restated Certificate
of Incorporation or the Bylaws, there are no other options, warrants, conversion
privileges or other rights currently outstanding to purchase or otherwise
acquire any authorized but unissued shares of capital stock or other securities
of the Company, or any other agreements to issue any such securities or rights,
pursuant to any written agreement identified to us as material by which the
Company is bound.

     4.  All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution and delivery of the
Agreement by the Company, the authorization, sale, issuance and delivery of the
Shares, the Warrants and the Warrant Shares and the performance of the Company's
obligations under the Agreement has been taken.  The Agreement and the Warrants
have been duly and validly executed and delivered by the Company and constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.

     5.  The execution, delivery and performance of and compliance with the
terms of the Agreement and the issuance of the Shares, the Warrants and the
Warrant Shares, do not violate any provision of the Restated Certificate of
Incorporation or Bylaws, or, to our knowledge, any provision of any applicable
federal or state law, rule or regulation.  To our knowledge, the execution,
delivery and performance of and compliance with the Agreement and the issuance
of the Shares, the Warrants and the Warrant Shares have not resulted and will
not result in any material violation of, or constitute a material default under,
any indenture, mortgage or deed of trust or other agreement, instrument, court
order, judgment or decree binding upon the Company and identified to us as
material.

     6.  No consent, approval or authorization of or designation, declaration or
filing with any United States governmental authority on the part of the Company
is required in connection with the valid execution and delivery of the
Agreement, or the offer, sale or issuance of the Shares, the Warrants and the
Warrant Shares or the consummation of any other transaction

                                      -3-

                                       37
<PAGE>

contemplated thereby, except the filing with the Nasdaq Stock Market of a notice
of listing of additional shares on Form 10b-17.

     This opinion is furnished to the Investors solely for their benefit in
connection with the purchase of the Shares and the Warrants, and may not be
relied upon by any other person or for any other purpose without our prior
written consent.

                              Very truly yours,

                              WILSON, SONSINI, GOODRICH & ROSATI
                              Professional Corporation

                                      -4-

                                       38<PAGE>

                                                                     Exhibit 4.5

                                 VIDAMED, INC.

                               PURCHASE AGREEMENT

     This Purchase Agreement (the "Agreement") is made as of January 4, 2000
(the "Agreement Date"), by and between VidaMed, Inc., a Delaware corporation
(the "Company") with its principal office at 46107 Landings Parkway, Fremont,
California  94538 and the purchasers set forth on Exhibit A hereto (individually
a "Purchaser" and collectively the "Purchasers").

                                   RECITALS

     WHEREAS, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to purchase from the Company, on the terms and subject to the
conditions set forth in this Agreement, 6,460,000 shares of the Company's common
stock, $0.001 par value (the "Common Stock") at $1.73 per share and warrants to
purchase 1,938,000 shares of the Company's Common Stock, for a total purchase
price of $11,175,800.

                                   AGREEMENT

     NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein, and for other valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:

                                   Section 1

                Purchase and Sale of Common Stock and Warrants
                ----------------------------------------------

     1.1  Purchase and Sale of Common Stock.  Subject to the terms and
          ---------------------------------
conditions of this Agreement, at the Closing (as defined below) each Purchaser,
severally and not jointly, agrees to purchase from the Company, and the Company
agrees to issue and sell to such Purchaser the number of shares (the "Shares")
of Common Stock of the Company set forth opposite such Purchaser's name on
Exhibit A hereto, at a purchase price (the "Purchase Price") of $1.73 per share.

     1.2  Issuance of Warrants.  The Company shall issue to each Purchaser a
          --------------------
warrant (individually a "Warrant" and collectively the "Warrants") exercisable
for thirty percent (30%) of the number of Shares purchased by such Purchaser.
Each Warrant, the form of which is attached hereto as Exhibit B, entitles the
registered holder thereof to purchase shares of Common Stock at a price of $1.80
per share, subject to adjustment in certain circumstances, commencing on the
date hereof until five years from the Closing (as defined below). The Shares,
the Warrants and the shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") are herein collectively referred to as the
"Securities."
<PAGE>

                                   Section 2

                            Closing Date; Delivery
                            ----------------------

     2.1  Closing Date.  The completion of the purchase and sale of the Shares
          ------------
and the Warrants will be held at a location mutually agreeable to the parties on
January 4, 2000 (the "Closing").  The date of the Closing is hereinafter
referred to as the "Closing Date."

     2.2  Delivery.  At the Closing, the Company will deliver to each Purchaser
          --------
the certificates evidencing the Shares and the Warrants and an opinion of
Shartsis, Friese & Ginsburg LLP, counsel to the Company, in the form of Exhibit
C. Such delivery shall be against payment of the Purchase Price for the Shares
by wire transfer of immediately available funds to the Company's bank account
(in accordance with instructions furnished by the Company).

                                   Section 3

                 Representations and Warranties of the Company
                 ---------------------------------------------

     The Company represents and warrants to the Purchasers as follows:

     3.1  Organization and Standing.  The Company is a corporation duly
          -------------------------
organized and validly existing under and by virtue of the laws of the State of
Delaware and is in good standing as a domestic corporation under the laws of
said state, and has the requisite corporate power and authority to own its
properties and to carry on its business as now being conducted. Other than as
disclosed in the SEC Documents (as defined below), the Company has no
subsidiaries or direct or indirect ownership in any firm, corporation or
business which either individually or in the aggregate is material to the
business of the Company. The Company is qualified to do business and is in good
standing as a foreign corporation in every jurisdiction in which its ownership
of property or conduct of business requires it to be so qualified and in which
the failure to so qualify would have a material adverse effect on the financial
condition or business of the Company.

     3.2  Corporate Power; Authorization.  The Company has all requisite legal
          ------------------------------
and corporate power and authority and has taken all requisite corporate action
to duly authorize, execute and deliver this Agreement, to sell and issue the
Shares and the Warrant, and to carry out and perform all of its obligations
under and contemplated by this Agreement. This Agreement has been duly executed
and delivered by an authorized officer of the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally, and (b) as limited by equitable principles
generally (regardless of whether such enforceability is considered a proceeding
in equity or at law).

     3.3  Issuance and Delivery.  The Shares and the Warrants have been duly
          ---------------------
authorized and, when issued and delivered in compliance with this Agreement,
will be duly and validly issued and delivered and will be outstanding, fully
paid, nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions other than any liens or encumbrances created by or

                                      -2-
<PAGE>

imposed on the holders thereof through no action of the Company; provided,
however, that the Shares and the Warrant will be subject to restrictions on
transfer and state and federal securities laws and as provided herein. The
Warrant Shares have been duly authorized and reserved for issuance upon exercise
of the Warrant, and such shares, when issued upon such exercise in accordance
with the terms of the Company's Certificate of Incorporation and the Warrant,
respectively, and when the price is paid upon exercise of the Warrant, shall be
fully paid and nonassessable. No preemptive rights or other rights to subscribe
for or purchase exist with respect to the issuance and sale of the Securities by
the Company pursuant to this Agreement. Except as provided in Schedule 3.3, no
stockholder of the Company has any right (which has not been waived or has not
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement) to require the Company to register
the sale of any securities owned by such holder under the Securities Act of
1933, as amended (the "Securities Act"), in the Registration Statement. Except
as provided in Schedule 3.3, no further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Securities to be sold by the Company as contemplated
herein.

     3.4  SEC Documents; Financial Statements; Subsequent Events.  The Company
          ------------------------------------------------------
has filed in a timely manner all documents that the Company was required to file
with the Securities and Exchange Commission ("SEC") during the twelve (12)
months preceding the date of this Agreement.  As of their respective filing
dates, all documents filed by the Company with the SEC (the "SEC Documents")
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or the Securities Act, as
applicable and all rules and regulations thereunder.  None of the SEC Documents
contained, as of their respective dates, any untrue statement of material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading, and such SEC Documents, when read as a whole, do
not contain any untrue statements of a material fact and do not omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The financial
statements of the Company included in the SEC Documents (the "Financial
Statements") comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto.  The Financial Statements have been prepared in accordance with
United States generally accepted accounting principles consistently applied, and
fairly present the financial position of the Company and any subsidiaries at the
dates thereof and the results of the Company's operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
adjustments).

     3.5  Governmental Consents.  No consent, approval, order or authorization
          ---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the execution and delivery of this Agreement that
has not been accomplished and the consummation of the transactions contemplated
by this Agreement except for (a) the filing of a Form D with the SEC with
respect to the issuance of the Securities, (b) the filing of a Nasdaq Small Cap
Market Notification Form (pursuant to Rule 10b-17 promulgated under the Exchange
Act) with the Nasdaq Small Cap Market, each of which will be filed in a timely
manner, and (c) qualification (or taking such action as may be necessary to
secure an exemption from qualification, if

                                      -3-
<PAGE>

available) of the offer and sale of the Securities under applicable state laws,
which filings and qualifications, if required, will be accomplished in a timely
manner.

     3.6  Exempt Transactions.  Subject to the accuracy of the Purchasers'
          -------------------
representations and warranties in Section 4 of this Agreement, the offer, sale
and issuance of the Securities in conformity with the terms of this Agreement
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act and from the registration or qualification requirements of
the laws of any applicable state or United States jurisdiction.

     3.7  No Material Adverse Change.  Since September 30, 1999, there have not
          --------------------------
been any changes in the assets, liabilities, financial condition, business or
operations of the Company from that reflected in the Financial Statements except
(i) changes in the ordinary course of business which have not been, either
individually or in the aggregate, materially adverse, and (ii) the Company's
continued incurrence of operating losses and negative cash flow, which have
occurred at a rate not materially in excess of the rate at which operating
losses and negative cash flows were incurred from January 1, 1998 to September
30, 1999.

     3.8  Intellectual Property.  The Company owns or possesses adequate rights
          ---------------------
to use all patents, patent rights, inventions, trademarks, trade names,
copyrights, licenses, governmental authorizations, trade secrets and know-how
that are used or necessary for the conduct of its business as described in the
SEC Documents; except as described in the SEC Documents, neither the Company nor
any of its subsidiaries has received any notice of, or has any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent right, invention, trademarks, trade names, copyrights, licenses,
governmental authorizations, trade secret or know-how that, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries considered
as a whole.

     3.9  Authorized Capital Stock.  The authorized capital stock of the Company
          ------------------------
conforms, as of the dates for which such information is given, in all material
respects to the statements relating thereto contained in the SEC Documents.  The
issued and outstanding shares of capital stock of the Company have been duly
authorized, validly issued and are fully paid and nonassessable; except as set
forth or referred to in the SEC Documents, no warrants, options or other rights
to purchase, agreements or other obligation to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company.  All of the above
securities of the Company were issued in compliance with all applicable federal
and state securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.  No
holder of any security of the Company is entitled to any preemptive or similar
rights to purchase any securities of the Company.

     3.10 Litigation.  There are no actions, suits, proceedings or
          ----------
investigations pending or, to the best of the Company's knowledge, threatened
against the Company or any of its properties before or by any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable likelihood (in the judgment of the Company) of an adverse decision
that (a) would have a material adverse effect on the Company's properties or
assets or the business of

                                      -4-
<PAGE>

the Company as presently conducted or proposed to be conducted, or (b) would
impair the ability of the Company to perform in any material respect its
obligations under this Agreement. The Company is not in default with respect to
any judgment, order or decree of any court or governmental agency or
instrumentality which, individually or in the aggregate, would have a material
adverse effect on the assets, properties or business of the Company.

     3.11 Preemptive and Registration Rights.  There are no preemptive rights,
          ----------------------------------
rights of first refusal, repurchase rights or any other right of the Company or
any third party as to the Securities which have not been satisfied or waived,
and except as provided in this Agreement (including Schedule 3.11 hereto), the
Company has not granted or agreed to grant any registration rights that would be
applicable to the registration for resale of the Securities pursuant to the
Registration Statement, as defined in and contemplated by Section 7.1 hereof, to
any person or entity which have not been satisfied or waived.

     3.12  Compliance With Other Instruments.  The business and operations of
           ---------------------------------
the Company have been and are being conducted in accordance with all applicable
laws, rules and regulations of all governmental authorities, except for such
violations of applicable laws, rules and regulations which would not,
individually or in the aggregate, have a material adverse effect on the assets,
properties, financial condition or business of the Company.  Neither the
execution and delivery of, nor the performance or compliance with, this
Agreement and the transactions contemplated hereby, will, with or without the
giving of notice or the passage of time, (i) result in any breach of, or
constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of the Company pursuant to any agreement
or other instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or effected, except for such breach or
default or the imposition of any such lien or encumbrance which, either
individually or in the aggregate, would not have a material adverse effect on
the assets, properties, financial condition or business of the Company, or (ii)
violate the Certificate of Incorporation or Bylaws of the Company, or, except as
set forth on Schedule 3.12, any law, rule, regulation, judgment, order or
decree.  The Company is not in violation of its Certificate of Incorporation or
Bylaws nor in violation of or in default under, any lien, indenture, mortgage,
lease, agreement, instrument, commitment or arrangements, except for such
defaults which would not, individually or in the aggregate, have a material
adverse effect on the assets, properties, financial condition or business of the
Company, or subject to any restriction which would prohibit the Company from
entering into or performing its obligations under the Agreement.

     3.13  Brokers or Finders.  In connection with this transaction, no person,
           ------------------
firm or corporation has or will have, as a result of any act or omission of the
Company, any right, interest or valid claim against the Purchasers for any
commission, fee or other compensation as a finder or broker in connection with
the transactions contemplated by this Agreement.

     3.14  Compliance With Environmental Laws.  Except as disclosed in the SEC
           ----------------------------------
Documents, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation.  The Company does not have any material
liability to any governmental authority or other third party arising under or as
a result of any such past or existing statute, law or regulation.

                                      -5-
<PAGE>

     3.15  Contracts.  The contracts so described in the SEC Documents or
           ---------
incorporated by reference therein are in full force and effect on the date
hereof, except for contracts the termination or expiration of which would,
individually or in the aggregate, not have a material adverse effect on the
business, properties or assets of the Company, and neither the Company nor any
of its subsidiaries, nor to the Company's knowledge, any other party is in
breach of or default under any of such contracts.

     3.16  Properties.  The Company has good and marketable title to all the
           ----------
properties and assets reflected as owned in the financial statements included in
the SEC Documents, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except (i) those, if any, reflected in such financial statements or
SEC Documents, (ii) those which are not material in amount and do not adversely
affect the use made and promised to be made of such property by the Company and
its subsidiaries, or (iii) those in favor of Transamerica Business Credit
Corporation.  The Company and any applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company and the
subsidiaries.  Except as disclosed in the SEC Documents, the Company owns or
leases all such properties as are necessary to its operations as now conducted
or as proposed to be conducted.

     3.17  Compliance.  The Company has not been advised and has no reason to
           ----------
believe that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business; except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries.

     3.18  Taxes.  The Company and its subsidiaries have filed all necessary
           -----
federal, state and foreign income and franchise tax returns and have paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of any
tax deficiency which has been or might be asserted or threatened against the
Company or its subsidiaries which could materially and adversely affect the
business, operations or properties of the Company and its subsidiaries.

     3.19  Transfer Taxes.  On the Closing Date, all stock transfer or other
           --------------
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Securities to be sold to the Purchasers hereunder
will be, or will have been, fully paid or provided for by the Company and all
laws imposing such taxes will be or will have been complied with fully.

     3.20  Insurance.  Each of the Company and its subsidiaries maintains
           ---------
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering all real and
personal property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.

     3.21  Contributions.  Neither the Company nor any of its subsidiaries has,
           -------------
directly or indirectly, at any time during the last five years (i) made any
unlawful contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, or

                                      -6-
<PAGE>

(ii) made any payment to any federal or state governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.

     3.22  State Takeover Laws.  The Board of Directors of the Company has
           -------------------
approved the transactions contemplated by this Agreement, such that the
provisions of Section 203 (entitled "Business Combinations with Interested
Shareholders") of the Delaware General Corporations Code will not apply to any
business combination between MAMI and any of its affiliates and the Company.

                                   Section 4

          Representations, Warranties and Covenants of the Purchasers
          -----------------------------------------------------------

     Each Purchaser, severally and for itself only, hereby represents and
warrants to the Company as follows:

     4.1  Authorization.  (i) The Purchaser has all requisite legal and
          -------------
corporate or other power and capacity and has taken all requisite corporate or
other action to execute and deliver this Agreement, to purchase the Securities
to be purchased by it and to carry out and perform all of its obligations under
this Agreement, and (ii) this Agreement constitutes the legal, valid and binding
obligation of the Purchaser, enforceable in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, or similar
laws relating to or affecting the enforcement of creditors' rights generally and
(b) as limited by equitable principles generally (regardless of whether such
enforceability is considered a proceeding in equity or at law).

     4.2  Investment Experience.  The Purchaser is an "accredited investor" as
          ---------------------
defined in Rule 501(a) under the Securities Act.  The Purchaser is aware of the
Company's business affairs and financial condition and has had access to and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Securities.  The Purchaser has such
business and financial experience as is required to give it the capacity to
protect its own interests in connection with the purchase of the Securities.

     4.3  Investment Intent.  The Purchaser is purchasing the Securities for
          -----------------
its own account as principal, and not as a nominee or agent, for investment
purposes only, and not with a present view to, or for, resale, distribution or
fractionalization thereof, in whole or in part, within the meaning of the
Securities Act. The Purchaser understands that the offer and sale of the
Securities have not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom which exemptions may depend upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. The Purchaser
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchase or otherwise acquire or take
a pledge of) any of the Shares, the Warrants and the Warrant Shares except in
compliance with the Securities Act, and the rules and regulations promulgated
thereunder.

                                      -7-
<PAGE>

     4.4  Registration or Exemption Requirements.  The Purchaser further
          --------------------------------------
acknowledges and understands that the Securities may not be resold or otherwise
transferred except in a transaction registered under the Securities Act or
unless an exemption from such registration is available. The Purchaser
understands that the certificate(s) evidencing the Securities will be imprinted
with a legend that prohibits the transfer of such securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the
Securities Act and, if the Company shall so request in writing, an opinion of
counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.

     4.5  Removal of Legend.  Any legend endorsed on a certificate pursuant to
          -----------------
this Agreement shall be removed, and the Company shall issue a certificate
without such legend to the Purchaser, if such security is being disposed of
pursuant to a registration statement under the Securities Act or pursuant to
Rule 144 or any similar rule then in effect or if such holder provides the
Company with an opinion of counsel satisfactory to the Company to the effect
that a transfer of such security may be made without registration. In addition,
if the holder of such security delivers to the Company an opinion of such
counsel reasonably satisfactory to the Company to the effect that no subsequent
transfer of such security will require registration under the Securities Act,
the Company will promptly upon such contemplated transfer deliver new
certificates evidencing such security that do not bear the legend set forth in
this Agreement.

                                   Section 5

               Conditions to the Purchasers' Obligation to Close
               -------------------------------------------------

     The obligation of each Purchaser to purchase the Shares and the Warrants at
the Closing is subject to the fulfillment as of the Closing Date of the
following conditions, any of which may be waived in whole or in part by such
Purchaser.

     5.1  Representations and Warranties.  The representations and warranties
          ------------------------------
made by the Company in Section 3 hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.

     5.2  Covenants.  All covenants, agreements and conditions contained in this
          ---------
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.

     5.3  Compliance Certificate.  The President or Chief Financial Officer of
          ----------------------
the Company shall have delivered to the Purchasers a certificate, dated as of
the Closing Date, certifying that the conditions specified in Sections 5.1 and
5.2 have been fulfilled and stating that since September 30, 1999, there shall
have been no material adverse change in the assets, liabilities, financial
condition, business or operations of the Company from that reflected in the
Financial Statements except (i) changes in the ordinary course of business which
have not been, either individually or in the aggregate, materially adverse, and
(ii) the Company's continued incurrence of operating losses and negative cash
flow which have occurred at a rate not materially in excess

                                      -8-
<PAGE>

of the rate at which operating losses and negative cash flows were incurred from
January 1, 1998 to September 30, 1999.

     5.4  Legal Opinion of Company Counsel.  Shartsis, Friese & Ginsburg, LLP,
          --------------------------------
counsel to the Company, shall have delivered a legal opinion, addressed to the
Purchasers, in the form attached as Exhibit C hereto.

     5.5  Closing Date.  The Closing shall have occurred on or prior to
          ------------
January 4, 2000.

                                   Section 6

                       Conditions to Closing of Company
                       --------------------------------

     The Company's obligation to sell and issue the Shares and the Warrants at
the Closing to a Purchaser is subject to the fulfillment or waiver of the
following conditions:

     6.1  Representations and Warranties.  The representations and warranties
          ------------------------------
made by such Purchaser in Section 4 hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of such date.

     6.2  Covenants.  All covenants, agreements and conditions contained in this
          ---------
Agreement to be performed by such Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects.

                                   Section 7

                     Registration Covenants of the Company
                     -------------------------------------

     The Company hereby covenants and agrees as follows:

     7.1  Certain Definitions.  As used in this Section 7, the following terms
          -------------------
shall have the following meanings:

     (a)  "Effectiveness Period" shall begin upon the effective date of a
           --------------------
Registration Statement and end on the earlier of (i) four years after the
effective date of a Registration Statement, (ii) completion of the distribution
described in the Registration Statement or (iii) with respect to any Holder,
such time as all Registrable Securities held by such Holder may be sold in
compliance with Rule 144 within any three-month period.

     (b)  "Holder" shall mean a Purchaser and any transferee or subsequent
           ------
transferee of at least 20% of the Registrable Securities originally issued to
such Purchaser (other than a transferee who purchases the Registrable Securities
in a sale effected pursuant to any Registration Statement or pursuant to Rule
144) provided that the Purchaser has assigned its rights under this Agreement to
such transferee, directly or indirectly, such transferee has assumed the
obligations of a Holder hereunder and a copy of such written assignment and
assumption is provided to the Company.

                                      -9-
<PAGE>

     (c)  "Indemnified Party" and "Indemnifying Party" shall be as defined in
           -----------------       ------------------
Section 7.6.

     (d)  "Losses" shall be as defined in Section 7.6.
           ------
     (e)  "Prospectus" shall mean the prospectus included in any Registration
           ----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including, without limitation, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.

     (f)  "Register," "registered" and "registration" shall refer to a
           --------    ----------       ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

     (g)  "Registrable Securities" shall mean the Shares, the Warrant Shares
           ----------------------
and any other security of the Company issued as a dividend or other distribution
with respect to or in exchange for or in replacement of the Shares or the
Warrant Shares; provided, however, that Registrable Securities shall not include
any such Shares that have been sold by a Holder under an effective Registration
Statement or under Rule 144.

     (h)  "Registration Statement" shall mean any registration statement of the
           ----------------------
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.

     (i)  "Rule 144" shall mean Rule 144, as promulgated by the SEC under the
           --------
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.

     (j)  "Rule 158" shall mean Rule 158, as promulgated by the SEC under the
           --------
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.

     (k)  "Rule 424" shall mean Rule 424 as promulgated by the SEC under the
           --------
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.

     (l)  "Violation" shall be as defined in Section 7.6.
           ---------

     7.2  Registration Requirement.  As soon as reasonably practicable
          ------------------------
following the Closing, the Company shall prepare and file a Registration
Statement with the SEC under the Securities Act to register the resale of the
Registrable Securities by the Holders and the Company shall use its best efforts
to secure the effectiveness of such Registration Statement as soon as
practicable thereafter.

                                      -10-
<PAGE>

     7.3  Registration Procedures.  In connection with the Company's
          -----------------------
registration obligations under Section 7.2 hereof, the Company shall effect such
registration to permit the sale of the Registrable Securities in accordance with
the method or methods of disposition thereof as previously provided to the
Company, and pursuant thereto the Company shall as expeditiously as practicable:

     (a)  Before filing any Registration Statement or Prospectus (other than
documents that would be incorporated or deemed to be incorporated therein by
reference and that the Company is required by applicable securities laws or
stock exchange or quotation system requirements to file), furnish to the Holders
copies of all such documents proposed to be filed, which documents will be
subject to the review of such Holders and their counsel, if any, and the Company
shall not file any such Registration Statement or any Prospectus (other than
such documents which, upon filing, would be incorporated or deemed to be
incorporated by reference therein and that the Company is required by applicable
securities laws or stock exchange or quotation system requirements to file) to
which the Holders of a majority of the securities covered by such Registration
Statement shall reasonably object on a timely basis. In the event of any such
objection, the Holders shall provide the Company with any requested revisions to
such prospectus or supplement within three (3) business days of such objection.

     (b)  Prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period;
cause the related Prospectus to be amended or supplemented by any required
Prospectus amendment or supplement, and as so amended or supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the methods of
disposition intended by the Holders thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented.

     (c)  Notify the Holders promptly, and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
Jurisdiction or the initiation or threatening of any proceeding for such
purpose, (iv) of the existence of any fact or the happening of any event that
makes any statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
such Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they

                                      -11-
<PAGE>

were made, not misleading, and (v) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.

     (d)  Use best efforts to obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction within the United States, at the
earliest practicable time.

     (e)  If reasonably requested by the Holders of a majority of the securities
being sold, (i) promptly incorporate in a Prospectus supplement or post-
effective amendment such information as the Company and the Holders of a
majority of such securities agree should be included therein as required by
applicable law, (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment, and (iii) supplement or make amendments
to any Registration Statement consistent with clause (i) or (ii) above;
provided, that the Company shall not be required to take any actions under this
paragraph that are not, in the opinion of counsel for the Company, in compliance
with applicable law.

     (f)  Furnish to each Holder and its counsel, if any, upon written request
and without charge to such Holder, at least one conformed copy of the
Registration Statement or Statements and any post-effective amendment thereto,
including financial statements (but excluding schedules, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits,
unless requested in writing by such Holder or counsel).

     (g)  Deliver to each Holder and its counsel, if any, without charge, as
many copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request in writing; and the
Company hereby consents to the use of such Prospectus or each amendment or
supplement thereto by each Holder in connection with the offering and sale of
the Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.

     (h)  Use reasonable efforts to register and qualify the Registrable
Securities under (or obtain exemption from) the securities or Blue Sky laws of
such jurisdictions within the United States as any Holder reasonably requests in
writing; use reasonable efforts to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and use
reasonable efforts to do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it is not then so qualified or (ii) take any action that would subject it
to general service of process in any such jurisdiction where it is not then so
subject.

     (i)  Within five (5) business days following the occurrence of any event
contemplated by paragraphs 7.3(c)(v) or 7.3(c)(vi) above, prepare and file with
the SEC a supplement or post-effective amendment to each Registration Statement
or an amendment or supplement to the

                                      -12-
<PAGE>

related Prospectus or any document incorporated therein by reference or file any
other required document (such as a Current Report on Form 8-K) so that, as
thereafter delivered to the purchasers of the Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

     (j)  If necessary in connection with a disposition of Registrable
Securities, make available for inspection, at the offices where normally kept
during reasonable business hours, by a representative of any Holder and any
attorney or accountant retained by such Holder, financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
as they may reasonably request, and cause the officers, directors and employees
of the Company and its subsidiaries to supply all information reasonably
requested by any such representative, attorney or accountant in connection with
such disposition; provided, that any records, information or documents that are
designated by the Company in writing as confidential at the time of delivery of
such records, information or documents shall be kept confidential by such
Persons, and such Persons shall so agree in writing.

     (k)  Comply with all applicable rules and regulations of the SEC and make
generally available to its security holders earning statements satisfying the
provisions of Section 11 (a) of the Securities Act and Rule 158 thereunder no
later than 45 days after the end of any 12-month period (or 90 days after the
end of any 12-month period if such period is a fiscal year) commencing on the
first day of the first fiscal quarter of the Company, after the effective date
of a Registration Statement, which statements shall cover said 12-month period.

     (l)  Cooperate with the Holders and transfer agent and registrar to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered in
such names as a Holder may request.

     (m)  Cause the Shares to be listed on each securities exchange or quotation
system on which the Company's Common Stock is then listed no later than the date
the Registration Statement is declared effective and, in connection therewith,
to the extent applicable, to make any required filings under the Exchange Act
and to have such filings declared effective thereunder.

     In connection with the disclosures in a Registration Statement, as required
under the Securities Act, the Company may require a Holder, and each Holder
agrees, to furnish to the Company in writing such information regarding the
distribution of the Registrable Securities covered by such Registration
Statement as the Company may, from time to time, reasonably request in writing
and the Company may exclude from such registration the Registrable Securities of
any Holder if such Holder unreasonably fails to furnish such information in
writing within a reasonable time after receiving such request.  Each Holder
agrees promptly to furnish to the Company all information required to be
disclosed in such Registration Statement in order to make the information
previously furnished to the Company by such Holder not misleading.  Any sale of
any Registrable Securities by any Holder shall constitute a representation and
warranty by such Holder that the required information relating to such Holder
and its plan of distribution is as

                                      -13-
<PAGE>

set forth in the Prospectus delivered by such Holder in connection with such
disposition, that such Prospectus does not as of the time of such sale contain
any untrue statement of a material fact relating to such Holder or its plan of
distribution and that such Prospectus does not as of the time of such sale omit
to state any material fact relating to such Holder or its plan of distribution
necessary to make the statements in such Prospectus, in the light of the
circumstances under which they were made, not misleading.

     Each Holder agrees that, upon receipt of any notice from the Company of the
happening of (i) any event of the kind described in paragraphs 7.3(c)(ii),
7.3(c)(iii), 7.3(c)(iv) or 7.3(c)(v) hereof, or (ii) a determination by the
Company's Board of Directors that it is advisable to suspend use of the
Prospectus for a discrete period of time due to pending corporate developments
such as negotiation of a material transaction, such Holder will forthwith
discontinue disposition of such Registrable Securities covered by the applicable
Registration Statement or Prospectus until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by paragraph 7.3(i)
hereof, or until such Holder is advised in writing by the Company that the use
of the applicable Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.  The Company agrees to so advise
such Holder promptly after the Company determines that the use of the applicable
Prospectus may be resumed.  The Company shall not suspend use of a Prospectus or
Registration Statement under this paragraph of Section 7.3 for more than 30 days
at a time and more than twice in any 12 month period.  Any period for which use
of a Prospectus or Registration Statement is suspended under this paragraph of
Section 7.3 shall be added to the time for which the Company is required to
maintain the effectiveness of such Registration Statement, including the
Prospectus constituting a part thereof, under Section  7.3(b).

     7.4  Registration Expenses.  All fees and expenses incident to the
          ---------------------
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any of the Registration Statements become
effective and whether or not any of the Registrable Securities are transferred
pursuant to the Registration Statement. Such fees and expenses shall include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to designation of the Registrable
Securities as eligible for trading on applicable securities exchange or
quotation system, and (B) of compliance with securities or Blue Sky laws), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible for deposit with The
Depository Trust Company and of printing Prospectuses), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company in connection with the Company's performance of its obligations under
this Agreement, (v) reasonable fees and disbursements of all independent
certified public accountants, (vi) Securities Act liability insurance if the
Company so desires such insurance, (vii) fees and expenses of all other persons
retained by the Company in connection with the performance by the Company of its
duties under this Agreement and (viii) fees and expenses of counsel to MAMI up
to a maximum of $10,000. Except as set forth in the preceding sentences of this
paragraph, the Company shall not be responsible for paying the expenses of
Holder, or its counsel, incurred in connection with the registration or approval
of the Registration Statement or the transactions contemplated thereby by
governmental agencies or authorities other than those administering applicable
securities laws and applicable exchange or quotation system regulations. In
addition, the Company will, in any event, bear its own internal

                                      -14-
<PAGE>

expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange or quotation system on
which similar securities issued by the Company are then listed and the fees and
expenses of any person, including special experts, retained by the Company.

     7.5  Limitations on Additional Registration Rights.  The registration
          ---------------------------------------------
statement filed in accordance with Section 7.2 may include other securities of
the Company with respect to which registration rights have been granted, and may
include securities of the Company being sold for the account of the Company;
provided however, that such inclusions do not adversely affect the registration
of the Registrable Securities.

     7.6  Indemnification.
          ---------------

     (a)  By the Company.  To the maximum extent permitted by law, the Company
          --------------
will indemnify and hold harmless each Holder of Registrable Securities, each
person, if any, who controls such Holder within the meaning of the Securities
Act or the Exchange Act, and each underwriter, if any, of Registrable
Securities, against any losses, claims, damages, liabilities or expenses (joint
or several) (collectively "Losses") to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law. The
Company will reimburse each such Holder or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such Losses (or action in respect thereof); provided, however,
                                                          --------  -------
that the indemnity agreement contained in this Section 7.6 shall not apply to
amounts paid in settlement of any such Losses (or action in respect thereof) if
such settlement is effected without the consent of the Company (in which case
the parties shall first have met and conferred in good faith regarding such
settlement), nor shall the Company be liable in any such case for any such
Losses (or action in respect thereof) to the extent that they arise out of or
are based upon a Violation which arises out of or is based upon information
furnished in writing expressly for use in connection with such registration by
any such Holder, controlling person, as the case may be; provided, further, that
the Company will not be liable to any Holder or controlling person or
underwriter, as the case may be with respect to any Losses arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact in any preliminary prospectus which is
corrected in an amended, supplemented or final prospectus if the purchaser
asserting such Losses purchased from such Holder or underwriter, as applicable,
and was not, due to the fault of such Holder, sent or given a copy of such
amended, supplemented or final prospectus at or prior to the sale of Registrable
Securities to such purchaser.

                                      -15-
<PAGE>

     (b)  By Holders.  To the maximum extent permitted by law, each Holder
          ----------
(severally, but not jointly) will, if Registrable Securities held by such Holder
are included in the Registrable Securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers, each underwriter, if any, of
Registrable Securities, and each person who controls the Company or such
underwriter within the meaning of the Securities Act or the Exchange Act,
against any Losses to which the Company or any such director or controlling
person may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such Losses (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation arises out of or is based upon
information furnished by such Holder in writing expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such controlling person in
connection with investigating or defending any such Losses (or actions in
respect thereof); provided, however, that the indemnity agreement contained in
                  --------  -------
this Section 7.6(b) shall not apply to amounts paid in settlement of any such
Losses (or actions in respect thereof) if such settlement is effected without
the consent of the Holder (in which case the parties shall first have met and
conferred in good faith regarding such settlement). Each Holder's liability
under this Section 7.6(b) shall not exceed the proceeds received by such Holder
from the sale of Registrable Securities held by such Holder included in such
registration, qualification or compliance.

     (c)  Procedures.  Each party entitled to indemnification under this
          ----------
Section (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed). Without limiting the generality of the
foregoing, if the Indemnified Party has been advised in writing by its counsel
that representation of both the Indemnified and Indemnifying Party by the same
counsel would be inappropriate under standards of professional conduct due to
actual or potential differing interests, with respect to such claim or
litigation, the Indemnifying Party shall bear the expense of another counsel who
shall represent the Indemnified Party and any other persons or entities who have
indemnification rights from the Indemnifying Party hereunder, with respect to
such claim or litigation, and shall be selected as provided in the first
sentence of this Section 7.6(c). The Indemnified Party may participate in such
defense at such party's expense (except to the extent that the Indemnifying
Party is required to pay the expense of such counsel pursuant to this Section
7.6(c)), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent such failure is
prejudicial to the Indemnifying Party in defending such claim or litigation. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party (which consent shall not be
unreasonably withheld or delayed), consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability with respect to such claim or litigation.

                                      -16-
<PAGE>

     (d)  Contribution.  If the indemnification provided for in this Section is
          ------------
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any Losses referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party hereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party (on the one hand) and of the Indemnified Party
(on the other) in connection with the statements or omissions which resulted in
such Losses as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.

     7.7  Information Requirements.  The Company shall file in a timely manner
          ------------------------
the reports required to be filed by it under the Securities Act and the Exchange
Act, and if at any time the Company is not required to file such reports, it
will, upon the request of any Holder, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act.  The Company further covenants that it will cooperate with any Holder and
take such further action as such Holder may reasonably request (including
without limitation making such representations as any such Holder may reasonably
request), all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 under the Securities Act.
Upon the request of any Holder, the Company shall deliver to such Holder a
written statement as to whether it has complied with such filing requirements.
The Company shall file in a timely manner the reports required to be filed by it
under the Exchange Act and shall comply with all other requirements set forth in
the instructions to any Securities Act registration form used in connection with
any Shelf Registration effected pursuant hereto in order to allow the Company to
be eligible to file registration statements on such form.

                                   Section 8

                  Other Affirmative Covenants of the Company
                  ------------------------------------------

     8.1  Board Member.  As soon as reasonably practicable following the
          ------------
Closing, the Company will cause to be appointed to its Board of Directors an
individual designated by MAMI. In connection with each meeting of shareholders
of the Company at which directors are to be elected which occurs following the
date of this Agreement and while MAMI continues to own at least fifty-five
percent (55%) (based upon the aggregate number of Shares and Warrant Shares
beneficially owned) of the Securities originally purchased by MAMI hereunder,
the Company shall nominate an individual designated by MAMI for election to the
Company's Board of Directors by the shareholders and shall use commercially
reasonable efforts to cause such individual to be elected to the Board.

                                      -17-
<PAGE>

     8.2   Nasdaq Listing.  The Company shall use its best efforts to obtain
           --------------
approval for listing of the Shares and the Warrant Shares on the Nasdaq SmallCap
Market as soon as practicable following the date hereof.

                                   Section 9

                Restrictions on Transferability of Securities;
                ----------------------------------------------
                        Compliance with Securities Act
                        ------------------------------

     9.1   Restrictions on Transferability.  The Shares, the Warrants and the
           -------------------------------
Warrant Shares shall not be transferable in the absence of a registration under
the Securities Act or an exemption therefrom or in the absence of compliance
with any term of this Agreement.

     9.2   Restrictive Legend.  Each certificate representing the Securities
           ------------------
shall bear substantially the following legend (in addition to any legends
required under applicable securities laws):

     THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
     PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
     ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.

     9.3   Transfer of Securities After Registration.  Each Purchaser hereby
           -----------------------------------------
covenants with the Company not to make any sale of the Shares, the Warrant or
the Warrant Shares except either (i) in accordance with the Registration
Statement, in which case such Purchaser covenants to comply with the requirement
of delivering a current prospectus, (ii) in accordance with Rule 144, in which
case such Purchaser covenants to comply with Rule 144, or (iii) in accordance
with another exemption from the registration requirements of the Securities Act.
The legend set forth in Section 9.2 will be removed from a certificate
representing the Securities following and in connection with any sale of the
Securities pursuant to subsection (i) or (ii) hereof, but not in connection with
any sale of Shares pursuant to subsection (iii) hereof, and also will be removed
at such time that the Securities may be sold under Rule 144 without restriction
as to volume and manner of sale.

     9.4   Purchaser Information.  Each Purchaser covenants that it will
           ---------------------
promptly notify the Company of any changes in the information set forth in the
Registration Statement regarding such Purchaser, under the heading "Selling
Security Holders" or  "Plan of Distribution" or elsewhere.

                                  Section 10

                                 Miscellaneous
                                 -------------

     10.1  Construction.  The Company and the Purchasers have participated
           ------------
jointly in the negotiation and drafting of this Agreement.  No presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.

                                      -18-
<PAGE>

     10.2  Notices.  Any notice, request, demand, waiver, consent, approval or
           -------
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to the
party personally or sent to the party by telecopy, telegram or by registered or
certified mail (return receipt requested) with postage and registration or
certification fees thereon prepaid, addressed to the party at its address set
forth below:

           If to the Company:

           Vidamed, Inc.
           46107 Landings Parkway
           Fremont, California 94538
           Attention:  General Counsel

           If to a Purchaser, at the address for such Purchaser set forth on
Exhibit A hereto.

     10.3  Successors and Assigns.  The provisions of this Agreement shall be
           ----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

     10.4  Survival of Representations, Warranties and Agreements.  The
           ------------------------------------------------------
representations and warranties of the Company in Section 3 hereof and the
representations and warranties of the Purchasers in Section 4 hereof shall
survive the purchase of the Shares for a period of twenty-four (24) months
following the Closing.  No independent investigation of the Company by any
Purchaser, its counsel, or any of its agents or employees, shall in any way
limit or restrict the scope of the representations and warranties made by the
Company in this Agreement.  All covenants and agreements set forth herein shall
survive the Closing without limitation, except as otherwise specifically
provided herein.

     10.5  Governing Law.  This Agreement shall be governed by and construed in
           -------------
accordance with the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.

     10.6  Severability.  The parties agree that (a) the provisions of this
           ------------
Agreement shall be severable in the event that any provision hereof is held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable,
(b) such invalid, void or otherwise unenforceable provision shall be
automatically replaced by another provision which is as similar as possible in
terms to such invalid, void or otherwise unenforceable provision but which is
valid and enforceable, and (c) the remaining provisions shall remain enforceable
to the fullest extent permitted by law.

     10.7  No Third Party Beneficiaries.  Nothing herein expressed or implied is
           ----------------------------
intended or should be construed to confer upon or give to any person other than
the parties hereto and their successors and assigns any rights or remedies under
or by reason of this Agreement.

     10.8  Entire Agreement.  This Agreement constitutes the entire
           ----------------
understanding of the parties with respect to the subject matter hereof, and
supersedes any prior agreements or understandings, written or oral, between the
parties with respect to the subject matter hereof.

                                      -19-
<PAGE>

     10.9  Amendment and Waiver.  The parties may, by mutual agreement, amend
           --------------------
this Agreement in any respect in a writing executed by each party, and any
party, as to such party, may waive any of its rights hereunder.  To be
effective, any such waiver must be in writing and be signed by the party
providing such waiver.  The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which any party may otherwise
have at law or in equity.  The waiver by any party hereto of any breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach, whether or not similar.

     10.10 Counterparts.  This Agreement may be executed in two or more
           ------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.

     10.11 Headings.  The headings preceding the text of the sections and
           --------
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.

     10.12 Public Announcement.  In the event any party proposes to issue any
           -------------------
press release or public announcement concerning any provisions of this Agreement
or the transactions contemplated hereby, such party shall so advise the other
party hereto, and the parties shall thereafter use their best efforts to cause a
mutually agreeable release or announcement to be issued.  Neither party will
publicly disclose or divulge any provisions of this Agreement or the
transactions contemplated hereby without the other parties' written consent,
except as may be required by applicable law (including applicable SEC rules and
regulations) or stock exchange regulation, and except for communications to
employees.

     10.13 Further Assurances.  Each party to this Agreement shall do and
           ------------------
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as the other party hereto may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

     10.15 Expenses.  Each Purchaser and the Company shall each pay their own
           --------
expenses incident to this Agreement and the preparation for, and consummation
of, the transactions provided for herein.

                                      -20-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first written above.

                                       VIDAMED, INC.

                                            /s/ Randy D. Lindholm
                                       -----------------------------------
                                       Name:    Randy D. Lindholm
                                            ------------------------------
                                       Title:   President and CEO
                                             -----------------------------

                                       PURCHASERS:

                                       MEDTRONIC ASSET MANAGEMENT, INC.

                                            /s/ Michael D. Ellwein
                                       -----------------------------------
                                       Name:    Michael D. Ellwein
                                            ------------------------------
                                       Title:   V.P. and COO
                                             -----------------------------

                                       [Signatures of Additional Purchasers on
                                       subsequent pages]

                                      -21-
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
executed on the day and year first written above.

                              VITAMED, INC.

                              /s/  John F. Howe
                              -------------------------------------------------
                              Name:  John F. Howe
                              Title: Chief Financial Officer

                              City of Milford Pension & Retirement Fund
                              Norwalk Employees' Pension Plan
                              The Jenifer Altman Foundation
                              Dean Witter Foundation
                              Roanoke College
                              Butler Family LLC
                              Salvador O. Gutierrez
                              HBL Charitable Unitrust
                              Andrew Heiskell
                              Helen Hunt
                              Jeanne L. Morency
                              Psychology Associates
                              Murray Capital, LLC
                              Domenic J. Mizio
                              Morgan Trust Co. of the Bahamas Ltd. as Trustee
                              U/A/D 11/30/93
                              Susan Uris Halpern
                              William B. Lazar
                              Harold & Grace Willens JTWROS
                              Albert L. Zesiger
                              Barrie Ramsay Zesiger
                              James F. Cleary
                              John J. & Catherine H. Kayola
                              Mary I. Estabil
                              Wolfson Investment Partners LP

                              By:  ZEIGER CAPITAL GROUP LLC, as agent and
                                   attorney-in-fact

                              By:  /s/  Albert L. Zesiger
                                 -----------------------------------------------
                              Name:  Albert L. Zesiger
                              Title: Principal

<PAGE>

The foregoing agreement is hereby executed as of the date first above written.

<TABLE>

<S>                                                          <C>
"Company"                                                  "Purchaser"

VidaMed, Inc.                                              Circle F. Ventures, LLP
A Delaware Corporation

By: /s/  John F. Howe                                      By: /s/  Hayden R. Fleming
   --------------------------------------------               -------------------------------------------------
    John F. Howe                                               Hayden R. Fleming
    Vice President and CFO                                     President

                                                           "Purchaser"

                                                           Hayden R. Fleming and
                                                           LaDonna M. Fleming Revocable Trust

                                                           By: /s/  Hayden R. Fleming
                                                              ----------------------------------------------
                                                               Hayden R. Fleming
                                                               Trustee
</TABLE>

<PAGE>

                                 ATTACHMENT A

                             Schedule Of Investors

I.  Medtronic Asset Management, Inc.         5.3 Million Shares @ $1.73/share
                                             1.59 Million Warrants @$1.80/share
                                             Purchase Price:  $9.169 Million

II. Zesiger Capital Group LLC                600,000 Shares @ $1.73/share
                                             180,000 Warrants @ $1.80/share
                                             Purchase Price:  $1.038 Million

Allocation:

<TABLE>
<CAPTION>
Purchaser                                       Share      Warrant       Purchase
                                                 Qty         Qty           Price      Record Holder
----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>            <C>
City of Milford Pension & Retirement Fund      64,000       19,200      $  110,720    City of Milford Pension & Retirement Fund
Norwalk Employees' Pension Plan                64,000       19,200      $  110,720    Hare & Co.
The Jenifer Altman Foundation                  32,000        9,600      $   55,360    Batrus & Co.
Dean Witter Foundation                         30,000        9,000      $   51,900    Daly & Co.
Roanoke College                                40,000       12,000      $   69,200    First Union & Co.
Butler Family LLC                              24,000        7,200      $   41,520    Daly & Co.
Salvador O. Gutierrez                          30,000        9,000      $   51,900    Salvador O. Gutierrez
HBL Charitable Unitrust                        16,000        4,800      $   27,680    HBL Charitable Unitrust
Andrew Heiskell                                36,000       10,800      $   62,280    Aulis & Co.
Helen Hunt                                     16,000        4,800      $   27,680    Cudd & Co.
Jeanne L. Morency                              12,000        3,600      $   20,760    Jeanne L. Morency
Psychology Associates                           4,000        1,200      $    6,920    Psychology Associates
Murray Capital, LLC                            24,000        7,200      $   41,520    Murray Capital, LLC
Domenic J. Mizio                               50,000       15,000      $   86,500    Domenic J. Mizio

</TABLE>

                                      -24-
<PAGE>

<TABLE>
<CAPTION>
<S>                                          <C>          <C>          <C>            <C>
Morgan Trust Co. of the Bahamas Ltd.           40,000       12,000      $   69,200    Morgan Trust Co. of the Bahamas Ltd., as
 as Trustee U/A/D 11/30/93                                                            Trustee U/A/D 11/30/93
Susan Uris Halpern                             24,000        7,200      $   41,520    Hare & Co.
William B. Lazar                               12,000        3,600      $   20,760    William B. Lazar
Harold & Grace Willens JTWROS                   8,000        2,400      $   13,840    Harold & Grace Willens JTWROS
Albert L. Zesiger                              30,000        9,000      $   51,900    Albert L. Zesinger
Barrie Ramsay Zesiger                          16,000        4,800      $   27,680    Barrie Ramsay Zesiger
James F. Cleary                                 4,000        1,200      $    6,920    James F. Cleary
John J.  Catherine H. Kayola                    4,000        1,200      $    6,920    John J. & Catherine H. Kayola
Mary I. Estabil                                 4,000        1,200      $    6,920    Mary I. Estabil
Wolfson Investment Partners LP                 16,000        4,800      $   27,680    Wolfson Investment Partners LP
----------------------------------------------------------------------------------------------------------------------------------
 Total                                        600,000      180,000      $1,038,000

</TABLE>

III.  Circle F Ventures, LLC                     280,000 Shares @ $1.73/share
      A Georgia Limited Liability Company         84,000 Warrants @ $1.80/share
                                                 Purchase Price:  $484,400

IV.   Hayden R. Fleming and                      280,000 Shares @ $1.73/share
      LaDonna M. Fleming Revocable Trust          84,000 Warrants @ $1.80/share
                                                 Purchase Price:  $484,400

                                      -25-
<PAGE>

THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE REOFFERED OR SOLD. TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF. EXCEPT PURSUANT TO (1) REGISTRATION OR
(2) AN OPINION OF COUNSEL FOR THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.

                                    WARRANT

                     To Purchase Shares of Common Stock of

                                 VIDAMED, INC.

                                January 4, 2000

     VidaMed. Inc., a Delaware corporation (the "Company"). for value received,
hereby certifies that Medtronic Asset Management. Inc., a Minnesota corporation,
or its registered assigns (the "Holder"), is entitled. subject to the terms set
forth below, upon exercise of this Warrant to purchase from the Company
_______________ shares of Common Stock. $0.001 par value, of the Company
("Common Stock"). Until adjusted as provided by the terms of this Warrant, the
exercise price per share (the "Exercise Price") shall be $1.80, which the
Company hereby represents and warrants to equal 105% of the average closing
price per share of Common Stock for the five (5) trading days ending on and
including the trading day immediately preceding the date hereof. The shares
issuable upon exercise or conversion of this Warrant as adjusted from time to
time pursuant to the provisions of this Warrant. are hereinafter referred to as
the "Warrant Shares."

     This Warrant is further subject to the following provisions, terms and
conditions:

     1.  Term.  This Warrant may be exercised by the Holder. in whole or in
         ----
part, at any time before the close of business on the date five years after the
date hereof.

     2.  Manner of Exercise.  This Warrant may be exercised by the Holder, in
         ------------------
whole or in part (but not as to any fraction of a share of Common Stock), by
surrendering this Warrant, with the Exercise Form attached hereto as Exhibit A
filled-in and duly executed by such Holder or by such Holder's duly authorized
attorney, to the Company at its principal office accompanied by payment of the
Exercise Price in the amount of the Exercise Price multiplied by the number of
shares as to which the Warrant is being exercised. The Exercise Price may be
paid by in the form of a check or wire transfer of funds.

     3.  Conversion of Warrant.
         ---------------------

         (a)  The Holder shall also have the right (the "Conversion Right") at
     any time when this Warrant may be exercised to convert all or any portion
     of this Warrant into such number of shares (rounded to the nearest whole
     share) of Company Common Stock

                                      -26-
<PAGE>

     equal to the quotient obtained by dividing (1) the "Aggregate Warrant
     Spread" as of the date the Conversion Right is exercised, by (ii) the
     "Market Price of the Common Stock" as of the date the Conversion Right is
     exercised. The Conversion Right shall be exercisable at any time that this
     Warrant is exercisable pursuant to Section 1 above, by surrendering this
     Warrant with the Conversion Form attached hereto as Exhibit B filled-in and
     duly executed by such Holder or by such Holder's duly authorized attorney
     to the Company at its principal office.

         (b)  For purposes of this Section 3, the "Aggregate Warrant Spread" of
     all or a portion of this Warrant as of a particular date shall equal (i)
     the Market Price of the Common Stock multiplied by the number of shares of
     Common Stock purchasable upon exercise of all or such portion of this
     Warrant on such date, minus (ii) the Exercise Price multiplied by the
     number of shares of Common Stock purchasable upon exercise of all or such
     portion of this Warrant on such date. For purposes of this Warrant, the
     "Market Price of the Common Stock" as of a particular date shall equal: (1)
     if the Common Stock is traded on an exchange or is quoted on either the
     Nasdaq National Market or Small-Cap Market. then the average of the closing
     or last sale prices. respectively, reported for the ten (10) trading days
     immediately preceding such date. or (ii) if the Common Stock is not traded
     on an exchange. the Nasdaq National Market. or the Nasdaq Small-Cap Market
     but is traded in the local over-the-counter market, then the average of the
     mid-points between the highest bid and lowest asked quotations for each of
     the ten (10) trading days immediately preceding such date.

     4.  Effective Date of Exercise or Conversion.  Each exercise or conversion
         ----------------------------------------
of this Warrant shall be deemed effective as of the close of business on the day
on which this Warrant is surrendered to the Company as provided in Section 2 or
Section 3(a) above. At such time, the person or persons in whose name or names
any certificates for Warrant Shares shall be issuable upon such exercise or
conversion shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates. Within ten (10) days after the
exercise or conversion of this Warrant in full or in part, the Company will, at
its expense, cause to be issued in the name of and delivered to the Holder or
such other person as the Holder may (upon payment by such Holder of any
applicable transfer taxes) direct: (i) a certificate or certificates for the
number of full Warrant Shares to which such Holder is entitled upon such
exercise or conversion, and (ii) unless this Warrant has expired, a new Warrant
or Warrants (dated the date hereof and in form identical hereto) representing
the right to purchase the remaining number of shares of Common Stock, if any,
with respect to which this Warrant has not then been exercised or converted.

     5.  Adjustments to Exercise Price.  The above provisions are, however,
         -----------------------------
subject to the following:

         (a)

              (i)  If the Company shall at anytime after the date of this
         Warrant subdivide or combine the outstanding shares of Common Stock or
         declare a dividend payable in Common Stock, then the number of shares
         of Common Stock for which this Warrant may be exercised as of
         immediately prior to the

                                      -27-
<PAGE>

         subdivision, combination or record date for such dividend payable in
         Common Stock shall forthwith be proportionately decreased. in the case
         of combination, or increased, in the case of subdivision or dividend
         payable in Common Stock.

              (ii) If the Company shall at anytime after the date of this
         Warrant subdivide or combine the outstanding shares of Common Stock or
         declare a dividend payable in Common Stock, the Exercise Price in
         effect immediately prior to the subdivision, combination or record date
         for such dividend payable in Common Stock shall forthwith be
         proportionately increased, in the case of combination, or decreased, in
         the case of subdivision or dividend payable in Common Stock.

         (b)  If any capital reorganization or reclassification of the capital
     stock of the Company, or share exchange, combination, consolidation or
     merger of the Company with another corporation. or the sale of all or
     substantially all of its assets to another corporation shall be effected in
     such a way that holders of Common Stock shall be entitled to receive stock.
     securities or assets with respect to or in exchange for Common Stock, then,
     as a condition of such reorganization. reclassification, share exchange.
     combination. consolidation, merger or sale. lawful and adequate provision
     shall be made whereby the Holder shall thereafter have the right to receive
     upon exercise of this Warrant upon the basis and upon the terms and
     conditions specified in this Warrant and in lieu of the shares of the
     Common Stock of the Company into which this Warrant could be exercisable or
     convertible, such shares of stock, securities or assets as may be issued or
     payable with respect to or in exchange for a number of outstanding shares
     of such Common Stock equal to the maximum number of shares of such stock
     issuable upon exercise of this Warrant, and in any such case appropriate
     provisions shall be made with respect to the rights and interests of Holder
     to the end that the provisions hereof (including without limitation
     provisions for adjustments of the Exercise Price and of the number of
     shares purchasable upon exercise or conversion of this Warrant) shall
     thereafter be applicable, as nearly as may be, in relation to any shares of
     stock, securities or assets thereafter deliverable upon the exercise or
     conversion hereof. The Company shall not effect any such share exchange.
     combination, consolidation, merger or sale. unless prior to the
     consummation thereof the successor corporation (if other than the Company)
     resulting from such share exchange, combination, consolidation or merger or
     the corporation purchasing such assets shall assume by written instrument
     executed and mailed to the Holder at the last address of such Holder
     appearing on the books of the Company, the obligation to deliver to such
     Holder such shares of stock, securities or assets which, in accordance with
     the foregoing provisions, such Holder may thereafter be entitled to receive
     upon exercise or conversion of this Warrant.

         (c)  If at anytime after the date of this Warrant the Company
     distributes to all holders of Common Stock any assets (excluding ordinary
     cash dividends), debt securities, or any rights or warrants to purchase
     debt securities, assets or other securities (including Common Stock), the
     Exercise Price shall be adjusted in accordance with the formula:

              E/1/ = E x (0 x M) - F
                     ---------------
                         O x M

                                      -28-
<PAGE>

     where:

              E/1/ =  the adjusted Exercise Price.
              E    =  the current Exercise Price.
              M    =  the average market price of Common Stock for the 30
                      consecutive trading days commencing 45 trading days before
                      the record date mentioned below.
              0    =  the number of shares of Common Stock outstanding on the
                      record date mentioned below.
              F    =  the fair market value on the record date of the aggregate
                      of all assets. securities, rights or warrants distributed.
                      The Company's Board of Directors shall determine the fair
                      market value in the exercise of its reasonable judgment.

     The adjustment shall be made successively whenever any such distribution is
     made and shall become effective immediately after the record date for the
     determination of stockholders entitled to receive the distribution.

         (d)  Except for (i) any securities granted. awarded or issued by the
     Company prior to the date of this Warrant (and securities issued by the
     Company after that date in exchange for or upon exercise of such
     securities). (ii) the grant or award to Transamerica Business Credit
     Corporation or its affiliates of a warrant for the purchase of not more
     than 75.000 shares of the Company's Common Stock at a price per share of
     not less than $0.89 in connection with the extension of the Company's
     credit facility, and (iii) the issuance during each twelve month period
     following the date of this Warrant of warrants, options or other rights to
     purchase not more than 100,000 shares of the Company's Common Stock
     (appropriately adjusted to reflect stock splits, stock dividends,
     reorganizations, consolidations and provided that for the twelve months in
     which the transaction referenced in (ii) occurs, the share limit shall be
     reduced by the number of shares issued or issuable pursuant to such
     transaction) to banks or other institutional lenders in connection with
     debt financing transactions at a price per share of not less than 60% of
     the last sale price of the Company's Common Stock as reported by Nasdaq on
     the last trading day preceding such issuance, if the Company should decide
     to issue and sell any additional shares of capital stock of the Company, or
     any warrants, securities convertible into capital stock of the Company or
     other rights to subscribe for or to purchase any capital stock of the
     Company (all such capital stock, warrants. securities convertible into
     capital stock and other rights being hereinafter collectively referred to
     as "Additional Securities") for a consideration per share less than the
     Exercise Price in effect immediately prior to the time of such issue or
     sale, then, forthwith upon such issue or sale, the Exercise Price shall be
     reduced to such lesser price.

     No adjustment of the Exercise Price, however, shall be made in an amount
less than 2% of the Exercise Price in effect on the date of such adjustment, but
any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
such adjustment so carried forward, shall be an amount equal to or greater than
2% of the Exercise Price then in effect.

                                      -29-
<PAGE>

     For the purposes of this Section 5(d). the following provisions (1) to
(vi), inclusive, shall also be applicable:

              (i)  In case at any time the Company shall grant (whether directly
         or by assumption in a merger or otherwise) any rights to subscribe for
         or to purchase, or any options for the purchase of. (a) Common Stock or
         (b) any obligations or any shares of stock of the Company which are
         convertible into, or exchangeable for, Common Stock (any of such
         obligations or shares of stock being hereinafter called "Convertible
         Securities") whether or not such rights or options or the right to
         convert or exchange any such Convertible Securities are immediately
         exercisable, and the price per share for which Common Stock is issuable
         upon the exercise of such rights or options or upon conversion or
         exchange of such Convertible Securities (determined by dividing (x) the
         total amount, if any. received or receivable by the Company as
         consideration for the granting of such rights or options, plus the
         minimum aggregate amount of additional consideration payable to the
         Company upon the exercise of such rights or options. plus. in the case
         of such rights or options which relate to Convertible Securities. the
         minimum aggregate amount of additional consideration. if any. payable
         upon the issue of such Convertible Securities and upon the conversion
         or exchange thereof, by (y) the total maximum number of shares of
         Common Stock issuable upon the exercise of such rights or options or
         upon the conversion or exchange of all such Convertible Securities
         issuable upon the exercise of such rights or options) shall be Less
         than the Exercise Price in effect immediately prior to the time of the
         granting of such rights or options. then the total maximum number of
         shares of Common Stock issuable upon the exercise of such rights or
         options or upon conversion or exchange of the total maximum amount of
         such Convertible Securities issuable upon the exercise of such rights
         or options shall (as of the date of granting of such rights or options)
         be deemed to have been issued for such price per share. No further
         adjustments of the Applicable Conversion Price shall be made upon the
         actual issue of such Common Stock or of such Convertible Securities
         upon exercise of such rights or options or upon the actual issue of
         such Common Stock upon conversion or exchange of such Convertible
         Securities.

              (ii) In case the Company shall issue or sell (whether directly or
         by assumption in a merger or otherwise) any Convertible Securities.
         whether or not the rights to exchange or convert thereunder are
         immediately exercisable, and the price per share for which Common Stock
         is issuable upon such conversion or exchange (determined by dividing
         (x) the total amount received or receivable by the Company as
         consideration for the issue or sale of such Convertible Securities,
         plus the minimum aggregate amount of additional consideration, if any,
         payable to the Company upon the conversion or exchange thereof, by (y)
         the total maximum number of shares of Common Stock issuable upon the
         conversion or exchange of all such Convertible Securities) shall be
         less than the Exercise Price in effect immediately prior to the time of
         such issue or sale, then the total maximum number of shares of Common
         Stock issuable upon conversion or exchange of all such Convertible
         Securities shall (as of the date of the issue or sale of such
         Convertible Securities) be deemed to be outstanding and to have been

                                      -30-
<PAGE>

         issued for such price per share. provided that (a) no further
         adjustments of the Exercise Price shall be made upon the actual issue
         of such Common Stock upon conversion or exchange of such Convertible
         Securities, and (b) if any such issue or sale of such Convertible
         Securities is made upon exercise of any rights to subscribe for or to
         purchase or any option to purchase any such Convertible Securities for
         which adjustments of the Exercise Price have been or are to be made
         pursuant to other provisions of this Section 5(d)(ii). no further
         adjustment of the Exercise Price shall be made by reason of such issue
         or sale.

              (iii) In case any shares of Common Stock or Convertible Securities
         or any rights or options to purchase any such Common Stock or
         Convertible Securities shall be issued or sold for cash, the
         consideration received therefor shall be deemed to be the amount
         received by the Company therefor, without deducting therefrom any
         expenses incurred or any underwriting commissions, discounts or
         concessions paid or allowed by the Company in connection therewith. In
         case any shares of Common Stock or Convertible Securities or any rights
         or options to purchase any such Common Stock or Convertible Securities
         shall be issued or sold for a consideration other than cash. the amount
         of the consideration other than cash received by the Company shall be
         deemed to be the fair value of such consideration as determined by the
         Board, without deducting therefrom any expenses incurred or any
         underwriting commissions. discounts or concessions paid or allowed by
         the Company in connection therewith. In case any shares of Common Stock
         or Convertible Securities or any rights or options to purchase such
         Common Stock or Convertible Securities shall be issued in connection
         with any merger or consolidation in which the Company is the surviving
         corporation, the amount of consideration therefor shall be deemed to be
         the fair value as determined by the Board of such portion of the assets
         and business of the non-surviving corporation or corporations as such
         Board shall determine to be attributable to such Common Stock,
         Convertible Securities, rights or options. as the case may be. In the
         event of any consolidation or merger of the Company in which the
         Company is not the surviving corporation or in the event of any sale of
         all or substantially all of the assets of the Company in which the
         corporation is not the surviving corporation or in the event of any
         sale of all or substantially all of the assets of the Company for stock
         or other securities of any other corporation, the Company shall be
         deemed to have issued a number of shares of its Common Stock for stock
         or securities of the other corporation computed on the basis of the
         actual exchange ratio on which the transaction was predicated and for a
         consideration equal to the fair market value on the date of such
         transaction of such stock or securities of the other corporation, and
         if any such calculation results in the adjustment of the Exercise
         Price, the determination of the number of shares of Common Stock
         issuable upon conversion immediately prior to such merger, conversion
         or sale, for purposes of Section 5(b) above, shall be made after giving
         effect to such adjustment of the Exercise Price.

              (iv)  In case the Company shall take a record of the holders of
         its Common Stock for the purpose of entitling them (a) to receive a
         dividend or other distribution payable in Common Stock or in
         Convertible Securities, or in any

                                      -31-
<PAGE>

         rights or options to purchase any Common Stock or Convertible
         Securities, or (b) to subscribe for or purchase Common Stock or
         Convertible Securities, then such record date shall be deemed to be the
         date of the issue or sale of the shares of Common Stock deemed to have
         been issued or sold upon the declaration of such dividend or the making
         of such other distribution or the date of the granting of such rights
         of subscription or purchase, as the case may be.

              (v)  The number of shares of Common Stock outstanding at any given
         time shall not include shares owned or held by or for the account of
         the Company, and the disposition of any such shares shall be considered
         an issue or sale of Common Stock for the purpose of this Section 5(d).

              (vi) Notwithstanding anything to the contrary in the preceding
         provisions of this Section 5(d), no adjustments to the Exercise Price
         shall be made pursuant to this Section 5(d) after the original Holder
         has sold or transferred more than eighty percent (80%) of the shares of
         the Company's Common Stock purchased by such original Holder
         concurrently with the issuance of this Warrant.

         (e)  Upon any adjustment of the Exercise Price. then and in each such
     case, the Company shall give written notice thereof. by first class mail,
     postage prepaid. addressed to the Holder of this Warrant at the address of
     such Holder as shown on the books of the Company. which notice shall state
     the Exercise Price resulting from such adjustment and the increase or
     decrease. if any, in the number of shares for which this Warrant may be
     exercised, setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.

     6.  Common Stock.  As used herein, the term "Common Stock" shall mean and
         ------------
include the Company's presently authorized shares of common stock and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution,
dissolution or winding up of the Company.

     7.  No Voting Rights.  This Warrant shall not entitle the Holder to any
         ----------------
voting rights or other rights as a shareholder of the Company unless and until
exercised or converted pursuant to the provisions hereof.

     8.  Exercise or Transfer of Warrant or Resale of Common Stock.  The Holder,
         ---------------------------------------------------------
by acceptance hereof, agrees to give written notice to the Company before
transferring this Warrant, in whole or in pan, or transferring any shares of
Common Stock issued upon the exercise or conversion hereof, of such Holder's
intention to do so, describing briefly the manner of any proposed transfer. Such
notice shall include an opinion of counsel reasonably satisfactory to the
Company that (i) the proposed exercise or transfer may be effected without
registration or qualification under the Securities Act of 1933, as amended (the
"Act") and any applicable state securities or blue sky laws, or (ii) the
proposed exercise or transfer has been registered under such laws. Upon
delivering such notice, such Holder shall be entitled to transfer this Warrant
or such Warrant Shares, all in accordance with the terms of the notice delivered
by such Holder to the Company, provided that an appropriate legend may be
endorsed on the certificates for such

                                      -32-
<PAGE>

shares respecting restrictions upon transfer thereof necessary or advisable in
the opinion of counsel to the Company to prevent further transfer which would be
in violation of Section 5 the Act and applicable state securities or blue sky
laws.

If in the opinion of counsel to the Company or other counsel reasonably
acceptable to the Company the proposed transfer or disposition of this Warrant
or the Warrant Shares described in the written notice given pursuant to this
Section 8 may not be effected without registration of this Warrant or the
Warrant Shares, the Company shall promptly give written notice tier of to the
Holder within 10 days after the Company receives such notice, and such holder
will limit its activities in respect to such as, in the opinion of such counsel,
is permitted by law.

     9.  Covenants of the Company. The Company covenants and agrees that all
         ------------------------
shares which may be issued upon conversion of this Warrant will, upon issuance,
be duly authorized and issued, fully paid, nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise hereof, a sufficient number of
shares of its Common Stock to provide for the exercise of this Warrant.

     10. Certain Notices. The Holder shall be entitled to receive from the
         ---------------
Company immediately upon declaration thereof and at least ten (10) business days
prior to the record date for determination of shareholders entitled thereto or
to vote thereon (or if no record date is set, prior to the event), written
notice of any event which could require an adjustment pursuant to Section 5
hereof or of the dissolution or liquidation of the Company. All notices
hereunder shall be in writing and shall be delivered personally or by telecopy
(receipt confirmed) to such party (or, in the case of an entity, to an executive
officer of such party) or shall be sent by a reputable express delivery service
or by certified mail. postage prepaid with return receipt requested, addressed
as follows:

if to Medtronic, to:

         Medtronic, Inc.
         Corporate Center
         7000 Central Avenue N.E.
         Minneapolis, MN 55432

with separate copies thereof addressed to:

         Attention: General Counsel
         FAX (612) 572-5459

         Attention: Vice President, Corporate Development and Associate General
         Counsel
         FAX (612) 572-5404

                                      -33-
<PAGE>

if to the Company to:

         VidaMed, Inc.
         46107 Landings Parkway
         Fremont, California 94538
         Attention:  President and Chief Executive Officer
         FAX(_____ -

     Any party may change the above-specified recipient and/or mailing address
by notice to all other parties given in the manner herein prescribed. All
notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the return
receipt (if delivered by mail or delivery service).

     11. Registration Rights. The Holders of this Warrant and the Warrant
         -------------------
Shares are entitled to the rights and benefits of all of the terms, provisions
and conditions of that certain Purchase Agreement dated of even date herewith
between the Company and Medtronic Asset Management, Inc., provided an express
sharing or assignment of such rights and benefits is made to each such Holder by
such Holder's transferor.

     12. Miscellaneous.
         ------------

         (a)  No amendment, modification or waiver of any provision of this
     Warrant shall be effective unless the same shall be in writing and signed
     by the holder hereof.

         (b)  This Warrant shall be governed by and construed in accordance with
     the laws of the State of Minnesota.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
authorized officer and dated as of the date stated above.

                                            VIDAMED, INC.

                                            By:
                                               -----------------------------
                                            Title:
                                                  --------------------------

                                      -34-
<PAGE>

                                                                       Exhibit A

NOTICE OF EXERCISE OF WARRANT -    To Be Executed by the Registered Holder in
-----------------------------      Order to Exercise the Warrant

     The undersigned hereby irrevocably elects to exercise the attached Warrant
to purchase, for cash pursuant to Section 2 thereof, ________________ shares of
Common Stock issuable upon the exercise of such Warrant. The undersigned
requests that certificates for such shares be issued in the name of
_________________________________. If this Warrant is not fully exercised, the
undersigned requests that a new Warrant to purchase the balance of shares
remaining purchasable hereunder be issued in the name
of______________________________

Date:_______________,_____

                                 -----------------------------------------------
                                 [name of registered Holder]

                                 -----------------------------------------------
                                 [signature]

                                 -----------------------------------------------
                                 [street address]

                                 -----------------------------------------------
                                 [city, state zip]

                                 -----------------------------------------------
                                 [tax identification number]

                                      -35-
<PAGE>

                                                                       Exhibit B

NOTICE OF CONVERSION OF WARRANT -   To Be Executed by the Registered Holder in
-------------------------------     Order to Convert the Warrant on a Cashless
                                    Basis

     The undersigned hereby irrevocably elects to convert, on a cashless basis,
a total of _____________ shares of Common Stock otherwise purchasable upon
exercise of the attached Warrant into such lesser number of shares of Common
Stock as determined by Section 3 of the Warrant. The undersigned requests that
certificates for such shares be issued in the name of ____________________
____________ If this Warrant is not fully converted, the undersigned requests
that a new Warrant to purchase the balance of shares remaining purchasable
hereunder be issued in the name of___________________________

Date:_________________,_______

                                 -----------------------------------------------
                                 [name of registered Holder]

                                 -----------------------------------------------
                                 [signature]

                                 -----------------------------------------------
                                 [street address]

                                 -----------------------------------------------
                                 [city, state zip]

                                 -----------------------------------------------
                                 [tax identification number]

                                      -36-
<PAGE>

                               January ___, 2000

To each of the investors (the "Investors") named in the Schedule of Investors
attached as Exhibit A to the Stock Purchase Agreement dated January 4, 2000 (the
"Agreement") among the Investors and VidaMed, Inc., a Delaware corporation (the
"Company").

Ladies and Gentlemen:

     We have acted as counsel for the Company in connection with the issuance
and sale by the Company to the Investors of 6,460,000 shares of the Company's
Common Stock (the "Purchased Shares") and related Warrants pursuant to the
Agreement. This opinion is furnished to you pursuant to Section 5.4 of the
Agreement. Unless otherwise indicated in this letter, which includes Attachment
A hereto, all capitalized terms used herein have the meanings given to those
terms in the Agreement.

     In connection with this opinion, we have examined such questions of law as
we deem advisable under the circumstances. As to questions of fact, we have
relied solely upon our examination of the documents referred to on Attachment A
and our actual knowledge. We have not examined any documents other than those
described on Attachment A or made any independent factual investigation. No
bring-down certificates, telegrams or telephonic advice of the public officials
referred to on Attachment A were obtained as of the date hereof, nor, except as
described on Attachment A, have we caused the search of any docket of any court,
tribunal, agency or similar authority or any other record of any governmental
agency or third party.

     In our examination of documents, we have assumed the current accuracy and
completeness of (a) the information obtained from public officials and records
and reports of professional filing service companies included in the documents
referred to on Attachment A, and (b) the representations and warranties made by
representatives of the Company to us, including without limitation, those set
forth in the Agreement and the Management Certificate. We have also assumed that
all the representations and warranties made by the Company and the Investors in.
or pursuant to. the Agreement to which the Company or any Investor is a party
are true and complete in all respects. We have made no attempt to verify the
accuracy of any of such information, representations or warranties or to
determine the existence or non-existence of any factual matters other than those
described above.

     In our examination of documents for purposes of this opinion, we have
assumed. and express no opinion as to, the genuineness of all signatures on
original documents. the authenticity and completeness of all documents submitted
to us as originals, the conformity to authentic originals and completeness of
all documents submitted to us as copies. the lack of any undisclosed
termination, modification. waiver or amendment to any document reviewed by us.
the legal competence or capacity of all natural persons executing the same and
the due

                                      -37-
<PAGE>

authorization, execution and delivery of all documents where due authorization,
execution and delivery are prerequisites to the effectiveness thereof.

     For the purposes of this opinion, we have also assumed that: (a) the
Investors have fully paid all required consideration for the Purchased Shares
and Warrants to the Company as provided in the Agreement and have fully
performed all the other obligations that they are to perform at or before the
Closing; (b) the Agreement is duly enforceable in accordance with its terms
against, and constitutes the legal, valid and binding obligations of. each of
the parties thereto other than the Company; and (c) that the Company has
complied with all rules and regulations of the Nasdaq-Amex Stock Market.

     As used in this opinion, the phrases "our actual knowledge," "to our
knowledge" "we are not aware." "known to us" or words of similar import refer
only to the actual knowledge of the attorneys currently in this firm who have
rendered legal services to the Company in connection with the Agreement and mean
that, while such attorneys have not been informed by the Company that the
matters stated are factually incorrect, we have made no investigation of such
matters other than our examination of documents referred to on Attachment A. No
inference as to our knowledge of any matters bearing on the accuracy of any such
statement should be drawn from the fact of our representation of the Company.

     This opinion is qualified by, and is subject to, and we render no opinion
with respect to, general limitations and exceptions applicable to all contracts,
including, without limitation:

     (a) the effect of bankruptcy. insolvency, reorganization. arrangement.
moratorium, fraudulent conveyance and other similar laws relating to or
affecting the rights of creditors;

     (b) the effect of general principles of equity and similar principles,
including, without limitation, concepts of materiality, reasonableness, public
policy and unconscionability and the possible unavailability of specific
performance, injunctive relief or other equitable remedies, regardless of
whether considered in a proceeding in equity or at law; and

     (c) the effect of Section 1670.5 of the California Civil Code regarding
unconscionability and of California court decisions indicating that certain
covenants and provisions of agreements are unenforceable where (i) the breach of
such covenants or provisions imposes restrictions or burdens upon the other
party and it cannot be demonstrated that the enforcement of such restrictions or
burdens is reasonably necessary for the protection of the party seeking to
enforce such provisions or (ii) the enforcement of such covenants or provisions
under the circumstances would violate the implied covenant of good faith and
fair dealing.

     We render no opinion with respect to: (a) the enforceability of the
indemnification and contribution provisions of the Agreement: (b) compliance or
noncompliance with antifraud provisions of applicable state and federal
statutes, rules and regulations concerning the offer. issuance or sale of
securities; and (c) the effect of California, federal or other laws relating to
usury or permissible rates of interest or other charges for loans, forbearances
or the use of money.

                                      -38-
<PAGE>

     In rendering the opinion expressed in paragraph I below regarding the good
standing of the Company, we have relied solely on the certification of the
Company's good standing set forth in the Certificate of Good Standing described
on Attachment A.

     We are admitted to practice law only in the State of California, and we
express no opinion herein with respect to the application or effect of the laws
of any jurisdiction other than the existing laws of the State of California. the
existing Delaware General Corporation Law without reference to case law or
secondary sources and the existing federal laws of the United States of America.
Our opinion is limited to such California and United States federal statutes.
laws, rules or regulations and provisions of the Delaware General Corporation
Law as in our experience are of general application to transactions of the sort
provided for in the Agreement.

     Based upon the foregoing. subject to the assumptions and qualifications
referred to herein, it is our opinion that as of January 11, 2000:

     1.  The Company has been duly incorporated and organized. and is validly
existing in good standing. under the laws of the State of Delaware. The Company
has the corporate power and authority to enter into and perform the Agreement.
to own and operate its properties and assets and to carry on its business as
currently conducted.

     2.  The Restated Certificate and the Agreement have been duly adopted and
authorized, respectively, by all necessary corporate action on the part of the
Company's Board of Directors and, where required. the Company's stockholders.
The Agreement has been duly executed on behalf of the Company and delivered by
the Company to the Investors. The Agreement constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except that we express no opinion herein regarding the valid it. binding
effect on enforceability of Section 9.3 of the Agreement.

     3.  The execution and delivery of the Agreement by the Company and the
performance by the Company of its obligations under the Agreement do not
conflict with or result in a violation of, the Restated Certificate or Bylaws.

     4.  The Purchased Shares and Warrants. when issued and paid for as provided
in the Agreement, will be duly authorized and validly issued, fully paid and
nonassessable. The Warrant Shares have been duly and validly reserved for
issuance upon exercise of the Warrants and, when issued and paid for upon
exercise in accordance with the Warrants and the Restated Certificate (assuming
no change in applicable law, the status of the holders of the Warrants, the
Warrants or the Restated Certificate), the Warrant Shares will be duly
authorized and validly issued, fully paid and nonassessable.

     5.  To our knowledge. all approvals, consents, or authorizations of. and
filings with. any U.S. federal, California State or Delaware State governmental
authority required on the part of the Company to enable the Company to execute,
deliver and perform its obligations under the Agreement have been made.

     In rendering the opinions above, we are opining only as to the specific
legal issues expressly set forth herein, and no opinion shall be inferred as to
other matters. This opinion is intended solely for the Investors' use for the
purpose of the above transaction, and is not to be

                                      -39-
<PAGE>

made available to or relied upon for any other purpose or by any other person or
entity, without our prior written consent. We assume no obligation to advise you
of any fact, circumstance, event or change in the law or the facts that may
hereafter be brought to our attention whether or not they would affect or modify
the opinions expressed herein.

                         Very truly yours.

                         SHARTSIS, FRIESE & GINSBURG LLP

                         By:
                            ---------------------------------
                            Steven O. Gasser, a Partner

                                      -40-
<PAGE>

                                 ATTACHMENT A

     (1) The Agreement dated January 4, 2000, among the Investors and the
Company (the "Agreement").

     (2) A copy of the Company's Amended and Restated Certificate of
Incorporation as described in the Management Certificate (the "Restated
Certificate").

     (3) A copy of the Company's Bylaws in effect on January 3, 2000, certified
by the Company's Chief Financial Officer and Assistant Secretary on January 3,
2000 (the "Bylaws").

     (4) The unanimous written consent the Company's Board of Directors
furnished to us by the Company in connection with the rendering of this opinion
(the "Written Content").

     (5) A Management Certificate addressed to us and dated January 11, 2000,
executed by the Company (the "Management Certificate"), a copy of which we
understand has been delivered to the Investors.

     (6) A Certificate of Status regarding the Company issued by the Delaware
Secretary of State dated January 3, 2000, indicating that the Company is in good
standing, and is qualified to do business, as a domestic corporation in the
State of Delaware (the "Certificate of Good Standing").

                                      -41-
<PAGE>

                                  Schedule 3.3

     I.  The following persons or entities have rights to subscribe for either
shares of common stock or warrants:

         - Mitsubishi Medical Company
         - Dorland. Sweeney. Jones
         - Transamerica Business Credit Corporation
         - MeesPierson
         - Employee / Director Stock Plans of record including:
              Employee Stock Purchase Plan
              1992 Employee Stock Option Plan
              1992 Director's Stock Option Plan
              1999 Employee Stock Option Plan

     II. The following persons or entities have rights to require registration
for either shares of common stock or warrants:

         - MeesPierson
         - Mitsubishi Medical Company
         - Transamerica Business Credit Corporation
         - 1999 PIPE Investors:
              Hugh West Hunt and Jane Ann Hunt, Co-Trustees
              Bigelow & Company
              Lewis and Paula Yarborough
              Robert and Rebecca Williamson
              Southwest Securities f/b/o Hayden R. Fleming IRA
              Southwest Securities f/b/o LaDonna M. Fleming IRA
              City of Milford Pension & Retirement Fund
              Norwalk Employees' Pension Plan
              The Jenifer Altman Foundation
              Dean Witter Foundation
              Roanoke College
              Butler Family LLC
              HBL Charitable Unitrust
              Andrew Heiskeil
              Helen Hunt
              Jeanne L. Morency
              Psychology Associates
              Murray Capital, LLC
              Domenic J. Mizio
              Morgan Trust Co. of the Bahamas Ltd. as Trustee U/A/D 1/30/93
              Susan Uris Halpern
              William B. Lazar

                                      -42-
<PAGE>

              Wells Family LLC
              Harold & Grace Willens JTWROS
              Albert L. Zesiger
              Barrie Ramsay Zesiger
              Wolfson Investment Partners LLP

    III. Although the Company believes it has obtained all approvals required to
complete this transaction, additional approvals may be required to comply with
the rules and regulations of the Nasdaq-Amex Stock Market.

                                      -43-

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