NUTRITION MEDICAL INC, SB-2, 1996-08-12

NUTRITION MEDICAL INC
SB-2, 1996-08-12

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996

REGISTRATION NO. 333-

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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM SB-2

REGISTRATION STATEMENT
Under the Securities Act of 1933

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NUTRITION MEDICAL, INC.
(Name of small business issuer in its charter)

Minnesota 5122 41-1756256
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)

308 12TH AVENUE SOUTH WILLIAM L. RUSH, PRESIDENT
BUFFALO, MINNESOTA 55313 NUTRITION MEDICAL, INC.
(612) 682-9288 308 12TH AVENUE SOUTH
(Address, including zip code, and BUFFALO, MINNESOTA 55313
telephone number, including area code, (612) 682-9288
of registrant's principal executive (Name, address, including zip code,
offices) and telephone number,
including area code, of agent for
service)

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COPIES TO

JOHN T. KRAMER, ESQ. MARK S. WEITZ, ESQ.
DORSEY & WHITNEY LLP LEONARD, STREET AND DEINARD
PILLSBURY CENTER SOUTH PROFESSIONAL ASSOCIATION
220 SOUTH SIXTH STREET SUITE 2300
MINNEAPOLIS, MINNESOTA 55402-1498 150 SOUTH FIFTH STREET
(612) 340-8702 MINNEAPOLIS, MINNESOTA 55402-4238
(612) 335-1500

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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/

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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PRICE PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value 1,437,500 shares $3.50 $5,031,250 $1,734.91
</TABLE>

(1) Includes the Underwriter's over-allotment option to purchase up to 187,500
shares.

(2) Estimated solely for the purpose of calculating the registration fee.

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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 12, 1996

1,250,000 SHARES

[LOGO]

NUTRITION MEDICAL, INC.

COMMON STOCK

All of the shares of Common Stock offered hereby (the "Shares") are being
sold by Nutrition Medical, Inc. (the "Company"). Prior to this offering there
has been no public market for the Common Stock of the Company (the "Common
Stock"). See "Underwriting" for information relating to the factors considered
in determining the initial public offering price. Application has been made to
have the Common Stock approved for trading on the Nasdaq SmallCap Market under
the symbol "NMED."

THE COMMON STOCK OFFERED BY THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 AND "DILUTION" ON PAGE 12.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................. $3.50 $.35 $3.15
Total (1,250,000 shares)(3)............ $4,375,000 $437,500 $3,937,500
</TABLE>

(1) The Company has agreed to pay to Miller, Johnson & Kuehn, Incorporated (the
"Underwriter") a nonaccountable expense allowance of 1% of the gross
proceeds of this offering. The Company has also agreed to sell to the
Underwriter, for a nominal purchase price, a five-year warrant to purchase
up to 125,000 shares of Company Common Stock exercisable at $4.20 per share.
In addition, the Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $275,000
(including the Underwriter's nonaccountable expense allowance of 1% of the
gross proceeds referenced in Note 1 above).
(3) The Company has granted the Underwriter a 30-day option to purchase up to
187,500 additional shares of Common Stock solely to cover over-allotments.
If such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $5,031,250, $503,125 and
$4,528,125, respectively. See "Underwriting."

The Shares are being offered by the Underwriter subject to prior sale, to
withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by the Underwriter and to certain other conditions.
It is expected that delivery of the certificates for the Shares will be made on
or about , 1996.

MILLER, JOHNSON & KUEHN, INCORPORATED

The date of this Prospectus is , 1996.
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<TABLE>
<S> <C>
THE COMPANY MARKETS ITS
CRITICAL CARE NUTRITION
PRODUCTS, INCLUDING THESE
L-EMENTAL AND PRO-PEPTIDE
FORMULAS, TO HOSPITALS AND
[PHOTO] OTHER HEALTH CARE PROVIDERS.
</TABLE>

<TABLE>
<S> <C>
THE COMPANY'S PRIVATE LABEL
NUTRITION PRODUCTS ARE
MARKETED TO RETAIL CHAINS AND
GENERALLY ARE PACKAGED USING
THE RETAILER'S PROPRIETARY
STORE BRAND LABEL. [PHOTO]
</TABLE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE NASDAQ
SMALLCAP MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
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Instant Nutrition-TM-, L-Emental-TM-, Nutrition Advanced Formula-TM-,
Nutrition PLUS-TM- and Pro-Peptide-TM- are trademarks of the Company.

The Company intends to furnish to its shareholders annual reports containing
financial statements audited by independent auditors.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION HEREIN ASSUMES (I)
THAT THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II) THE GRANT OF
AN OPTION TO PURCHASE 100,000 SHARES OF COMMON STOCK TO MR. WILLIAM L. RUSH,
PRESIDENT OF THE COMPANY, WITH AN EXERCISE PRICE EQUAL TO $3.50 PER SHARE, WHICH
GRANT IS CONTINGENT UPON THE COMPLETION OF THIS OFFERING, AND (III) THE APPROVAL
BY THE SHAREHOLDERS OF THE COMPANY OF AN INCREASE IN THE AUTHORIZED CAPITAL
STOCK OF THE COMPANY TO 20,000,000 SHARES OF COMMON STOCK AND 5,000,000 SHARES
OF UNDESIGNATED PREFERRED STOCK, AN INCREASE IN THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S 1995 LONG-TERM INCENTIVE AND
STOCK OPTION PLAN FROM 500,000 TO 800,000 AND THE ADOPTION OF THE COMPANY'S 1996
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN AND THE RESERVATION FOR ISSUANCE
THEREUNDER OF 100,000 SHARES OF COMMON STOCK, ALL OF WHICH ACTIONS HAVE BEEN
APPROVED BY THE COMPANY'S BOARD OF DIRECTORS.

THE COMPANY

Nutrition Medical, Inc. (the "Company") develops and sells generic critical
care nutrition products for the hospital/nursing home market, as well as private
label nutrition products for sale through regional and national retail chains.
The Company's products are manufactured using ingredients, formulas and
processes comparable to those of national brand products. The Company currently
has six critical care nutrition products and three private label nutrition
products. The Company intends to expand its existing product lines and is also
currently in the early stages of developing an infant formula, which is not
expected to be available for sale for at least one year.

CRITICAL CARE NUTRITION PRODUCTS. Critical care nutrition products are used
by hospitals and other health care providers to feed critically ill patients who
cannot consume adequate nutrients orally and consequently require specialized
feeding via tubes into the intestinal tract. The use of critical care nutrition
products often continues at home or in a nursing home after a patient is
discharged from the hospital.

The Company's strategy has been to focus on the development and sale of a
line of generic critical care nutrition products for patients who are being
treated in intensive care units. Certain of these products contain unique
ingredients or proportions of ingredients to meet the metabolic requirements of
specific patient populations. The Company markets its critical care nutrition
products to hospitals and other health care providers as a less expensive,
generic alternative to the established products offered by major manufacturers.
The Company intends to develop an expanded line of critical care nutrition
products and to establish itself as a major supplier of such products in generic
form. During the past twelve months, the Company has made sales to more than 350
hospitals and other health care providers.

PRIVATE LABEL NUTRITION PRODUCTS. Private label, or "store brand,"
nutrition products are marketed to retailers, which sell the products under
their own private labels. The Company's private label product line currently
consists of three adult nutrition supplements, each of which has three flavors.
Adult nutrition supplements are designed to provide balanced nutrition in
beverage form as a supplement or substitute for solid food for healthy
individuals as well as those recovering from or affected by illness. The Company
intends to expand its private label product line to include additional adult
nutrition supplements, some of which are currently under development.

The Company's private label marketing strategy has been to offer lower
priced products that are equivalent in quality and efficacy to leading national
brands, such as the Ensure-Registered Trademark- family of products. The
Company's customers currently include nine retail chains that offer the
Company's adult nutrition supplements in approximately 5,000 stores nationwide.

Nutrition Medical, Inc. was incorporated in Minnesota in July 1993. The
Company's principal executive offices are located at 308 12th Avenue South,
Buffalo, Minnesota 55313, and its telephone number is (612) 682-9288.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered......................... 1,250,000 shares

Common Stock outstanding (1):
Before the offering........................ 3,155,524 shares
After the offering......................... 4,405,524 shares

Use of proceeds.............................. Development of additional products, marketing
and working capital. See "Use of Proceeds."

Proposed Nasdaq SmallCap Market-SM- symbol... NMED
</TABLE>

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(1) Does not include (a) 900,000 shares reserved for issuance pursuant to the
Company's stock option plans, of which options for 610,250 shares are
outstanding, (b) 202,107 shares issuable upon exercise of other outstanding
options or warrants or (c) 125,000 shares issuable upon exercise of the
Underwriter's warrant. See "Description of Capital Stock" and
"Underwriting."

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
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1994 1995 1995 1996
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<S> <C> <C> <C> <C>

STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 81,961 $ 841,241 $ 284,106 $ 1,086,049
Gross profit....................................... 57,348 434,850 144,180 403,855
Selling, general and administrative expenses....... 733,413 1,242,863 523,485 577,679
Research and development expenses.................. 17,557 170,963 28,287 96,155
Operating loss..................................... (693,622) (978,976) (407,592) (269,979)
Net loss........................................... $ (694,689) $ (959,623) $ (409,267) $ (253,415)
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Net loss per share(1).............................. $ (0.29) $ (0.30) $ (0.16) $ (0.06)
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Weighted average number of shares outstanding(1)... 2,415,348 3,174,827 2,639,411 4,220,816
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</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
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AS ADJUSTED
ACTUAL (2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 890,032 $ 4,552,532
Working capital................................................................. 888,399 4,550,899
Total assets.................................................................... 1,482,780 5,145,280
Accumulated deficit............................................................. (1,784,384) (1,784,384)
Total shareholders' equity...................................................... 967,783 4,630,283
</TABLE>

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(1) Computed on the basis described in Note 2 of the Notes to Financial
Statements.
(2) Adjusted to give effect to the sale of the 1,250,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
Does not include 812,357 shares of Common Stock issuable upon exercise of
stock options and warrants outstanding at the date of this Prospectus. See
"Use of Proceeds," "Capitalization," and "Management -- Stock Option Plans."

4
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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

LACK OF OPERATING PROFITS; LIMITED OPERATING HISTORY

The Company, which was incorporated in July 1993, is subject to all of the
risks inherent in the establishment of a new business. The likelihood of the
success of the Company must be considered in light of the difficulties, expenses
and delays frequently encountered in connection with the development and
marketing of new products and the competitive environment in which the Company
is operating.

Although the Company began generating revenues from product sales in May
1994, the Company has not yet been profitable. Through June 30, 1996, the
Company has accumulated losses of $1,784,384. No assurance can be given that the
Company will ever be able to achieve profitability. Further, there can be no
assurance that the Company will be able to successfully develop or market
additional products or that the Company will have sufficient funds available to
successfully market its current products or any new products that it may develop
in the future.

PRODUCT ACCEPTANCE AND PRICING

The Company's products are designed to be substantially equivalent to
existing branded competitive products. Although the Company believes that the
efficacy of its products is comparable to branded competitive products, no
independent comparison between the Company's products and competitive products
has been completed and there can be no assurance that the efficacy of the
Company's products is or will be comparable to branded competitive products.

Furthermore, the Company's name and its products are relatively unknown to
large segments of the Company's target markets. Although the Company intends to
use a significant portion of the proceeds of this offering for marketing, there
can be no assurance that the Company's marketing efforts will achieve sufficient
name recognition of the Company and its products to significantly enhance
revenues.

The principal advantage of the Company's products is, and is expected to be,
lower price. One competitor of the Company has lowered its prices on occasion,
to a level that has offset all or part of the Company's price advantage. This
competitor may decide to consistently lower its prices to the Company's level,
and other competitors may adopt the same strategy. Because the Company's
marketing strategy is focused on the price advantage of its products, if a
competitor selling branded products reduces or eliminates the price advantage of
the Company's products, there can be no assurance that the Company can compete
successfully with such a competitor or operate profitably under such conditions.
See "Business -- Competition."

DEVELOPMENT OF NEW PRODUCTS

The Company intends to continue to develop new products, which will require
both the timely identification of market opportunities and the identification
of, and the negotiation of contracts with, suitable technical consultants. There
can be no assurance that an adequate market opportunity will exist for the
potential products the Company selects for development or that such products
will be successfully developed or marketed.

DEPENDENCE ON CONTRACT MANUFACTURERS

The Company engages contract manufacturers to produce its products according
to the Company's specifications. The Company relies on these manufacturers to
comply with all applicable government regulations and manufacturing guidelines.
There can be no assurance that contract manufacturers will consistently supply
adequate quantities of the Company's products on a timely basis, that such
manufacturers will consistently comply with government regulations or that the
quality of such products will be consistently maintained. In the event of a sale
of a defective product, the Company would be exposed to product liability claims
and could lose customer confidence. In

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addition, minimum quantity order requirements imposed by manufacturers may
result in excess inventory levels, requiring additional working capital and
increasing exposure to losses from inventory obsolescence. Although the Company
believes it could find alternative manufacturers for its products, any
interruption in supply of any of the Company's products could adversely affect
the Company's ability to market its products and, therefore, the Company's
business, financial condition and results of operations. See "Business --
Manufacturing and Distribution."

DEPENDENCE ON RETAIL DISTRIBUTION OF PRODUCTS

The Company's private label nutrition products are sold only through retail
chains. The Company's strategy includes the development of additional products,
including an infant formula that is currently under development by the Company.
There can be no assurance that the Company will be able to enter into
arrangements with retailers to market its infant formula or any other private
label products or that any such arrangements will result in successful product
commercialization. The Company's future profitability will depend in large part
upon the Company's ability to develop products that meet the needs of these
potential retail customers and upon the marketing efforts of such retailers.
Although the Company believes that its current and prospective retail customers
have an economic motivation to market vigorously the Company's products, the
amount and timing of resources to be devoted to marketing by such retailers is
not within the control of the Company. In addition, successful commercialization
might result in a substantial portion of the Company's revenues being generated
by one or a few retailers. Such retailers could make material marketing and
other commercialization decisions that would adversely affect the Company's
future revenues, financial condition and results of operations. See "Business --
Marketing."

POSSIBLE FLUCTUATIONS IN OPERATING RESULTS

The Company believes that its future operating results may be subject to
substantial quarterly fluctuations because its retail customers may order large
quantities at irregular intervals. In addition, the gross profit as a percentage
of sales on the Company's private label nutrition products is substantially less
than the gross profit percentage on the Company's critical care nutrition
products, and therefore the Company's overall gross profit percentage could vary
widely based on the product mix in a given period. To the extent that quarterly
revenues and operating results fluctuate substantially, the market price of the
Company's Common Stock may be affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

CUSTOMER CONCENTRATION

Although the Company's experience with its customer base is limited, retail
customers often place a large initial stocking order that can increase the
relative importance of a particular customer in a particular period. In the six
months ended June 30, 1996, an initial stocking order to a large retail chain
constituted approximately 31% of the Company's total sales. There can be no
assurance that this large retail chain will continue to be a customer or that
its future orders will not significantly decline.

FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE

Although the proceeds of this offering, together with the Company's existing
cash balances, are expected to be sufficient to fund the Company's operations
through 1997, under certain circumstances the Company may require substantial
additional funds before the end of 1997 to meet its working capital requirements
in connection with the introduction of new products, including its proposed
infant formula. In order to meet this possible need, and to meet possible needs
after 1997, the Company may be required to raise additional funds through public
or private financings, including equity financings. Any additional equity
financings may be dilutive to purchasers in this offering, and debt financing,
if available, may involve restrictive covenants. Adequate funds for the
Company's operations, regardless of the source, may not be available when needed
or on terms attractive to the Company. Insufficient funds may require the
Company to delay, scale back or eliminate the introduction of new products,
including its proposed infant formula, and the failure to obtain funding when

6
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needed could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

KEY PERSONNEL

The Company is particularly dependent on the services of its President, Mr.
William Rush. If the services of Mr. Rush were to become unavailable to the
Company for any reason, there can be no assurance that the Company could
adequately replace him. The loss of Mr. Rush's services could have a material
adverse effect on the Company. The Company has an employment agreement with Mr.
Rush that expires three years from the completion of this offering. The Company
currently maintains a life insurance policy with a face value of $1 million on
Mr. Rush.

ADDITION OF MANAGEMENT PERSONNEL AND STAFF

In order to pursue its growth objectives, the Company intends to increase
the number of its employees, including management personnel and sales and
marketing staff. There can be no assurance that the Company will be able to
hire, train and retain sufficient personnel with the necessary experience and
abilities to achieve the Company's growth objectives, or that they will perform
at a level commensurate with the Company's expectations.

LITIGATION INVOLVING COMPETITORS

It is not uncommon for companies in the generic and private label industry
to be the subject of claims and lawsuits brought by brand name competitors
alleging that the generic or private label products have formulas, labelings or
packagings similar to competing brand name products. The Company recently
resolved two lawsuits in which competitors alleged patent infringement and false
advertising by the Company, and the Company is currently subject to another suit
alleging patent infringement. Since the Company's business strategy is to
develop and market products that are equivalent to competitors' branded
products, similar claims may be made by competitors in the future. Competitors
may also respond to the Company's strategy by more aggressively seeking patents
on their products to limit the Company's future product development efforts.

If similar allegations are made against the Company in the future, some of
the Company's current and future products may need to be reformulated or
repackaged in order for the Company to continue to market products that are
comparable to competitors' patented products. While the Company believes that
reformulation of its products is generally possible, the Company may be unable
to effectively reformulate certain of its products, and there can be no
assurance that a reformulated product would be deemed by customers to be
essentially equivalent to the patented product. Moreover, there can be no
assurance that any future lawsuits could be satisfactorily settled by
reformulating, relabeling or repackaging a product, that such litigation will
not require the commitment of substantial management time and legal fees, or
that such litigation would not have a material adverse effect on the Company's
future revenues, financial condition and results of operations. See "Business --
Litigation."

COMPETITION

Competition in the critical care nutrition products market consists of
established companies that sell branded products which have achieved a high
level of customer awareness. Although the Company believes it is the only
company currently offering low cost, generic alternatives to the established
brands, other companies may enter this market.

Competition in the private label nutrition market consists of companies that
sell established national brands and companies that sell private label products.
Competitors that sell private label products include established companies that
produce private label products for a wide range of markets and a number of small
producers of private label products. Nearly all of the Company's competitors and
potential competitors have substantially greater financial resources, more
extensive

7
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business experience and more personnel than the Company. The Company's ability
to compete will depend on the timeliness of the development of its products and
its ability to market its products effectively.

If a larger company with significant financial resources were to compete
directly with the Company in particular market segments, there can be no
assurance that the Company will be able to compete successfully with such a
competitor or operate profitably. See "Business -- Products" and "Business --
Competition."

PRODUCT LIABILITY AND INSURANCE RISKS

The Company's business involves exposure to potential product liability
risks that are inherent in the production, manufacture and distribution of food
products. The Company maintains a general insurance policy that includes
coverage for product liability claims up to an aggregate amount of $5 million.
There can be no assurance, however, that the Company will be able to maintain
such insurance on acceptable terms, that the Company will be able to secure
increased coverage as the commercialization of its products increases or that
any insurance will provide adequate protection against potential liabilities.

GOVERNMENT REGULATION

Additionally, the FDA has recently proposed significant revisions to its
infant formula regulations to establish requirements for quality factors and
CGMP, and to amend its quality control procedure, notification, and records and
report requirements for infant formulas. These regulations, if adopted, may
delay, and increase the cost of, the Company's introduction of an infant formula
product.

Claims made by the Company in labeling and advertising its products are
subject to regulation by the FDA, the Federal Trade Commission and various state
agencies under their general authority to prevent false, misleading and
deceptive trade practrices. Failure to comply with such requirements can result
in adverse regulatory action, including injunctions, civil or criminal
penalties, product recalls or the relabelling, reformulation or possible
termination of certain products.

The Company's current and potential products may become subject to further
regulation in the future. The burden of such regulation could add materially to
the costs and risks of the Company's development and marketing efforts. There
can be no assurance that the Company could obtain the required approvals or
comply with new regulations if the Company's products are subject to additional
governmental regulation in the future. Failure to obtain necessary approvals or
otherwise comply with government regulations could have a material adverse
effect on the Company's future revenues, financial condition and results of
operations.

CONTROL BY PRINCIPAL SHAREHOLDERS

Following the completion of this offering, the directors, officers and
principal shareholders of the Company will own beneficially approximately 30.8%
of the outstanding Common Stock. As a result, such shareholders may have the
ability to effectively control the election of the Company's entire Board of
Directors and the affairs of the Company, including all fundamental corporate
transactions such as mergers, consolidations and the sale of substantially all
of the Company's assets. See "Principal Shareholders."

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<PAGE>
LACK OF PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY

Prior to this offering, there has been no public market for the Common
Stock. Although the Company has applied for listing of the Common Stock on the
Nasdaq SmallCap Market, there can be no assurance that an active trading market
will develop, or if developed will be maintained or that the market price of the
Common Stock will not decline below the initial public offering price. The price
has been determined by negotiation between the Company and the Underwriter with
reference to the general status of the securities market and other relevant
factors. Such offering price may not be indicative of the market price for the
Common Stock after this offering, which may be highly volatile depending upon
various factors, including the general economy, stock market conditions,
announcements by the Company or competitors and fluctuations in the Company's
operating results. See "Underwriting."

If the Company fails to maintain its qualification for its Common Stock to
trade on the Nasdaq SmallCap Market, the Common Stock will be subject to the
rules of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
relating to penny stocks (the "Penny Stock Rules"). Under the Penny Stock Rules,
unless a transaction in a "designated security" is exempt (e.g., a transaction
in which the purchase price of the security is $5.00 or more, a transaction in
which the purchaser is an institutional accredited investor or "established
customer," a transaction not recommended by the broker or a transaction by a
broker which is not a market maker in the stock and which derives 5% or less of
its income from transactions in designated securities), a broker must provide
certain mandated disclosure, approve the customer's account for the transaction
in "designated securities" in accordance with mandated procedures and obtain
from the customer a written agreement particular to the transaction setting
forth the identity and quantity of the securities. These procedures make it more
difficult for brokers to sell "designated securities" to certain people and many
brokers have decided not to trade securities subject to the Penny Stock Rules
because of such procedures. Accordingly, purchasers of the Common Stock may have
difficulty in selling such Common Stock if it became subject to the Penny Stock
Rules.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 4,405,524 shares of Common Stock to
be outstanding upon completion of this offering, the 1,250,000 shares offered
hereby will be eligible for immediate sale in the public market without
restriction, with the exception of shares held by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 3,155,524 shares of Common Stock held by
existing shareholders upon completion of this offering will continue to be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Of these shares, 1,380,000 shares will be eligible for resale in the open
market pursuant to Rule 144 beginning 90 days after the date of this Prospectus
(the "Rule 144 Shares"). The Company's officers, directors and certain of its
shareholders (all of such persons representing in the aggregate 940,000 of the
Rule 144 Shares) have agreed that they will not sell, directly or indirectly,
any Common Stock without the prior written consent of the Underwriter for a
period of one year from the date of this Prospectus. In addition, certain
warrant holders have the right, subject to certain conditions, to participate in
future Company registrations and to cause the Company to register certain shares
of Common Stock owned by them. See "Shares Eligible for Future Sale."

TRADEMARKS

The Company has not registered its existing trademarks, but instead relies
on its common law trademark rights. The lack of such registration may impair the
ability of the Company to prosecute successfully an infringement action against
other users of these trademarks. There can be no assurance that the Company's
marks do not or will not violate the proprietary rights of others, that the
Company's proprietary rights in the marks would be upheld if challenged, or that
the Company would

9
<PAGE>
not be prevented from using its marks, any of which could have an adverse effect
on the Company. In addition, there can be no assurance that the Company will
have the financial resources necessary to enforce or defend its trademarks.

DILUTION

There will be an immediate and substantial dilution to the public investors
who purchase shares in this offering in that the net tangible book value per
share of the Common Stock after the offering will be substantially less than the
public offering price of the shares offered hereby. The sale of 1,250,000 shares
at an initial public offering price of $3.50 per share will result in an
immediate dilution to investors of 70% or $2.45 per share. In addition, dilution
will occur upon the exercise of outstanding stock options and warrants of the
Company and may occur upon future equity financings of the Company. See
"Dilution."

UNDESIGNATED STOCK

The Company's authorized capital consists of 25,000,000 shares of capital
stock, of which 20,000,000 shares are designated as Common Stock and 5,000,000
are preferred shares undesignated as to series. Upon completion of this
offering, the Company will have no outstanding shares of preferred stock, and
there is no current plan to designate or issue any shares of preferred stock.
Nevertheless, the Company's Board of Directors has the power to issue any or all
of these shares of unissued stock, including the authority to establish the
rights and preferences of the unissued shares, without shareholder approval.
Furthermore, as a Minnesota corporation, the Company is subject to certain
"anti-takeover" provisions of the Minnesota Business Corporation Act. These
provisions and the power to issue additional shares and to establish separate
classes or series of common or preferred stock may, in certain circumstances,
deter or discourage take-over attempts and other changes in control of the
Company not approved by the Board. See "Description of Capital Stock."

10
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$3,662,500 ($4,253,125 if the Underwriter's over-allotment option is exercised
in full). The Company currently intends to apply these proceeds approximately as
follows:

<TABLE>
<S> <C>
Research and development....................................... $1,100,000
Sales and marketing............................................ 1,100,000
Working capital................................................ 1,462,500
----------
Total.......................................................... $3,662,500
----------
----------
</TABLE>

RESEARCH AND DEVELOPMENT. The Company intends to use approximately
$1,100,000 of the net proceeds for research and development expenditures,
including the expansion of existing product lines and the development of an
infant formula.

SALES AND MARKETING. The Company intends to use approximately $1,100,000 of
the net proceeds for sales and marketing, including salaries for additional
personnel and increased marketing activities relating to the Company's existing
products and to the introduction of new products.

WORKING CAPITAL. The Company intends to use approximately $1,462,500 of the
net proceeds to increase working capital and for general corporate purposes,
including the financing of possible increases in accounts receivable and
inventory relating to the introduction of new products.

Pending the use of the net proceeds, the Company intends to invest such
funds in interest bearing money market funds, short term certificates of deposit
and United States governmental obligations. The described use of proceeds is
based upon the Company's assumptions concerning certain marketing, selling,
development, financial and other matters which may affect the Company. If the
development of the Company's business varies materially from these assumptions,
the Company may reallocate the use of proceeds in such a manner as it deems
appropriate under the circumstances.

11
<PAGE>
DILUTION

The Company's net tangible book value at June 30, 1996 was approximately
$967,783 or $0.31 per share. "Net tangible book value per share" represents the
Company's total tangible assets less its total liabilities, divided by the
number of shares of Common Stock outstanding. Without giving effect to changes
in net tangible book value after June 30, 1996 except for the sale of the shares
offered hereby (after deducting the underwriting discount and estimated offering
expenses payable by the Company), the Company's pro forma net tangible book
value at June 30, 1996 would have been approximately $4,630,283 or $1.05 per
share. This amount represents an immediate increase in net tangible book value
per share of $.74 to existing shareholders and an immediate dilution of $2.45
per share to the investors purchasing the shares offered hereby. The following
table illustrates this per share dilution in net tangible book value to new
investors:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $ 3.50
Net tangible book value per share at June 30, 1996............. .31
Increase per share attributable to new investors............... .74
--
Pro forma net tangible book value per share after this
offering...................................................... 1.05
---------
Dilution per share to new investors............................ $ 2.45
---------
---------
</TABLE>

The following summarizes the differences between (i) existing shareholders
and (ii) purchasers of the Common Stock offered hereby, with respect to their
ownership of Common Stock upon the closing of this offering, the total
consideration paid and the average consideration paid per share:

<TABLE>
<CAPTION>
SHARES OWNED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ----------- ------------- ----------- -----------

<S> <C> <C> <C> <C> <C>
Existing shareholders.................................. 3,155,524 71.6% $ 3,077,951 41.3% $ 0.98
New investors.......................................... 1,250,000 28.4 4,375,000 58.7 $ 3.50
----------- ----- ------------- -----
Total.................................................. 4,405,524 100.0% $ 7,452,951 100.0%
----------- ----- ------------- -----
----------- ----- ------------- -----
</TABLE>

The Company has granted warrants to purchase 202,107 shares of Common Stock,
has agreed to sell to the Underwriter a warrant to purchase 125,000 shares of
Common Stock and has adopted stock option plans under which a total of 900,000
shares of Common Stock have been reserved for future issuance, of which 610,250
shares are subject to outstanding options. Although no options or warrants have
been exercised as of the date of this Prospectus, any shares issued upon
exercise of these options or warrants could have a dilutive effect to new
investors. See "Management -- Stock Option Plans."

DIVIDEND POLICY

The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain any earnings for use
in the operation and expansion of its business.

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the sale by the Company of the
1,250,000 shares offered hereby (after deduction of the underwriting discount
and estimated offering expenses) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." The information set forth below
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
ACTUAL AS ADJUSTED
-------------- --------------

<S> <C> <C>
Long-term debt................................................ $ -- $ --
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 shares authorized;
none issued and outstanding, actual and as adjusted........ -- --
Common Stock, $.01 par value; 20,000,000 shares authorized;
3,155,524 shares issued and outstanding, 4,405,524 shares
as adjusted (1)............................................ 31,555 44,055
Additional paid-in capital.................................. 2,720,612 6,370,612
Accumulated deficit......................................... (1,784,384) (1,784,384)
-------------- --------------
Total shareholders' equity................................ 967,783 4,630,283
-------------- --------------
Total capitalization...................................... $ 967,783 $ 4,630,283
-------------- --------------
-------------- --------------
</TABLE>

- ------------------------
(1) Does not include 812,357 shares of Common Stock issuable upon the exercise
of stock options and warrants outstanding at the date of this Prospectus.
See "Management -- Stock Option Plans."

13
<PAGE>
SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL DATA

The selected statement of operations data for the year ended December 31,
1994, the six months ended June 30, 1995 and the year ended December 31, 1995
and the balance sheet data as of December 31, 1994, June 30, 1995 and December
31, 1995 are derived from, and are qualified by reference to, the audited
financial statements included elsewhere in the Prospectus, and should be read in
conjunction with those financial statements and notes thereto, which have been
audited by Ernst & Young LLP, independent auditors, whose report is located
elsewhere in this Prospectus. The financial statements for the six months ended
June 30, 1996 have not been audited but, in the opinion of management, reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial data for and at the end of such period. Results for
interim periods are not necessarily indicative of the results that may be
expected for the entire year or other interim periods. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ---------------------------
1994 1995 1995 1996
------------ ------------- ------------ -------------

<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 81,961 $ 841,241 $ 284,106 $ 1,086,049
Cost of goods sold...................................... 24,613 406,391 139,926 682,194
------------ ------------- ------------ -------------
Gross profit............................................ 57,348 434,850 144,180 403,855

Operating expenses
Selling, general and administrative................... 733,413 1,242,863 523,485 577,679
Research and development.............................. 17,557 170,963 28,287 96,155
------------ ------------- ------------ -------------
Total operating expenses............................ 750,970 1,413,826 551,772 673,834
------------ ------------- ------------ -------------
Operating loss.......................................... (693,622) (978,976) (407,592) (269,979)

Interest income (expense), net.......................... (1,067) 19,353 (1,675) 16,564
------------ ------------- ------------ -------------
Net loss................................................ $ (694,689) $ (959,623) $ (409,267) $ (253,415)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net loss per share (1).................................. $ (0.29) $ (0.30) $ (0.16) $ (0.06)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Weighted average number of shares outstanding (1)....... 2,415,348 3,174,827 2,639,411 4,220,816
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1994 1995 1995 1996
------------ -------------- ------------ --------------

<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 111,080 $ 1,127,247 $ 40,787 $ 890,032
Working capital (deficit)............................. 102,942 1,000,103 (113,956) 888,399
Total assets.......................................... 245,985 1,694,020 324,077 1,482,780
Accumulated deficit................................... (571,346) (1,530,969) (980,613) (1,784,384)
Total shareholders' equity (deficit).................. 62,154 1,081,698 (147,113) 967,783
</TABLE>

- ------------------------
(1) Computed on the basis described in Note 2 of the Notes to Financial
Statements.

14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Nutrition Medical, Inc. was founded in July 1993. Prior to the Company's
first sale in May 1994, activities were directed toward development of its first
nutrition products and marketing programs. The Company has focused on the
development and marketing of nutrition products offered as low cost, generic
alternatives to equivalent national branded products. Initial product
development involved branded generic products for the critical care nutrition
market, sold primarily to hospitals and nursing homes. As of August 1996, the
Company had developed six such products. Critical care nutrition products are
generally purchased by a relatively large customer base, currently consisting of
more than 350 hospitals and other health care providers, which typically places
relatively small orders. Until late 1995, sales were solely attributable to this
product line.

In October 1995, the Company introduced an adult nutrition supplement
product line. These products were developed for and are marketed to retail
chains and generally are packaged using the retailer's proprietary store brand
label. These private label products allow the retailer to offer quality, low
cost alternatives to national branded nutrition products. Adult nutrition
supplements are generally purchased by a relatively small customer base,
currently consisting of nine retail chains, which typically places relatively
large orders.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

NET SALES. The Company's net sales increased by $801,943 to $1,086,049 for
the six months ended June 30, 1996, from $284,106 for the same period in 1995.
This increase is attributable to increased unit sales of the three critical care
nutrition products offered during both periods, the addition of three new
critical care nutrition products in 1996, introduction of the adult nutrition
supplements in the fourth quarter of 1995, and overall growth of the Company's
customer base. Total adult nutrition supplement sales were $540,528 in the six
months ended June 30, 1996, which included sales to a single customer that
accounted for 61% of net sales of adult nutrition supplements (31% of net sales
of all products) during the period.

GROSS PROFIT. As a result of the growth in net sales, the Company's gross
profit increased $259,675 to $403,855 for the six months ended June 30, 1996,
from $144,180 for the same period in 1995. Due to changes in product mix, gross
profit as a percentage of net sales decreased to 37% for the six months ended
June 30, 1996, from 51% for the same period in 1995. The gross profit for the
1995 period was derived solely from sales of the Company's critical care
nutrition products. The gross profit percentage for this group of products
increased to 56% for the six months ended June 30, 1996, from 51% for the same
period in 1995. This increase has been offset by sales of adult nutrition
supplements, introduced in October 1995, which had an 18% gross profit
percentage in the six months ended June 30, 1996. If sales of adult nutrition
supplements increase as a proportion of total sales, management expects the
overall gross profit percentage to decline.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $54,194 to $577,679 in the six months ended June 30, 1996,
from $523,485 in the same period in 1995. The increase is attributable to the
addition of personnel in sales and administrative positions as the Company
developed its marketing programs. The increase in these expenses was partially
offset by a decrease in the 1996 period of approximately $81,000 in legal
expenses. See "Business -- Litigation." The Company believes that its selling,
general and administrative expenses will continue to increase in future periods;
however, because of the fixed nature of some of these costs, such costs are
expected to decrease as a percentage of net sales if sales increase. The Company
expects that the selling, general

15
<PAGE>
and administrative costs associated with adult nutrition supplements and future
private label nutrition products will be less than those required to support
critical care nutrition products, since the Company markets its private label
nutrition products through independent brokers, while it maintains more costly
inside marketing personnel for its critical care nutrition products.

RESEARCH AND DEVELOPMENT. Research and development costs increased by
$67,868 to $96,155 in the six months ending June 30, 1996, from $28,287 in the
same period in 1995. The increase is attributable to a greater number of
products under development.

YEARS ENDED DECEMBER 31, 1995 AND 1994

NET SALES. Net sales increased by $759,280 to $841,241 in 1995 from $81,961
in 1994. Net sales in 1994 consisted entirely of critical care nutrition
products. Net sales of critical care nutrition products in 1995 increased by
$663,284 due to the introduction of new critical care nutrition products and
expansion of the Company's customer base. The remaining $95,996 of the increase
in 1995 net sales is attributable to adult nutrition supplements, which were
introduced in October 1995.

GROSS PROFIT. Gross profit increased by $377,502 to $434,850 in 1995 from
$57,348 in 1994. Gross profit as a percentage of net sales decreased to 52% in
1995 from 70% in 1994. The gross profit percentage in 1994 was based on a
limited sales volume, and was significantly above the level the Company expects
to have on a continuing basis. The decrease in the 1995 gross profit percentage
is also attributable to the introduction of adult nutrition supplements, which
have substantially lower gross profit percentages.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $509,450 to $1,242,863 in 1995 from $733,413 in 1994. The
increase is principally due to the addition of sales and administrative
personnel. Total personnel costs in 1995 increased by approximately $400,000. In
addition, the Company incurred a $75,000 relocation charge in connection with
the Company's planned move of its operations to Minneapolis, Minnesota. The
charge relates to the writeoff of the remaining costs associated with the
Company's lease of its Buffalo, Minnesota facility. The Company also incurred
approximately $144,000 more in legal expenses in 1995 than in 1994 due to the
costs associated with two lawsuits against the Company. See "Business --
Litigation."

RESEARCH AND DEVELOPMENT. Research and development costs increased by
$153,406 to $170,963 in 1995 from $17,557 in 1994. The increase was the result
of increased product development expenditures.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has incurred net losses and negative cash
flows from operations. The Company's principal source of cash and working
capital has been from the private placement of Common Stock, pursuant to which
the Company has received approximately $2,800,000 in net proceeds. The Company
also obtained loans from the City of Buffalo, Minnesota totalling $100,000.
These loans were repaid on July 22, 1996 in connection with the Company's
planned relocation. The Company's cash and cash equivalent balance decreased
$237,215 to $890,032 as of June 30, 1996, from $1,127,247 as of December 31,
1995. Total cash used in operations during the six-month period ended June 30,
1996 was $353,067, which was partially offset by proceeds from the sale of
Common Stock of $125,000. Capital expenditures of the Company from its inception
have totalled approximately $116,000. Currently, the Company has no significant
capital expenditure commitments.

The Company expects that its existing cash balances, along with the
anticipated net proceeds of this offering, will be sufficient to fund the
operations of the Company through 1997. The Company's future liquidity and
capital requirements will depend on numerous factors, including competition, the
extent to which the Company's products gain market acceptance, and the costs and
timing of expansion of sales, marketing and product development activities.
There can be no assurance that the Company will not be required to raise
additional capital before the end of 1997 or thereafter, or that such capital
will be available on acceptable terms, or at all. See "Risk Factors -- Future
Capital Requirements; No Assurance Future Capital Will Be Available."

16
<PAGE>
Prior to March 14, 1994, the Company operated as an S corporation whereby
taxable income or loss is passed through to the shareholders. The Subchapter S
election was terminated on March 14, 1994 and, as a result, the Company became
subject to federal and state income taxes. The Company has not generated taxable
income through June 1996. At June 30, 1996, the operating losses available to
offset future taxable income were approximately $1,721,000. The net operating
loss carryforwards expire beginning in 2009 and are subject to limitations under
Section 382 of the Internal Revenue Code due to potential changes in equity
ownership of the Company. The Company expects that the utilization of net
operating loss carryforwards will be impacted as a result of this offering by
limiting the amount which may be used on an annual basis.

17
<PAGE>
BUSINESS

BACKGROUND

CRITICAL CARE NUTRITION PRODUCTS.

Critically ill or severely injured patients are often unlikely to consume
adequate nutrients, which can exacerbate a patient's condition, cause
complications and prolong hospital stays. In the 1960's, pioneering work
demonstrated that patients could be fed intravenously with specialized proteins
and carbohydrates. This procedure, called total parenteral nutrition (TPN),
became a life saving modality, particularly for individuals with sections of
their intestinal tract damaged or removed due to injury or disease. An
alternative to TPN is total enteral nutrition (TEN). Instead of feeding sterile
solutions directly into the patient's vein, TEN delivers formulations of
protein, carbohydrates, fat and vitamins via feeding tubes directly into the
patient's intestinal tract. Unless nearly all of the intestinal tract is missing
or nonfunctional, most patients can be fed via this enteral route. The total
cost of the TEN procedure is substantially less than the cost of TPN, and may
result in fewer complications and shorter hospital stays.

One application of TEN is in the treatment of critical care patients. The
largest single category of TEN nutrition products used in critical care are
products that contain unique protein sources referred to as "elemental." Unlike
formulas that contain "whole protein," which must be digested before it

18
<PAGE>
can be absorbed and utilized by the patient, elemental formulas contain
predigested protein that offers immediately available nutrition because little
or no digestion is required. All of the Company's critical care nutrition
products are elemental formulas.

In 1993, sales in the United States adult TEN market were estimated to be
over $550 million. The market for United States adult TEN products generally is
forecasted to grow by at least 9% per year into the next century, primarily due
to the expected increase in the elderly population. The Company is focusing its
initial efforts on critical care nutrition products, which the Company believes
currently constitute a $200 million segment of the United States TEN market.

The critical care nutrition formula market is currently dominated by a small
number of established manufacturers of national brands, each of which focuses on
particular segments of the market. These manufacturers include Ross
Laboratories, a division of Abbott Laboratories ("Ross Laboratories"), Sandoz
Nutrition Corporation, a subsidiary of Sandoz Corp. ("Sandoz"), Clintec
Nutrition Co. ("Clintec") and McGaw, Inc. ("McGaw"). The Company believes these
manufacturers sell their products at substantial profit margins. Meanwhile, the
United States health care system has been under pressure to control costs. As a
result, consumers and the medical community have come to accept lower priced
generic drugs and private label over-the-counter products and the market for
these products has grown rapidly. The Company believes it is the only company
that has addressed the critical care medical nutrition market with low cost,
generic alternatives to established brands. The Company generally sells its
generic critical care nutrition products under its own label.

PRIVATE LABEL NUTRITION PRODUCTS

Adult nutrition supplements are products designed to provide balanced
nutrition in beverage form as a supplement or substitute for solid food for
healthy individuals as well as those recovering from or affected by illness.
Adult nutrition supplements contain vitamins, minerals, protein, fat,
carbohydrates and flavoring. The retail market for adult nutrition beverage
supplements is estimated to be $375 million in 1996, and to grow to $1 billion
by the year 2000. Market growth is expected to occur due in part to an
increasing number of elderly, who are the primary consumers of nutrition
supplements. The market for adult nutrition supplements is currently dominated
by the Ensure-Registered Trademark- family of products produced by Ross
Laboratories.

In recent years, the retail food and drug industry has experienced a growing
demand for private label products from both consumers and retailers. Today's
private label products generally are equivalent to national brands in
formulation and packaging and appeal to value conscious consumers in all income
brackets. Private label products also appeal to retailers. The cost to the
retailer of a private label product is typically lower than that of a nationally
advertised brand name product. The retailer, therefore, can generally price a
private label product below the competing national brand product.

INFANT FORMULA

Infant formulas are products designed to provide balanced nutrition as a
supplement to or substitute for breast milk, or as a supplement to other foods
in the diet of children, generally under the age of one. The infant formula
market was estimated to be $2.5 billion in 1995, and to grow to $4 billion by
the year 2000. Three manufacturers currently control the infant formula market:
Ross Laboratories (maker of Similac-Registered Trademark-); Mead Johnson
Nutritionals ("Mead Johnson"), a division of Bristol-Myers Squibb Co. (maker of
Enfamil-Registered Trademark-); and Nestle S.A. (maker of Good
Start-Registered Trademark-).

19
<PAGE>
PRODUCTS

CRITICAL CARE NUTRITION PRODUCTS

The Company currently has six critical care nutrition products. Each
contains elemental protein sources, which contain predigested protein that
offers immediately available nutrition. Three of these products are for general
use in intensive care unit ("ICU") environments, and three are designed to meet
the needs of specific patient populations. The following chart provides
information regarding each of the Company's critical care nutrition products.

<TABLE>
<CAPTION>
COMPARABLE BRANDED PRODUCT
------------------------------------------------------
PRODUCT NAME DATE INTRODUCED TREATMENT CATEGORY NAME MANUFACTURER
------------------- --------------- ------------------ ---------------------------------------- ------------

<S> <C> <C> <C> <C>
L-Emental May 1994 ICU nutrition Vivonex-Registered Trademark- Sandoz
L-Emental Plus January 1995 ICU nutrition Vivonex Plus-Registered Trademark- Sandoz
L-Emental Hepatic June 1996 Liver Failure Hepatic Aid II-Registered Trademark- McGaw
L-Emental Pediatric June 1996 Children Vivonex Pediatric-Registered Trademark- Sandoz
Pro-Peptide November 1994 ICU nutrition Peptamen-Registered Trademark- Clintec
Pro-Peptide VHN November 1995 Trauma Peptamen VHP-Registered Trademark- Clintec
</TABLE>

The Company generally prices its critical care nutrition products
approximately 20% to 30% less than the list prices of established brand name
competitors.

PRIVATE LABEL NUTRITION PRODUCTS

The Company produces three private label nutrition supplements that the
Company has designed to be equivalent to the family of
Ensure-Registered Trademark- products. The following chart provides information
regarding each of the Company's adult nutrition supplements.

<TABLE>
<CAPTION>
COMPARABLE BRANDED PRODUCT
----------------------------------------------------------------
PRODUCT NAME* DATE INTRODUCED NAME MANUFACTURER
------------------------------ --------------- --------------------------------------------- -----------------

<S> <C> <C> <C>
Nutrition PLUS October 1995 Ensure Plus-Registered Trademark- Ross Laboratories
Instant Nutrition February 1996 Ensure Powder-Registered Trademark- Ross Laboratories
Nutrition Advanced Formula June 1996 Ensure Advanced Formula-Registered Trademark- Ross Laboratories
</TABLE>

- ------------------------
* Each product is available in vanilla, strawberry and chocolate flavors.

The Company's nutrition supplements are generally priced by the retailer
approximately 20% to 30% less than the list prices of branded competitors.

INFANT FORMULA

The Company is currently developing an infant formula to be marketed through
one or more retail chains. The Company believes that its infant formula, if
successfully developed, would not be available for sale for at least one year.

RESEARCH AND DEVELOPMENT

The product development process begins with a determination by the Company's
management that a market opportunity exists with respect to a particular
product. The Company then contracts with an outside laboratory to analyze the
ingredients of the competitor's product and to formulate the Company's version
of the product. Certain members of the Company's scientific advisory board
consult with the contractors during the development process. The Company's
critical care nutrition products and adult nutrition supplements are not
required to undergo clinical testing or obtain FDA approval. See "Business --
Government Regulation."

MANUFACTURING AND DISTRIBUTION

All of the Company's products are manufactured on a contract basis by third
parties. The Company's contract manufacturers are subject to FDA regulatory
requirements for food and medical food production, and the Company's products
undergo quality control testing during and after the

20
<PAGE>
production process. By using third party manufacturers, the Company is better
able to introduce new products that require differing manufacturing processes.
Nevertheless, reliance on contract manufacturers involves various risks. See
"Risk Factors -- Dependence on Contract Manufacturers."

Critical care nutrition products are shipped from the manufacturer to the
Company's distribution warehouse in Buffalo, Minnesota. Home consumers of
critical care and nutrition products typically receive the Company's products
through health care providers.

Private label nutrition products generally are shipped directly from the
contract manufacturers to the Company's retail customers. Any excess product is
stored and subsequently distributed from locations in New York and California by
a private warehouser that the Company has engaged for this purpose.

MARKETING

CRITICAL CARE NUTRITION PRODUCTS

The Company employs its own inside sales personnel to market its critical
care nutrition products. These sales personnel target, via telephone, the
dietary and pharmaceutical departments of hospitals and nursing homes. This
approach reduces the Company's selling costs by eliminating travel expenses and
allowing its sales personnel to contact and service a larger number of potential
and actual customers. The Company also uses direct mail and trade shows to
further promote its products. In addition, the Veteran's Administration and
state and county hospitals have annual bids for clinical nutrition products and
the Company actively participates in these bids. The Company believes its sales
personnel are effective without in-person sales calls since the Company is not
creating primary demand for new products, but is instead offering lower cost
substitutes for existing products.

In January 1996, the Company began sales of its critical care nutrition
products under a licensing arrangement with Voluntary Hospitals of America
("VHA"), a hospital purchasing group with more than 1,200 member hospitals. VHA
markets the Company's products to its members as part of its "VHA Plus" line of
products, which carry distinctive VHA labeling.

PRIVATE LABEL NUTRITION PRODUCTS

The Company markets its private label nutrition products nationwide to
retail chains through independent brokers working on a commission basis. The
Company makes promotional announcements regarding adult nutrition supplements
through the Company's hospital customers. Customers also have access to a
toll-free phone number that the Company staffs with dietitians. The Company
works directly with retailers to develop product labeling and conducts joint
advertising campaigns with retailers.

COMPETITION

CRITICAL CARE NUTRITION PRODUCTS

Competition in the critical care nutrition product market primarily consists
of three companies that have established brands in the specialty markets in
which the Company has chosen to compete. These companies are Sandoz, Clintec and
McGaw, each of which markets their specialty products through sales personnel
who use traditional in-person sales calls rather than the telemarketing approach
employed by the Company. Although Ross Laboratories is the dominant manufacturer
in the United States adult TEN market (which includes the critical care
nutrition market), Ross Laboratories has focused on whole protein products and
the Company has avoided direct competition with Ross Laboratories by choosing to
develop elemental protein products. Although the Company believes it is the only
company currently offering low cost, generic alternatives to the established
brands, other companies may enter this market.

PRIVATE LABEL NUTRITION PRODUCTS

Competition in the private label nutrition supplement market consists of
companies that sell established national brands and companies that sell private
label products. In the adult nutrition supplement market, Ross Laboratories
sells Ensure-Registered Trademark-, which has an approximately 80% share of this

21
<PAGE>
market. The other established national brands are Sustacal-Registered Trademark-
and Boost-Registered Trademark-, both of which are Mead Johnson products. The
Company believes that retail customers in the adult nutrition supplement market
make purchase decisions based on the price, taste and quality of the product.
Competitors in the private label segment of this market include established
companies that produce private label products for a wide range of markets,
including Perrigo Company, NutraMax Products, Inc. and American White Cross,
Inc., and a number of small private label product producers.

INFANT FORMULA

Infant formulas are products designed to provide balanced nutrition as a
supplement to or substitute for breast milk, or as a supplement to other foods
in the diet of children, generally under the age of one. The infant formula
market was estimated to be $2.5 billion in 1995, and to grow to $4 billion by
the year 2000. Three manufacturers currently control the infant formula market:
Ross Laboratories (maker of Similac-Registered Trademark-); Mead Johnson (maker
of Enfamil-Registered Trademark-); and Nestle USA Inc. (maker of Good
Start-Registered Trademark-).

GOVERNMENT REGULATION

Certain of the Company's products and potential products are or will be
subject to government regulation. The Company's current products are regulated
as food and medical food by the Food and Drug Administration (the "FDA") and are
subject to labelling requirements, CGMP regulations and certain other
regulations designed to ensure the safety of the products. The Company's
proposed infant formula may be required to undergo an adequate and well
controlled clinical study, in accordance with good clinical practice, to
determine whether the formula supports normal physical growth in infants when
fed as the sole source of nutrition. Additionally, the FDA has recently proposed
significant revisions to its infant formula regulations to establish
requirements for quality factors and CGMP, and to amend its quality control
procedure, notification, and records and report requirements for infant
formulas. These regulations, if adopted, may delay, and increase the cost of,
the Company's introduction of an infant formula product. Claims made by the
Company in labeling and advertising its products are subject to regulation by
the FDA, the Federal Trade Commission and various state agencies under their
general authority to prevent false, misleading and deceptive trade practices.
Failure to comply with such requirements can result in adverse regulatory
action, including injunctions, civil or criminal penalties, product recalls or
the relabelling, reformulation or possible termination of certain products. The
Company's current and potential products may become subject to further
regulation in the future. See "Risk Factors -- Government Regulation."

EMPLOYEES

The Company currently has 14 full-time employees and one part-time employee.
The Company does not have an agreement with any labor union and the Company
believes its relations with its employees are good.

FACILITIES

The Company's corporate headquarters is currently located in Buffalo,
Minnesota, in an office/ warehouse complex consisting of 5,300 square feet. The
Company's current lease expires on December 31, 1998. The Company has leased an
9,500 square foot facility in Minneapolis, Minnesota, and will move its
operations to this new location in September 1996. The Company accrued a $75,000
charge to earnings in 1995 relating to the termination of its lease of the
Buffalo, Minnesota facility.

LITIGATION

In August 1995, the Company was named as a defendant in a patent
infringement lawsuit brought by Sandoz. The complaint asserts that one of the
Company's products, L-Emental Plus, infringes on two patents held by Sandoz and
asks for relief in the form of an injunction that would prevent the Company from
selling the product as well as damages of an unspecified amount. Both patents
were issued subsequent to the Company's introduction of L-Emental Plus. The
Company has responded with a counterclaim seeking a declaration of invalidity,
unenforceability, non-infringement and inventorship of the subject patents. A
court order has stayed the litigation pending a request that

22
<PAGE>
the United States Patent and Trademark Office reexamine both patents. The
Company intends to continue to defend vigorously against the claim. Sales of
L-Emental Plus constituted $298,000, or 35%, and $210,000, or 19%, of the
Company's net sales in 1995 and the first six months of 1996, respectively. It
is not possible at this time to predict the outcome of the lawsuit, including
whether the Company will have to cease selling L-Emental Plus, or to estimate
the amount or range of potential loss, if any. To date, no injunction has been
issued.

The Company has resolved two previous lawsuits. In one suit, Sandoz claimed
that Mr. William L. Rush, President of the Company, had violated a
confidentiality agreement relating to his prior employment by Sandoz and that
the Company's marketing of L-Emental employed deceptive and defamatory
statements. The Company and Sandoz resolved the litigation in June 1995. In a
second suit, Clintec claimed that the protein source in Pro-Peptide infringed a
patent held by Clintec and that the Company's marketing of Pro-Peptide employed
false and misleading statements. The Company and Clintec resolved the litigation
in November 1995. The Company continues to market the products that were the
subject of these two lawsuits.

23
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's executive officers and directors are:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ---- -------------------------------------------------
<S> <C> <C>

William L. Rush 45 Chairman, President and Chief Executive Officer
Joseph F. Coffey 60 Vice President of Corporate Sales
Marlin G. Rudebusch 50 Vice President of Marketing
Richard J. Hegstrand 43 Chief Financial Officer
Kenneth L. Evenstad 53 Director
George E. Kline 60 Director
Lawrence A. Lehmkuhl 59 Director
</TABLE>

WILLIAM L. RUSH has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since its inception in July 1993. From
1984 to March 1993, Mr. Rush was employed by Sandoz, most recently as Senior
Vice President of its clinical products division. As Senior Vice President, his
duties included supervision of a national sales force, product management group,
outpatient clinic services group, related support functions and research and
development. From 1978 to 1984, Mr. Rush was employed by Baxter Healthcare Corp.
in its medical nutrition division.

JOSEPH F. COFFEY has been Vice President of Corporate Sales of the Company
since September 1994. From 1965 to June 1994, Mr. Coffey was employed by Sandoz
in a variety of positions, including 14 years, as National Sales Manager of the
clinical nutrition division. As National Sales Manager, Mr. Coffey had
managerial responsibility for regional and district sales managers, the national
account group, the telemarketing group, and the direct sales force.

MARLIN G. RUDEBUSCH has been Vice President of Marketing of the Company
since December 1994. From December 1993 to May 1994, Mr. Rudebusch was employed
by AudioScience, Inc. as Director of Sales and Marketing. From 1981 to August
1993, Mr. Rudebusch was employed by Medtronic, Inc., most recently as Director
of Sales and Marketing of its neurological division. From 1977 to 1981, Mr.
Rudebusch was employed by Cardiac Pacemakers, Inc. in various sales and
marketing positions.

RICHARD J. HEGSTRAND has been Chief Financial Officer of the Company since
November 1995. From December 1992 until September 1995, Mr. Hegstrand was
employed by PDS Financial Corporation, most recently as its Vice President and
Chief Financial Officer. From January 1987 to December 1992, Mr. Hegstrand
served in various management capacities with Magnetic Data, Inc., most recently
as Chief Financial Officer. He served in several management positions from 1984
to 1986 with Zycad Corporation, most recently as Assistant Controller. Mr.
Hegstrand previously practiced public accounting for two years with Coopers &
Lybrand L.L.P.

KENNETH L. EVENSTAD has been a director of the Company since May 1995. Since
1969, Mr. Evenstad has been Chairman and Chief Executive Officer of Upsher-Smith
Laboratories, Inc., a pharmaceutical company that specializes in cardiovascular
drugs. From 1967 to 1969, Mr. Evenstad practiced as a pharmacist in Alaska and
Minnesota. Mr. Evenstad is also a director of Medi-Ject Corporation.

GEORGE E. KLINE has been a director of the Company since May 1995. Since
1966, Mr. Kline has been President of Venture Management, a financial consulting
services firm. Since 1985, Mr. Kline has also served as the General Partner of
Brightstone Capital, Ltd. LLC ("Brightstone Capital"), a venture partnership.
Mr. Kline is also a director of Applied Biometrics, Inc., Cyberoptics
Corporation, Pet Food Warehouse, Inc., Health Fitness Physical Therapy, Inc. and
Rimage Corporation.

24
<PAGE>
LAWRENCE A. LEHMKUHL has been a director of the Company since January 1995.
From 1985 to March 1993, Mr. Lehmkuhl was President and Chief Executive Officer
of St. Jude Medical, Inc., and from April 1993 to February 1995, Mr. Lehmkuhl
was Chairman of its Board of Directors. From 1966 to 1985, Mr. Lehmkuhl was
employed by American Hospital Supply Corporation in various management
capacities. Mr. Lehmkuhl is also a director of Aequitron Medical, Inc., Kera
Vision, Inc. and Fisher Imaging Corporation.

The executive officers are elected by, and serve at the discretion of, the
Board of Directors. The directors of the Company are elected at the annual
meeting of shareholders and serve until the next annual meeting or until their
successors are duly elected and qualified.

SCIENTIFIC ADVISORY BOARD

The Company has established a scientific advisory board composed of
individuals who consult with the Company in their areas of expertise. The
advisory board provides advice to the Company and contacts for the Company in
the members' areas of expertise. The Company reimburses advisors for accountable
expenses, but they do not receive any cash compensation for their services. Each
advisor has been granted an option to purchase 5,000 shares of Common Stock,
vesting at the rate of 1,250 shares per year. The Company may grant additional
options for projects that require the advisor to devote significant time to the
Company. The Board of Directors will approve any such projects and related
compensation. The scientific advisory board members include:

RONALD S. AMEN, PH.D., is Vice President of ABIC International Consultants,
Inc. in Orange, California, a provider of technical services, product and
process development, clinical studies, consumer evaluation, and technical
marketing research to the health care, food, and personal care products
industries. Dr. Amen has edited two books on fiber and nutrition and has
authored or co-authored dozens of publications, presentations, monographs,
patents, and teaching modules. Dr. Amen earned his Ph.D. in nutritional
physiology from Rutgers University.

ALBERT BARROCAS, M.D., F.A.C.S., is Vice President of Medical Affairs and
Medical Director of Nutrition Support and Home Health Services at Pendleton
Memorial Methodist Hospital; Clinical Professor of Surgery and Nutrition at
Tulane University School of Medicine; Clinical Professor of Medicine (Nutrition)
at Louisiana State University School of Medicine, New Orleans; and Adjunct
Professor of Nutrition at Tulane School of Public Health and Tropical Medicine.
Dr. Barrocas serves as Chairman of the Medical Advisory Council of the Nutrition
Institute of Louisiana-TM-; is a member of the Professional Development and
Education Committee and the Technical Review Committee for the Nutrition
Screening Initiative; and is Public Director-at-Large on the American Dietetic
Association Board of Directors.

STACEY J. BELL, D.SC., R.D., is a research dietitian at Deaconess Hospital
in Boston, Massachusetts, and is a member of the surgical metabolism laboratory
and an Instructor in Surgery at Harvard Medical School, also in Boston. Dr. Bell
has over 20 years of clinical and research experience involving
nutrition-related issues of burned, critically ill and, most recently, AIDS
patients. Dr. Bell has published dozens of scientifically reviewed articles and
seven book chapters, and has co-edited three books. Dr. Bell earned her Doctor
of Science degree from Boston University.

STANLEY J. DUDRICK, M.D., is Associate Chairman and Program Director,
Department of Surgery, St. Mary's Hospital and Clinical Professor of Surgery at
Yale University, Waterbury, Connecticut. Prior to joining St. Mary's Hospital,
Dr. Dudrick was Clinical Professor of Surgery, The University of Texas Health
Science Center at Houston; Surgeon in Chief, Hermann Hospital, Texas Medical
Center; and Director of the Nutritional Science Center at Hermann Hospital. Dr.
Dudrick has authored or co-authored hundreds of journal articles, chapters, and
books. Dr. Dudrick earned his M.D. from the University of Pennsylvania School of
Medicine.

DIANE D. HESTER, M.S., R.D., C.N.S.D., is the Director of Clinical Nutrition
at Stanford University Hospital and Lucille S. Packard Children's Hospital,
Stanford, California. Ms. Hester has worked with nutrition support in critical
care for the past nine years, and has extensive experience with trauma,

25
<PAGE>
burn and head-injury patients. In 1989 she received the "Recognized Young
Dietitian of the Year" award. Ms. Hester has published many articles on
nutrition support in critical care and has most recently authored a chapter in
the 1993 Nutrition Support Dietetics Core Curriculum titled "Neurological
Impairment." Ms. Hester earned her B.S. in Dietetic and Food Administration from
California Polytechnic State University and her M.S. in Nutrition from the
Houston Veterans Administration Medical Center/Texas Woman's University.

DAVID P. KATZ, PH.D., is the Associate Director, Nutrition Support Service,
Department of Anesthesiology, Division of Critical Care Medicine at Montefiore
Medical Center and at the Albert Einstein College of Medicine. Dr. Katz has
co-authored several chapters in various textbooks, ranging from pediatric
nutrition to artificial nutrition support in clinical practice, and has authored
or co-authored several reviews and peer-reviewed reports on various aspects of
nutrition and metabolism. Dr. Katz earned his Ph.D. in Nutritional Biochemistry
and Metabolism at the Massachusetts Institute of Technology.

WOODROW C. MONTE, PH.D., R.D., is an Associate Professor of Foods and
Nutrition at Arizona State University in Tempe, Arizona. Dr. Monte has been
interviewed on national television on the topics of sulfiting agents and
Aspartame. Dr. Monte has authored or co-authored over 30 papers on food
additives and food chemistry. Dr. Monte earned his Ph.D. in Food Science and
Nutrition from Colorado State University.

CHARLES T. VAN BUREN, M.D., is Professor of Surgery, Division of Immunology
and Organ Transplantation at the University of Texas Medical School in Houston,
and is Director of the Renal Transplant Program at St. Luke's Episcopal Hospital
in Houston. Dr. Van Buren is the recipient of several awards and honors,
including the John Freeman Award for Outstanding Teacher in Medical School. Dr.
Van Buren earned his M.D. from the University of Pennsylvania in Philadelphia.

ARTHUR WEISBERG, L.L.B., J.D., is a retired partner of Dorsey & Whitney LLP,
a law firm based in Minneapolis, Minnesota. Mr. Weisberg has counseled numerous
publicly and privately held companies and for 20 years was a member of the board
of directors of National Computer Systems, Inc. Mr. Weisberg earned his J.D.
from the William Mitchell College of Law in St. Paul, Minnesota.

The Company may develop additional advisory boards composed of individuals
with expertise in the areas of clinical nutrition, health care business and
medical devices. The Company expects to provide compensation to the members of
any additional advisory boards that is comparable to that received by members of
the scientific advisory board.

COMMITTEES

In July 1996, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee of the Board of Directors
consists of Messrs. Evenstad, Kline and Lehmkuhl. The Compensation Committee
determines the compensation for the President and reviews recommendations of the
President concerning compensation for the other executives and incentive
compensation for employees of the Company, subject to ratification by the full
Board of Directors. The Compensation Committee also administers the Company's
1995 Long-Term Incentive and Stock Option Plan (the "1995 Stock Option Plan")
and the 1996 Non-Employee Director Stock Option Plan (the "1996 Director Plan").

The Audit Committee of the Board of Directors consists of Messrs. Evenstad,
Kline and Lehmkuhl. The Audit Committee reviews the results and scope of the
audit and other services provided by the Company's independent auditors, as well
as the Company's accounting principles and its system of internal controls, and
reports the results of these reviews to management and to the full Board of
Directors.

26
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY OF CASH AND OTHER COMPENSATION.

The following table sets forth the total cash and non-cash remuneration paid
to the Company's Chief Executive Officer for services rendered during 1995. No
other executive officer of the Company received aggregate annual salary and
bonus compensation of more than $100,000 during 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND -------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------------------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>

William L. Rush 1995 $ 89,000 $ 20,000 --
President and Chief Executive Officer
</TABLE>

EMPLOYMENT CONTRACT

In August 1996, the Company entered into an employment agreement with
William L. Rush, the Company's Chairman of the Board, President and Chief
Executive Officer. The agreement will be effective upon the successful
completion of this offering. The agreement provides for an initial annual salary
of $95,000, which salary is subject to annual review and adjustment by the
Company's Board of Directors. Mr. Rush also will receive an option to purchase
100,000 shares of Common Stock, with an exercise price of $3.50 per share, and
may receive incentive compensation to be established by the Board of Directors.
The agreement has a three-year term, but is terminable by the Company or Mr.
Rush with cause, or without cause by either party upon ninety days' written
notice. Under the agreement, Mr. Rush has granted the Company rights to all
inventions conceived or produced by Mr. Rush during the period of his
employment. Mr. Rush also is subject to a confidentiality provision and a
twelve-month noncompetition provision. If the contract is terminated by the
Company without cause, or by Mr. Rush with cause, the Company is obligated to
pay Mr. Rush's annual salary for a period of twelve months and the maximum
amount of incentive compensation that could have been due in such period.

COMPENSATION OF DIRECTORS

Directors do not receive any compensation from the Company for attending
meetings of the Board of Directors, other than options granted under the 1996
Director Plan. See "Management -- Stock Option Plans." The Company reimburses
directors for expenses incurred in connection with attendance at meetings of the
Board of Directors.

STOCK OPTION PLANS

1995 STOCK OPTION PLAN. The Company adopted the 1995 Stock Option Plan in
March 1995. Pursuant to the 1995 Stock Option Plan, executive officers, other
employees, directors and consultants may receive awards. The 1995 Stock Option
Plan provides for the grant of both incentive stock options intended to qualify
for preferential tax treatment under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and for nonqualified stock options that do not
qualify for such treatment. The exercise price of incentive stock options (which
only employees are eligible to receive) must equal or exceed the fair market
value of the Common Stock on the date of grant; the exercise price of
nonqualified stock options may be less than the fair market value of the Common
Stock on the date of grant. The 1995 Stock Option Plan also provides for
restricted stock awards and grants of stock appreciation rights (SARs), but no
restricted stock awards or SARs have been granted to date.

The Board of Directors recently approved an increase from 500,000 to 800,000
in the number of shares of Common Stock authorized for issuance under the 1995
Stock Option Plan. This increase will be effective when approved by a majority
vote of the shareholders of the Company, which is expected to occur before the
closing date of this offering. As of July 31, 1996, options covering 610,250
shares had been granted under the 1995 Stock Option Plan, at a weighted average
exercise price of $1.86.

27
<PAGE>
1996 DIRECTOR PLAN. The Board of Directors adopted the 1996 Director Plan
in July 1996. The 1996 Director Plan will be effective when approved by a
majority vote of the shareholders of the Company, which is expected to occur
before the closing date of this offering. The 1996 Director Plan provides for an
automatic grant of unqualified stock options to purchase 15,000 shares of Common
Stock to non-employee directors on the date such individuals are first appointed
directors of the Company, and an automatic grant of an option to purchase an
additional 7,500 shares of Common Stock on the day after each subsequent annual
meeting of the Company's shareholders. The option price is equal to the fair
market value of the Common Stock on the date of grant. The options granted upon
appointment to the Board of Directors vest and become exercisable as to 50% of
the shares on the date of grant, and an additional 25% on each of the first and
second anniversaries of such grant, if the holder remains a director on such
date. The options granted in connection with subsequent annual meetings vest and
become exercisable as to 100% of the shares six months after the date of such
grant if the holder remains a director on such date. The Company has reserved
100,000 shares of Common Stock for issuance under the 1996 Director Plan.

LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS

The Company's Articles of Incorporation limit the liability of directors in
their capacity as directors to the Company or its shareholders to the full
extent permitted by Minnesota law. Minnesota law provides that, if so provided
in a company's articles of incorporation, a director shall not be liable to the
company or its shareholders for monetary damage for breach of fiduciary duty as
a director, except (a) for any breach of the director's duty of loyalty to the
company or its shareholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) for
dividends, stock repurchases and other distributions made in violation of
Minnesota law or for violations of Minnesota securities laws, (d) for any
transactions from which the director derived an improper personal benefit or (d)
for any act or omission occurring prior to the effective date of the provision
in the company's articles of incorporation limiting such liability. These
provisions do not affect the availability of equitable remedies, such as an
action to enjoin or rescind a transaction involving a breach of fiduciary duty,
although, as a practical matter, equitable relief may not be available. The
above provisions also do not limit liability of the directors for violations of,
or relieve them from the necessity of complying with, the federal securities
laws.

28
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of July 31, 1996 and as
adjusted to reflect the sale of shares offered hereby (assuming no exercise of
the Underwriter's over-allotment option) by: (a) each director of the Company,
(b) the Chief Executive Officer of the Company, (c) each person or entity known
by the Company to own beneficially more than five percent of the Company's
Common Stock, and (d) all directors and executive officers of the Company as a
group.

<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
SHARES SHARES (1)
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>

William L. Rush 740,000 23.5% 16.8%
308 12th Avenue South
Buffalo, MN 55313

Lawrence A. Lehmkuhl (2) 67,038 2.1% 1.5%
134 Dellwood Avenue
Dellwood, MN 55110

George E. Kline (2)(3) 540,000 16.7% 12.0%
Venture Management
4750 IDS Center
Minneapolis, MN 55402

Kenneth L. Evenstad (2) 30,000 0.9% 0.7%
Upsher-Smith Laboratories
14905 23rd Avenue North
Minneapolis, MN 55447

Brightstone Funds (4) 510,000 15.9% 11.4%
Venture Management
4750 IDS Center
Minneapolis, MN 55402

John N. Kapoor Trust 187,038 5.9% 4.2%
E.J. Financial
225 East Deer Path
Suite 250
Lake Forest, IL 60045

All directors and officers as a
group (7 persons) (5) 1,408,788 42.5% 30.8%
</TABLE>

- ------------------------
(1) As of July 31, 1996, the Company had 3,155,524 outstanding shares of Common
Stock. In addition, shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days from the date hereof
("Currently Exercisable Options") are deemed outstanding for computing the
percentage of the person holding such options but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. The number of shares of Common Stock deemed
outstanding after this offering includes an additional 1,250,000 shares of
Common Stock that are being offered for sale by the Company in this
offering, but assumes no exercise of the Underwriter's over-allotment
option.

(2) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.

29
<PAGE>
(3) Includes 200,000 shares owned by Brightstone Fund IV, 150,000 shares owned
by Brightstone Fund VI, 110,000 shares owned and 30,000 shares issuable
pursuant to warrants held by Brightstone Fund VII and 20,000 shares issuable
pursuant to a warrant held by Brightstone Capital. George E. Kline, a
director of the Company, serves as a general partner of all of the
Brightstone entities referenced above. By virtue of this position, Mr. Kline
may be deemed to have voting and investment control over the shares owned by
such Brightstone entities, and thus a beneficial owner of those shares. Mr.
Kline disclaims any beneficial ownership of such shares.

(4) These securities are also included in beneficial ownership of Mr. Kline. See
footnote (3) above.

(5) Includes 161,750 shares issuable pursuant to Currently Exercisable Options.

CERTAIN TRANSACTIONS

On June 6, 1995, the Company entered into a $200,000 loan arrangement with
Brightstone Capital, whose general partner is George E. Kline. Mr. Kline is a
member of the Company's Board of Directors. As consideration for the loan and
related consulting services, the Company issued a warrant to purchase 20,000
shares of the Company's Common Stock at an exercise price of $1.35 per share. On
September 6, 1995, the Company repaid the loan.

On June 30, 1996, the Company sold 50,000 shares of Common Stock for
$125,000, or $2.50 per share, to Brightstone Fund VII, whose general partner
also is Mr. Kline.

Any future material transactions and loans with officers, directors or 5%
beneficial shareholders of the Company's Common Stock, or affiliates of such
persons, will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and will be approved by a majority of
the outside members of the Company's Board of Directors who do not have an
interest in the transactions.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the closing of this offering, the Company's authorized capital stock
will consist of 20,000,000 shares, $.01 par value. All shares of capital stock
the Company issues are Common Stock unless the Board of Directors designates
otherwise. As of July 31, 1996, there were outstanding 3,155,524 shares of
Common Stock, which were held by 98 shareholders of record, and 812,357 shares
of Common Stock reserved for issuance upon exercise of outstanding options and
warrants. No shares of preferred stock are outstanding. See "Management -- Stock
Option Plans."

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors, which means that the holders of
more than 50% of the outstanding Common Stock voting for the election of
directors can elect all of the directors of the Company to be elected, if they
so choose. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor and are entitled to share ratably in all assets of the
Company available for distribution to holders of the Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company. Holders of
Common Stock have no preemptive, subscription or conversion rights and there are
no redemption or sinking fund provisions applicable thereto. The outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, fully paid and nonassessable.

PREFERRED STOCK

The Company's Articles of Incorporation authorize the Company's Board of
Directors, without further shareholder action, to issue shares of preferred
stock in one or more series and to fix the voting

30
<PAGE>
rights, liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the preferred stock.

Although there is no current intention to do so, the Board of Directors of
the Company may, without shareholder approval, issue shares of a class or series
of preferred stock with voting and conversion rights which could adversely
affect the voting power or dividend rights of the holders of Common Stock and
may have the effect of delaying, deferring or preventing a change in control of
the Company.

PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
AND MINNESOTA BUSINESS CORPORATION ACT

The existence of authorized but unissued preferred stock, described above,
and certain provisions of the Company's Articles of Incorporation and Bylaws and
Minnesota law, described below, could have an anti-takeover effect. These
provisions are intended to provide management flexibility, to enhance the
likelihood of continuity and stability in the composition of the Company's Board
of Directors and in the policies formulated by the Board and to discourage an
unsolicited takeover of the Company if the Board determines that such a takeover
is not in the best interests of the Company and its shareholders. However, these
provisions could have the effect of discouraging some attempts to acquire the
Company, which would deprive the Company's shareholders of opportunities to sell
their shares of Common Stock at prices higher than prevailing market prices.

Section 302A.671 of the Minnesota Statutes applies, with certain exceptions,
to any acquisition of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20
percent or more of the voting stock then outstanding. Section 302A.671 requires
approval of any such acquisition by a majority vote of the shareholders of the
Company prior to its consummation. In general, shares acquired in the absence of
such approval are denied voting rights and are redeemable at their then fair
market value by the Company within 30 days after the acquiring person has failed
to give a timely information statement to the Company or the date the
shareholders voted not to grant voting rights to the acquiring person's shares.

Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder which purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.

TRANSFER AGENT AND REGISTRAR

Norwest Bank, Minnesota, N.A., has been appointed as the transfer agent and
registrar for the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common
Stock. Upon closing of this offering, the Company will have outstanding an
aggregate of 4,405,524 shares of Common Stock. Of these shares, the 1,250,000
shares of Common Stock sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless held by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act (whose sales would be subject to
certain volume limitations and other restrictions described below). The
remaining 3,155,524 shares (the "Restricted Shares") were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act.

31
<PAGE>
Approximately 1,380,000 of the Restricted Shares will be eligible for sale
90 days after the date of this Prospectus, subject to compliance with the volume
limitations and other restrictions of Rule 144. The Company's officers,
directors and certain of its shareholders (all of such persons representing in
the aggregate 940,000 of such Restricted Shares) have agreed that they will not
sell, directly or indirectly, any Common Stock without the prior written consent
of the Underwriter for a period of one year from the date of this Prospectus.
See "-- Lock-Up Agreements."

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who beneficially owns shares last acquired
privately from the Company or from an affiliate of the Company at least two
years previously, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of Common Stock (approximately 44,055 shares immediately
after this offering) or (b) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner-of-sale provisions, notice requirements and
the availability of current public information about the Company. A person who
has not been an affiliate of the Company at any time during the three months
preceding a sale, and who beneficially owns shares last acquired from the
Company or from an affiliate of the Company at least three years previously, is
entitled to sell all such shares under Rule 144 without regard to any of the
limitations of the rule.

Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans, such as the
1995 Stock Option Plan, or written contracts of a company not subject to the
reporting requirements of Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"). Securities issued pursuant to Rule 701 are
restricted securities for purposes of Rule 144. However, 90 days after the
issuer becomes subject to the reporting provisions of the Exchange Act, the Rule
144 resale restrictions, except for the manner of sale and brokers' transaction
requirements, are inapplicable for non-affiliates. Affiliates are not subject to
the Rule 144 holding period requirement, but are subject to the volume
limitations and other restrictions of Rule 144. A total of 302,450 additional
shares issuable upon the exercise of vested options (the "Rule 701 Shares") will
be eligible for sale in the public market in accordance with Rule 701 beginning
90 days after the date of this Prospectus. The Company's officers, directors and
certain of its shareholders (all of such persons representing in the aggregate
121,950 of the Rule 701 Shares) have agreed that they will not sell, directly or
indirectly, any Common Stock without the prior written consent of the
Underwriter for a period of one year from the date of this Prospectus. See "--
Lock-Up Agreements."

The Company intends to file a Form S-8 registration statement under the
Securities Act to register all shares of Common Stock issuable under the 1995
Stock Option Plan and the 1996 Director Plan. That registration statement is
expected to become effective immediately upon filing. Shares covered by that
registration statement will be eligible for sale in the public market after the
effective date of that registration statement, subject to Rule 144 limitations
applicable to affiliates and to the lock-up agreements described below.

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the perception
that such sales could occur could adversely affect the market price or the
future ability of the Company to raise capital through an offering of its equity
securities.

LOCK-UP AGREEMENTS

The Company's officers, directors and certain of its shareholders, who in
the aggregate hold 1,247,038 shares of Common Stock, have agreed that they will
not to sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any shares of Common Stock or any rights to purchase shares
of Common Stock, without the written consent of the Underwriter, for a period of
one year after the date of this Prospectus, other than by gift to donees who
agree to be bound by the

32
<PAGE>
same restriction or by will or the laws of descent. The Company will use its
best efforts to obtain similar lock-up agreements from its remaining
shareholders. These agreements take precedence over the limitations on sale
under the Securities Act described in the foregoing paragraphs.

REGISTRATION RIGHTS

Holders of warrants to purchase 152,107 shares of Common Stock (the
"Registerable Shares") that represent 50% or more of the Registerable Shares
have the right, at any time after this offering but only on one occasion, to
require the Company to file a registration statement registering the
Registerable Shares under the Securities Act. Holders of the Registerable
Shares, and the holder of a warrant to purchase 20,000 shares of Common Stock,
are also entitled to "piggy-back" registration rights on registrations of the
Company, subject to the right of the managing underwriter of a particular
offering to reduce, in view of market conditions, the number of shares the
holders propose to have the Company register.

UNDERWRITING

Miller, Johnson & Kuehn, Incorporated (the "Underwriter") has agreed,
subject to the terms and conditions of the Underwriting Agreement, with the
Company to purchase from the Company the 1,250,000 shares of Common Stock
offered hereby. The Underwriting Agreement provides that the Underwriter will be
obligated to purchase all of the Shares offered hereby if any are purchased.

The Underwriter proposes to offer the Shares to the public at the Price to
Public set forth on the cover page of this Prospectus and to dealers at such
price less a concession not in excess of $ per share. After the initial
public offering, the Price to Public, concession and reallowance may be changed
by the Underwriter. The Underwriter does not intend to confirm sales to any
account over which it has discretionary authority.

The Company has granted the Underwriter an option exercisable within 30 days
after the date of this Prospectus to purchase up to an additional 187,500 shares
of Common Stock at the Price to Public, less the Underwriting Discount shown on
the cover page of this Prospectus. The Underwriter may exercise such option only
for the purpose of covering any over-allotments in the sale of the Shares
offered hereby.

The Company has agreed to pay the Underwriter a nonaccountable expense
allowance equal to 1% of the gross proceeds from the sale of the Shares and to
pay the fees and expenses of the Underwriter's counsel. The Company has also
agreed to give the Underwriter a right of first refusal to act as co-managing
underwriter for any offering of the Company's capital stock for three years
following this offering, unless a regional or national investment banking firm
has agreed to act as managing underwriter for such offering.

The Company has agreed to sell to the Underwriter, for nominal
consideration, a warrant to purchase 125,000 shares of Common Stock (the
"Underwriter's Warrant"). The Underwriter's Warrant may be exercised in whole or
in part commencing twelve months after the date of this Prospectus and for a
period of four years thereafter at a per share exercise price of $4.20, equal to
120% of the Price to Public. Until exercisable, the Underwriter's Warrant may
not be transferred, sold, assigned or hypothecated except to persons who are
bona fide officers of the Underwriter. The Underwriter's Warrant contains
anti-dilution provisions providing for appropriate adjustments upon the
occurrence of certain events, and contains customary participatory and demand
registration rights. The holders of the Underwriter's Warrant also have the
right to exchange the Underwriter's Warrant without any cash payment for a
number of shares of Common Stock having a value, at the time of such exchange,
equal to the appreciated value of the Underwriter's Warrant. Any profits
realized by the Underwriter upon the sale of such warrant, or the securities
issuable upon exercise thereof, may be deemed to constitute additional
underwriting compensation.

The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriter and their controlling persons against civil
liabilities in connection with the offering,

33
<PAGE>
including liabilities under the Securities Act of 1933, as amended. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.

The foregoing is a summary of the provisions of the Underwriting Agreement
and the Underwriter's Warrant and does not purport to be a complete statement of
their terms and conditions. The Underwriting Agreement and the Underwriter's
Warrant have been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. A
partner and an employee of Dorsey & Whitney LLP own a total of 47,037 shares of
Common Stock. Certain legal matters will be passed upon for the Underwriter by
Leonard, Street and Deinard Professional Association, Minneapolis, Minnesota.

EXPERTS

The financial statements of the Company as of December 31, 1994, June 30,
1995 and December 31, 1995, and for the year ended December 31, 1994, the six
months ended June 30, 1995 and the year ended December 31, 1995, included in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and such financial
statements are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Common Stock offered hereby. For further information with
respect to the Company and the Common Stock, reference is made to such
Registration Statement and exhibits filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents referred to are not necessarily complete. With respect to each
such contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement and exhibits may be inspected
without charge and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison,
Suite 1400, Chicago, Illinois 60661 and 75 Park Place, 14th Floor, New York, New
York 10048. Copies of such material may be obtained at prescribed rates from the
Commission's Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of the Web
site is http://www.sec.gov.

34
<PAGE>
NUTRITION MEDICAL, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2

Balance Sheets........................................................................ F-3

Statements of Operations.............................................................. F-4

Statement of Shareholders' Equity..................................................... F-5

Statements of Cash Flows.............................................................. F-6

Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Nutrition Medical, Inc.

We have audited the balance sheets of Nutrition Medical, Inc. as of December
31, 1994, June 30, 1995 and December 31, 1995 and the related statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1994, the six months ended June 30, 1995 and the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nutrition Medical, Inc. at
December 31, 1994, June 30, 1995 and December 31, 1995 and the results of its
operations and its cash flows for the year ended December 31, 1994, the six
months ended June 30, 1995 and the year ended December 31, 1995, in conformity
with generally accepted accounting principles.

Minneapolis, Minnesota
March 22, 1996

F-2
<PAGE>
NUTRITION MEDICAL, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents............................................ $ 111,080 $ 1,127,247 $ 890,032
Accounts receivable.................................................. 22,334 121,345 199,889
Inventories.......................................................... 50,409 358,104 275,625
Prepaid expenses..................................................... 2,950 5,729 37,850
----------- ------------- -------------
Total current assets............................................... 186,773 1,612,425 1,403,396

Equipment and office furniture:
Computer equipment................................................... 27,734 48,401 49,962
Office furniture..................................................... 34,728 54,221 61,808
Equipment............................................................ 3,885 3,885 3,885
----------- ------------- -------------
66,347 106,507 115,655
Less accumulated depreciation........................................ 7,135 24,912 36,271
----------- ------------- -------------
59,212 81,595 79,384
----------- ------------- -------------
Total assets..................................................... $ 245,985 $ 1,694,020 $ 1,482,780
----------- ------------- -------------
----------- ------------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 63,276 $ 313,810 $ 231,778
Accrued lease costs.................................................. -- 75,000 75,000
Accrued expenses..................................................... 11,631 58,399 65,622
Accrued payroll...................................................... 8,924 65,113 42,597
Current portion of long-term debt.................................... -- 100,000 100,000
----------- ------------- -------------
Total current liabilities.......................................... 83,831 612,322 514,997

Long-term debt......................................................... 100,000 -- --

Shareholders' equity:
Common Stock, $.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares --
December 31, 1994 -- 1,440,000;
December 31, 1995 -- 3,105,524;
June 30, 1996 -- 3,155,524......................................... 14,400 31,055 31,555
Additional paid-in capital........................................... 619,100 2,581,612 2,720,612
Accumulated deficit.................................................. (571,346) (1,530,969) (1,784,384)
----------- ------------- -------------
Total shareholders' equity......................................... 62,154 1,081,698 967,783
----------- ------------- -------------
Total liabilities and shareholders' equity....................... $ 245,985 $ 1,694,020 $ 1,482,780
----------- ------------- -------------
----------- ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-3
<PAGE>
NUTRITION MEDICAL, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ---------------------------
1994 1995 1995 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)

Net sales............................................... $ 81,961 $ 841,241 $ 284,106 $ 1,086,049
Cost of goods sold...................................... 24,613 406,391 139,926 682,194
------------ ------------- ------------ -------------
Gross profit............................................ 57,348 434,850 144,180 403,855

Operating expenses:
Selling, general and administrative................... 733,413 1,242,863 523,485 577,679
Research and development.............................. 17,557 170,963 28,287 96,155
------------ ------------- ------------ -------------
750,970 1,413,826 551,772 673,834
------------ ------------- ------------ -------------
Operating loss.......................................... (693,622) (978,976) (407,592) (269,979)

Other income (expense):
Interest income....................................... 7,239 24,834 674 19,468
Interest expense...................................... (8,306) (5,481) (2,349) (2,904)
------------ ------------- ------------ -------------
(1,067) 19,353 (1,675) 16,564
------------ ------------- ------------ -------------
Net loss................................................ $ (694,689) $ (959,623) $ (409,267) $ (253,415)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net loss per share...................................... $ (.29) $ (.30) $ (.16) $ (.06)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Weighted average number of shares outstanding........... 2,415,348 3,174,827 2,639,411 4,220,816
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4
<PAGE>
NUTRITION MEDICAL, INC.
STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- --------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>

Balance at December 31, 1993....................... 800,000 $ 8,000 $ 56,500 $ (35,657) $ 28,843
Recapitalization resulting from election of C
Corporation status.............................. -- -- (159,000) 159,000 --
Issuance of Common Stock at $1.00 per share from
March 1994 through April 1994................... 640,000 6,400 633,600 -- 640,000
Value of warrants granted for services
performed....................................... -- -- 63,000 -- 63,000
Value of options granted for services
performed....................................... -- -- 20,000 -- 20,000
Value of warrants granted in connection with
notes payable................................... -- -- 5,000 -- 5,000
Net loss......................................... -- -- -- (694,689) (694,689)
----------- --------- ------------- -------------- -----------
Balance at December 31, 1994....................... 1,440,000 14,400 619,100 (571,346) 62,154
Issuance of Common Stock at $1.35 per share from
February through September 1995, net offering
costs........................................... 1,665,524 16,655 1,957,512 -- 1,974,167
Value of warrants granted for services
performed....................................... -- -- 5,000 -- 5,000
Net loss......................................... -- -- -- (959,623) (959,623)
----------- --------- ------------- -------------- -----------
Balance at December 31, 1995....................... 3,105,524 31,055 2,581,612 (1,530,969) 1,081,698
Issuance of Common Stock at $2.50 per share in
June 1996 50,000 500 124,500 -- 125,000
Value of options granted for services
performed....................................... -- -- 14,500 -- 14,500
Net loss......................................... -- -- -- (253,415) (253,415)
----------- --------- ------------- -------------- -----------
Balance at June 30, 1996 (unaudited)............... 3,155,524 $ 31,555 $ 2,720,612 $ (1,784,384) $ 967,783
----------- --------- ------------- -------------- -----------
----------- --------- ------------- -------------- -----------
</TABLE>

SEE ACCOMPANYING NOTES.

F-5
<PAGE>
NUTRITION MEDICAL, INC.
STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES
Net loss................................................ $ (694,689) $ (959,623) $ (409,267) $ (253,415)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.......................................... 6,538 17,777 13,050 11,359
Value of options and warrants granted for services
performed............................................ 88,000 5,000 5,000 14,500
Changes in operating assets and liabilities:
Accounts receivable................................. (22,334) (99,011) (62,238) (78,544)
Inventories......................................... (50,409) (307,695) (75,152) 82,479
Prepaid expenses.................................... (2,950) (2,779) (3,364) (32,121)
Accounts payable.................................... 65,921 250,534 176,267 (82,032)
Accrued expenses.................................... 20,555 177,957 61,092 (15,293)
------------ ------------- ------------ -------------
Net cash used in operating activities................... (589,368) (917,840) (294,612) (353,067)

INVESTING ACTIVITIES
Purchase of equipment and office furniture.............. (51,111) (40,160) (20,681) (9,148)
------------ ------------- ------------ -------------
Net cash used in investing activities................... (51,111) (40,160) (20,681) (9,148)

FINANCING ACTIVITIES
Proceeds from issuance of Common Stock.................. 640,000 1,974,167 195,000 125,000
Proceeds from issuance of notes payable................. 100,000 200,000 50,000 --
Payments on notes payable............................... -- (200,000) -- --
------------ ------------- ------------ -------------
Net cash provided by financing activities............... 740,000 1,974,167 245,000 125,000
------------ ------------- ------------ -------------
Increase (decrease) in cash............................. 99,521 1,016,167 (70,293) (237,215)
Cash and cash equivalents at beginning of period........ 11,559 111,080 111,080 1,127,247
------------ ------------- ------------ -------------
Cash and cash equivalents at end of period.............. $ 111,080 $ 1,127,247 $ 40,787 $ 890,032
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................... $ -- $ -- $ -- $ 5,714
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-6
<PAGE>
NUTRITION MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED WITH RESPECT TO JUNE 30, 1996 AND
THE SIX MONTH PERIOD ENDED JUNE 30, 1996)

1. NATURE OF OPERATIONS
Nutrition Medical, Inc. (the "Company") develops and sells generic critical
care nutrition products for the hospital/nursing home market, as well as private
label nutrition products for sale through regional and national retail chains
throughout the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Cash equivalents
are carried at cost which approximates market and consist of money market funds.

INVENTORIES

Inventories are valued at the lower of cost or market by the first-in,
first-out (FIFO) method.

EQUIPMENT AND OFFICE FURNITURE

Equipment and office furniture are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets
over five years.

INCOME TAXES

Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting and
tax bases of assets and liabilities.

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are charged to operations as incurred.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

STOCK-BASED COMPENSATION

The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has not determined the impact of the new statement on
its financial statements.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the periods presented. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, shares of common stock
issued by the Company at prices less than the

F-7
<PAGE>
NUTRITION MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
initial offering price during the twelve months immediately preceding the
initial public offering, plus stock options and warrants granted at exercise
prices less than the initial public offering price during the same period, have
been included in the determination of shares used in calculating the net loss
per share, using the treasury method, as if they were outstanding for all
periods presented.

Net loss per share computed in accordance with Accounting Principles Board
Opinion No. 15, "Earnings Per Share," would be $(.53), $(.47), $(.27) and $(.08)
for the years ended December 31, 1994 and 1995 and the six months ended June 30,
1995 and 1996 on 1,300,329, 2,059,808, 1,524,391 and 3,105,797 weighted average
number of shares outstanding, respectively.

INTERIM FINANCIAL INFORMATION

The financial statements for the six months ended June 30, 1996 have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. These statements are unaudited but, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments
and accruals) necessary for a fair presentation of the financial information set
forth herein.

3. CAPITAL STOCK AUTHORIZATION
During July 1996, the Board of Directors approved, subject to shareholder
approval, an increase in the authorized shares of capital stock to 25,000,000,
including 20,000,000 shares of common stock and 5,000,000 shares of undesignated
preferred stock.

4. INVENTORIES
Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ------------------------
1994 1995 1995 1996
--------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
Raw materials........................................ $ 30,812 $ 95,078 $ 68,197 $ 108,899
Work in progress..................................... -- 89,848 -- 28,633
Finished goods....................................... 19,597 173,178 57,364 138,093
--------- ----------- ----------- -----------
$ 50,409 $ 358,104 $ 125,561 $ 275,625
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>

5. DEBT
Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>

Note payable -- Housing and Redevelopment Authority of Buffalo,
Minnesota; interest rate at 6.25%; interest paid quarterly; due
October 11, 1999.................................................... $ 50,000 $ 50,000 $ 50,000 $ 50,000
Note payable -- Housing and Redevelopment Authority of Buffalo,
Minnesota; interest rate at 5.05%; interest paid quarterly; due
December 1, 1998.................................................... 50,000 50,000 50,000 50,000
Note payable -- shareholder; non-interest bearing; unsecured; due
September 6, 1995................................................... -- -- 50,000 --
----------- ----------- ----------- -----------
100,000 100,000 150,000 100,000
Less current portion................................................. -- 100,000 50,000 100,000
----------- ----------- ----------- -----------
$ 100,000 $ -- $ 100,000 $ --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

F-8
<PAGE>
NUTRITION MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. DEBT (CONTINUED)
In connection with the January 14, 1994 and October 11, 1994 issuance of the
Housing and Redevelopment Authority (HRA) notes payable, the Company granted
warrants to purchase 15,000 shares of Common Stock at $1.50 per share and $1.00
per share, respectively. The warrants expire five years from the grant date and
were deemed to have a value of $5,000, which was expensed in 1994.

The HRA notes payable require immediate repayment in the event the Company
relocates operations outside of the Buffalo area. Pursuant to the Company's
plans to relocate (Note 6), the notes payable have been classified as current as
of December 31, 1995. On July 22, 1996, the Company repaid the HRA notes
payable.

On June 6, 1995, the Company entered into a $200,000, 90-day non-interest
bearing loan arrangement with an entity that is a shareholder of the Company and
whose general partner is a member of the Board of Directors. As of June 30,
1995, the Company had received $50,000 under this arrangement. As consideration
for the loan and consulting services provided, the Company granted a warrant to
purchase 20,000 shares of Common Stock at $1.35 per share. The warrants were
assigned a value of $5,000 and were expensed in 1995. On September 6, 1995, the
Company repaid the loan in full.

6. LEASES
The Company leases an office facility in Buffalo, Minnesota under an
operating lease that expires December 31, 1998. Operating expenses including
maintenance, utilities, real estate taxes and insurance are paid by the Company.
In December 1995, the Company approved a plan to relocate its operations from
Buffalo to Minneapolis, Minnesota. As of December 31, 1995, the Company
established an accrual of approximately $75,000 for the remaining lease costs of
abandoning the facility.

Subsequent to year end, the Company entered into an agreement to lease an
office and warehouse facility in Minneapolis, Minnesota commencing September 1,
1996. The lease terminates on November 30, 2001, and requires the Company to pay
its proportionate share of real estate taxes and operating expenses. The
agreement allows for a five year renewal and a termination option after three
years in the event the landlord is unable to provide additional space for the
Company.

Future minimum lease rental payments required under leases in excess of one
year as of December 31, 1995 are as follows:

Total rent expense under operating leases for the years ended December 31,
1994 and 1995 and the six months ended June 30, 1995 and 1996 was $23,980,
$33,270, $12,236 and $14,933, respectively.

7. INCOME TAXES
Prior to March 14, 1994, the Company operated as an S Corporation, whereby
taxable income or loss is passed through to the shareholders. The Subchapter S
election was terminated on March 14, 1994 and, as a result, the Company became
subject to federal and state income taxes. Also, as of that date, the Company's
accumulated deficit of $159,000 was reclassified to additional paid-in capital.

F-9
<PAGE>
NUTRITION MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
At December 31, 1995 and June 30, 1996, the Company had net operating loss
carryforwards of approximately $1,468,000 and $1,721,000, respectively. The net
operating loss carryforwards are available to offset future taxable income
through 2011 and are subject to limitations under Section 382 of the Internal
Revenue Code due to changes in the equity ownership of the Company.

Components of deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>

Net operating loss carryforwards................ $ 278,000 $ 587,000 $ 360,000 $ 688,000
Less valuation allowance........................ (278,000) (587,000) (360,000) (688,000)
------------ ------------ ------------ ------------
Net deferred tax assets......................... $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

8. STOCK OPTIONS AND WARRANTS
On January 19, 1995, the Company adopted the 1995 Long-Term Incentive Stock
Option Plan (the "Plan") that includes both incentive stock options and
non-qualified stock options to be granted to directors, officers, employees and
consultants. As of December 31, 1995, the maximum number of shares reserved
under the Plan is 500,000 shares. The Board of Directors establishes the terms
and conditions of all stock option grants, subject to the Plan and applicable
provisions of the Internal Revenue Code. Options may not be granted under the
Plan after January 1, 2005.

During July 1996, the Board of Directors approved, subject to shareholder
approval, an increase in the number of shares authorized for issuance under the
Plan by 300,000 shares and adopted the 1996 Non-Employee Director Stock Option
Plan for which 100,000 shares are reserved.

Option and warrant activity is summarized as follows:

<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING
AVAILABLE ----------------------- SHARES PRICE
FOR GRANT INCENTIVE NON-QUALIFIED WARRANTS EXERCISABLE PER SHARE
---------- --------- ------------ --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>

Balance at December 31, 1993............. -- -- -- -- --
Establishment of stock option plan..... 500,000 -- -- -- --
Granted................................ (127,500) 65,000 62,500 30,000 30,000 $1.00 - $1.50
---------- --------- ------------ --------- -----------
Balance at December 31, 1994............. 372,500 65,000 62,500 30,000 30,000 1.00 - 1.50
Granted................................ (265,000) 44,000 221,000 172,107 -- 1.00 - 1.50
Canceled............................... 15,000 -- (15,000) -- -- 1.00
Becoming exercisable................... -- -- -- -- 329,107 1.00 - 1.50
---------- --------- ------------ --------- -----------
Balance at December 31, 1995............. 122,500 109,000 268,500 202,107 359,107 1.00 - 1.50
Additional shares reserved............. 300,000 -- -- -- -- --
Granted................................ (144,750) 120,000 24,750 -- -- 1.00 - 4.25
Canceled............................... 12,000 (12,000) -- -- (5,000) 1.00 - 1.35
Becoming exercisable................... -- -- -- -- 48,500 1.00 - 1.50
---------- --------- ------------ --------- -----------
Balance at June 30, 1996 (unaudited)..... 289,750 217,000 293,250 202,107 402,607 $1.00 - $4.25
---------- --------- ------------ --------- -----------
---------- --------- ------------ --------- -----------
</TABLE>

F-10
<PAGE>
NUTRITION MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTIONS AND WARRANTS (CONTINUED)
In connection with the issuance of Common Stock at $1.35 per share from
February through September 1995, the Company granted warrants to purchase a
total of 152,107 shares of Common Stock. The warrants are exercisable at $1.35
per share and expire at various dates through September 2000.

9. CONTINGENCY
In August 1995, the Company was named as a defendant in a patent
infringement lawsuit brought by Sandoz Nutrition Company, a subsidiary of Sandoz
Corp. ("Sandoz"). The complaint asserts that one of the Company's products,
L-Emental Plus, infringes on two patents held by Sandoz and asks for relief in
the form of an injunction that would prevent the Company from selling the
product as well as damages of an unspecified amount. Both patents were issued
subsequent to the Company's introduction of L-Emental Plus. The Company has
responded with a counterclaim seeking a declaration of invalidity,
unenforceability, non-infringement and inventorship of the subject patents. A
court order has stayed the litigation pending a request for reexamination of
both patents by the United States Patent and Trademark Office. The Company
intends to continue to defend vigorously against the claim. It is not possible
at this time to predict the outcome, including whether the Company will have to
cease selling L-Emental Plus, or to estimate the amount or range of potential
loss, if any. Accordingly, no loss provision has been made in the financial
statements for any liability that may result from the outcome of this
uncertainty.

10. MAJOR CUSTOMER
The Company's net sales to one customer constituted approximately 31% of the
total net sales for the six months ended June 30, 1996.

F-11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company, the Underwriter or any other person. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy a security other than the shares of Common Stock offered hereby, nor does
it constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstance create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.

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

Prospectus Summary............................. 3
The Company.................................... 3
Risk Factors................................... 5
Use of Proceeds................................ 11
Dilution....................................... 12
Dividend Policy................................ 12
Capitalization................................. 13
Selected Financial Data........................ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business....................................... 18
Management..................................... 24
Principal Shareholders......................... 29
Certain Transactions........................... 30
Description of Capital Stock................... 30
Shares Eligible for Future Sale................ 31
Underwriting................................... 33
Legal Matters.................................. 34
Experts........................................ 34
Additional Information......................... 34
Index to Financial Statements.................. F-1
</TABLE>

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

Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as an underwriter and with respect to their unsold allotments or
subscriptions.

1,250,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

MILLER, JOHNSON & KUEHN,
INCORPORATED

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Restated Articles of Incorporation limit the liability of
its directors to the full extent permitted by the Minnesota Business
Corporation Act. Specifically, directors of the Company will not be
personally liable for monetary damages for breach of fiduciary duty as
directors except liability for (i) any breach of the duty of loyalty to the
Company or its shareholders, (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) dividends
or other distributions of corporate assets that are in contravention of
certain statutory or contractual restrictions, (iv) violations of certain
Minnesota securities laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law
is not limited by the Company's Restated Articles of Incorporation.

The Minnesota Business Corporation Act and the Company's Bylaws require
that the Company indemnify any director or officer made or threatened to be
made a party to a proceeding, by reason of the former or present official
capacity of the person, against judgments, penalties, fines, settlements and
reasonable expenses incurred in connection with the proceeding if certain
statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including a derivative action in the name of the Company.
Reference is made to the detailed terms of the Minnesota indemnification
statute (Minn. Stat. Section 302A.521) for a complete statement of such
indemnification rights.

Pursuant to the terms of the Underwriting Agreement, filed as Exhibit
1.1, the directors and officers of the Company are indemnified against
certain civil liabilities that they may incur under the Securities Act of
1933 in connection with this Registration Statement and the related
Prospectus.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses incurred by the
Company in connection with the sale and distribution of the Common Stock
being offered hereby, other than the underwriting discount. All amounts shown
are estimates except the Securities and Exchange Commission registration fee,
the NASD filing fee, and the Nasdaq application fee.

SEC registration fee . . . . . . . . . . . . . . . $ 1,735

NASD filing fee . . . . . . . . . . . . . . . . . 1,003

Nasdaq application fee . . . . . . . . . . . . . . 9,406

Printing expenses . . . . . . . . . . . . . . . . 20,000

Fees and expenses of Company counsel . . . . . . . 80,000

Fees and expenses of Company accountants . . . . . 40,000

Underwriter's expense allowance . . . . . . . . . 43,750

Fees and expenses of Underwriter's counsel . . . . 45,000

Transfer agent and registrar fees . . . . . . . . 2,500

Blue Sky fees and expenses . . . . . . . . . . . . 20,000

Miscellaneous . . . . . . . . . . . . . . . . . . 11,606
--------
Total $275,000
--------
--------

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Since August 1, 1993, the Company has issued and sold the following
securities, which were not registered under the Securities Act of 1933, as
amended (the "Securities Act"):

II-1

<PAGE>

1. On August 2, 1993, the Company issued 100 shares of its Common
Stock to William L. Rush in consideration of the capital contribution of
$100. On December 21, 1993, the Company issued 1,349,900 shares of its
Common Stock to Mr. Rush in consideration of the capital contribution of
$64,400. In March 1994, Mr. Rush returned 550,000 shares of this Common
Stock to the Company for no consideration. During the period in which
all of these transactions took place, Mr. Rush owned all of the
outstanding capital stock of the Company. The net substantive effect of
the transactions was an additional capital contribution by Mr. Rush of
$64,400 on December 21, 1993 in conjunction with a 13,500 to one stock
split of the 100 shares issued on August 2, 1993, and the subsequent
return of 550,000 shares in preparation for its March 1994 offering of
Common Stock. As a result, Mr. Rush owned 800,000 shares of Common
Stock, for which he contributed $64,500 ($.081 per share).

2. From March 7 to April 12, 1994, the Company issued and sold
640,000 shares of its Common Stock to various investors for total
consideration of $640,000, including 200,000 shares to Brightstone Fund
IV and 85,000 shares to officers of the Underwriter. All of these sales
were made at a price of $1.00 per share.

3. From February 7, 1995 to May 3, 1995, the Company issued and
sold 144,449 shares of its Common Stock to various investors for total
consideration of $195,000, including 37,038 shares to Lawrence A.
Lehmkuhl. All of these sales were made at a price of $1.35 per share.

4. On August 31, 1995, the Company issued and sold 1,421,538
shares of its Common Stock to various investors for total consideration
of $1,919,076, including 10,000 shares to Marlin Rudebusch as joint
tenant, 10,000 shares to an employee of Dorsey & Whitney LLP, 7,900
shares to an officer of the Underwriter, 7,500 shares to a relative of
George E. Kline, and 150,000 shares to Brightstone Fund VI. All of
these sales were made at a price of $1.35 per share. The Company paid
$211,098 in commissions and nonaccountable expenses to placement agents
in connection with this offering, including $170,804 to the Underwriter.

5. On August 31, 1995, in connection with the private placement
described in paragraph 4, the Company issued and sold warrants to
purchase a total of 142,154 shares of its Common Stock, all at an
exercise price of $1.35, for a total consideration of $100, including a
warrant to purchase 122,256 shares of Common Stock to the Underwriter
for $50.

6. On September 12, 1995, the Company issued and sold 99,537
shares of its Common Stock to various investors for total consideration
of $134,375, including 37,037 shares to a partner of Dorsey & Whitney
LLP. All of these sales were made at a price of $1.35 per share. The
Company paid $14,781 in commissions and nonaccountable expenses to
placement agents in connection with this offering, including $6,028 to
the Underwriter.

7. On September 12, 1995, in connection with the private placement
described in paragraph 6, the Company issued and sold warrants to
purchase a total of 9,953 shares of its Common Stock, all at an exercise
price of $1.35, for a total consideration of $100, including a warrant
to purchase 5,631 shares of Common Stock to the Underwriter for $50.

8. On June 30, 1996, the Company issued and sold 50,000 shares of
its Common Stock to Brightstone Fund VII for a total consideration of
$125,000, at a price of $2.50 per share. George E. Kline, a member of
the board of directors of the Company, is the general partner of
Brightstone Fund VII.

The Company issued and sold the Common Stock referenced in
paragraphs 2, 3, 4 and 6 in reliance upon Section 4(2) of the
Securities Act and Rule 505 of Regulation D promulgated
thereunder. The Company issued and sold the Common Stock,
options or warrants referenced in paragraphs 1, 5, 7 and 8 in
reliance upon Section 4(2) of the Securities Act. The Company
made inquiries of purchasers of securities in these transactions
and obtained representations from such purchasers to establish
that such issuances qualified for an exemption from the
registration requirements.

II-2

<PAGE>

ITEM 27. EXHIBITS

EXHIBIT NO. DESCRIPTION
- ----------- -----------

1.1 Form of Underwriting Agreement and Warrant
3.1 Restated Articles of Incorporation of the Company, as amended
3.2 Restated Bylaws of the Company, as amended
4.1 * Specimen Form of the Company's Common Stock Certificate
5 * Opinion of Dorsey & Whitney LLP
10.1 1995 Long-Term Incentive and Stock Option Plan
10.2 1996 Non-Employee Director Stock Option Plan
10.3 + Purchasing Agreement, dated October 15, 1995, by
and between the Company and VHA, Inc.; Trademark
License Agreement, dated October 15, 1995, by and
between the Company and VHA, Inc.; Memorandum of Understanding,
dated April 17, 1995 between the Company and VHA, Inc.
10.4 * Employment Agreement, by and between the Company
and William L. Rush
10.5 Employment Agreement, dated November 20, 1995, by and
between the Company and Richard J. Hegstrand
10.6 Employment Agreement, dated September 1, 1994, by and
between the Company and Joseph F. Coffey
10.7 Employment Agreement, dated December 19, 1994, by and
between the Company and Merlin G. Rudebusch
10.8 Office Lease, dated October 15, 1993, by and between
the Company and the 308 Corporation
10.9 Lease Agreement, dated February 22, 1996, by and
between the Company and Caliber Development Corporation
11.1 Statement of Computation of Net Loss Per Share
23.1 * Consent of Dorsey & Whitney LLP (see Exhibit 5)
23.2 Consent of Ernst & Young LLP
24 Powers of Attorney (set forth on the Signature Page hereof)

- ---------------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions

ITEM 28. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.

(b) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

II-3

<PAGE>

(c) That (1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or Rule 497(h), under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective, and (2)
for purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement for the securities offered in such
registration statement, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Buffalo, State of Minnesota, on
August 7, 1996.

NUTRITION MEDICAL, INC.

By /s/ William L. Rush
--------------------------------------
William L. Rush
Chairman of the Board, President and
Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated on August 7, 1996. Each person whose signature to this registration
statement appears below hereby constitutes and appoints William L. Rush and
Richard Hegstand, and each of them, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
or her behalf individually and in the capacity stated below and to perform
any acts necessary to be done in order to file all amendments and
post-effective amendments to this registration statement, and any and all
instruments or documents filed as part of or in connection with this
registration statement or the amendments thereto and each of the undersigned
does hereby ratify and confirm that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.

SIGNATURE TITLE

/s/ William L. Rush Chairman of the Board, President and
- ------------------------------------- Chief Executive Officer and Director
William L. Rush (principal executive officer)

/s/ Richard J. Hegstrand Chief Financial Officer
- ------------------------------------- (principal financial and
Richard J. Hegstrand accounting officer)

/s/ Kenneth L. Evenstad Director
- -------------------------------------
Kenneth L. Evenstad

/s/ George E. Kline Director
- -------------------------------------
George E. Kline

/s/ Lawrence A. Lehmkuhl Director
- -------------------------------------
Lawrence A. Lehmkuhl

II-5

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement and Warrant
3.1 Restated Articles of Incorporation of the Company, as amended
3.2 Restated Bylaws of the Company, as amended
4.1 * Specimen Form of the Company's Common Stock Certificate
5 * Opinion of Dorsey & Whitney LLP
10.1 1995 Long-Term Incentive and Stock Option Plan
10.2 1996 Non-Employee Director Stock Option Plan
10.3 + Purchasing Agreement, dated October 15, 1995, by
and between the Company and VHA, Inc.; Trademark
License Agreement, dated October 15, 1995, by and
between the Company and VHA, Inc.; Memorandum of Understanding,
dated April 17, 1995 between the Company and VHA, Inc.
10.4 * Employment Agreement, by and between the Company
and William L. Rush
10.5 Employment Agreement, dated November 20, 1995, by and
between the Company and Richard J. Hegstrand
10.6 Employment Agreement, dated September 1, 1994, by and
between the Company and Joseph F. Coffey
10.7 Employment Agreement, dated December 19, 1994, by and
between the Company and Merlin G. Rudebusch
10.8 Office Lease, dated October 15, 1993, by and between
the Company and the 308 Corporation
10.9 Lease Agreement, dated February 22, 1996, by and
between the Company and Caliber Development Corporation
11.1 Statement of Computation of Net Loss Per Share
23.1 * Consent of Dorsey & Whitney LLP (see Exhibit 5)
23.2 Consent of Ernst & Young LLP
24 Powers of Attorney (set forth on the Signature Page hereof)
</TABLE>

- ---------------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions

<PAGE>

1,250,000 Shares

Nutrition Medical, Inc.

Common Stock

FORM OF UNDERWRITING AGREEMENT

Minneapolis, Minnesota
August ___, 1996

Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800
Minneapolis, Minnesota 55416

Ladies and Gentlemen:

1. INTRODUCTORY. Nutrition Medical, Inc. (the "Company"), a Minnesota
corporation, proposes to issue and sell 1,250,000 of its authorized but
unissued shares of Common Stock, $.01 par value, to the public through you
acting as underwriter (the "Underwriter"). Said 1,250,000 shares are
hereinafter referred to as the "Firm Shares." To cover over-allotments in
connection with the sale of the Firm Shares, the Company proposes to grant to
you an option to purchase up to 187,500 additional shares of Common Stock.
Said additional shares of Common Stock are hereinafter referred to as the
"Option Shares." The Firm Shares and any Option Shares purchased pursuant to
this Underwriting Agreement are hereinafter called the "Stock." The Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned. The Company hereby confirms its several agreements
with the Underwriter as follows:

2. REPRESENTATIONS AND WARRANTIES.

(a) The Company represents and warrants to the Underwriter as
follows:

(i) The Company on August ___, 1996, filed with the
Securities and Exchange Commission (the "Commission"), under the Securities
Act of 1933, as amended (the "Act"), a registration statement (No.
33-________) on Form SB-2, including a prospectus relating to the Stock,
copies of which have been furnished to the Underwriter, and has filed or will
file with the Commission before the effective date of the registration
statement an amendment or amendments thereto, including a final prospectus.
As used herein, the term "Registration Statement" shall, except where the
context otherwise requires, mean said registration statement (and all
exhibits thereto), as amended by all amendments filed prior to its effective
date; and the term "Prospectus" shall, except where the context

<PAGE>

otherwise requires, mean said final prospectus on file with the Commission
when the Registration Statement becomes effective (except that, if the
prospectus filed by the Company pursuant to Rule 424(b) or Rule 430A under
the Act shall differ from the prospectus included in the Registration
Statement, the term "Prospectus" shall, except where the context otherwise
requires, mean the prospectus so filed pursuant to Rule 424(b) or Rule 430A,
as the case may be, from and after the date on which it shall have been first
used) and any "term sheet" utilized as a Prospectus supplement pursuant to
Rule 434.

(ii) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus (as such term is described
in Rule 430 under the Act), and each preliminary prospectus, at the time of
filing thereof with the Commission, did not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties in this subparagraph shall
apply to statements in, or omissions from, any preliminary prospectus which
are based upon, and conform to, written information furnished to the Company
by the Underwriter specifically for use in the preparation of such
preliminary prospectus.

(iii) When the Registration Statement becomes effective, the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto, will contain all statements of material facts which are
required to be stated therein in accordance with the Act and the applicable
rules, regulations and releases of the Commission thereunder (the "Rules and
Regulations") and will in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration
Statement (as amended, if the Company shall have filed with the Commission
any post-effective amendment thereto) nor the Prospectus will 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 were made, not misleading;
provided, however, that the Company makes no representations or warranties as
to information contained in, or omitted from, the Registration Statement or
the Prospectus, or any such amendments thereof or supplements thereto, in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof.

(iv) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction
of incorporation, with full power and authority (corporate and other) to own
its properties and conduct its business as it is currently being conducted
and as described in the Prospectus. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all states or
jurisdictions in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such qualification
necessary. The Company has all

<PAGE>

necessary and material authorizations, approvals and orders of and from all
governmental regulatory officials and bodies to own its properties and
conduct its business as described in the Prospectus, and is conducting its
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business.

(v) The financial statements of the Company, together with
related schedules, notes and summaries thereof, set forth in the Registration
Statement and the Prospectus fairly present the financial condition and
results of operations of the Company as of the dates and for the periods
indicated; and such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods concerned, except as disclosed therein, and the independent
public accountants whose reports are included therein are independent public
accountants within the meaning of the Rules and Regulations.

(vi) There are no legal or governmental proceedings, or any
statutes, agreements, contracts, leases or other documents of the Company of
a character required by the Act or the Rules and Regulations to be described
or referred to in the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement that have not been described or
referred to therein or filed as required. All descriptions of legal or
governmental proceedings and of agreements, contracts, leases, other
documents contained in the Registration Statement or the Prospectus
constitute fair and accurate summaries of such proceedings, agreements,
contracts, leases and other documents and fairly present the information
called for with respect to the same.

(vii) The Company has no subsidiaries, and the Company is not
affiliated with any other company or business entity.

(viii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and at or prior to the
Closing Dates hereinafter mentioned and other than as herein or therein
contemplated, (i) the Company has not incurred or will not have incurred any
material liabilities or obligations, contingent or otherwise, or entered into
any material transaction, whether or not in the ordinary course of business,
(ii) the Company has not and will not have paid or declared any dividend or
other distribution on its capital stock, (iii) there has not been and will
not have been any change in the capital stock (except for the issuance of
shares pursuant to existing outstanding options, warrants or convertible
securities), or any material increase in the long-term or short-term debt of
the Company, or any issuance of options, warrants or rights to purchase
capital stock of the Company, or any material adverse change in the business
or financial position or results of operations of the Company, (iv) no
material loss or damage (whether or not insured) to the property of the
Company has been or will have been sustained, and (v) no material legal or
governmental proceeding, domestic or foreign, affecting the Company or

<PAGE>

the transactions contemplated by this Agreement has been or will have been
instituted or threatened.

(ix) The Company is not in violation of its Articles of
Incorporation or Bylaws or in default in the performance of any obligation,
agreement or condition contained in any lease agreement or in any bond,
debenture, note or any other evidence of indebtedness or in any contract,
indenture or loan agreement by which it is bound. The execution and delivery
of this Agreement, the consummation of the transactions herein contemplated
and the fulfillment of the terms hereof will not conflict with, or result in
a breach of, any of the terms or provisions of, or constitute a default
under, the Articles of Incorporation or Bylaws of the Company, or any
indenture, mortgage, agreement or other instrument to which the Company is a
party or by which it is bound, or conflict with or violate any law or any
order, rule or regulation, applicable to the Company, of any court or of any
federal or state regulatory body or administrative agency having jurisdiction
over the Company or any of its properties (which conflict, breach or default
has not been waived) and will not result in the creation or imposition of any
lien, charge, claim or encumbrance upon any property or asset of the Company.

(x) Immediately prior to the effective date of the
Registration Statement, the Company has no shares of capital stock
outstanding other than the 3,155,524 shares of common stock and no more than
712,357 reserved for issuance pursuant to the exercise of options or warrants
which are outstanding as of the date hereof, and the Company has no other
shares outstanding or reserved for issuance, other than 389,750 shares with
respect to which options may be issued under the Company's option plans
existing as of the effective date of the Registration Statement; the
outstanding capital stock of the Company is duly authorized and validly
issued, fully paid and nonassessable; the capital stock of the Company,
including the Stock, conforms in substance to all statements in relation
thereto contained in the Registration Statement and the Prospectus; and the
Stock to be sold by the Company hereunder has been duly authorized and, when
issued and delivered pursuant to this Agreement, will be validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus. There are no preemptive rights or other rights
to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of the Stock pursuant to the Company's Articles of
Incorporation, Bylaws or any other governing documents or any agreement or
other instrument to which the Company is a party or has knowledge. Neither
the filing of the Registration Statement or any amendment thereto nor the
offering or sale of the Stock as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock or other
securities of the Company. All issued and outstanding shares of capital
stock of the Company have been issued in compliance with the registration
requirements of the Act or pursuant to valid exemptions from the registration
requirements of the Act.

<PAGE>

(xi) The Company has full legal power, right and authority to
enter into this Agreement, and this Agreement has been duly authorized,
executed and delivered on behalf of the Company and is the valid and binding
obligation of the Company, subject, as to the enforcement of remedies, to
applicable bankruptcy, insolvency, moratorium and other laws affecting the
rights of creditors generally, and except as enforceability of the
indemnification provisions may be limited by federal securities laws.

(xii) The Company intends to apply the proceeds of the sale of
the Stock by it to the purposes set forth in the Prospectus.

(xiii) No approval, authorization, consent or order of any
public board or body (other than in connection with or in compliance with the
provisions of the Act and the securities or Blue Sky laws of various
jurisdictions) is legally required with respect to the sale of the Stock by
the Company.

(xiv) The conditions for the use of a registration statement on
Form SB-2 set forth in the General Instructions to Form SB-2 have been
satisfied with respect to the Company and the Registration Statement.

(xv) The Company has good and marketable title, free and clear
of all liens, encumbrances, charges or claims, to all of the real and/or
personal property described in the Registration Statement and the Prospectus
as being owned by it, except as described therein; and has valid and binding
leases to the real and/or personal property described in the Registration
Statement and the Prospectus as being under lease to it.

(xvi) There are no actions, suits or proceedings pending before
any court or governmental agency, authority or body to which the Company is a
party or of which the business or property of the Company is the subject,
except as disclosed in the Registration Statement and the Prospectus and, to
the best of the Company's knowledge, no further actions, suits or proceedings
are threatened.

(xvii) The Company has not, at any time during the period since
its inception, (x) made any contributions to any candidate for political
office or failed to disclose fully any contribution in violation of law, or
(y) made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than the payments required or permitted by applicable law.

(xviii) To the best of the Company's knowledge, it owns or
possesses the right to use or has applied for all trademarks, service marks,
trade names, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets and other similar rights necessary for
the conduct of its business as currently being carried on, as

<PAGE>

described in the Registration Statement and the Prospectus, is complying
therewith, and, except as disclosed in the Registration Statement and the
Prospectus, has not received any notice of conflict with the asserted rights
of others in respect of such matters. To the best of the Company's
knowledge, except as disclosed in the Registration Statement and the
Prospectus, no name which the Company uses and no other aspect of the
business of the Company will involve or give rise to any infringement of, or
license or similar fees for, any trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets or other similar rights of others which would have
a material adverse effect on the business of the Company, and the Company has
not received any notice of any such infringement or fee, or any claim with
respect thereto.

(xix) The Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown as due
thereon; and there is no material tax deficiency which has been asserted
against the Company.

(xx) No person is entitled, directly or indirectly, to
compensation from the Company or the Underwriter for services as a finder in
connection with the transactions contemplated by this Agreement.

(xxi) In retaining and using the proceeds from the sale of the
Stock, the Company will not be required to register as an "Investment
Company" under the Investment Company Act of 1940, as amended.

(b) The Underwriter represents and warrants to the Company as
follows:

(i) The Underwriter is duly licensed as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and the
securities laws of the State of Minnesota (and the laws of any other state in
which it offers or sells the Stock) and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), and no
proceedings have been initiated or threatened to suspend such license or
membership.

(ii) The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly authorized by the Underwriter.

3. PURCHASE AND SALE OF THE STOCK.

(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, the Firm Shares at a price of $__________.

<PAGE>

(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriter to purchase up to 187,500
Option Shares in the aggregate at the same purchase price as the Firm Shares,
for use solely in covering any over-allotments made by the Underwriter in the
sale and distribution of the Firm Shares. The option granted hereunder may
be exercised at any time (but not more than once) within thirty (30) days
after the effective date of this Agreement upon notice (confirmed in writing)
by the Underwriter setting forth the aggregate number of Option Shares as to
which the Underwriter is exercising the option and the date on which
certificates for such Option Shares are to be delivered pursuant to paragraph
4 hereof. No Option Shares shall be sold and delivered unless the Firm Shares
previously have been or simultaneously are sold and delivered. The option
granted hereby may be cancelled by the Underwriter as to the Option Shares
for which the option is unexercised, at any time prior to the expiration of
the 30-day period, upon notice by the Underwriter to the Company.

4. DELIVERY AND PAYMENT.

(a) The Company will deliver the certificates for the Firm Shares to
the Underwriter at the offices of the Underwriter, Minneapolis, Minnesota,
unless some other place is agreed upon, at 9:00 A.M., local Minneapolis time,
against payment of the purchase price at the same place, on the third full
business day after the date of this Agreement, or at such other time not
later than ten full business days thereafter as may be agreed upon by the
Underwriter and the Company, such time being herein referred to as the "First
Closing Date."

(b) The Company will deliver the certificates for the Option Shares
to the Underwriter at the offices of the Underwriter, Minneapolis, Minnesota,
unless some other place is agreed upon, at 9:00 A.M., local Minneapolis time,
against payment of the purchase price at the same place, on the date
determined by the Underwriter and of which the Company has received notice as
provided in paragraph 3(b), which shall be not earlier than two nor later
than seven full business days after the exercise of the option as set forth
in paragraph 3(b), or at such other time not later than ten full business
days thereafter as may be agreed upon by the Underwriter and the Company,
such time and date (which may be the same date as the First Closing Date)
being herein referred to as the "Second Closing Date." The First Closing Date
and the Second Closing Date are sometimes herein individually called the
"Closing Date" and collectively called the "Closing Dates."

(c) Certificates for the shares of Stock to be delivered will be
registered in such names and such denominations as the Underwriter shall
request of the Company at least two full business days prior to each
respective Closing Date. The certificates will be made available to the
Underwriter in definitive form for the purpose of inspection and packaging at
least 24 hours before each respective Closing Date. Certificates for further
delivery of the Stock will be registered in such names and denominations as
the Underwriter may request.

<PAGE>

(d) Payment for the shares of Stock shall be made by certified or
official bank check or wired funds in Minneapolis Clearing House funds,
payable to the order of the Company.

5. PUBLIC OFFERING. The Underwriter will make a public offering of the
Stock directly to the public (which may include selected dealers) as soon as
the Underwriter deems practicable after the Registration Statement becomes
effective, at an initial public offering price as set forth in the
Prospectus, subject to the terms and conditions of this Agreement and in
accordance with the Prospectus. Such concessions from the public offering
price may be allowed to selected dealers and other members of the National
Association of Securities Dealers, Inc. (the "NASD") as the Underwriter
determines, and the Underwriter will furnish the Company with such written
information about the distribution arrangements as may be necessary for
inclusion in the Registration Statement. It is understood that the public
offering price and concessions may vary after the initial public offering.

6. PARTICULAR AGREEMENTS OF THE COMPANY.

(a) The Company will use its best efforts to furnish information and
otherwise cooperate in qualifying the Stock for sale under the securities
laws of such states, including the State of Minnesota, as the Underwriter may
reasonably request and, thereafter, for so long as may reasonably be required
to permit the distribution of the Stock, will file and make such statements
and reports as may reasonably be requested and specified by the Underwriter
or any state securities commission in any state where the Stock has been
qualified or exempted for sale under the securities laws of such state in
order to keep the Stock so qualified or exempted in such state. The Company
shall not, however, be required to register or qualify as a foreign
corporation or as a dealer in securities or, except as to matters and
transactions related to the offering or sale of the Stock, consent to service
of process in any state.

(b) The Company will deliver to the Underwriter two copies of the
Registration Statement as originally filed on Form SB-2 and of all amendments
thereof, heretofore or hereafter made, signed by or on behalf of its officers
whose signatures are required thereon and a majority of its Board of
Directors, including all exhibits, consents and certificates included therein
or filed as exhibits thereto or incorporated as exhibits thereto by reference
to earlier filings, together with conformed copies of the Registration
Statement and all amendments thereof, without exhibits. The Company will
also deliver to the Underwriter such number of copies of each preliminary
prospectus filed with the Commission, which the Company hereby consents to
the use of prior to the effective date of the Registration Statement, and as
soon as practicable after the Registration Statement becomes effective and
from time to time thereafter so long as the Underwriter may be required to
use the Prospectus, such number of copies of the Prospectus (as the same may
be from time to time supplemented or amended), as the Underwriter may
reasonably request.

<PAGE>

(c) The Company will use its best efforts to cause the Registration
Statement to become and remain effective. The Company will not file any
amendments to the Registration Statement as originally filed with the
Commission or any supplements to the Prospectus, unless it shall first have
delivered copies of such amendments or supplements to the Underwriter, or if
the Underwriter shall have reasonably objected thereto. The Company will
immediately advise the Underwriter by telephone, confirming such advice in
writing, (i) when notice is received from the Commission that the
Registration Statement has become or will become effective, (ii) of any order
suspending the effectiveness of the Registration Statement or of any
proceedings or examination under the Act, as soon as the Company is advised
thereof, and (iii) of any order or communication of any public authority
addressed to the Company suspending or threatening to suspend qualification
of the Stock for sale in any state.

(d) So long after the effective date of the Registration Statement
as the Underwriter may be required by the Rules and Regulations to use the
Prospectus, if any event affecting the Company or of which the Company shall
be advised in writing by the Underwriter shall occur which, in the opinion of
counsel for the Underwriter, concurred in by counsel to the Company, should
be set forth in a supplement to or an amendment of the Prospectus, the
Company will forthwith at its own expense, or at the expense of the
Underwriter if such event is only a change in the underwriting or
distributing arrangements, prepare and furnish to the Underwriter a
reasonable number of copies of a supplement or amendment to the Prospectus so
that the Prospectus, as so supplemented or amended, will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. In case the
Underwriter is required to deliver a Prospectus following the expiration of
such period, the Company, at the Underwriter's request, will furnish to the
Underwriter, at the expense of the Company, a reasonable number of copies of
the Prospectus so supplemented and amended as to comply with the Act.

(e) The Company will for a period of three years after the date
hereof furnish to the Underwriter copies of all statements filed with the
Commission (except exhibits, which will be furnished to the Underwriter upon
request), copies of all statements and notices to the Company's security
holders and such other information about its financial condition or results
of operations as the Underwriter may reasonably request.

(f) Within 90 days after the expiration of the 12-month period
beginning on the first day of the next quarterly accounting period following
the effective date of the Registration Statement, the Company will make
generally available to its security holders an earnings statement for such
12-month period, which shall be in reasonable detail but need not be audited,
complying with Section 11(a) of the Act.

(g) The Company will pay or cause to be paid all expenses incident
to the performance of its obligations under this Agreement, including all
expenses incident to the delivery to the Underwriter of the Stock; the fees
and expenses of accountants for the Company and counsel

<PAGE>

for the Company; the fees and expenses of the Transfer Agent and Registrar of
the Company's Common Stock; original issue and transfer taxes (if any); all
filing fees in connection with the qualification or exemption of the Stock
under state securities or Blue Sky laws and the fees and expenses of Leonard,
Street and Deinard, Professional Association, counsel to the Underwriter, in
connection therewith (although Company counsel, in consultation with
Underwriter's counsel, shall be responsible for negotiating with state Blue
Sky authorities, Company counsel will prepare and file the documents
necessary to comply with the Act and the Rules and Regulations thereunder);
the filing fees paid to the NASD; a nonaccountable expense allowance of the
Underwriter equal to 1% of the public offering price of the Stock; the costs
and expenses incident to the preparation, printing and distribution in
reasonable quantities and filing of the Registration Statement under the Act,
all preliminary prospectuses, the Prospectus and all supplements to, and
amendments of, the foregoing. The Company agrees to pay the fees and
expenses of Underwriter's counsel owing hereunder at any closing held
pursuant to this Agreement, to the extent such fees and expenses have been
billed as of such closing, and to pay any such fees and expenses owing
hereunder which have not been billed as of such closing promptly upon receipt
of a statement therefor. If this Agreement is terminated (i) for any reason
within the control of the Company; (ii) based upon the fact that there has
been a material adverse change in the affairs of the Company since June 30,
1996; (iii) based upon the fact that any of the Company's representations and
warranties contained herein prove untrue, or the Company shall have failed to
comply with any of the provisions hereof; or (iv) based upon the factors set
forth in paragraphs 9(b) or 9(c) hereof, then, in any such event, the Company
will reimburse the Underwriter for its actual, accountable, out-of-pocket
expenses (including reasonable attorney's fees) incurred with respect to this
proposed offering. All reimbursement pursuant to the preceding sentence
shall occur within ten days of the receipt by the Company of a written
itemization of such expenses.

(h) The Company will not, during the twelve months following the
effective date of the Registration Statement, except with the prior written
consent of the Underwriter, sell or otherwise dispose of any shares of its
capital stock (except for the issuance of shares pursuant to existing options
or warrants) or sell or grant options, rights or warrants with respect to any
shares of its capital stock (other than the grant of options under the
Company's option plans existing as of the effective date of the Registration
Statement to purchase not more than an aggregate of 389,750 shares), or
instruments convertible into shares of its capital stock, otherwise than in
accordance with this Agreement. The foregoing shall not apply to issuances
or grants, in amounts reasonably acceptable to the Underwriter, to directors,
officers or employees of the Company.

(i) The Underwriter shall have the right of first consideration and
the right of first refusal to act as managing underwriter in any public or
private offering of equity financing of the Company for a period of three
years from the effective date of the Registration Statement; provided,
however, that if the managing underwriter of the proposed offering is an
investment banking firm of national or regional stature, the Underwriter
agrees to waive its right of first refusal on the condition that the Company
use its best efforts to have the Underwriter included as co-managing
underwriter. If, within three years from the effective date of the
Registration Statement,

<PAGE>

the Company shall undertake any strategic partnership, sale of the Company or
its assets, merger, acquisition of stock or assets of another entity or
similar transaction, and proposes to engage an investment banker or financial
advisor in connection with such transaction, the Underwriter shall be granted
a right of first refusal to act as the Company's investment banker or
financial advisor; provided, however, if the investment banker or financial
advisor to be engaged is an investment banker or financial advisor of
national stature, the Underwriter shall waive its right of first refusal.

(j) For so long as the Company is subject to the reporting
obligations of Section 13 of the Securities Exchange Act of 1934, as amended,
the Company will mail as soon as practicable after the end of each fiscal
year to the holders of its Common Stock a balance sheet and corresponding
statements of income, shareholder's equity, and changes in financial position
of the Company as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding fiscal year,
certified by independent public accountants, and will mail as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders summarized, unaudited
information as to the earnings of the Company for such period and for the
period from the beginning of such fiscal year to the close of such quarterly
period, together with comparable, summarized unaudited information for the
corresponding periods of the preceding fiscal year.

(k) The Company shall cause the holders of any of its securities to
sign such escrow or depository agreements, if any, as may be required by the
State of Minnesota or any other state in which the Stock is to be sold in
order to effectuate the registration and sale of the Stock in such states.

(l) The Company shall obtain "lock-up" agreements from all officers,
directors and current shareholders of the Company, whereby such persons agree
not to sell any shares of the Company's capital stock for a period of one
year from the effective date of the Registration Statement.

7. CONDITIONS TO OBLIGATIONS OF THE UNDERWRITER. The obligations of
the Underwriter hereunder shall be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the
date hereof and each Closing Date (as if made at such Closing Date), to the
accuracy of the written statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:

(a) The Registration Statement shall have become effective not later
than 5:00 P.M., local Minneapolis time, on the date of this Agreement, or on
such later date as shall be satisfactory to the Underwriter, and, to the
knowledge of the Company or the Underwriter, prior to each Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been instituted or shall be pending or contemplated by the Commission or
by any state securities authority.

<PAGE>

(b) On or prior to each Closing Date, the Underwriter shall have
received from its counsel, Leonard, Street and Deinard, Professional
Association, an opinion in form and substance satisfactory to the
Underwriter, dated each respective Closing Date, as to the form,
authorization, validity and nonassessability of the Stock, the form of the
Registration Statement and the Prospectus and such other legal aspects of the
transactions contemplated by this Agreement as the Underwriter may reasonably
require; and the Company shall have furnished to such counsel such documents
as they may request for the purpose of enabling them to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of public officials and of responsible
officers of the Company.

(c) On or prior to each Closing Date, the Underwriter shall have
received an opinion of Dorsey & Whitney, L.L.P., counsel for the Company,
dated as of such Closing Date, substantially to the effect set forth in
Appendix A hereto.

(d) On or prior to the date on which the Registration Statement is
declared effective by the Commission, and on or prior to each Closing Date,
the Underwriter shall have received from Ernst & Young, L.L.P. a letter
addressed to the Underwriter and the Company and dated such Closing Date
confirming that they are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations thereunder and, based upon the procedures described in their
letter (as set forth in Appendix B hereto) delivered to the Underwriter
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than five business days prior to
such Closing Date, (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of such
Closing Date, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original
Letter since the date of the Original Letter or to reflect the availability
of more recent financial statements, data or information. The letter shall
not disclose any change or any development involving a prospective change in,
or affecting the business or properties of, the Company which, in the
judgment of the Underwriter, makes it impractical or inadvisable to proceed
with the public offering of the Stock as contemplated by the Prospectus.

(e) At each Closing Date, the Company shall have performed all
obligations and satisfied all conditions required on its part to be performed
or satisfied under this Agreement on or prior thereto (except any condition
the satisfaction of which shall have been waived as herein provided) and
compliance with the provisions of this subparagraph (e) shall be evidenced by
a certificate of an executive officer of the Company.

(f) At each Closing Date, there shall have been furnished to the
Underwriter a certificate, dated such Closing Date, signed by the Chief
Executive Officer of the Company and by the Chief Financial Officer of the
Company to the effect that: (i) the representations and warranties

<PAGE>

of the Company in this Agreement are correct and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied hereunder at or prior to such Closing Date; (ii) no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or are contemplated under the Act; and (iii) the signers of such
certificate have carefully examined the Registration Statement and the
Prospectus and in their opinion: (A) the Registration Statement and the
Prospectus, and all amendments or supplements thereto, as of the effective
date of the Registration Statement and as of such Closing Date, did not and
do not contain any 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, and the Prospectus did not and does not contain any
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, except
that no representations or warranties are made as to information contained in
or omitted from the Registration Statement or the Prospectus, or any
amendments or supplements thereto, in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriter specifically
for use in the preparation thereof; (B) since the effective date of the
Registration Statement, no event has occurred which should have been set
forth in an amendment or supplement to the Prospectus which has not been set
forth in such an amendment or supplement; (C) subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, and except as set forth in or contemplated by the Prospectus, the
Company has not incurred any material liability or obligation, direct or
contingent, whether or not in the ordinary course of business, or entered
into any material transaction, whether or not in the ordinary course of
business, and there has not been any change in the capital stock (except for
the issuance of shares pursuant to the exercise of outstanding options or
warrants) or any increase in the long-term debt or any issuance of options,
warrants, convertible securities or other rights to purchase the capital
stock of the Company (other than as may be permitted by the terms of this
Agreement) or any material adverse change in the general affairs, business,
key personnel, capitalization, financial position or net worth of the
Company; and (D) except as otherwise stated in the Registration Statement and
the Prospectus, there are no actions, suits or proceedings pending or
threatened before any court or governmental agency, authority or body to
which the Company is a party or of which the business or property of the
Company is the subject and which, if adversely decided, would have a material
adverse effect on the business or financial position of the Company.

(g) The representations and warranties of the Company herein shall
be true and correct on and as of each respective Closing Date as if made on
and as of each respective Closing Date, and all agreements herein contained
to be performed or complied with by the Company at or prior to each
respective Closing Date shall have been performed or complied with.

(h) The Stock shall be qualified for public offering and sale by
registered dealers or exempt from the necessity of qualification for such
public offering and sale in such states as the Underwriter may reasonably
require.

<PAGE>

(i) The Company shall have obtained waivers, satisfactory to the
Underwriter, of any registration, preemptive or other rights held by any
holders or beneficial owners of the Company's capital stock or rights to
purchase capital stock, whether such rights were granted by agreement or as a
matter of law.

(j) The Company shall have furnished to the Underwriter such
further certificates and documents as the Underwriter or its counsel may
reasonably request.

(k) The Stock shall have been approved for listing in the
National Association of Securities Dealers Automated Quotation (Nasdaq) Small
Cap Market System.

(l) The officers, directors and certain principal shareholders
of the Company shall have executed "lock up" agreements, in form satisfactory
to the Underwriter, whereby each person agrees not to sell any shares of the
Company's capital stock for one year from the effective date of the
Registration Statement without the prior written consent of the Underwriter.
The Company shall use its best efforts to obtain similar "lock up" agreements
from its remaining current shareholders.

All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Underwriter and to its counsel.

If any of the conditions specified in this paragraph 7 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriter hereunder may be terminated
at, or at any time prior to, each respective Closing Date by the Underwriter.
Any such termination shall be without liability of the Underwriter to the
Company, but the provisions of paragraph 6(g) shall survive any such
termination. Notice of such termination shall be given to the Company at the
address specified in paragraph 12 hereof, in writing, or by telegraph or
telephone confirmed in writing.

The Underwriter may waive in writing the performance of any one or more
of the foregoing conditions or extend the time for their performance.

8. Indemnification.

(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities to
which the Underwriter or such controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in the
Registration Statement (including the Prospectus as part thereof) or any
post-effective amendment thereof or supplement thereto, or (B) in any Blue
Sky

<PAGE>

application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the Stock
under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or (ii) the
omission or alleged omission to state in the Registration Statement
(including the Prospectus as a part thereof) or any post-effective amendment
thereof or supplement thereto or in any Blue Sky Application 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, or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, if used prior to the effective date
of the Registration Statement, or in the Prospectus (as amended or as
supplemented, if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and will reimburse the
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by the Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post-effective amendment thereof or supplement thereto
or any such Blue Sky Application or any such preliminary prospectus or the
Prospectus or any such amendment thereof or supplement thereto; and provided
further, however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in any preliminary prospectus
but eliminated or remedied in the Prospectus, such indemnity agreement shall
not inure to the benefit of the Underwriter (or to the benefit of any person
who controls the Underwriter) if a copy of the Prospectus was not sent or
given with or prior to the written confirmation of the sale of any of the
Stock, if available at or prior to such written confirmation, to the person
asserting any loss, liability, claim or damage. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.

In addition to its other obligations under this Section 8(a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based
upon any statement or omission, or any alleged statement or omission,
described in this Section 8(a), it will reimburse the Underwriter on a
monthly basis for all reasonable legal fees or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriter shall
promptly

<PAGE>

repay the Company together with interest, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Norwest Bank, N.A.,
Minneapolis, Minnesota (the "Prime Rate").

(b) The Underwriter will indemnify and hold harmless the Company, each
of its directors, each of its officers who has signed the Registration
Statement and each person, if any, who controls the Company within the
meaning of the Act against any losses, claims, damages or liabilities to
which the Company or any such director or officer or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in the Registration Statement (including the Prospectus as
part thereof) or any post-effective amendment thereof, or (B) in any Blue Sky
Application, or (ii) the omission or alleged omission to state in the
Registration Statement (including the Prospectus as a part thereof) or any
post-effective amendment thereof or in any Blue Sky Application a material
fact required to be stated there in or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of the Registration Statement or in the Prospectus (as amended
or as supplemented, if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case referred to in (i),
(ii) and (iii) of this paragraph 8(b) to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation of the Registration Statement or any such post-effective
amendment thereof or any such Blue Sky Application or any such preliminary
prospectus or the Prospectus or any such amendment thereof or supplement
thereto; and will reimburse any legal or other expenses reasonably incurred
by the Company or any such director or officer or controlling person or in
connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.

(c) Promptly after receipt by an indemnified party under this paragraph
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party
under this paragraph 8 (it being understood and acknowledged that any
reference herein to an "indemnifying party" shall be deemed to refer to all
parties who owe an indemnification obligation hereunder), notify in writing
the indemnifying party of the commencement thereof; provided, however, that
an omission by the indemnified party to notify the indemnifying party will
relieve the indemnifying party from any liability under this paragraph 8 as
to the particular item for which indemnification is then being sought, to the
extent the indemnifying party is prejudiced by such omission, but shall not
relieve it or them from any other liability which it or they may have to any
indemnified party. In case any such action is

<PAGE>

brought against any indemnified party, and it or they notify an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it or they may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its or their election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party under
this paragraph 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Any such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of any
claim or action effected without the consent of such indemnifying party.

(d) If the indemnification provided for in this paragraph 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subparagraph (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and
the Underwriter, on the other, from the offering of the Stock. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subparagraph (c) above, to the extent the indemnifying
party has not been prejudiced thereby, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits, but
also the relative fault of the Company on the one hand and the Underwriter 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 benefits
received by the Company, on the one hand, and the Underwriter, on the other,
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the Underwriter, in
each case as set forth in the table on the cover page of the Prospectus. 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 or the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriter agree that it would
not be just and equitable if contribution pursuant to this subparagraph (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 subparagraph (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 subparagraph (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. No person guilty of fraudulent misrepresentation (within
the

<PAGE>

meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

9. Termination.

(a) This Agreement may be terminated by the Company by notice to
the Underwriter, or by the Underwriter by notice to the Company, without
obligation of either party to the other, except as otherwise provided in
paragraph 6(g) of this Agreement, at any time prior to 12:00 noon, local
Minneapolis time, on the next full business day after the Registration
Statement shall have become effective, but only if before such termination
the Underwriter shall not have released for publication the first newspaper
advertisement relating to the public offering of the Stock.

(b) This Agreement may be terminated prior to the First Closing
Date by the Underwriter, by notice to the Company, without obligation of
either party to the other, except as otherwise provided in paragraph 6(g) of
this Agreement, if there shall have occurred any general suspension of
trading in securities on the New York Stock Exchange or Nasdaq Stock Market
or any limitation on prices for such trading or any new restrictions on the
distribution of securities shall have been established by the New York Stock
Exchange or Nasdaq Stock Market or by the Commission or by any federal or
state agency, all to such a degree as, in the judgment of the Underwriter,
would restrict materially a free market for the Stock, or if the Company
shall have sustained such a material loss by fire, flood, accident or
calamity (whether or not insured against) as in the judgment of the
Underwriter makes it impracticable or inadvisable to consummate the purchase
of the Stock, or if there shall have been such a material change in general
economic, political or financial conditions or if international conditions
have a material adverse effect on the financial markets in the United States
which, in the judgment of the Underwriter, makes it inadvisable to proceed
with the sale of the Stock.

(c) This Agreement may be terminated by the Underwriter, by
notice to the Company, in the event that, prior to the First Closing Date,
the Company shall have failed to comply with any of the provisions hereof on
their part to be performed on or prior to such date or if any of the
conditions, agreements, representations or warranties herein contained shall
not have been fulfilled within the respective times herein provided for,
without obligation of either party to the other except as otherwise provided
in paragraph 6(g) of this Agreement.

10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE. The respective
agreements, representations and warranties of the Company and the Underwriter
hereunder, as set forth in or made pursuant to this Agreement, shall remain
in full force and effect regardless of any investigation made by or on behalf
of any such party or any of its directors or officers or any controlling
person, and shall survive delivery of and payment for the Stock; and the
indemnification and contribution agreements set forth in paragraph 8 and the
agreements of the Company set forth in paragraph 6 shall survive the delivery
of, and payment for, the Stock, except that the provisions

<PAGE>

of paragraph 6(g) shall survive any termination of this Agreement regardless
of whether there has been delivery of, and payment for, the Stock.
Notwithstanding the foregoing, in the event the Underwriter does not pay for
the Stock, the Company shall have no obligation to pay any of the
Underwriter's nonaccountable expenses, but shall pay the Underwriter's
actual, accountable, out-of-pocket expenses if required to do so by the
provisions of the penultimate sentence of paragraph 6(g).

11. WARRANT TO THE UNDERWRITER. In consideration of the purchase of
the Firm Shares by the Underwriter, the Company will issue and deliver to the
Underwriter or its assigns a Warrant or Warrants to purchase an aggregate of
110,000 shares of the Company's Common Stock (the "Warrant"), such Warrant to
be dated as of the First Closing Date and to be in the form and contain the
terms of the Warrant attached to this Agreement as Appendix C. The Company
represents and warrants that the Warrant has been duly authorized and, when
issued and delivered to the Underwriter in accordance with the terms hereof,
will be a valid, binding and enforceable obligation of the Company; the
shares of Common Stock issuable on the exercise of the Warrant have been duly
authorized and reserved for issuance on the exercise of the Warrant; and,
upon the exercise of the Warrant and receipt by the Company of the
consideration for such shares in accordance with the terms of the Warrant,
such shares will have been duly and validly issued, fully paid and
nonassessable.

12. NOTICES. Except as otherwise expressly provided in this Agreement,
all notices and other communications hereunder shall be in writing and, if
given to the Underwriter, shall be mailed, delivered or telegraphed and
confirmed to the Underwriter at Miller, Johnson & Kuehn, Inc., 5500 Wayzata
Boulevard, Suite 800, Minneapolis, Minnesota 55416, Attention: Paul R. Kuehn,
President or, if given to the Company, shall be mailed, delivered or
telegraphed and confirmed to it at Nutrition Medical, Inc., 308 12th Avenue
South, Buffalo, Minnesota 55313, Attention: William L. Rush. A notice given
pursuant to Section 8 or 9 may be given by telephone and thereafter confirmed
in writing.

13. INFORMATION FURNISHED BY UNDERWRITER. The statements set forth in
the last paragraph on the cover page, in the last paragraph on the inside
front cover and under the caption "Underwriting" in any preliminary
prospectus and in the Prospectus, constitute the written information
furnished by the Underwriter referred to Sections 2(a), 7(f) and 8(a), (b)
and (d) hereof.

14. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the successors of the Underwriter and of the Company. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or corporation, other than the parties hereto and their
successors and the controlling persons and directors and officers referred to
in paragraph 8 hereof, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision hereof. The term "successors"
shall not include any purchaser of the Stock merely by reason of such
purchase.

<PAGE>

If the foregoing expresses our agreement with you, kindly confirm by
signing the acceptance on the enclosed counterpart hereof and return the same
to us, whereupon this letter and your acceptance shall become and constitute
a binding agreement between the Company and you in accordance with its terms.

Very truly yours,

NUTRITION MEDICAL, INC.

By
--------------------------------------
William L. Rush
Chief Executive Officer and President

The foregoing Underwriting
Agreement is hereby confirmed and
accepted by us as of the date first
above written.

MILLER, JOHNSON & KUEHN,
INCORPORATED

By
---------------------------------
Paul R. Kuehn, President

<PAGE>

APPENDIX A

Matters to be Covered in the Opinion of
Dorsey & Whitney, L.L.P.
Counsel for the Company

(i) The Company has been duly incorporated and is lawfully existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to carry on its business as
described in the Prospectus where it is now carried on and, is duly qualified
as a foreign corporation in good standing in each jurisdiction in which the
character of the business conducted by it or the location of the properties
owned or leased by it makes such qualification necessary and in which the
failure to be qualified or in good standing would have a material adverse
effect on the business of the Company as a whole.

(ii) The authorized, issued and outstanding capital stock of the
Company is correctly set forth under the caption "Capitalization" in the
Prospectus (except for changes due to the exercise of outstanding stock
options and warrants); all issued and outstanding capital stock of the
Company has been duly authorized and validly issued, is fully paid and
nonassessable, is free of preemptive rights of shareholders of the Company
and has been issued pursuant to valid exemptions from federal and appropriate
state securities laws; the Stock to be issued and sold by the Company under
the Underwriting Agreement has been duly authorized and, when issued and
delivered pursuant to the Underwriting Agreement, will be validly issued,
fully paid and nonassessable and no preemptive rights of security holders of
the Company exist with respect to the issuance or sale of the Stock by the
Company pursuant to the Underwriting Agreement; the certificates for the
capital stock of the Company (including the Stock) are in due and proper
form; and the capital stock of the Company (including the Stock) conforms as
to legal matters with the description thereof contained under the caption
"Description of Securities" in the Prospectus.

(iii) The Company has no subsidiaries or affiliates or affiliated
corporations.

(iv) The Company is not in violation of the terms and conditions of
or in default under, nor will the consummation of the transactions
contemplated in the Underwriting Agreement and the fulfillment of the terms
of the Underwriting Agreement conflict with or result in a breach of any of
the terms and provisions of, or constitute a default under, its Articles of
Incorporation or Bylaws, or any indenture, mortgage, deed of trust or other
agreement or instrument, to which the Company is a party or by which it is
bound, or conflict with or violate any law or any order, rule or regulation
applicable to the Company of any court, or of any federal or state regulatory
body or administrative

A-1

<PAGE>

agency or other governmental body having jurisdiction over the Company or its
respective properties, not including state securities or Blue Sky laws in
connection with the sale of the Stock.

(v) The Registration Statement has become effective under the Act,
and, to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or are pending under the
Act; and the Registration Statement and the Prospectus comply as to form in
all material respects with the relevant requirements of the Act and the
applicable Rules and Regulations thereunder, except that no opinion need be
expressed as to the financial statements and related notes included in the
Registration Statement and the Prospectus.

(vi) Such counsel have examined all contracts and agreements referred
to in the Registration Statement and the Prospectus, and the statements made
in the Registration Statement and the Prospectus in respect of said documents
fairly present the information called for by the Rules and Regulations; and
they know of no other contracts or agreements which should have been included
or referred to therein, and of no contracts or legal or governmental
proceedings required to be described in the Registration Statement or the
Prospectus, or included therein as exhibits, which are not so described or
included as required.

(vii) No authorization, approval, consent or other action of any
governmental authority or agency is required to be obtained by the Company
for the sale of the Stock by the Company to the Underwriter as contemplated
by the Underwriting Agreement, except such as may be required under the Act
and state securities or Blue Sky laws. To the best knowledge of such counsel
after due inquiry, each of the Company has all licenses, certificates,
permits and other approvals from governmental authorities necessary for the
conduct of its business as it is currently being carried on and as described
in the Registration Statement, except where failure to have such would not
have a material adverse effect on the business, condition (financial and
other) or properties of the Company. To the best knowledge of such counsel
after due inquiry, the Company and no officer, director, shareholder or agent
of the Company has been authorized to receive or make, and is not receiving
or making, any bribe, kickback, or other illegal payment with respect to the
business conducted by the Company.

(viii) The Company has the requisite corporate power and authority to
enter into the Underwriting Agreement, and the Underwriting Agreement has
been duly and validly authorized, executed and delivered by or on behalf of
the Company and is the valid and binding obligation of the Company,
enforceable in accordance with its terms, subject, as to the enforceability
of remedies, to applicable bankruptcy, insolvency, moratorium and other laws
affecting the rights of

A-2

<PAGE>

creditors generally, and except as enforceability of the indemnification
provisions may be limited by federal and state securities laws.

(ix) Delivery of the Stock to the Underwriter against payment
therefor as provided in the Underwriting Agreement will transfer good and
marketable title to the Stock to the Underwriter, free and clear of any
liens, claims or encumbrances.

(x) No holder of any securities of the Company has the right,
contractual or otherwise, to cause the Company to issue to him any shares of
capital stock of the Company upon the issuance and sale of the Stock to the
Underwriter.

(xi) To the best knowledge of such counsel after due inquiry, there
are no pending or threatened actions, suits, proceedings, or investigations
before any court or governmental agency, authority, commission, board or body
(including any non-governmental self-regulatory agency), or arbitrator, or
any contract or document, of a character required to be described in the
Registration Statement or the prospectus, which is not described in the
Registration Statement or the Prospectus or filed as an exhibit to the
Registration Statement.

(xii) The warrant referred to in paragraph 11 of the Underwriting
Agreement has been duly authorized, executed and delivered by the Company and
is the valid and binding obligation of the Company, enforceable in accordance
with its terms subject, as to the enforceability of remedies, to applicable
bankruptcy, insolvency, moratorium and other laws affecting the rights of
creditors generally, and except as enforceability of the indemnification
provisions may be limited by federal and state securities laws; the shares
issuable upon exercise of the Warrant are duly authorized and have been duly
reserved for issuance upon exercise of the Warrant; and, upon exercise of the
Warrant and receipt by the Company of the consideration for such shares in
accordance with its terms, such shares shall be validly issued, fully paid
and nonassessable.

(xiii) There are no holders of securities of the Company having rights
to the registration of shares of capital stock, or other securities because
of the filing of the Registration Statement by the Company or the offering or
sale of the Stock as contemplated by the Underwriting Agreement, except for
such rights as have been waived or rendered inapplicable to the sale of the
Stock.

(xiii) Such other matters as you may reasonably request.

In addition to the matters set forth above, such counsel shall state
that although such counsel cannot guarantee the accuracy or completeness of
the statements contained in the Registration Statement or in the Prospectus,
on the basis of conferences with the officers of the

A-3

<PAGE>

Company and their examinations of the documents referred to in the
Registration Statement and in the Prospectus, nothing has come to the
attention of such counsel which causes such counsel to believe that (i) the
Registration Statement or the Prospectus contains any untrue statement of a
material fact or omits to state any material fact required to be stated there
in or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except with respect
to the financial statements, related notes and other financial data, as to
which no statement need be made) or (ii) the Company is in violation of any
material law, ordinance, governmental rule or regulation, or court decree to
which it may be subject or has failed to obtain any material license, permit,
franchise, or other governmental authorization necessary to the ownership of
its property or to the conduct of its business as it is currently being
carried on and as described in the Prospectus.

Counsel rendering the foregoing opinion may rely as to the questions of
law not involving the laws of the United States or the State of Minnesota
upon opinions of local counsel satisfactory in form and scope to counsel for
the Underwriter. Copies of any opinions so relied upon shall be delivered to
the Underwriter and counsel for the Underwriter and the foregoing opinion
shall also state that the Underwriter is justified in relying upon the
opinions of such local counsel.

A-4

<PAGE>

APPENDIX B

Accountant's Letter

A letter from Ernst & Young, L.L.P. dated and delivered on the date this
Agreement is executed and a similar certificate or letter dated and delivered
on each respective Closing Date, confirming that they are independent public
accountants within the meaning of the Rules and Regulations, and stating that:

(a) in their opinion, the financial statements of the Company examined
by them and included in the Registration Statement and prospectus on their
authority as experts comply as to form in all material respects with the
applicable accounting requirements of the Act, the published rules and
regulations of the Commission thereunder, Staff Accounting Bulletins with
respect to registration statements on Form SB-2, and the requirements of Form
SB-2;

(b) on the basis of a limited review (which need not constitute an
examination in accordance with generally accepted auditing standards),
including such inquiries and procedures as they may specify, nothing has come
to their attention which, in their judgment, would indicate,

(i) that any unaudited financial statements and related notes
thereto of the Company included in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and of the published
instructions, rules and regulations of the Commission thereunder with
respect to registration statements on Form SB-2, or that such unaudited
financial information contained in the Prospectus was not prepared in
conformity with generally accepted accounting principles applied on a
basis consistent, in all material respects, with those followed in the
preparation of the audited financial statements of the Company included
therein, or would require any material adjustment for a fair presentation
of the information purported to be shown thereby;

(ii) at the date of the latest balance sheet read by them and at a
subsequent specified date not more than five business days prior to the
date of such letter there was any change in the capital stock, short-term
debt or long-term debt of the Company as compared with amounts shown in
the audited balance sheet as of ___________________ included in the
Prospectus, except for changes which the Prospectus discloses have occurred
or may occur or which are described in such letter;

B-1

<PAGE>

(iii) at the date of the latest balance sheet read by them and at a
subsequent specified date not more than five business days prior to the
date of such letter there were any decreases, as compared with amounts
shown in the audited balance sheet as of ____________________ included in
the Prospectus, in total assets, net current assets or net assets of the
Company, except for decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter;

(iv) for the period from _____________________ to the date of the
latest statement of operations read by them there were any decreases, as
compared with the corresponding period of the preceding year, in net sales,
gross profits or the total or per share amounts of income before
extraordinary items or of net income per share of the Company, except for
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter;

(v) for the period from the date of the latest statement of
operations to a subsequent specified date not more than five business days
prior to the date of such letter there were any decreases, as compared with
the corresponding period of the preceding year, in net sales, gross profit
or the total or per share amounts of income before extraordinary items or
of net income per share of the Company, except for decreases which the
Prospectus discloses have occurred or may occur or which are described in
such letter.

(c) they have compared specific dollar amounts, number of shares,
percentages and other financial and other information pertaining to the
Company set forth in the Prospectus, which have been specified by the
Underwriter prior to the date of this Agreement, to the extent that such
amounts, number, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring any
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.

B-2

<PAGE>

APPENDIX C

COMMON STOCK WARRANT

To Purchase 125,000
Shares of Common Stock of

Nutrition Medical, Inc.

August ___, 1996

THIS CERTIFIES THAT, in consideration for payment of $50.00, Miller,
Johnson & Kuehn, Incorporated ("MJK") or its registered assigns is entitled
to subscribe for and purchase from Nutrition Medical, Inc. (the "Company"), a
Minnesota corporation, at any time after the first anniversary of the date
hereof to and including August ___, 2001, One Hundred Twenty Five Thousand
(125,000) fully paid and nonassessable shares of the Company's Common Stock,
$.01 par value, at a price equal to 120% of the public offering price per
share:

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

1. EXERCISE; TRANSFERABILITY. The rights represented by this Warrant
may be exercised by the holder hereof, in whole or in part (but not as to a
fractional share of common stock), beginning one year from the date of this
Warrant by written notice of exercise delivered to the Company ten (10) days
prior to the intended date of exercise and by the surrender of this Warrant
(properly endorsed if required) at the principal office of the Company and
upon payment to it by check of the purchase price for such shares.

This Warrant may be transferred, or divided into two (2) or more
Warrants of smaller denominations (collectively, the "Warrants"), subject to
the following conditions: (i) during the first year after the effective date
of the Company's registered offering of 1,250,000 shares of Common Stock,
pursuant to Registration Statement No. 33-__________, the Warrant may not be
sold, transferred, assigned or hypothecated except to persons who are (x)
both officers and shareholders of MJK, or (y) both officers and employees of
MJK, and (ii) after such period, the Warrant shall be transferable without
restriction, but subject to the opinions of counsel as provided by Section 7
herein that such transfer is not in violation of federal or state securities
laws.

2. ISSUANCE OF SHARES. The Company agrees that the shares purchased
hereby shall be and are deemed to be issued to the record holder hereof as of
the close of business on the date on which this Warrant shall have been
exercised by surrender of the Warrant and payment for the shares. Subject to
the provisions of the next succeeding paragraph, certificates for the shares
of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding ten (10) days after the rights represented by
this Warrant shall have been so exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with
respect to

<PAGE>

which this Warrant shall not then have been exercised shall also be delivered
to the holder hereof within such time.

Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of Section 7 hereof.

3. COVENANTS OF COMPANY. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by
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, and, without limiting the generality of the foregoing, the
Company covenants and agrees that it will from time to time take all such
action as may be required to assure that the par value per share of common
stock is at all times equal to or less than the then effective purchase price
per share of the common stock issuable pursuant to this Warrant. The Company
further covenants and agrees that, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its common stock to provide for the exercise of the
rights represented by this Warrant.

4. ANTI-DILUTION ADJUSTMENTS. The above provisions are, however,
subject to the following:

(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable
in common stock, the exercise price of this Warrant 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. Upon each adjustment of the exercise price, the
holder of this Warrant shall thereafter be entitled to purchase, at the
exercise price resulting from such adjustment, the number of shares obtained
by multiplying the exercise price immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the exercise price resulting
from such adjustment.

(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in
respect of any fraction of a share which would otherwise be issuable in an
amount equal to the same fraction of the market price per share of common
stock on the day of exercise as determined in good faith by the Company.

(c) If any capital reorganization or reclassification of the capital
stock of the Company, or 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

<PAGE>

for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holder hereof shall thereafter have the
right to purchase and receive, upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of common
stock of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby, such 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 number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Warrant
purchase price and of the number of shares purchasable upon the exercise 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 hereof. The Company shall not effect any such
consolidation, merger or sale unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing such assets, shall
assume by written instrument executed and mailed to the registered holder
hereof 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 as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.

Notwithstanding any language to the contrary set forth in this
Section 4 (c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record
holder hereof, such corporation shall be obligated to purchase this Warrant
(or the unexercised part hereof) from the record holder without requiring the
holder to exercise all or part of the Warrant. If such corporation refuses
to so purchase this Warrant then the Company shall purchase the Warrant for
cash. In either case the purchase price shall be the amount per share that
shareholders of the outstanding common stock of the Company shall receive as
a result of the transaction multiplied by the number of shares covered by the
Warrant, minus the aggregate exercise price of the Warrant. Such purchase
shall be closed within 60 days following the election of the holder to sell
this Warrant.

(d) Upon any adjustment of the Warrant purchase price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the Warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.

<PAGE>

(e) If any event occurs as to which in the good faith determination
of the Board of Directors of the Company the other provisions of this
paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the holder of this Warrant or of common
stock in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid.

5. 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 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; provided that the
shares purchasable pursuant to this Warrant shall include shares designated
as common stock of the Company on the date of original issue of this Warrant
or, in the case of any reclassification of the outstanding shares thereof,
the stock, securities or assets provided for in Section 4 above.

6. NO VOTING RIGHTS. This Warrant shall not entitle the holder hereof
to any voting rights or other rights as a stockholder of the Company.

7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. The holder of
this Warrant, by acceptance hereof, agrees to give written notice to the
Company before transferring this Warrant, or transferring any common stock
issued upon the exercise hereof, of such holder's intention to do so,
describing briefly the manner of any proposed transfer. Promptly upon
receiving such written notice, the Company shall present copies thereof to
the Company's counsel and to counsel to the original purchaser of this
Warrant. If in the opinion of each such counsel the proposed transfer may be
effected without registration or qualification (under any Federal or State
law), the Company, as promptly as practicable, shall notify such holder of
such opinions, whereupon such holder shall be entitled to transfer this
Warrant or to dispose of shares of common stock received upon the previous
exercise hereof in accordance with the notice delivered by such holder to the
Company, provided that an appropriate legend may be endorsed on this Warrant
or the certificates for such shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel satisfactory to the
Company to prevent further transfers which would be in violation of Section 5
of the Securities Act of 1933.

If, in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition described in the written
notice given pursuant to this Section 7 may not be effected without
registration or qualification of this Warrant or the shares of common stock
issued upon the exercise hereof, the Company shall promptly give written
notice thereof to the holder hereof, and such holder will limit its
activities in respect to such proposed transfer or disposition as, in the
opinion of both such counsel, are permitted by law.

8. REGISTRATION RIGHTS. (a) If the Company proposes to claim an
exemption under Section 3(b) for a public offering of any of its securities
or to register under the Securities Act of

<PAGE>

1933 (except by a claim of exemption or registration statement on a form that
does not permit the inclusion of shares by its security holders including a
Form S-4 or Form S-8 Registration Statement or any successor forms thereto)
any of its securities, it will give written notice to all registered holders
of Warrants, and all registered holders of shares of common stock acquired
upon the exercise of Warrants of its intention to do so and, on the written
request of any such registered holders given within twenty (20) days after
receipt of any such notice (which request must be made within five (5) years
from the date of this Warrant and which notice shall specify the shares of
common stock intended to be sold or disposed of by such registered holder and
describe the nature of any proposed sale or other disposition thereof), the
Company will use its best efforts to cause all such shares, the registered
holders of which shall have requested the registration or qualification
thereof, to be included in such notification or registration statement
proposed to be filed by the Company; provided, however, that nothing herein
shall prevent the Company from, at any time, abandoning or delaying any such
registration initiated by it. If any such registration shall be underwritten
in whole or in part, the Company may require that the shares requested for
inclusion pursuant to this section be included in the underwriting on the
same terms and conditions as the securities otherwise being sold through the
underwriters. In the event that, in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the shares
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful
marketing of the shares of stock offered by the Company, the number of shares
otherwise to be included pursuant to this Section in the underwritten public
offering may be reduced; provided, however, that any such required reduction
shall be first made among all persons, other than (i) the holders of Warrants
or shares acquired on exercise thereof who are participating in such offering
and (ii) the Company; if further reductions in the number of shares to be
included are so required, such reductions shall be pro rata among the
Company, the holders of Warrants and the holders of shares obtained on
exercise thereof. Those shares which are thus excluded from the underwritten
public offering shall be withheld from the market for a period, not to exceed
90 days, which the managing underwriter reasonably determines is necessary in
order to effect the underwritten public offering. All expenses of such
offering, except the fees of special counsel to such holders and brokers'
commissions or underwriting discounts payable by such holders, shall be borne
by the Company.

(b) Further, on one occasion only, upon request by the holders of
Warrants and/or the holders of shares issued upon the exercise of the
Warrants who collectively (i) have the right to purchase at least 55,000
shares, (ii) hold directly at least 55,000 shares purchased hereunder, or
(iii) have the right to purchase or hold directly an aggregate of at least
55,000 shares purchasable or purchased hereunder, the Company will, at the
expense of such holders, promptly take all necessary steps to register or
qualify such shares for resale, or to register the issuance by the Company of
shares upon the exercise of Warrants, under the Securities Act of 1933 (and,
upon the request of such holders, under Rule 415 thereunder) and such state
laws as such holders may reasonably request; provided that (i) such request
must be made by August ___, 2001, or five years from the effective date of
the offering in connection with which these Warrants were issued; and (ii)
the Company may delay the filing of any registration statement requested
pursuant to this section to a date not more than ninety (90) days following
the date of such request if in the opinion of the

<PAGE>

Company's principal investment banker at the time of such request such a
delay is necessary in order not to adversely affect financing efforts then
underway at the Company or if in the opinion of the Company such a delay is
necessary or advisable to avoid disclosure of material nonpublic information.
The costs and expenses directly related to any registration requested
pursuant to this section, including but not limited to legal fees of the
Company's counsel, audit fees, printing expense, filing fees and fees and
expenses relating to qualifications under state securities or blue sky laws
incurred by the Company shall be borne entirely by the Company; provided,
however, that the persons for whose account the securities covered by such
registration are sold shall bear the expenses of underwriting commissions
applicable to their shares and fees of their legal counsel. If the holders
of Warrants and the holders of shares of Common Stock underlying the Warrants
are the only persons whose shares are included in the registration pursuant
to this section, such holders shall bear the expense of inclusion of audited
financials in the registration statement which are not dated as of the
Company's normal fiscal year or are not otherwise prepared by the Company for
its own business purposes. The Company shall keep effective and maintain any
registration, qualification, notification or approval specified in this
paragraph for such period as may be necessary for the holders of the Warrants
and such common stock to dispose thereof, and from time to time shall amend
or supplement, at the holder's expense, the prospectus or offering circular
used in connection therewith to the extent necessary in order to comply with
applicable law.

If, at the time any written request for registration is received by
the Company pursuant to this Section 8(b), the Company has determined to
proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for
cash of any of its securities by it or any of its security holders, such
written request shall be deemed to have been given pursuant to Section 8(a)
hereof rather than this Section 8(b), and the rights of the holders of
Warrants and or shares issued upon the exercise of the Warrants covered by
such written request shall be governed by Section 8(a) hereof.

The managing underwriter of an offering registered pursuant to this
Section 8(b) shall be selected by the holders of a majority of the Warrants
and/or shares issued upon the exercise of the Warrants for which registration
has been requested and shall be reasonably acceptable to the Company.
Without the written consent of the holders of a majority of the Warrants
and/or shares issued upon the exercise of the Warrants for which registration
has been requested pursuant to this Section 8(b), neither the Company nor any
other holder of securities of the Company may include securities in such
registration if in the good faith judgment of the managing underwriter of
such public offering the inclusion of such securities would interfere with
the successful marketing of the Warrants and/or shares issued upon the
exercise of the Warrants or require the exclusion of any portion of the
Warrants and/or shares issued upon the exercise of the Warrants to be
registered. Shares to be excluded from an underwritten public offering shall
be selected in the manner provided in Section 8(a) hereof.

(c) If and whenever the Company is required by the provisions of
Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:

<PAGE>

(i) Prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to cause
such registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to
exceed two (2) years;

(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed two (2) years;

(iii) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters
may reasonably request in order to facilitate the public offering of such
securities;

(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state securities
or blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 30 days following the original filing of
such registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;

(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;

(vi) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;

(vii) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for
such holders (and concurred in by counsel for the Company), is required under
the Securities Act or the rules and regulations thereunder in connection with
the distribution of the Warrants or shares by such holder;

<PAGE>

(viii) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event
shall have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading;

(ix) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;

(x) not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
holders shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of
the Securities Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five business days prior to the filing
thereof, unless in the opinion of counsel for the Company the filing of such
amendment or supplement is reasonably necessary to protect the Company from
any liabilities under any applicable federal or state law and such filing
will not violate applicable law; and

(xi) at the request of any such holder, furnish on the
effective date of the registration statement and, if such registration
includes an underwritten public offering, at the closing provided for in the
underwriting agreement: (i) opinions, dated such respective dates, of the
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the holder or holders making
such request, covering such matters as such underwriters and holder or
holders may reasonably request; and (ii) letters, dated such respective
dates, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the holder or holders making
such request, covering such matters as such underwriters and holder or
holders may reasonably request, in which letter such accountants shall state
(without limiting the generality of the foregoing) that they are independent
certified public accountants within the meaning of the Securities Act and
that in the opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement or the
prospectus or any amendment or supplement thereto comply in all material
respects with the applicable accounting requirements of the Securities Act.

<PAGE>

(d) The Company hereby indemnifies the holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors,
and any person who controls such Warrant holder or such holder of common
stock within the meaning of Section 15 of the Securities Act of 1933, against
all losses, claims, damages and liabilities caused by any untrue statement of
a material fact contained in any registration statement, prospectus,
notification or offering circular (and as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission contained in
information furnished in writing to the Company by such Warrant holder or
such holder of common stock expressly for use therein, and each such holder
by its acceptance hereof severally agrees that it will indemnify and hold
harmless the Company and each of its officers who signs such registration
statement and each of its directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act of 1933 with
respect to losses, claims, damages or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein.

9. ADDITIONAL RIGHT TO CONVERT WARRANT.

(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of Common Stock as provided for in this Section 9.
Upon exercise of the Conversion Right, the Company shall deliver to the
holder (without payment by the holder of any Exercise Price) that number of
shares of Common Stock equal to the quotient obtained by dividing (x) the
value of the Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for the Warrant
Shares in effect immediately prior to the exercise of the Conversion Right
from the aggregate Fair Market Value for the Warrant Shares immediately prior
to the exercise of the Conversion Right) by (y) the Fair Market Value of one
share of Common Stock immediately prior to the exercise of the Conversion
Right.

(b) The Conversion Right may be exercised by the holder, at any time
or from time to time, prior to its expiration, on any business day by
delivering a written notice in the form attached hereto (the "Conversion
Notice") to the Company at the offices of the Company exercising the
Conversion Right and specifying (i) the total number of shares of Stock the
Warrantholder will purchase pursuant to such conversion and (ii) a place and
date not less than one nor more than twenty (20) business days from the date
of the Conversion Notice for the closing of such purchase.

(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any

<PAGE>

fraction of a share, and (iii) the Company will deliver to the holder a new
warrant representing the number of shares, if any, with respect to which the
warrant shall not have been exercised.

(d) "FAIR MARKET VALUE" means, with respect to the Company's common
stock, as of any date:

(i) if the common stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the common stock are reported
on the NASDAQ National Market System, the reported closing price of
the common stock on such exchange or by the NASDAQ National Market
System as of such date (or, if no shares were traded on such day, as
of the next preceding day on which there was such a trade); or

(ii) if the common stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National Market
System, and bid and asked prices therefor in the over-the-counter
market are reported by the Nasdaq system or National Quotation Bureau,
Inc. (or any comparable reporting service), the mean of the closing bid
and asked prices as of such date, as so reported by the Nasdaq System,
or, if not so reported thereon, as reported by National Quotation
Bureau, Inc. (or such comparable reporting service); or

(iii) if the common stock is not so listed or admitted to
unlisted trading privileges, or reported on the Nasdaq National Market
System, and such bid and asked prices are not so reported by the Nasdaq
system or National Quotation Bureau, Inc. (or any comparable reporting
service), such price as the Company's Board of Directors determines in
good faith in the exercise of its reasonable discretion.

IN WITNESS WHEREOF, Nutrition Medical, Inc. has caused this Warrant to
be executed by its duly authorized officers and this Warrant to be dated as
of August ___, 1996.

NUTRITION MEDICAL, INC.

By _____________________________
Its __________________________
ATTEST:

__________________________

<PAGE>

EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)

NUTRITION MEDICAL, INC.

The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder ______________ shares of the Common Stock, $.01 par
value, of Nutrition Medical, Inc. and herewith makes payment of
$________________ therefor, and requests that the certificates for such
shares be issued in the name of _________________________________ and be
delivered to _______________________________________________________ whose
address is _____________________________________________________________.

Dated: ________________ ______________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of the
warrant)

(Address)

(City - State - Zip)

<PAGE>

ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)

For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of the shares of Common Stock, $.01 par
value, of Nutrition Medical, Inc. to which the within warrant relates, and
appoints _____________________________________ attorney to transfer said
right on the books of Nutrition Medical, Inc., with full power of
substitution in the premises.

Miller, Johnson & Kuehn, Incorporated

Dated: ________________ ______________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of the
warrant)

(Address)

(City - State - Zip)

In the presence of:

<PAGE>

CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)

TO NUTRITION MEDICAL, INC.:

The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such
Warrant and to purchase _______________ shares of the Common Stock, $.01 par
value, of Nutrition Medical, Inc. The closing of this conversion shall take
place at the offices of the undersigned on _________________________.
Certificates for the shares to be delivered at the closing shall be issued in
the name of __________________________________________________________,
whose address is ____________________________
_____________________________________________.

Dated: ________________ ______________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of the
Warrant)

(Address)

(City - State - Zip)

In the presence of:

<PAGE>

RESTATED
ARTICLES OF INCORPORATION
OF
NUTRITION MEDICAL, INC.

Under and pursuant to the Minnesota Business Corporation Act, the
shareholders of Nutrition Medical, Inc., have resolved to supersede and amend in
their entirety the articles of incorporation, as amended, of the corporation and
restate the articles of incorporation as follows:

ARTICLE 1. NAME

The name of the corporation is Nutrition Medical, Inc.

ARTICLE 2. REGISTERED OFFICE AND REGISTERED AGENT

The address of the registered office of the corporation is 308 12th Street
South, Buffalo, MN 55313.

ARTICLE 3. AUTHORIZED SHARES

The aggregate number of authorized shares of the corporation is 10,000,000,
par value of $.01 per share, of which 1,900,000 are designated as common stock.
The remaining shares shall be divisible into classes and series, have the
designations, voting rights, and other rights and preferences, and be subject to
the restrictions, that the board of directors may from time to time establish,
fix, and determine, consistent with these articles of incorporation. Unless
otherwise designated by the board of directors, all issued shares shall be
deemed common stock with equal rights and preferences.

ARTICLE 4. NO CUMULATIVE VOTING

There shall be no cumulative voting by the shareholders of the corporation.

ARTICLE 5. NO PREEMPTIVE RIGHTS

The shareholders of the corporation shall not have any preemptive rights to
subscribe for or acquire securities or rights to purchase securities of any
class, kind, or series of the corporation.

ARTICLE 6. ISSUANCE OF SHARES TO
HOLDERS OF ANOTHER CLASS OR SERIES

Shares of any class or series of the corporation, including shares of any
class or series which are then outstanding, may be issued to the holders of
shares of another class or series of the corporation, whether to effect a share
dividend or split,

<PAGE>

including a reserve share split, or otherwise, without authorization, approval
or vote of the holders of shares of any class or series of the corporation.

ARTICLE 7. WRITTEN ACTION BY DIRECTORS

An action required or permitted to be taken at a meeting of the board of
directors of the corporation may be taken by a written action signed, or
counterparts of a written action signed in the aggregate, by all of the
directors unless the action need not be approved by the shareholders of the
corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
board of directors of the corporation at which all of the directors were
present.

ARTICLE 8. DIRECTOR LIABILITY

A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under sections 302A.559 or 80A.23 of the Minnesota
Statutes; (iv) for any transaction from which the director derived an improper
personal benefit; or (v) for any act or omission occurring prior to the date
when this article 8 became effective.

If the Minnesota Business Corporation Act is hereafter amended to
authorized any further limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Minnesota Business Corporation Act, as amended.

Any repeal or modification of the foregoing provisions of this article 8 by
the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.

Dated: May 5, 1995
------------------

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RESTATED

BYLAWS
OF

NUTRITION MEDICAL, INC. as adopted

March 15, 1995

<PAGE>

TABLE OF CONTENTS

ARTICLE 1.
OFFICES, CORPORATE SEAL

Section 1.01. Registered Office . . . . . . . . . . . . . . . 1
Section 1.02. Other Offices . . . . . . . . . . . . . . . . . 1
Section 1.03. Corporate Seal . . . . . . . . . . . . . . . . 1

ARTICLE 2.
MEETINGS OF SHAREHOLDERS

Section 2.01. Place and Time of Meetings . . . . . . . . . . 1
Section 2.02. Regular Meetings . . . . . . . . . . . . . . . 1
Section 2.03. Special Meetings . . . . . . . . . . . . . . . 1
Section 2.04. Quorum, Adjourned Meetings. . . . . . . . . . . 2
Section 2.05. Voting. . . . . . . . . . . . . . . . . . . . . 2
Section 2.06. Record Date . . . . . . . . . . . . . . . . . . 2
Section 2.07. Notice of Meetings. . . . . . . . . . . . . . . 3
Section 2.08. Waiver of Notice. . . . . . . . . . . . . . . . 3
Section 2.09. Written Action. . . . . . . . . . . . . . . . . 3

ARTICLE 3.
DIRECTORS

Section 3.01. General Powers. . . . . . . . . . . . . . . . . 3
Section 3.02. Number, Qualification and Term of Office. . . . 4
Section 3.03. Board Meetings. . . . . . . . . . . . . . . . . 4
Section 3.04. Calling Meetings; Notice. . . . . . . . . . . . 4
Section 3.05. Waiver of Notice. . . . . . . . . . . . . . . . 4
Section 3.06. Quorum. . . . . . . . . . . . . . . . . . . . . 4
Section 3.07. Absent Directors. . . . . . . . . . . . . . . . 4
Section 3.08. Conference Communications . . . . . . . . . . . 4
Section 3.09. Vacancies; Newly Created Directorships. . . . . 5
Section 3.10. Removal . . . . . . . . . . . . . . . . . . . . 5
Section 3.11. Committees . . . . . . . . . . . . . . . . . . 5
Section 3.12. Written Action. . . . . . . . . . . . . . . . . 5
Section 3.13. Compensation. . . . . . . . . . . . . . . . . . 6

ARTICLE 4.
OFFICERS

Section 4.01. Number. . . . . . . . . . . . . . . . . . . . . 6
Section 4.02. Election, Term of Office and Qualifications . . 6

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Section 4.03. Removal and Vacancies . . . . . . . . . . . . . 6
Section 4.04. Chairman of the Board . . . . . . . . . . . . . 6
Section 4.05. President . . . . . . . . . . . . . . . . . . . 7
Section 4.06. Vice President. . . . . . . . . . . . . . . . . 7
Section 4.07. Secretary . . . . . . . . . . . . . . . . . . . 7
Section 4.08. Treasurer . . . . . . . . . . . . . . . . . . . 7
Section 4.09. Compensation. . . . . . . . . . . . . . . . . . 7

ARTICLE 5.
SHARES AND THEIR TRANSFER

Section 5.01. Certificates for Shares . . . . . . . . . . . . 8
Section 5.02. Issuance of Shares. . . . . . . . . . . . . . . 8
Section 5.03. Transfer of Shares. . . . . . . . . . . . . . . 8
Section 5.04. Loss of Certificates. . . . . . . . . . . . . . 8

ARTICLE 6.
DISTRIBUTIONS, RECORD DATE

Section 6.01. Distributions . . . . . . . . . . . . . . . . . 9
Section 6.02. Record Date . . . . . . . . . . . . . . . . . . 9

ARTICLE 7.
BOOKS AND RECORDS, FISCAL YEAR

Section 7.01. Share Register. . . . . . . . . . . . . . . . . 9
Section 7.02. Other Books and Records . . . . . . . . . . . . 9
Section 7.03. Fiscal Year . . . . . . . . . . . . . . . . . . 10

ARTICLE 8.
LOANS, GUARANTEES, SURETYSHIP

Section 8.01 . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE 9.
INDEMNIFICATION OF CERTAIN PERSONS

Section 9.01 . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE 10.
AMENDMENTS

Section 10.01 . . . . . . . . . . . . . . . . . . . . . . . . 12

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ARTICLE 11.
SECURITIES OF OTHER CORPORATIONS

Section 11.01. Voting Securities Held by the Corporation. . . 12
Section 11.02. Purchase and Sale of Securities. . . . . . . . 12

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<PAGE>

ARTICLE 1.
OFFICES, CORPORATE SEAL

Section 1.01. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the articles of
incorporation or in the most recent amendment of the articles of
incorporation or resolution of the directors filed with the secretary of
state of Minnesota changing the registered office.

Section 1.02. OTHER OFFICES. The corporation may have such other
offices, within or without the state of Minnesota, as the directors shall,
from time to time, determine.

Section 1.03. CORPORATE SEAL. The corporation shall have no seal.

ARTICLE 2.
MEETINGS OF SHAREHOLDERS

Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided otherwise
by the Minnesota Business Corporation Act, meetings of the shareholders may
be held at any place, within or without the state of Minnesota, as may from
time to time be designated by the directors and, in the absence of such
designation, shall be held at the registered office of the corporation in the
state of Minnesota. The directors shall designate the time of day for each
meeting and, in the absence of such designation, every meeting of
shareholders shall be held at ten o'clock a.m.

Section 2.02. REGULAR MEETINGS.

(a) A regular meeting of the shareholders shall be held on such date as
the board of directors shall by resolution establish.

(b) At a regular meeting the shareholders, voting as provided in the
articles of incorporation and these bylaws, shall designate the number of
directors to constitute the board of directors (subject to the authority of
the board of directors thereafter to increase or decrease the number of
director as permitted by law), shall elect qualified successors for directors
who serve for an indefinite term or whose terms have expired or are due to
expire within six months after the date of the meeting and shall transact
such other business as may properly come before them.

Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the chief
executive officer, the chief financial officer, two or more directors or by a
shareholder or shareholders holding 10% or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or affect a
business combination, including any action to change or otherwise affect the
composition of the board of directors for that purpose, must be called by 25%
or more of the voting power of all shares entitled to vote. A

<PAGE>

shareholder or shareholders holding the requisite percentage of the voting
power of all shares entitled to vote may demand a special meeting of the
shareholders by written notice of demand given to the chief executive officer
or chief financial officer of the corporation and containing the purposes of
the meeting. Within 30 days after receipt of demand by one of those
officers, the board of directors shall cause a special meeting of
shareholders to be called and held on notice no later than 90 days after
receipt of the demand, at the expense of the corporation. Special meetings
shall be held on the date and at the time and place fixed by the chief
executive officer or the board of directors, except that a special meeting
called by or at demand of a shareholder or shareholders shall be held in the
county where the principal executive office is located. The business
transacted at a special meeting shall be limited to the purposes as stated in
the notice of the meeting.

Section 2.04. QUORUM, ADJOURNED MEETINGS. The holders of a majority of
the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. Whether or not a quorum is
present at a meeting, the meeting may be adjourned from time to time without
notice other than announcement at the time of adjournment of the date, time
and place of the adjourned meeting. At adjourned meetings at which a quorum
is present, any business may be transacted which might have been transacted
at the meeting as originally noticed. If a quorum is present when a meeting
is convened, the shareholders present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders originally
present to leave less than a quorum.

Section 2.05. VOTING. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in
person or by proxy. Each shareholder, unless Minnesota statutes or the
articles of incorporation provide otherwise, shall have one vote for each
share having voting power registered in such shareholder's name on the books
of the corporation. Jointly owned shares may be voted by any joint owner
unless the corporation receives written notice from any one of them denying
the authority of that person to vote those shares. Upon the demand of any
shareholder, the vote upon any question before the meeting shall be by
ballot. All questions shall be decided by a majority vote of the number of
shares entitled to vote and represented at the meeting at the time of the
vote except if otherwise required by statute, the articles of incorporation,
or these bylaws.

Section 2.06. RECORD DATE. The board of directors may fix a date, not
exceeding 60 days preceding the date of any meeting of shareholders, as a
record date for the determination of the shareholders entitled to notice of,
and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. If the board of
directors fails to fix a record date for determination of the shareholders
entitled to notice of, and to vote at, any meeting

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<PAGE>

of shareholders, the record date shall be the 20th day preceding the date of
such meeting.

Section 2.07. NOTICE OF MEETINGS. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record
of voting shares pursuant to section 2.06, at his address as shown by the
books of the corporation, a notice setting out the date, time and place of
each regular meeting and each special meeting at least 10 days before the
date of the meeting, except (unless otherwise provided in section 2.04
hereof) where the meeting is an adjourned meeting and the date, time and
place of the meeting were announced at the time of adjournment, which notice
shall be mailed at least five days prior thereto (unless otherwise provided
in section 2.04 hereof); except that notice of a meeting at which a plan of
merger or exchange is to be considered shall be mailed to all shareholders of
record, whether entitled to vote or not, at least 14 days prior thereto.
Every notice of any special meeting called pursuant to section 2.03 hereof
shall state the purpose or purposes for which the meeting has been called,
and the business transacted at all special meetings shall be confined to the
purposes stated in the notice. The written notice of any meeting at which a
plan of merger or exchange is to be considered shall so state such as a
purpose of the meeting. A copy or short description of the plan of merger or
exchange shall be included in or enclosed with such notice.

Section 2.08. WAIVER OF NOTICE. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such
meeting orally or in writing signed by such shareholder or a representative
entitled to vote the shares of such shareholder. A shareholder, by his
attendance at any meeting of shareholders, shall be deemed to have waived
notice of such meeting, except where the shareholder objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of the item at that meeting.

Section 2.09. WRITTEN ACTION. Any action which relight be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.

ARTICLE 3.
DIRECTORS

Section 3.01. GENERAL POWERS. The business and affairs of the
corporation shall be managed by or under the authority of the board of
directors, except as otherwise permitted by statute.

Section 3.02. NUMBER, QUALIFICATION AND TERM OF OFFICE. The number of
directors of the Company shall be at least three (3) but no more than five (5).

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<PAGE>

Changes to the number of directors outside of this range shall be by
resolution of the shareholders (subject to the authority of the board of
directors to increase or decrease the number of directors as permitted by
law).

Section 3.03. BOARD MEETINGS. Meetings of the board of directors may
be held from time to time at such time and place within or without the state
of Minnesota as may be designated in the notice of such meeting.

Section 3.04. CALLING MEETINGS; NOTICE. Meetings of the board of
directors may be called by the chairman of the board by giving at least 24
hours' notice, or by any other director by giving at least five days' notice,
of the date, time and place thereof to each director by mail, telephone,
telegram or in person. If the day or date, time and place of a meeting of
the board of directors has been announced at a previous meeting of the board,
no notice is required. Notice of an adjourned meeting of the board of
directors need not be given other than by announcement at the meeting at
which adjournment is taken.

Section 3.05. WAIVER OF NOTICE. Notice of any meeting of the board of
directors may be waived by any director either before, at, or after such
meeting orally or in a writing signed by such director. A director, by his
attendance at any meeting of the board of directors, shall be deemed to have
waived notice of such meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened and does not participate thereafter in the
meeting.

Section 3.06. QUORUM. A majority of the directors holding office
immediately prior to a meeting of the board of directors shall constitute a
quorum for the transaction of business at such meeting.

Section 3.07. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the board
of directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as the vote of a director present at the meeting in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal
to which the director has consented or objected.

Section 3.08. CONFERENCE COMMUNICATIONS. Any or all directors may
participate in any meeting of the board of directors, or of any duly
constituted committee thereof, by any means of communication through which
the directors may simultaneously hear each other during such meeting. For
the purposes of establishing a quorum and taking any action at the meeting,
such directors

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<PAGE>

participating pursuant to this section 3.08 shall be deemed present in person
at the meeting; and the place of the meeting shall be the place of
origination of the conference telephone conversation or other comparable
communication technique.

Section 3.09. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies on the
board of directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired
term by a majority of the remaining directors of the board although less than
a quorum; newly created directorships resulting from an increase in the
authorized number of directors by action of the board of directors as
permitted by section 3.02 may be filled by a majority vote of the directors
serving at the time of such increase; and each director elected pursuant to
this section 3.09 shall be a director until such director's successor is
elected by the shareholders at their next regular or special meeting.

Section 3.10. REMOVAL. Any or all of the directors may be removed from
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election
of directors except, as otherwise provided by the Minnesota Business
Corporation Act, section 302A.223, as amended, when the shareholders have the
right to cumulate their votes. A director named by the board of directors to
fill a vacancy may be removed from office at any time, with or without cause,
by the affirmative vote of the remaining directors if the shareholders have
not elected directors in the interim between the time of the appointment to
fill such vacancy and the time of the removal. In the event that the entire
board or any one or more directors be so removed, new directors may be
elected at the same meeting.

Section 3.11. COMMITTEES. A resolution approved by the affirmative
vote of a majority of the board of directors may establish committees having
the authority of the board in the management of the business of the
corporation to the extent provided in the resolution. A committee shall
consist of one or more persons, who need not be directors, appointed by
affirmative vote of a majority of the directors present. Committees are
subject to the direction and control of, and vacancies in the membership
thereof shall be filled by, the board of directors.

A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion
or number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.

Section 3.12. WRITTEN ACTION. Any action which might be taken at a
meeting of the board of directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the articles of incorporation provide
for written action

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<PAGE>

by fewer than all of the directors and the action need not be approved by the
shareholders.

Section 3.13. COMPENSATION. Directors who are not salaried officers of
this corporation shall receive such fixed sum per meeting attended or such
fixed annual sum as shall be determined, from time to time, by resolution of
the board of directors. The board of directors may, by resolution, provide
that all directors shall receive their expenses, if any, of attendance at
meetings of the board of directors or any committee thereof. Nothing herein
contained shall be construed to preclude any director from serving this
corporation in any other capacity and receiving proper compensation therefor.

ARTICLE 4.
OFFICERS

Section 4.01. NUMBER. The officers of the corporation shall consist of
a chairman of the board (if one is elected by ale board), the president, one
or more vice presidents (if desired by the board), a treasurer, a secretary
(if one is elected by the board) and such other officers and agents as may,
from time to time, be elected by the board of directors. Any number of
offices may be held by the same person.

Section 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The board
of directors shall elect or appoint, by resolution approved by the
affirmative vote of a majority of the directors present, from within or
without their number, the president, treasurer and such other officers as may
be deemed advisable, each of whom shall have the powers, rights, duties,
responsibilities, and terms of office provided for in these bylaws or a
resolution of the board of directors not inconsistent therewith. The
president and all other officers who may be directors shall continue to hold
office until the election and qualification of their successors,
notwithstanding an earlier termination of their directorship.

Section 4.03. REMOVAL AND VACANCIES. Any officer may be removed from
his office by the board of directors at any time, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of
the person so removed. If there be a vacancy in an office of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled
for the unexpired term by the board of directors.

Section 4.04. CHAIRMAN OF THE BOARD. The chairman of the board, if one
is elected, shall preside at all meetings of the shareholders and directors
and shall have such other duties as may be prescribed, from time to time, by
the board of directors.

Section 4.05. PRESIDENT. The president shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the

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absence of the chairman of the board, he shall preside at all meetings of the
shareholders and directors. The president shall see that all orders and
resolutions of the board of directors are carried into effect. The president
shall execute and deliver, in the name of the corporation, any deeds,
mortgages, bonds, contracts or other instruments pertaining to the business
of the corporation unless the authority to execute and deliver is required by
law to be exercised by another person or is expressly delegated by the
articles or bylaws or by the board of directors to some other officer or
agent of the corporation. The president shall maintain records of and,
whenever necessary, certify all proceedings of the board of directors and the
shareholders, and in general, shall perform all duties usually incident to
the office of the president. The president shall have such other duties as
may, from time to time, be prescribed by the board of directors.

Section 4.06. VICE PRESIDENT. Each vice president, if one or more is
elected, shall have such powers and shall perform such duties as prescribed
by the board of directors or by the president. In the event of the absence
or disability of the president, the vice president(s) shall succeed to the
president's power and duties in the order designated by the board of
directors.

Section 4.07. SECRETARY. The secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and board of
directors and shall record all proceedings of such meetings in the minute
book of the corporation. The secretary shall give proper notice of meetings
of shareholders and directors. The secretary shall perform such other duties
as may, from time to time, be prescribed by the board of directors or by the
president.

Section 4.08. TREASURER. The treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation. The
treasurer shall deposit all moneys, drafts and checks in the name of, and to
the credit of, the corporation in such banks and depositories as the board of
directors shall, from time to time, designate. The treasurer shall have
power to endorse, for deposit, all notes, checks and drafts received by the
corporation. The treasurer shall disburse the funds of the corporation, as
ordered by the board of directors, making proper vouchers therefor. The
treasurer shall render to the president and the directors, whenever
requested, an account of all his transactions entered into as treasurer and
of the financial condition of the corporation, and shall perform such other
duties as may, from time to time, be prescribed by the board of directors or
by the president.

Section 4.09. COMPENSATION. The officers of the corporation shall
receive such compensation for their services as may be determined, from time
to time, by resolution of the board of directors

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ARTICLE 5.
SHARES AND THEIR TRANSFER

Section 5.01. CERTIFICATES FOR SHARES. All shares of the corporation
shall be certificated shares. Every owner of shares of the corporation shall
be entitled to a certificate, to be in such form as shall be prescribed by
the board of directors, certifying the number of shares of the corporation
owned by such shareholder. The certificates for such shares shall be
numbered in the order in which they shall be issued and shall be signed, in
the name of the corporation, by the president and by the secretary or an
assistant secretary, or by such officers as the board of directors may
designate. If the certificate is signed by a transfer agent or registrar,
such signatures of the corporate officers may be by facsimile if authorized
by the board of directors. Every certificate surrendered to the corporation
for exchange or transfer shall be canceled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases
provided for in section 5.04.

Section 5.02. ISSUANCE OF SHARES. The board of directors is authorized
to cause to be issued snares of the corporation up to the full amount
authorized by the articles of incorporation in such amounts as may be
determined by the board of directors and as may be permitted by law. Shares
may be issued for any consideration, including, without limitation, in
consideration of cash or other property, tangible or intangible, received or
to be received by the corporation under a written agreement, of services
rendered or to be rendered to the corporation under a written agreement, or
of an amount transferred from surplus to stated capital upon a share
dividend. At the time of approval of the issuance of shares, the board of
directors shall state, by resolution, its determination of the fair value to
the corporation in monetary terms of any consideration other than cash for
which shares are to be issued.

Section 5.03. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or
the certificates for such shares. The corporation may treat as the absolute
owner of shares of the corporation, the person or persons in whose name
shares are registered on the books of the corporation.

Section 5.04. LOSS OF CERTIFICATES. Except as otherwise provided by
the Minnesota Business Corporation Act, section 302A.419, any shareholder
claiming a certificate for shares to be lost, stolen, or destroyed shall make
an affidavit of that fact in such form as the board of directors shall
require and shall, if the board of directors so requires, give the
corporation a bond of indemnity in form, in an amount, and with one or more
sureties satisfactory to the board of directors, to indemnify the

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corporation against any claim which may be made against it on account of the
reissue of such certificate, whereupon a new certificate may be issued in the
same tenor and for the same number of shares as the one alleged to have been
lost, stolen or destroyed.

ARTICLE 6.
DISTRIBUTIONS, RECORD DATE

Section 6.01. DISTRIBUTIONS. Subject to the provisions of the articles
of incorporation, of these bylaws, and of law, the board of directors may
authorize and cause the corporation to make distributions whenever, and in
such amounts or forms as, in its opinion, are deemed advisable.

Section 6.02. RECORD DATE. Subject to any provisions of the articles
of incorporation, the board of directors may fix a date not exceeding 120
days preceding the date fixed for the payment of any distribution as the
record date for the determination of the shareholders entitled to receive
payment of the distribution and, in such case, only shareholders of record on
the date so fixed shall be entitled to receive payment of such distribution
notwithstanding any transfer of shares on the books of the corporation after
the record date.

ARTICLE 7.
BOOKS AND RECORDS, FISCAL YEAR

Section 7.01. SHARE REGISTER. The board of directors of the
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the board:

(1) a share register not more than one year old, containing the names and
addresses of the shareholders and the number and classes of shares
held by each shareholder; and

(2) a record of the dates on which certificates or transaction statements
representing shares wear issued.

Section 7.02. OTHER BOOKS AND RECORDS. The board of directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its Minnesota
registered office within ten days after receipt by an officer of the
corporation of a written demand for them made by a shareholder or other
person authorized by the Minnesota Business Corporation Act, section
302A.461, originals or copies of:

(1) records of all proceedings of shareholders for the last three years;

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(2) records of all proceedings of the board for the last three years;

(3) its articles and all amendments currently in effect;

(4) its bylaws and all amendments currently in effect;

(5) financial statements required by the Minnesota Business Corporation
Act, section 302A.463 and the financial statements for the most recent
interim period prepared in the course of the -operation of the
corporation for distribution to the shareholders or to a governmental
agency as a matter of public record;

(6) reports made to shareholders generally within the last three years;

(7) a statement of the names and usual business addresses of its directors
and principal officers; and

(8) any voting trust or shareholder control agreements of which the
corporation is aware; and

(9) any agreements, contracts or other arrangements or portions thereof
that are incorporated by reference in the articles of incorporation or
board resolutions that establish the rights or preferences of a class
or series of shares of the corporation.

Section 7.03. FISCAL YEAR. The fiscal year of the corporation shall be
determined by the board of directors.

ARTICLE 8.
LOANS, GUARANTEES, SURETYSHIP

Section 8.01. The corporation may lend money to, guarantee an obligation
of, become a surety for, or otherwise financially assist a person if the
transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present, and:

(1) is in the usual and regular course of business of the corporation;

(2) is with, or for the benefit of, a related organization, an
organization in which the corporation has a financial interest, an
organization with which the corporation has a business relationship,
or an organization to which the corporation has the power to make
donations, any of which relationships constitute consideration
sufficient to make the

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<PAGE>

loan/guarantee, suretyship, or other financial assistance so
approved enforceable against the corporation;

(3) is with, or for the benefit of, an officer or other employee of the
corporation or a subsidiary, including an officer or employee who is a
director of the corporation or a subsidiary, and may reasonably be
expected, in the judgment of the board, to benefit the corporation; or

(4) whether or not any separate consideration has been paid or promised to
the corporation, has been approved by (a) the holders of two-thirds of
the voting power of the shares entitled to vote which are owned by
persons other than the interested person or persons, or (b) the
unanimous affirmative vote of the holders of all outstanding shares
whether or not entitled to vote.

Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
pledge of or other security interest in shares of the corporation. Nothing in
this section shall be deemed to deny, limit or restrict the powers of guaranty,
surety or warranty of the corporation at common law or under a statute of the
state of Minnesota.

ARTICLE 9.
INDEMNIFICATION OF CERTAIN PERSONS

Section 9.01. The corporation shall indemnify all officers and directors
of the corporation, for such expenses and liabilities, in such manner, under
such circumstances and to such extent as permitted by section 302A.521 of the
Minnesota Business Corporation Act, as now enacted or hereafter amended. Unless
otherwise approved by the board of directors, the corporation shall not
indemnify any employee of the corporation who is not otherwise entitled to
indemnification pursuant to this section 9.01. The Board of Directors may
authorize the purchase and maintenance of insurance and/or the execution of
individual agreements for the purpose of such indemnification, and the
corporation shall advance all reasonable costs and expenses (including
attorneys' fees) incurred in defending any action, suit or proceeding to all
persons entitled to indemnification under this section 9.01, all in the manner,
under the circumstances and to the extent permitted by Section 302A.521 of the
Minnesota Business Corporation Act, as now enacted or hereafter amended

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<PAGE>

ARTICLE 10
AMENDMENTS

Section 10.01. These bylaws may be amended or altered by a vote of the
majority of the whole board of directors at any meeting. Such authority of the
board of directors is subject to the power of the shareholders, exercisable in
the manner provided in the Minnesota Business Corporation Act, section 302A.181,
subd. 3, to adopt, amend, or repeal bylaws adopted, amended, or repealed by the
board of directors. After the adoption of the initial bylaws, the board of
directors shall not adopt, amend or repeal any bylaws fixing a quorum for
meetings of shareholders, prescribing procedures for removing directors or
filling vacancies in the board of directors, or fixing the number of directors
or their classifications, qualifications, or terms of office, except that the
board of directors may adopt or amend any bylaw to increase their number.

ARTICLE 11.
SECURITIES OF OTHER CORPORATIONS

Section 11.01. VOTING SECURITIES HELD BY THE CORPORATION. Unless
otherwise ordered by the board of directors, the president shall have full power
and authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the president shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The board of directors may, from time to time, grant
such power and authority to one or more other persons and may remove such power
and authority from the president or any other person or persons.

Section 11.02. PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered
by the board of directors, the president shall have full power and authority on
behalf of the corporation to purchase, sell, transfer or encumber any and all
securities of any other corporation owned by the corporation, and may execute
and deliver such documents as may be necessary to effectuate such purchase,
sale, transfer or encumbrance. The board of directors may, from time to time,
confer like powers upon any other person or persons.

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<PAGE>

NUTRITION MEDICAL, INC.

1995 LONG-TERM INCENTIVE
AND
STOCK OPTION PLAN

Section 1. PURPOSE OF PLAN. This Plan shall be known as the 1995
LONG-TERM INCENTIVE AND STOCK OPTION PLAN and is hereinafter referred to as the
"Plan." The purpose of the Plan is to aid in maintaining and developing
personnel capable of assuring the future success of Nutrition Medical, Inc., a
Minnesota corporation (the "Company"), to offer such personnel additional
incentives to put forth maximum efforts for the success of the business, and to
afford them an opportunity to acquire a proprietary interest in the Company
through stock options and other long-term incentive awards as provided herein.
Options granted under this Plan may be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), or options that do not qualify as Incentive
Stock Options. Awards granted under this Plan shall be Stock Appreciation
Rights ("SARs"), restricted stock or performance awards as hereinafter
described.

Section 2. STOCK SUBJECT TO PLAN. Subject to the provisions of
Section 16 hereof, the stock to be subject to options or other awards under the
Plan shall be the Company's authorized common shares, par value $.01 per share
(the "Common Shares"). Such Common Shares may be either authorized but unissued
shares, or issued shares which have been reacquired by the Company. Subject to
adjustment as provided in Section 16 hereof, the maximum number of shares on
which options may be exercised or other awards issued under this Plan shall be
500,000 shares. If an option or award under the Plan expires, or for any reason
is terminated or unexercised with respect to any shares, such shares shall again
be available for options or awards thereafter granted during the term of the
Plan.

Section 3. ADMINISTRATION OF PLAN.

(a) The Plan shall be administered by the Board of Directors of
the Company or a committee thereof. The members of any such committee
shall be appointed by and serve at the pleasure of the Board of
Directors. (The group administering the Plan, whether the full Board or
a committee thereof, shall hereinafter be referred to as the
"Committee.")

(b) The Committee shall have plenary authority in its discretion,
but subject to the express provisions of the Plan: (i) to determine the
purchase price of the Common Stock covered by each option or award, (ii)
to determine the employees to whom and the time or times at which such
options and awards shall be granted and the number of shares to be
subject to each, (iii) to determine the form of payment to be made upon
the exercise of an SAR or in

<PAGE>

connection with performance awards, either cash, Common Shares of the
Company or a combination thereof, (iv) to determine the terms of exercise
of each option and award, (v) to accelerate the time at which all or any
part of an option or award may be exercised, (vi) to amend or modify the
terms of any option or award with the consent of the optionee, (vii) to
interpret the Plan, (viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (ix) to determine the terms and
provisions of each option and award agreement under the Plan (which
agreements need not be identical), including the designation of those
options intended to be Incentive Stock Options, and (x) to make all other
determinations necessary or advisable for the administration of the Plan,
subject to the exclusive authority of the Board of Directors under
Section 17 herein to amend or terminate the Plan. The Committee's
determinations on the foregoing matters, unless otherwise disapproved by
the Board of Directors of the Company, shall be final and conclusive.

(c) The Committee shall hold its meetings at such times and
places as it may determine. A majority of its members shall constitute a
quorum. All determinations of the Committee shall be made by not less
than a majority of its members. Any decision or determination reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority vote at a meeting duly
called and held. The grant of an option or award shall be effective only
if a written agreement shall have been duly executed and delivered by and
on behalf of the Company following such grant. The Committee may appoint
a Secretary and may make such rules and regulations for the conduct of
its business as it shall deem advisable.

Section 4. ELIGIBILITY AND GRANT.

(a) Incentive Stock Options may only be granted under this Plan
to any full or part-time employee (which term as used herein includes,
but is not limited to, officers and directors who are also employees) of
the Company and of its present and future subsidiary corporations within
the meaning of Section 424(f) of the Code (herein called "subsidiaries").
Full or part-time employees, directors who are not employees, consultants
or independent contractors to the Company or one of its subsidiaries or
affiliates shall be eligible to receive options which do not qualify as
Incentive Stock Options and awards. In determining the persons to whom
options and awards shall be granted and the number of shares subject to
each, the Committee may take into account the nature of services rendered
by the respective employees or consultants, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant.

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<PAGE>

(b) A person who has been granted an option or award under this
Plan may be granted additional options or awards under the Plan if the
Committee shall so determine; provided, however, that to the extent the
aggregate fair market value (determined at the time the Incentive Stock
Option is granted) of the Common Shares with respect to which all
Incentive Stock Options are exercisable for the first time by an employee
during any calendar year (under all plans described in subsection (d) of
Section 422 of the Code of his or her employer corporation and its parent
and subsidiary corporations) exceeds $100,000, such options shall be
treated as options that do not qualify as Incentive Stock Options.
Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of
its subsidiaries to terminate his or her employment at any time.

Section 5. PRICE. The option price for all Incentive Stock Options
granted under the Plan shall be determined by the Committee but shall not be
less than 100% of the fair market value of the Common Shares at the date of
grant of such option. The option price for options granted under the Plan that
do not qualify as Incentive Stock Options and, if applicable, the price for all
awards shall also be determined by the Committee. For purposes of the preceding
sentence and for all other valuation purposes under the Plan, the fair market
value of the Common Shares shall be as reasonably determined by the Committee.
If on the date of grant of any option or award hereunder the Common Shares are
not traded on an established securities market, the Committee shall make a good
faith attempt to satisfy the requirements of this Section 5 and in connection
therewith shall take such action as it deems necessary or advisable.

Section 6. TERM. Each option and award and all rights and obligations
thereunder shall expire on the date determined by the Committee and specified
in the option or award agreement. The Committee shall be under no duty to
provide terms of like duration for options or awards granted under the Plan, but
the term of an Incentive Stock Option may not extend more than ten (10) years
from the date of grant of such option and the term of options granted under the
Plan which do not qualify as Incentive Stock Options may not extend more than
ten (10) years from the date of granting of such option.

Section 7. EXERCISE OF OPTION OR AWARD.

(a) The Committee shall have full and complete authority to
determine whether an option or award will be exercisable in full at any
time or from time to time during the term thereof, or to provide for the
exercise thereof in such installments, upon the occurrence of such events
(such as termination of employment for any reason) and at such times
during the

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<PAGE>

term of the option as the Committee may determine and specify in the
option or award agreement.

(b) The exercise of any option or award granted hereunder shall
only be effective at such time that the sale of Common Shares pursuant to
such exercise will not violate any state or federal securities or other
laws.

(c) An optionee or grantee electing to exercise an option or
award shall give written notice to the Company of such election and of
the number of shares subject to such exercise. The full purchase price
of such shares shall be tendered with such notice of exercise. Payment
shall he made to the Company in cash (including bank check, certified
check, personal check, or money order), or, at the discretion of the
Committee and as specified by the Committee, (i) by delivering
certificates for the Company's Common Shares already owned by the
optionee or grantee having a fair market value as of the date of grant
equal to the full purchase price of the shares, or (ii) by delivering the
optionee's or grantee's promissory note, which shall provide for interest
at a rate not less than the minimum rate required to avoid the imputation
of income, original issue discount or a below-market-rate loan pursuant
to Sections 483, 1274 or 7872 of the Code or any successor provisions
thereto, or (iii) a combination of cash, the optionee's or grantee
promissory note and such shares. The fair market value of such tendered
shares shall be determined as provided in Section 5 herein. The
optionee's or grantee's promissory note shall be a full recourse
liability of the optionee and may, at the discretion of the Committee, be
secured by a pledge of the shares being purchased. Until such person has
been issued the shares subject to such exercise, he or she shall possess
no rights as a shareholder with respect to such shares.

Section 8. RESTORATION OPTIONS. The Committee may grant "restoration"
options, separately or together with another option, pursuant to which, subject
to the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 promulgated under the Exchange Act or any other
applicable law, the optionee would be granted a new option when the payment of
the exercise price of the option to which such "restoration" option relates is
made by the delivery of shares of the Company's Common Shares owned by the
optionee, as described in this Section 8, which new option would be an option to
purchase the number of shares not exceeding the sum of (a) the number of shares
of the Company's Common Shares tendered as payment upon the exercise of the
option to which such "restoration" option relates and (b) the number of shares
of the Company's Common Shares, if any, tendered as payment of the amount to be
withheld under applicable income tax laws in connection with the exercise of the
option to which such "restoration" option relates, as described in Section 12
hereof. "Restoration" options may be granted with respect to options previously
granted

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<PAGE>

under this Plan or any prior stock option plan of the Company, and may be
granted in connection with any option granted under this Plan at the time of
such grant. The purchase price of the Common Shares under each such new option,
and the other terms and conditions of such option, shall be determined by the
Committee, consistent with the provisions of the Plan.

Section 9. STOCK APPRECIATION RIGHTS.

(a) At the time of grant of an option or award under the Plan (or
at any other time), the Committee, in its discretion, may grant an SAR
evidenced by an agreement in such form as the Committee shall from time
to time approve. Any such SAR may be subject to restrictions on the
exercise thereof as may be set forth in the agreement representing such
SAR, which agreement shall comply with and be subject to the following
terms and conditions and any additional terms and conditions established
by the Committee that are consistent with the terms of the Plan.

(b) An SAR shall be exercised by the delivery to the Company of a
written notice which shall state that the holder thereof elects to
exercise his or her SAR as to the number of shares specified in the
notice and which shall further state what portion, if any, of the SAR
exercise amount (hereinafter defined) the holder thereof requests is to
be paid in cash and what portion, if any, is to be paid in Common Shares
of the Company. The Committee promptly shall cause to be paid to such
holder the SAR exercise amount either in cash, in Common Shares of the
Company, or any combination of cash and shares as the Committee may
determine. Such determination may be either in accordance with the
request made by the holder of the SAR or in the sole and absolute
discretion of the Committee. The SAR exercise amount is the excess of
the fair market value of one share of the Company's Common Shares on the
date of exercise over the per share exercise price in respect of which
the SAR was granted, multiplied by the number of shares as to which the
SAR is exercised. For the purposes hereof, the fair market value of the
Company's shares shall be determined as provided in Section 5 herein.

Section 10. RESTRICTED STOCK AWARDS. Awards of Common Shares subject
to forfeiture and transfer restrictions may be granted by the Committee. Any
restricted stock award shall be evidenced by an agreement in such form as the
Committee shall from time to time approve, which agreement shall comply with and
be subject to the following terms and conditions and any additional terms and
conditions (including any buy-back provisions) established by the Committee that
are consistent with the terms of the Plan:

(a) Each restricted stock award made under the Plan shall be for
such number of Common Shares as shall be determined by the Committee and
set

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<PAGE>

forth in the agreement containing the terms of such restricted stock
award. Such agreement shall set forth a period of time during which the
grantee must remain in the continuous employment of the Company in order
for the forfeiture and transfer restrictions to lapse. If the Committee
so determines, the restrictions may lapse during such restricted period
in installments with respect to specified portions of the shares covered
by the restricted stock award. The agreement may also, in the discretion
of the Committee, set forth performance or other conditions that will
subject the Common Shares to forfeiture and transfer restrictions. The
Committee may, at its discretion, waive all or any part of the
restrictions applicable to any or all outstanding restricted stock
awards.

(b) At the time of a restricted stock award, a certificate
representing the number of Common Shares awarded thereunder shall be
registered in the name of the grantee. Such certificate shall be held by
the Company or any custodian appointed by the Company for the account of
the grantee subject to the terms and conditions of the Plan, and shall
bear such a legend setting forth the restrictions imposed thereon as the
Committee, in its discretion, may determine. The grantee shall have all
rights of a shareholder with respect to the Common Shares, including the
right to receive dividends and the right to vote such shares, subject to
the following restrictions: (i) the grantee shall not be entitled to
delivery of the stock certificate until the expiration of the restricted
period and the fulfillment of any other restrictive conditions set forth
in the restricted stock agreement with respect to such Common Shares;
(ii) none of the Common Shares may be sold, assigned, transferred,
pledged, hypothecated or otherwise encumbered or disposed of during such
restricted period or until after the fulfillment of any such other
restrictive conditions; and (iii) except as otherwise determined by the
Committee, all of the Common Shares shall be forfeited and all rights of
the grantee to such Common Shares shall terminate, without further
obligation on the part of the Company, unless the grantee remains in the
continuous employment of the Company for the entire restricted period in
relation to which such Common Shares were granted and unless any other
restrictive conditions relating to the restricted stock award are met.
Any Common Shares, any other securities of the Company and any other
property (except for cash dividends) distributed with respect to the
Common Shares subject to restricted stock awards shall be subject to the
same restrictions, terms and conditions as such restricted Common Shares.

(c) At the end of the restricted period and provided that any
other restrictive conditions of the restricted stock award are met, or at
such earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the restricted stock
award or in the Plan shall lapse as to the restricted Common Shares
subject thereto, and a stock certificate for

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<PAGE>

the appropriate number of Common Shares, free of the restrictions and the
restricted stock legend, shall be delivered to the grantee or his or her
beneficiary or estate, as the case may be.

Section 11. PERFORMANCE AWARDS. The Committee is further authorized to
grant performance awards. Subject to the terms of this Plan and any applicable
award agreement, a performance award granted under the Plan (i) may be
denominated or payable in cash, Common Shares (including, without limitation,
restricted stock), other securities, other awards, or other property and (ii)
shall confer on the holder thereof rights valued as determined by the Committee,
in its discretion, and payable to, or exercisable by, the holder of the
Performance awards, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee, in its
discretion, shall establish. Subject to the terms of this Plan and any
applicable award agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance award granted, and the amount of any payment or transfer to be made
by the grantee and by the Company under any Performance award shall be
determined by the Committee.

Section 12. INCOME TAX WITHHOLDING AND TAX BONUSES.

(a) In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of an optionee or grantee under the Plan, are withheld or
collected from such optionee or grantee. In order to assist an optionee
or grantee in paying all federal and state taxes to be withheld or
collected upon exercise of an option or award which does not qualify as
an Incentive Stock Option hereunder, the Committee, in its absolute
discretion and subject to such additional terms and conditions as it may
adopt, shall permit the optionee or grantee to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the
shares otherwise to be delivered upon exercise of such option or award
with a fair market value, determined in accordance with Section 5 herein,
equal to such taxes or (ii) delivering to the Company Common Shares other
than the shares issuable upon exercise of such option or award with a
fair market value, determined in accordance with Section 5, equal to such
taxes.

(b) The Committee shall have the authority, at the time of grant
of an option under the Plan or at any time thereafter, to approve tax
bonuses to designated optionees or grantees to be paid upon their
exercise of options or awards granted hereunder. The amount of any such
payments shall be determined by the Committee. The Committee shall have
full authority in

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<PAGE>

its absolute discretion to determine the amount of any such tax bonus and
the terms and conditions affecting the vesting and payment thereafter.

Section 13. ADDITIONAL RESTRICTIONS. The Committee shall have full and
complete authority to determine whether all or any part of the Common Shares of
the Company acquired upon exercise of any of the options or awards granted under
the Plan shall be subject to restrictions on the transferability thereof or any
other restrictions affecting in any manner the optionee's or grantee's rights
with respect thereto, but any such restriction shall be contained in the
agreement relating to such options or awards.

Section 14. TEN PERCENT SHAREHOLDER RULE. Notwithstanding any other
provision in the Plan, if at the time an option is otherwise to be granted
pursuant to the Plan the optionee owns directly or indirectly (within the
meaning of Section 424(d) of the Code) Common Shares of the Company possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or its parent or subsidiary corporations, if any (within
the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option
to be granted to such optionee pursuant to the Plan shall satisfy the
requirements of Section 422(c)(5) of the Code, and the option price shall be not
less than 110% of the fair market value of the Common Shares of the Company
determined as described herein, and such option by its terms shall not be
exercisable after the expiration of five (5) years from the date such option is
granted.

Section 15. NON-TRANSFERABILITY. No option or award granted under the
Plan shall be transferable by an optionee or grantee, otherwise than by will or
the laws of descent or distribution. Except as otherwise provided in an option
or award agreement, during the lifetime of an optionee or grantee, the option
shall be exercisable only by such optionee or grantee.

Section 16. DILUTION OR OTHER ADJUSTMENTS. If there shall be any
change in the Common Shares through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount), stock
split or other change in the corporate structure, appropriate adjustments in the
Plan and outstanding options and awards shall be made by the Committee. In the
event of any such changes, adjustments shall include, where appropriate, changes
in the aggregate number of shares subject to the Plan, the number of shares and
the price per share subject to outstanding options and awards and the amount
payable upon exercise of outstanding awards, in order to prevent dilution or
enlargement of option or award rights.

Section 17. AMENDMENT OR DISCONTINUANCE OF PLAN.
The Board of Directors may amend or discontinue the Plan at any
time. Subject to the provisions of Section 16 no amendment of the Plan,
however, shall without shareholder

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<PAGE>

approval: (i) increase the maximum number of shares under the Plan as provided
in Section 2 herein, (ii) decrease the minimum price provided in Section 5
herein, (iii) extend the maximum term under Section 6, or (iv) modify the
eligibility requirements for participation in the Plan. The Board of Directors
shall not alter or impair any option or award theretofore granted under the Plan
without the consent of the holder of the option.

Section 18. TIME OF GRANTING. Nothing contained in the Plan or in any
resolution adopted or to be adopted by the Board of Directors or by the
shareholders of the Company, and no action taken by the Committee or the Board
of Directors (other than the execution and delivery of an option or award
agreement), shall constitute the granting of an option or award hereunder.

Section 19. EFFECTIVE DATE AND TERMINATION OF PLAN.

(a) The Plan was approved by the Board of Directors on January
19, 1995, and shall be approved by the shareholders of the Company within
twelve (12) months thereof.

(b) Unless the Plan shall have been discontinued as provided in
Section 16 hereof, the Plan shall terminate January 1, 2005. No option
or award may be granted after such termination, but termination of the
Plan shall not, without the consent of the optionee or grantee, alter or
impair any rights or obligations under any option or award theretofore
granted.

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NUTRITION MEDICAL, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

Section 1. PURPOSE. The purpose of the Nutrition Medical, Inc. 1996
Non-Employee Director Stock Option Plan (the "Plan") is to promote the interests
of Nutrition Medical, Inc., a Minnesota corporation (the "Company"), by
enhancing its ability to attract and retain the services of experienced and
knowledgeable independent directors and by providing additional incentive for
these directors to increase their interest in the Company's long-term success
and progress.

Section 2. ADMINISTRATION. Grants of stock options under the Plan
and the amount and nature of the awards to be granted shall be automatic as
described in Section 6. However, all questions of interpretation of the Plan or
of any options issued under it shall be determined by the Board of Directors and
such determination shall be final and binding upon all persons having an
interest in the Plan.

Section 3. PARTICIPATION IN THE PLAN. Each director of the Company
shall be eligible to participate in the Plan unless such director is an employee
of the Company or any subsidiary of the Company.

Section 4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 hereof, the stock to be subject to options under the Plan shall be
authorized but unissued shares of the Company's common stock, par value $.01 per
share (the "Common Stock"). Subject to adjustment as provided in Section 11
hereof, the maximum number of shares with respect to which options may be
exercised under this Plan shall be 100,000 shares. If an option under the Plan
expires, or for any reason is terminated, any shares that have not been
purchased upon exercise of the option prior to the expiration or termination
date shall again be available for options thereafter granted during the term of
the Plan.

Section 5. NONQUALIFIED STOCK OPTIONS. All options granted under the
Plan shall be nonqualified stock options that do not qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended.

Section 6. TERMS AND CONDITIONS OF OPTIONS. Each option granted
under this plan shall be evidenced by a written agreement in such form as the
Committee shall from time to time approve, which agreements shall comply with
and be subject to the following terms and conditions:

<PAGE>

(a) ANNUAL OPTION GRANTS. Each nonemployee director shall be granted
the right to purchase 15,000 shares of Common Stock at the time of his or
her initial appointment to the board of directors. Additionally, each
non-employee director then in office will receive an option to purchase
7,500 shares at the time of his or her re-election at each future annual
meeting of the Shareholders, except that non-employee directors who are
initially appointed less than six months before the annual meeting shall
receive an option to purchase 7,500 shares at the following annual meeting
(the "Annual Option Grant Date") (if the Plan becomes effective pursuant
to Section 12 before or at such date).

(b) OPTIONS NON-TRANSFERABLE. No option granted under the Plan shall
be transferable by the optionee otherwise than by will or by the laws of
descent and distribution as provided in Section 6(e) hereof. During the
lifetime of the optionee, the options shall be exercisable only by such
optionee. No option or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee during such optionee's lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.

(c) PERIOD OF OPTIONS. Options shall terminate upon the expiration
of 10 years from the date on which they were granted. Notwithstanding the
immediately preceding sentence, options shall terminate within 18 months
after the optionee departs from the board of directors.

(d) EXERCISE OF OPTIONS.

(i) Options granted upon appointment to the board of directors
shall vest and become exercisable at the rate of 50 percent
immediately and an additional 25 percent per year on the first and
second anniversaries of the optionee's initial appointment to the
board of directors. Options granted in connection with subsequent
annual meetings shall vest and become exercisable as to 100% of the
shares six months after the date of such grant if the holder remains a
director on such date.

(ii) The exercise of any option granted hereunder shall only be
effective at such time as counsel to the Company shall have determined
that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any federal or state securities or other
laws. An optionee desiring to exercise an option may be required by
the Company, as a condition of the effectiveness of any exercise of an
option granted hereunder, to agree in writing that all Common Stock to
be acquired pursuant to such exercise shall be held for his or her own

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<PAGE>

account without a view to any distribution thereof, that the
certificates for such shares shall bear an appropriate legend to that
effect and that such shares will not be transferred or disposed of
except in compliance with applicable federal and state securities
laws.

(iii) An optionee electing to exercise an option shall give
written notice to the Company of such election and of the number of
shares subject to such exercise. The full purchase price of such
shares shall be tendered with such notice of exercise. Payment shall
be made to the Company in cash (including check, bank draft or money
order).

(e) EFFECT OF DEATH. If the optionee shall die prior to the time the
option is fully exercised, such option may be exercised at any time within
one year after his or her death by the personal representatives or
administrators of the optionee or by any person or persons to whom the
option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares the optionee was
entitled to purchase under the option on the date of death and subject to
the condition that no option shall be exercisable after the expiration of
the term of the option.

Section 7. OPTION EXERCISE PRICE. The option exercise price per
share for the shares covered by each option shall be equal to the "fair market
value" of a share of Common Stock as of the date on which the option is granted,
as determined pursuant to Section 9 hereof.

Section 8. TIME FOR GRANTING OPTIONS. Unless the Plan shall have
been discontinued as provided in Section 13 hereof, the Plan shall terminate
upon the expiration of 10 years from the date upon which it takes effect as
provided in Section 12 hereof. No option may be granted after such termination,
but termination of the Plan shall not, without the consent of the optionee,
alter or impair any rights or obligations under any option theretofore granted.

Section 9. FAIR MARKET VALUE OF COMMON STOCK. For the purposes of
the Plan, the fair market value of the Common Stock on a given date shall be the
closing price of the Common Stock on such date on the Nasdaq National Market
("Nasdaq"), if the Common Stock is then being traded on Nasdaq. If on the date
as of which the fair market value is being determined the Common Stock is not
publicly traded, the Committee shall make a good faith attempt to determine such
fair market value and, in connection therewith, shall take such actions and
consider such factors as it deems necessary or advisable.

-3-

<PAGE>

Section 10. LIMITATION OF RIGHTS.

(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan,
shall constitute, or be evidence of, any agreement or understanding,
express or implied, that the Company will retain a director for any period
of time, or at any particular rate of compensation.

(b) NO SHAREHOLDER RIGHTS FOR OPTIONS. An optionee shall have no
rights as a shareholder with respect to the shares covered by options until
the date of the issuance to such optionee of a stock certificate therefor,
and no adjustment will be made for cash dividends or other rights for which
the record date is prior to the date such certificate is issued.

Section 11. ADJUSTMENTS TO COMMON STOCK. If there shall be any
change in the Common Stock through merger, consolidation, reorganization,
recapitalization, stock dividend (of whatever amount), stock split or other
change in the corporate structure, appropriate adjustments in the Plan and
outstanding options shall be made. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate number of
shares subject to the Plan, the number of shares subject to outstanding options
and the option exercise prices thereof in order to prevent dilution or
enlargement of option rights.

Section 12. EFFECTIVE DATE OF THE PLAN. The Plan shall take effect
immediately upon its approval by the affirmative vote of the holders of a
majority of the shares present in person or by proxy and voted at a duly held
meeting of shareholders of the Company.

Section 13. AMENDMENT OF THE PLAN. The Board may suspend or
discontinue the Plan or revise or amend it in any respect whatsoever; provided,
however, that without approval of the shareholders of the Company no revision or
amendment shall be made that requires the approval of the Company's shareholders
under any rules or regulations of National Association of Securities Dealers,
Inc., or any other exchange on which securities of the Company may be listed,
that are applicable to the Company. The Board shall not alter or impair any
option theretofore granted under the Plan without the consent of the holder of
the option.

Section 14. GOVERNING LAW. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Minnesota and construed accordingly.

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<PAGE>

PURCHASING AGREEMENT

This agreement ("Agreement"), made and entered into as of the fifteenth
day of October 1995, by and between VHA Inc., a Delaware corporation ("VHA"),
and Nutrition Medical ("Vendor"),

Preliminary Statements:

A. VHA is, among other things, in the business of providing purchasing
opportunities with respect to high quality products to certain healthcare
providers who have appointed VHA as their agent ("VHA Members and
Affiliates"), a current list of which has been provided to Vendor by VHA;

B. Vendor is, among other things, the manufacturer of the products
listed on Exhibit A ("Products");

C. VHA has entered into certain Authorized Distribution Agency
Agreements with its Authorized Distribution Agents ("ADAs") for the Products,
a current list of which has been provided to Vendor by VHA; and

D. Vendor and VHA desire to make the Products available for purchase
by VHA Members and Affiliates from Vendor through the ADAs pursuant to this
Agreement;

In consideration of the premises, the representations and warranties of
the parties, and other good and valuable consideration, the adequacy, receipt
and sufficiency of which are acknowledged, the parties agree, subject to the
conditions, terms and provisions of this Agreement, as follows:

Section 1. OFFER SALE AND PRICES. During the term and for the
duration of this Agreement, Vendor agrees to offer to sell and to sell the
Products to VHA Members and Affiliates direct, and through the ADAs, as
agents for VHA, and through other distributors (subject to authorization of
VHA) at the prices provided on Exhibit A.

Vendor shall not offer to VHA Members and Affiliates other products in
conjunction with the Products covered by this Agreement under terms and
conditions such that VHA Members and Affiliates have no real economic choice
except to purchase Products with such other products on a bundled basis,
without the prior written notice to VHA.

Section 2. DELIVERY, TRANSPORTATION CHARGES. Vendor agrees to promptly
deliver Products ordered under this Agreement by VHA Members and Affiliates
to

<PAGE>

those Members and Affiliates, FOB destination, subject to certain minimum
order restrictions. Vendor further agrees to promptly deliver Products
ordered under the Agreement by the ADA on behalf of VHA Members and
Affiliates to the ADA's FOB, destination. Vendor agrees to prepay and absorb
charges, if any, for transporting products to the ADA; subject to certain
minimum order restrictions.

Section 3. BILLING BY AND PAYMENT TO VENDOR. Vendor agrees to direct
its invoices for Products ordered under this Agreement by ADA's for VHA
Members and Affiliates to those ADA's. Each ADA has agreed with VHA to pay
Vendor, on behalf of VHA Members and Affiliates, for Products ordered by the
ADA under this Agreement. Payment terms are (***). ADA initial orders for
Product will be given payment terms of (***). Sales direct to VHA Members
and Affiliates will carry payment terms of (***).

Vendor agrees to promptly advise VHA of the failure of any ADA, or VHA
Member or Affiliate, to pay Vendor in accordance with the payment terms
provided in this Agreement. In the event that an ADA, or VHA Member or
Affiliate fails to make payment when due, Vendor may withhold credit from
such ADA, or VHA Member or Affiliate or terminate this contract with respect
to such ADA, or VHA Member or Affiliate, provided Vendor shall provide VHA
with advance notice of such termination.

Section 4. TERM AND DURATION. Subject to the termination provisions
contained in Section 5, this Agreement shall remain in full force and effect
from October 15, 1995 through November 30, 2000. Upon mutual written
agreement by the parties, this Agreement may be extended on an annual basis.

Section 5. TERMINATION. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement may be terminated by either party
at any time, at will, and without cause upon not less than sixty (60) days
prior written notice to the other party. In the event that VHA terminates
this Agreement without cause, VHA shall be responsible to pay Vendor the VHA
PLUS-Registered Trademark- labeled Product's cost of finished inventory, work
in progress, which cannot be converted to Vendor's label and packaging
materials on order that cannot be canceled, which exist at the time
termination notice is received and which is not used prior to termination.
In any event, such responsibility by VHA shall not exceed the value of sixty
(60) days worth of VHA PLUS-Registered Trademark- labeled inventory.

Section 6. PRICE CHANGE MEETING. The parties agree to meet, at the
request of either party as frequently as necessary to achieve mutually agreed
marketing objectives, but no less frequently than once in any ninety (90) day
period during the

*** Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request, with
the Securities and Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933.

-2-

<PAGE>

term of this Agreement to discuss whether a price change for any Product can
be agreed upon by both parties.

Section 7. FAVORED CUSTOMER PRICING. Notwithstanding anything to the
contrary contained in this Agreement, the price for each Product under this
Agreement will be no greater than the lowest price charged by Vendor during
the term of this Agreement for such Product or any product which, except for
the labeling of which, is substantially similar to such Product.

Section 8. FAILURE TO SUPPLY. In the event Vendor fails to promptly
deliver any Product to any ADA and, as a result, such ADA fails to deliver
any such Product to VHA Member or Affiliate, Vendor agrees to ship VHA
PLUS-Registered Trademark-, or Vendor branded, or the similar competitive
product, direct to the hospital in a mutually agreed upon time frame and bill
through the ADA at the price contained in Exhibit A, or in the event that
Vendor cannot fill order with Product or Vendor branded product or the
similar competitive product, each such VHA Member or Affiliate may purchase
such Product or the similar competitive product from any source; and Vendor
agrees to pay such VHA Member or Affiliate, upon request, the difference
between the price paid by such VHA Member or Affiliate and such lower price
provided for under this Agreement. VHA Members and Affiliates must claim
reimbursement by providing the information described in Exhibit B.

Section 9. PRODUCT DATA. At the request of VHA or any VHA Member or
Affiliate, Vendor agrees to furnish, with respect to any Product which is a
drug, nonconfidential (a) analytical control data, (b) sterility testing
data, (c) bioavailability data (when available), (d) descriptions of testing
procedures for raw materials and finished products, and (e) any information
which may be indicative of the quality of the product. Bioavailability data
shall include: (1) review of pharmacokinetic data (half-life, protein
binding, volume of distribution, etc.); (2) dissolution data (Vendor data and
USP requirements, methods of dissolution testing, and statistical analysis);
(3) human bioavailability data (single dose and multiple dose, study design
and methodology comparison with other standard products, and blood and urine
data); and (4) reprints of articles from independent investigations.

Section 10. FRESH PRODUCT. Unless otherwise agreed in writing by VHA,
there shall not be less than a six (6) month interval between the date of
delivery by Vendor, pursuant to this Agreement, of any Product and the
expiration date of such Product.

Section 11. COMPLIANCE WITH LAWS. Vendor represents, warrants and
guarantees that all articles comprising each shipment or delivery by Vendor
("Articles") to or on the order of VHA, ADAs, VHA Members and Affiliates, or
any of their agents, affiliates or customers ("Customers"), are, as of the
date of such shipment, in compliance with all federal, state and local laws,
statutes, ordinances,

-3-

<PAGE>

rules, regulations and orders. Without limiting the generality of the
preceding sentence, Vendor specifically represents, warrants and guarantees
that all Articles are not: (a) in violation of Section 5 or 12 of the Federal
Trade Commission Act, and are properly labeled as to content as required by
applicable Federal Trade Commission Trade Practice Rules; (b) in violation of
any of the provisions of the Fair Packaging and Labeling Act; (c) adulterated
or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act,
as amended, or within the meaning of any applicable state or municipal law in
which the definitions of adulteration and misbranding are substantially
identical with those contained in the Federal Food, Drug and Cosmetic Act, or
Articles which may not under the provisions of Sections 404, 505, 512, 514 or
515 of said Act be introduced into interstate commerce or is not a banned
device under Section 516 of said Act, or which may not under substantially
similar provisions of any state or municipal law be introduced into commerce;
(d) in violation of the Consumer Product Safety Act of 1972, as amended by
the Consumer Product Safety Commission Improvements Act of 1976, or any
standard and regulation thereunder; (e) in violation of any of the provisions
of the Federal Insecticide, Fungicide and Rodenticide Act, as amended by the
Federal Environment Pesticide Control Act of 1972; (f) hazardous substances
or, if they are hazardous substances, are not misbranded hazardous substances
or banned hazardous substances within the meaning of the Federal Hazardous
Substances Act as amended (including the former Federal Caustic Poison Act);
(g)manufactured or sold in violation of any of the provisions of the Fair
Labor Standards Act, as amended, or any regulation or order issued
thereunder; (h) misbranded under the provisions of the Wool Products Labeling
Act; (i) manufactured or sold in violation of any applicable Equal Employment
Opportunity requirement, including those set forth in Section 202 of
Executive Order 11246, as amended; (j) manufactured or sold in violation of
the Occupational Safety and Health Act of 1970, any standard or regulation
issued thereunder, or any applicable state law or regulation pertaining to
job safety or health; (k) in violation of the Toxic Substances Act or any
standard or regulation issued thereunder; (I) in violation of the
Magnuson-Moss Warranty Federal Trade Commission Improvement Act; (m) in
violation of the Biological Products Section of the Public Health Service
Act; or (n) in violation of any requirement of the Flammable Fabrics Act as
amended and regulations and standards thereunder, or applicable codes of the
National Fire Protection Association (NFPA) and any applicable state or local
laws substantially identical to the Flammable Fabrics Act or which adopt the
tests provided for in any applicable code of the NFPA, and that reasonable
and representative tests as prescribed by the Consumer Product Safety
Commission have been performed to show conformity with applicable
flammability standards.

Vendor shall reimburse Customers for any cost associated with any
product corrective action, withdrawal or recall requested by Vendor or
required by any governmental entity. In the event a product recall or a
court action impacting supply occurs, the Vendor shall conduct all product
recalls per its established

-4-

<PAGE>

procedure and shall notify VHA in writing within twenty-four hours of any
such action. The representations, warranties and guarantees made by Vendor
in this Section survive any termination of this Agreement and shall be
continuing and binding upon the Vendor and its successors and/or assigns,
whichever the case may be, and shall inure to the benefit of Customers, their
successors and assigns and to the benefit of their officers, directors,
agents and employees and their heirs, executors, administrators, successors,
and assigns.

With respect to Articles that show or display any trademark of VHA,
Vendor agrees to make no change in such Articles or the label, labeling or
packaging relating thereto without first obtaining the express written
consent of VHA. Vendor recognizes that VHA is the owner of the trademarks and
trade names connoting VHA which may be used in the promotion and sale of the
Articles and that Vendor has no right or interest in any such trademark or
trade name.

Section 12. BOOKS AND RECORDS. AUDIT. Vendor agrees to keep, maintain
and preserve complete, current and accurate books, records and accounts of
the transactions contemplated by this Agreement and such additional books,
records and accounts as are necessary to establish and verify Vendor's
compliance under this Agreement. All such books, records and accounts shall
be available for inspection and audit by VHA and its authorized
representatives at any time during the term of this Agreement and for two (2)
years thereafter, but no more frequently than twice in any consecutive twelve
month period and only during reasonable business hours and upon reasonable
notice. The exercise by VHA of the right to inspect and audit is without
prejudice to any other or additional rights or remedies of either party.

Section 13. INDEMNITY AND INSURANCE. Vendor agrees to protect, defend,
indemnify and to hold VHA, ADAs, VHA Members and Affiliates and their
respective subsidiaries, affiliates, directors, officers and employees
("Indemnitees") harmless from any loss, liability, damage, cost or expense
(including attorneys' fees and other expenses of litigation) because of (i)
personal/bodily injury, including death at any time resulting therefrom, or
damage to property, including loss of use thereof and downtime, caused by any
Product or (ii) any material misrepresentation, breach of warranty or
covenant, or other breach or default by Vendor under this Agreement;
provided, however, that Vendor shall not be obligated under this Agreement to
defend, indemnify or hold harmless any Indemnitee from any such loss,
liability, damage, cost or expense which results solely from that
Indemnitee's misconduct or negligence. Without limiting the generality of
the preceding sentence, Vendor agrees to obtain and maintain, at its own
expense, commercial general liability insurance including blanket contractual
liability and products liability Overages with minimum limits of $1,000,000
per occurrence and $1,000,000 annual aggregate. Such insurance shall include
all Indemnitees as additional insureds. Within thirty (30) days from the
date of this Agreement, Vendor shall submit to VHA a certificate of insurance
attested by a duly authorized representative

-5-

<PAGE>

of the insurance carrier or carriers, evidencing that the insurance required
is in force and in effect and that such insurance will not be canceled or
materially changed without giving VHA at least thirty (30) days prior written
notice. Vendor's obligation to obtain and maintain the required insurance
and submit the required certificate of insurance to VHA shall continue during
the term of this Agreement and for five (5) years thereafter.

Furthermore, Vendor shall defend, indemnify and hold harmless
Indemnitees from and against any liability, damage, cost or expense arising
out of any claim of patent infringement made with respect to any Product.

Section 14. RETURNED GOODS. Vendor agrees to accept the return of
Products in accordance with Vendor's currently stated policy, provided;
however, that Vendor agrees to accept the return of Products delivered by
Vendor in error or in a damaged condition without charge and for full credit.

Section 15. PRODUCT DELETION. Notwithstanding anything in the contrary
contained in this Agreement, Vendor or VHA may delete any one or more of the
Products from this Agreement at any time, at will and without cause upon not
less than sixty (60) days prior written notice to Vendor. If VHA deletes a
VHA PLUS-Registered Trademark- labeled Product without cause, VHA shall be
responsible to pay Vendor the cost of finished goods inventory of deleted VHA
PLUS-Registered Trademark- labeled Product, work in progress and packaging
materials on order that cannot be canceled or converted to Vendor's label,
which exist at the time such notice is given, not to exceed sixty (60) days
worth of inventory and which is not used prior to termination.

The parties have caused this Agreement to be executed and delivered by
their respective authorized representatives as of the date at the beginning
of this Agreement.

VHA Inc.
("VHA")

By: /s/ William J. Elliot
-------------------------
William J. Elliott
Senior Vice President
Supply Chain Management

Nutrition Medical, Inc. ("Vendor")

By: /s/ William L. Rush
-------------------------
Authorized Representative

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<PAGE>

EXHIBIT A
TO THE
PURCHASING AGREEMENT
DATED AS OF THE FIFTEENTH DAY OF OCTOBER, 1995
BY AND BETWEEN
VHA INC.
("VHA")
AND
NUTRITION MEDICAL
("VENDOR")

(***)

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<PAGE>

TRADEMARK LICENSE AGREEMENT

This agreement ("Agreement"), made and entered into as of the
fifteenth day of October, 1995, by and between VHA Inc., a Delaware
corporation ("VHA"), and Nutrition Medical, ("Licensee"); Preliminary
Statements:

Preliminary Statements:

A. VHA is the owner of all right, title and interest in, to and
under the marks "VHA+PLUS-Registered Trademark-)" and "VHA+PLUS
Design-Registered Trademark-" (the "MARKS");

B. A reputation for uniform high quality has been established by
VHA for services and products in association with which it has adopted and
used the MARKS;

C. VHA desires to extend the use of the MARKS to additional
products; and

D. Licensee desires to obtain a license to use the MARKS in
connection with the products identified in Exhibit A, as such Exhibit may be
amended in writing by VHA ("the Products").

In consideration of the premises, the representations and
warranties of the parties, and other good and valuable consideration, the
adequacy, receipt and sufficiency of which are acknowledged, the parties
agree, subject to the conditions, terms and provisions of this Agreement, as
follows:

Section 1. LICENSE. VHA grants to Licensee, and Licensee accepts
from VHA for the term of this Agreement a license to utilize the MARKS solely
upon or in connection with the manufacture, distribution and sale of the
Products in the United States to VHA Members and Affiliates, a list of which
has been provided to Licensee.

Section 2. TERM AND DURATION. Subject to the termination
provisions contained in Section 3 hereof, this Agreement shall remain in full
force and effect from October 15, 1995, through November 30, 2000. Upon
mutual written agreement by the parties, this agreement may be extended on an
annual basis.

Section 3. TERMINATION. Notwithstanding anything contained in
this Agreement to the contrary, this Agreement and all rights granted under
this Agreement may be terminated at will and without cause by either party
upon not less than sixty (60) days' prior written notice to the other party.
However, in the event of a breach of this Agreement by Licensee, VHA may
terminate this Agreement thirty (30) days after mailing a written notice to
Licensee, provided that Licensee has not cured the breach within the thirty
(30) day period. Unless VHA consents to in writing as to a specific
transaction, this Agreement shall immediately

<PAGE>

and automatically terminate upon the dissolution, sale of all or
substantially all assets, merger or consolidation of Licensee, upon notice by
an insurer of termination or material modification of the insurance under
Section 7, or upon any termination of the Purchasing Agreement between VHA
and Licensee dated October 15, 1995. In the event of any termination of this
Agreement, Licensee shall immediately discontinue all use of the MARKS.

Section 4. LICENSE CONSIDERATION. As consideration for the
license granted Licensee, Licensee shall pay to VHA as royalties a sum equal
to the rate of (***) of all net sales for the months of December 1995 through
June 1996, and (***) of all net sales for the months of July 1996 through
December 1996, (as such term "net sales" is defined below) by Licensee of
products sold under or in connection with one or more of the MARKS.

As such point as the parties mutually agree upon a reliable method
of securing market share data which is incorporated into this agreement by
amendment, Licensee shall pay VHA at the applicable rate from the table
provided below.

The royalty fee rate shall be based on market share of product as
set forth in the schedule below:

(***)

* SOM will be calculated separately for each of the initial three products
covered by this agreement and all subsequent products added to Exhibit A.

Royalty fee rates for months in the current quarter will be based
on SOM as calculated from previous quarter. Within ninety (90) days after
the end of a calendar quarter, Licensee will reconcile royalty paid for the
previous quarter by issuing a credit or debit to reflect the actual royalty
fee under SOM tiers for that quarter.

Royalties shall be payable monthly. The term "net sales" shall
mean purchases of products listed in Exhibit A at contract price less returns
and other applicable discounts and incentives actually taken. No deduction
shall be made for uncollected accounts, and no costs incurred in the
manufacture, sales, distribution or exploitation of the products shall be
deducted from any royalties payable by Licensee, unless mutually agreed to by
both VHA and Licensee in writing prior to the deduction.

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<PAGE>

Section 5. MONTHLY STATEMENT. On a monthly basis, Licensee shall
submit direct and non-pharmacy ADA distributed VHA PLUS-Registered Trademark-
product and Nutrition Medical labeled product sales data within ten (10)
business days after the end of each month during the term of this Agreement.
VHA will combine this data with the corresponding month's PRISM data. VHA
will submit to Licensee within thirty (30) days after the end of each month a
complete VHA PLUS-Registered Trademark- product sales report. Within ten
(10) business days after receipt of the aforementioned report, Licensee shall
furnish to VHA a complete statement, certified to be accurate by Licensee.
Additionally, the monthly report must set forth accurately the following: (a)
the name of the Licensee, the month and year to which the monthly statement
relates and the Contract number (as provided License by VHA); with respect to
each VHA Member and Affiliate (described by LIC number, full name, city,
state, and zip code as provided Licensee by VHA), the sum of the net sales
and associated royalties for all products sold to each such VHA Member and
Affiliate during the month, (c) the calculation used by Licensee to determine
the royalty fee; and (d) such additional information as VHA may reasonably
request from time to time.

Monthly statements shall be delivered to:

VHA Inc.
220 East Las Colinas Boulevard
Irving, TX 75039-5500
(Mailing Address: P. O. Box 140909
Irving, TX 75014-0909)
Attn: Accounts Receivable

Such statements shall be furnished to VHA whether or not any of the
Products have been sold during the preceding month (i.e., a report stating
that no sales were made), and when furnished shall include such other
information and be furnished in accordance with such reasonable provisions as
VHA may request from time to time during the term of this Agreement.

In the event Licensee fails to pay the royalty fee in accordance
with Section 4 and/or fails to provide the reports described in Section 5
within the time and manner stated, VHA may invoice Licensee for the royalty
fees estimated by VHA to be due, payable within 10 days of the date of such
invoice. Invoice by VHA or payment by Licensee shall not relieve Licensee of
its payment obligations under Section 4 or the reporting obligations of
Section 5. In addition, upon the occasion of the first failure to receive a
payment or report when due, Licensee shall receive a written warning. Upon
the second and any subsequent failure to provide payment or a report when
due, Licensee shall pay an administrative penalty in accordance with the
following schedule:

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<PAGE>

(***)

Section 6. BOOKS AND RECORDS. AUDIT. Licensee shall keep,
maintain and preserve complete, current and accurate books, records and
accounts of the transactions contemplated by this Agreement and such
additional books, records and accounts as are necessary to establish and
verify Licensee's compliance under this Agreement. All such books, records
and accounts shall be available for inspection and audit by VHA and its
authorized representatives at any time during the term of this Agreement and
for two (2) years thereafter, but no more frequently than twice in any
consecutive twelve month period and only during reasonable business hours and
upon reasonable notice. The exercise by VHA of the right to inspect and
audit is without prejudice to any other or additional rights and remedies of
either party and shall not stop or prevent VHA from thereafter disputing the
accuracy of any statement or payment given to VHA by Licensee.

Section 7. INDEMNITY AND INSURANCE. Licensee agrees to protect,
defend, indemnify and to hold VHA, the ADAs, VHA Members and Affiliates and
their respective subsidiaries, affiliates, directors, officers and employees
("Indemnitees") harmless from any loss, liability, damage, cost or expense
(including attorneys' fees and other expenses of litigation) because of (i)
personal/bodily injury, including death at any time resulting therefrom, or
damage to property, including loss of use thereof and downtime, caused by any
Product; (ii) any material misrepresentation, breach of warranty or covenant,
or other breach or default by Licensee under this Agreement; or (iii)
Licensee's activities under the license granted by this Agreement, including,
without limitation, any activities performed under the MARK or any derivative
thereof; provided, however, that Licensee shall not be obligated under this
Agreement to defend, indemnify or hold harmless any Indemnitee from any such
loss, liability, damage, cost or expense which results solely from that
Indemnitee's misconduct or negligence. If Licensee fails to retain counsel
or to defend such claim, VHA shall have the right to undertake that defense
as it deems appropriate, and the costs of such defense, including but not
limited to, attorneys' fees, out-of-pocket costs and the costs of an appeal
and bond, together with the amount of any judgment rendered against VHA,
shall be paid by Licensee upon demand. This Agreement shall not prevent VHA
from defending any such claim, at its own expense through its own counsel,
even if the defense of the claim has been undertaken by Licensee and Licensee
shall promptly notify VHA of the commencement or anticipated commencement of
any such claim. VHA shall indemnify Licensee against any and all claims and
losses arising from any suit or other proceeding challenging Licensee's use
of the MARKS covered under this Agreement. Without limiting the generality of
the foregoing, Licensee agrees to obtain and maintain, at its own expense,
commercial general liability insurance including blanket contractual
liability and products liability Overages with

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<PAGE>

minimum limits of $1,000,000 per occurrence and $1,000,000 annual aggregate.
Such insurance shall include all Indemnitees as additional insureds. Within
thirty (30) days from the date hereof, Licensee shall submit to VHA a
certificate of insurance attested by a duly authorized representative of the
insurance carrier or carriers, evidencing that the insurance required is in
force and in effect and that such insurance will not be canceled or
materially changed without giving VHA at least thirty (30) days prior written
notice. Licensee's obligation to obtain and maintain the required insurance
and submit the required certificate of insurance to VHA shall continue during
the term of this Agreement and for five (5) years thereafter.

Furthermore, Licensee shall defend, indemnify and hold harmless
Indemnitees from and against any liability, damage, cost or expense arising
out of any claim of patent infringement made with respect to any Product.

Section 8. TRADEMARK NOTICES. Licensee shall legibly apply the
appropriate MARK or MARKS to each item and all cartons and cases of and for
each and every one of the Products manufactured, distributed or sold under
this Agreement strictly in accordance with the provision of the VHA Graphics
Standards Manual, a copy of which Licensee acknowledges having received, as
from time to time amended. On advertising, promotional, packaging and
wrapping material and any other such material where the MARKS appear, the
initials "TM" or the letter "R" encircled shall be used as directed from time
to time by VHA in connection with the MARKS. Except as may be otherwise
required by law, neither the name of Licensee nor any other name or trademark
may be used with respect to any Product without VHA's prior written consent.

Section 9. QUALITY CONTROL. At all times during the term of this
Agreement, Licensee shall maintain the quality standards set forth in this
paragraph in connection with its use of the MARKS. Licensee shall not use
the MARKS other than in connection with the Products. The Products shall be
at least equal in quality to comparable unlicensed products as then
manufactured and marketed by Licensee. VHA shall have the right to
reasonably modify or supplement the quality standards applicable hereunder by
providing written notice to Licensee with the express approval of Licensee,
which approval shall not be unreasonably withheld or delayed under the
circumstances. Licensee shall promptly furnish to VHA, without cost, any
samples of advertisements or other then existing uses of the MARKS requested
by VHA. VHA also shall have the right to inspect the Products and Licensee's
facilities and business operations to determine their conformity with the
quality standards set forth in this Agreement. Licensee shall obtain for VHA
the right to inspect the facilities and business operations of any third
party manufacturer of the Products to determine their conformity with the
quality standards set forth in this Agreement. VHA agrees to preserve the
confidentiality of any confidential information that may be obtained from
such visits.

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<PAGE>

Section 10. GOODWILL. Goodwill derived through use of the MARKS
inures to the benefit of VHA. Licensee recognizes the great value of the
publicity and goodwill associated with the MARKS and, in such connection,
acknowledges that such goodwill, and all rights in the MARKS, exclusively
belong to VHA. Licensee further recognizes and acknowledges that a breach by
Licensee of any of its covenants, agreements or undertakings with regard to
the MARKS may cause VHA irreparable damage, which cannot be readily remedied
in damages in an action at law, and may in addition, constitute an
infringement of the MARKS thereby entitling VHA to immediate injunctive
relief relative to products bearing the MARKS, costs and reasonable
attorneys' fees.

Section 11. CONFIDENTIAL INFORMATION. All confidential,
proprietary or trade-secret information, oral or written, disclosed to VHA by
Licensee pursuant to this Agreement including, but not limited to, technical,
financial, and economic information shall remain the exclusive property of
Licensee. VHA shall not disclose, or permit anyone on its behalf to
disclose, any such information without Licensee's prior written consent,
unless such information is generally and publicly known before the time of
such disclosure. Any and all such information shall, upon termination of
this Agreement or upon the request of Licensee, be promptly delivered by VHA
to Licensee; provided however, VHA may retain one copy of such information
solely for record purposes. Licensee agrees that the periodic statements
required in Section 5, for the intent and purposes of this Agreement, are
not, and do not include any of Licensee's confidential information.

All information, oral or written, disclosed to Licensee by VHA
pursuant to this Agreement including, but not limited to, technical,
financial and economic information shall remain the exclusive property of
VHA. Licensee shall not disclose, or permit anyone on its behalf to
disclose, any of such information without VHA's prior written consent unless
such information is generally and publicly known before the time of such
disclosure. Any and all such information shall, upon termination of this
Agreement or upon the request of VHA, be promptly delivered by Licensee to
VHA, and Licensee shall thereafter make no further use, directly or
indirectly, of such information without the prior written permission of VHA,
provided however, Licensee may retain one copy of such information solely for
record purposes.

Section 12. SPECIFIC UNDERTAKINGS OF LICENSEE. During the term of
this Agreement, Licensee agrees that:

(a) It will not attack the title of VHA in and to the MARKS, nor will
it attack the validity of the License granted hereunder;

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<PAGE>

(b) It will not harm, misuse or bring into disrepute the MARKS;

(c) It will manufacture, sell and distribute the Products in an
ethical manner and in accordance with the terms and intent of
this Agreement;

(d) It will not create any expense chargeable to VHA without the
prior written approval of VHA;

(e) It will comply with all laws and regulations relating or
pertaining to this Agreement or to the manufacture, sale,
advertising or use of the Products; maintain the quality and
standards required by this Agreement; and comply with all
requirements and regulations of any regulatory agencies,
including, but not limited to, the Food and Drug Administration
which may have jurisdiction over the Products;

(f) If any Product is a pharmaceutical covered by a
Medicare/Medicaid rebate agreement with any federal or state
agency, then Licensee shall include such Product with a unique
NDC number for the VHA+PLUS-Registered Trademark- labelled
product with the Licensee's labeller code in its rebate
agreements and pay any rebates due on such Products which
bear the Marks; and

(g) It will use its best efforts to sell the Products.

Section 13. REGISTRATION AND ENFORCEMENT. Registration and any
other protection for the MARKS shall only be obtained by VHA in its name and
at its expense. Licensee shall furnish to VHA at its request any information
about, and specimens illustrative of, the manner of use of the MARKS by
Licensee. All use of the MARKS by Licensee shall inure to the benefit of
VHA. Enforcement of the MARKS by the institution of litigation or otherwise
shall be in the sole discretion of VHA, but Licensee shall at its own expense
cooperate with VHA by providing documentary evidence, employee testimony or
the like in any enforcement action undertaken by VHA and shall notify VHA in
the event that Licensee obtains information related to infringement of the
MARKS.

Section 14. SEVERABILITY The provisions of this Agreement shall be
severable, and if any provision of this Agreement shall be held or declared
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect any other provision of this Agreement, and
the remainder of this Agreement, disregarding such invalid portion, shall
continue in full force and effect as though such void provision had not been
contained in this Agreement.

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<PAGE>

Section 15. ASSIGNMENT. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of VHA and Licensee;
provided however, that Licensee may not assign or delegate any of its
interests, rights, duties or obligations hereunder by operation of law or
otherwise without the prior written consent of VHA.

Section 16. SUBLICENSE AND MANUFACTURE. Licensee shall not
sublicense any of its rights under this Agreement. In the event Licensee is
not the manufacturer of the Products, Licensee shall remain primarily
obligated under all of the provisions of this Agreement.

Section 17. GOVERNING LAW. This Agreement shall be deemed to be
made and entered into pursuant to the laws of the State of Texas. In the
event of any dispute, this Agreement shall be governed by and shall be
construed and interpreted in accordance with the internal laws of the State
of Texas.

Section 18. WAIVER. The waiver by either party of any breach of
any provision hereof by the other party shall not be construed to be either a
waiver of any succeeding breach of any such provision or a waiver of the
provision itself.

Section 19. NATURE OF RELATIONSHIP. Nothing in this Agreement
shall be construed to place the parties in a relationship of partners or
joint venturers, and neither party shall have the power to obligate or bind
the other in any manner.

Section 20. PAYMENTS AND NOTICES. All communications, notices and
exchanges of information contemplated under this Agreement or required or
permitted to be given hereunder shall be in writing and shall be given when
one of the parties deposits the same in the United States certified or
registered mail, postage prepaid, addressed to the other party at its address
set forth below:

If to VHA:

VHA Inc.
220 East Las Colinas Boulevard
P.O. Box 140909
Irving, Texas 75014-0909

Attention: Senior Vice President
Supply Chain Management

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<PAGE>

If to Licensee:
___________________________
___________________________
___________________________

Attention:___________________

Section 21. INTEGRATED AGREEMENT. This instrument, together with
the Purchasing Agreement dated October 15, 1995, contains the entire
Agreement between the parties in respect of the subject matter of this
Agreement and supersedes and cancels all other previous agreements,
negotiations, commitments and writings in respect of such subject matter.

The parties have caused this Agreement to be executed and delivered
by their respective authorized representatives as of the date first above
written.

VHA Inc.
("VHA")

By: /s/ William J. Elliot
---------------------------------
William J. Elliott
Senior Vice President
Supply Chain Management

Nutrition Medical, Inc. ("Licensee")

By: /s/ William L. Rush
---------------------------------
Authorized Representative

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<PAGE>

EXHIBIT A
TO THE
TRADEMARK LICENSE AGREEMENT
DATED AS OF THE FIFTEENTH DAY OF OCTOBER,1995,
BY AND BETWEEN
VHA INC.
("VHA")
AND
NUTRITION MEDICAL
"LICENSEE")

VHA PLUS-Registered Trademark- NUTRITION PRODUCTS:

(***)

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<PAGE>

MEMORANDUM OF UNDERSTANDING
BETWEEN NUTRITION MEDICAL AND VHA

As part of the agreement between Nutrition Medical and VHA, the roles and
accountability of all parties involved in the production and distribution of
VHA PLUS Enteral Nutrition Products shall be outlined as indicated below:

GENERAL

1. This agreement applies only to RA/QA (Regulatory Affairs and Quality
Assurance) issues related to the production and distribution of VHA PLUS
Enteral Nutrition Products.

2. At all times, both parties shall endeavor to ensure that all federal,
state, and local regulatory requirements are met, and that GMPs (Good
Manufacturing Practices) are employed.

3. Each party shall immediately inform the other in writing in the event of
any regulatory inspection, its results, and subsequent correspondence and
corrective action required, if applicable.

4. VHA personnel shall have the right to conduct annual reviews of the
operations of Nutrition Medical. These visits shall be planned in advance
and shall occur at times mutually convenient to both parties. VHA
personnel shall be advised of any substantive or material changes that may
occur to the policies and procedures between annual inspections.

PRODUCT LABELING

1. Nutrition Medical shall provide sample copy of all proposed labeling and
any proposed revision to labeling to VHA.

2. Using the VHA PLUS Graphics Standards Manual, VHA will create and proof
artwork per the sample copy provided by Nutrition Medical.

3. Nutrition Medical is responsible for the printing of all labeling to be
used per the artwork supplied by VHA. Nutrition Medical shall adhere
completely to the VHA PLUS Graphics Standards Manual and shall not vary
from the artwork as supplied by VHA.

4. After the final labeling has been printed, VHA shall review and approve
prior to initial product release for shipment.

5. If any labeling is revised for any reason, the above process shall be
repeated in its entirety.

<PAGE>

6. Nutrition Medical shall maintain the master labeling file.

7. Nutrition Medical shall be responsible for Inventory Control of approved
labeling and shall take all appropriate measures, including, without
limitation, adopting and enforcing appropriate written procedures, to
ensure that the correct revision of labeling is used at all times. During
annual inspections, VHA has the right to inspect and review said procedures
to ensure correct label issuance by Nutrition Medical.

LOT NUMBERING

Nutrition Medical shall implement a lot numbering system in which
traceability is assured for VHA PLUS products. A suggestion for handling
is if a product is made from the same production run or batch, a prefix or
suffix shall be added to the lot number so that VHA PLUS-labeled Enteral
Nutrition Products may be distinguished from Nutrition Medical-labeled
Enteral Nutrition products.

RETAINED SAMPLES

To provide prompt trouble shooting abilities in the event of a VHA PLUS
product problem, Nutrition Medical shall maintain separate, distinct
quantities of retained samples of VHA PLUS Enteral Nutrition products.

PRODUCT RELEASE

Nutrition Medical shall follow their established procedures for Product
Release and shall notify VHA of any changes/revisions to that procedure.
During annual inspections, VHA has the right to inspect and review this
procedure to ensure that lots are being properly released.

CUSTOMER COMPLAINT HANDLING

1. Using existing policy and procedure, Nutrition Medical shall work to
resolve all customer complaints.

2. Nutrition Medical shall maintain the master file of customer complaints
received for VHA PLUS products and shall, on a quarterly basis, advise VHA
of any all complaints received and the steps taken to resolve them.
Nutrition Medical shall notify VHA exactly how and when a customer
complaint is closed.

3. In the event that a customer complaint is received by VHA, VHA personnel
shall forward that complaint to Nutrition Medical for processing. If VHA

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<PAGE>

receives a customer complaint and determines that the complaint could
potentially result in injury or death, VHA personnel shall notify Nutrition
Medical within one hour. Communications regarding potential injury or
death issues should be transmitted by Facsimile (Fax) machine whenever
possible.

4. During annual inspections, VHA shall have the right to review and inspect
these policies and procedures in an attempt to ensure proper customer
complaint handling and notification to regulatory agencies.

PRODUCT RECALL

1. Nutrition Medical shall perform all product recalls per their established
procedure and shall notify VHA immediately of any such recalls.

2. VHA shall have the right to take an active role in the event of a product
recall by acting as a working party and assisting Nutrition Medical
whenever possible.

3. VHA will advise Nutrition Medical at any time that it determines that a
potential situation exists in which a recall may be required.

4. During annual inspections, VHA has the right to review and inspect these
procedures in an attempt to ensure that recalls are properly handled.

REGULATORY SUBMISSIONS/PAYMENT OF FEES

If any local, state or national government or regulatory submissions,
agreements or rebates are required in order to market the VHA PLUS Enteral
Nutrition product, Nutrition Medical shall be responsible for completing
such submissions and for payment of associated fees. Nutrition Medical
shall inform VHA in writing of any government or regulatory submissions
completed and fees paid.

APPROVED BY/DATE:

Nutrition Medical Corporation
- ---------------------------------

By: /s/ William L. Rush / President/CEO
----------------------- ------------------
VHA

By: /s/ / President/CEO
----------------------- ------------------

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<PAGE>

EMPLOYMENT AGREEMENT

THIS Agreement, dated November 20, 1995, by and between NUTRITION
MEDICAL, INC., a Minnesota corporation (the "Company"), and Richard J.
Hegstrand, CPA, an individual resident of Minnesota ("Employee").

WHEREAS, the Company wishes to employ Employee to render services for
the Company on the terms and conditions set forth in this agreement, and
Employee wishes to be retained and employed by the Company on such terms and
conditions.

NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Employee set forth below, the Company and
Employee agree as follows:

1. EMPLOYMENT. The Company hereby employs Employee, and Employee
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this agreement.

2. TERM. Unless terminated at an earlier date in accordance with
section 9 of this agreement, the term of Employee's employment hereunder shall
be for a period of One year (the "Initial Term"), commencing on the date of this
agreement. Within sixty days of the expiration of the term, Company and
Employee may negotiate a new agreement, unless both parties agree, in writing,
to extend the term of this agreement of November 20, 1995. At any time, either
party may, by prior written notice to the other party of at least thirty days,
terminate this agreement.

3. POSITION AND DUTIES.

3.01 SERVICE WITH COMPANY. During the term of this agreement,
Employee agrees to perform such reasonable employment duties as the management
of the Company shall assign to Employee from time to time.

3.02 PERFORMANCE OF DUTIES. Employee agrees to serve the Company
faithfully and to the best of Employee's ability and to devote Employee's full
time, attention and efforts to the business and affairs of the Company during
the term of this agreement. In the event Employee wishes to pursue, on
Employee's own time and with Employee's own resources other business
opportunities (the "Business Opportunities") that do not interfere with
Employee's obligations hereunder and are not directly competitive with the
business of the Company, Employee shall first obtain approval from management of
the Company. Employee hereby confirms that Employee is under no contractual
commitments inconsistent with Employee's obligations set forth in this
agreement, including but not limited to noncompete or similar agreements, and
that during the term of this agreement, employee will not

<PAGE>

render or perform services for any other corporation, firm, entity or person
that are inconsistent with the provisions of this agreement.

4. COMPENSATION.

4.01 COMPENSATION. Employee agrees to the compensation for all
services to be rendered under this agreement during the term of this agreement
as set forth in the Company's letter to Employee dated November 11, 1995,
attached hereto.

4.02 PARTICIPATION IN BENEFIT PLANS. During the term of this
agreement, Employee shall be entitled to receive and the Company shall provide
such medical and hospitalization insurance and other fringe benefits as are
provided to the Company's other employees.

4.03 EXPENSES. The Company will pay or reimburse Employee for all
reasonable and necessary out-of-pocket expenses incurred by Employee in the
performance of Employee's duties under this agreement, subject to the
presentment of appropriate vouchers or other documentation in accordance with
the Company's normal policies for expense verification.

5. CONFIDENTIAL INFORMATION.

(a) Except as permitted or directed by the Company's board of
directors, during the term of this agreement or at any time thereafter, Employee
shall not divulge, furnish or make accessible to anyone or use in any way (other
than in the ordinary course of the business of the Company) any confidential or
secret knowledge or information of the Company that Employee has acquired or
become acquainted with or will acquire or become acquainted with prior to the
termination of the period of Employee's employment by the Company (including
employment by the Company or any affiliated companies prior to the date of this
agreement), whether developed by employee or by others concerning any trade
secrets, confidential or secret designs, processes, formulae plans, devices or
material (whether or not patented or patentable) directly or indirectly useful
in any aspect of the business of the Company, any customer or supplier lists of
the Company, any confidential or secret development or research work of the
Company or any other confidential information or secret aspects of the business
of the Company. Employee acknowledges that the above described knowledge or
information constitutes a unique and valuable asset of the Company and
represents a substantial investment of time and expense by the Company and its
predecessors, and that any disclosure or other use of such knowledge or
information other than for the sole benefit of the Company would be wrongful and
would cause irreparable harm to the Company. Both during and after the term of
this agreement, Employee will refrain from any acts or omissions that would
reduce the value of such knowledge or information to the Company. The foregoing
obligations of confidentiality,

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<PAGE>

however, shall not apply to any knowledge or information which is now published
or which subsequently becomes generally publicly known in the form in which it
was obtained from the Company, other than as a direct or indirect result of the
breach of this agreement by Employee. The foregoing obligations of
confidentiality shall also not apply to any knowledge or information known by
the Employee before the date of this agreement.

(b) Employee also agrees, during the term of this agreement or at
any time thereafter, not to divulge, furnish or make accessible to anyone at the
Company any confidential or secret knowledge or information the Employee has
received in any previous employment.

6. VENTURES. If, during the term of this agreement, Employee is
engaged in or associated with the planning or implementing of any project,
program or venture directly involving the Company and a third party or parties,
all rights in such project, program or venture shall belong to the Company.
Except as reasonably approved by the Company's board of directors, Employee
shall not be entitled to any interest in such project, program or venture or to
any commission, finder's fee or other compensation in connection therewith other
than the salary to be paid to Employee as provided in this agreement.

7. NONCOMPETE COVENANT.

7.01 AGREEMENT NOT TO COMPETE. Employee agrees that, during the term
of Employee's employment by the Company and for a period of two years
thereafter, employee shall not, directly or indirectly, engage in competition
with the Company in any manner or capacity (e.g., as an advisor, principal,
agent, partner, officer, director, stockholder, employee, member of any
association, or otherwise) in any phase of the business which the Company is
conducting during the term of this agreement, including the design, development,
manufacture, distribution, marketing, leasing or selling of accessories,
devices, or systems related to the products or services being sold by the
Company.

7.02 GEOGRAPHIC EXTENT OF COVENANT. The obligations of Employee
under section 7.01 shall apply to any geographic area in which the Company:

(a) has engaged in business during the term of this agreement
through production, promotional, sales or marketing activity, or otherwise; or,

(b) has otherwise established its goodwill, business reputations or
any customer or supplier relations.

7.03 LIMITATION ON COVENANT. Ownership by Employees as passive
investment of less than 5% of the outstanding shares of capital stock of any

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<PAGE>

corporation listed on a national securities exchange or publicly traded in the
over-the counter market shall not constitute a breach of this section 7.

7.04 INDIRECT COMPETITION. Employee further agrees that, during the
term of this agreement and for a period of two years thereafter, Employee will
not, directly or indirectly, assist or encourage any other person in carrying
out, directly or indirectly, any activity that would be prohibited by the above
provisions of this section 7 if such activity was carried out by Employee,
either directly or indirectly, and in particular Employer agrees that Employee
will not, directly or indirectly, induce any Employee of the Company to carry
out, directly or indirectly, any such activity.

8. PATENT AND RELATED MATTERS.

8.01 DISCLOSURE AND ASSIGNMENT. Employee will promptly disclose in
writing to the Company complete information concerning each and every invention,
discovery, improvement, device, design, apparatus, practice, process, method or
product, whether patentable or not, made, developed, perfected, devised,
conceived or first reduced to practice by Employee, either solely or in
collaboration with others, during the term of this agreement, whether or not
during regular working hours, relating directly to the business, products
practices or techniques of the Company (hereinafter referred to as
"Developments"). Employee, to the extent that Employee has the legal right to
do so, hereby acknowledges that any and all of said Developments are the
property of the Company and hereby assigns and agrees to assign to the Company
any and all of Employee's right, title and interest in and to any and all of
such Developments.

8.02 FUTURE DEVELOPMENTS. As to any future Developments made by
Employee which relate to the business, products or practices of the Company, and
which are first conceived or reduced to practice during the term of this
agreement but which are claimed for any reason to belong to an entity or person
other than the Company, Employee will promptly disclose the same in writing to
the Company and shall not disclose the same to others if the Company, within
twenty days thereafter, shall claim ownership of such Developments under the
terms of this agreement. If the Company makes such claims Employee agrees that
insofar as the rights (if any) of Employee are involved, it will be settled by
arbitration in accordance with the rules then obtaining of the American
Arbitration Association. The locale of the arbitration shall be Minneapolis,
Minnesota (or other locale convenient to the Company's principal Employee
offices). If the Company makes no such claims, Employee hereby acknowledges
that the Company has made no promise to receive and hold in confidence any such
information disclosed by Employee.

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<PAGE>

8.03 LIMITATION ON SECTION 8.01 AND 8.02. The provisions of sections
8.01 and 8.02 shall not apply to any Development meeting the following
conditions:

(a) such development was developed entirely on Employee's own time;
and,

(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information; and,

(c) such Development does not relate (i) directly to the business of
the Company or (ii) to the Company's actual or demonstrably anticipated research
or development; and,

(d) such Development does not result from any work performed by
Employee for the Company.

8.04 ASSISTANCE OF EMPLOYEE. Upon request and without further
compensation therefore, but at no expense to Employee, and whether during the
term of this agreement or thereafter, Employee will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and the
giving of testimony, that in the opinion of the Company, its successors and
assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending and enforcing United States and foreign Letters Patent, including but
not limited to, design patents on any and all of such developments, and for
perfecting, affirming and recording the Company's complete ownership and title
thereto and to cooperate otherwise in all proceedings and matters relating
thereto.

8.05 RECORDS. Employee will keep complete, accurate and authentic
accounts, notes, data and records of all Developments in the manner and form
requested by the Company. Such accounts, notes, data and records shall be the
property of the Company, and, upon its reasonable, written requests Employee
will promptly surrender same to it or, if not previously surrendered upon its
request or otherwise, Employee will surrender the same, and all copies thereof,
to the Company upon the conclusion of Employee's employment.

8.06 OBLIGATIONS, RESTRICTIONS AND LIMITATIONS. Employee understands
that the Company may enter into agreements or arrangements with agencies of the
United States Governments and that the Company may be subject to laws and
regulations which impose on aliens, restrictions and limitations on it with
respect to inventions and patents which may be acquired by it or which may be
conceived or developed by Employees, consultants or other agents rendering
services to it. Employee agrees that Employee shall be bound by all such
obligations, restrictions and limitations applicable to any such invention
conceived or developed by Employee during the tern of this agreement and shall
take any and all further action

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<PAGE>

which may be required to discharge such obligations and to comply with such
restrictions and limitations.

9. TERMINATION.

9.01 GROUNDS FOR TERMINATION. This agreement shall terminate prior
to the expiration of the initial term set forth in section 2 or any extension
thereof in the event that at any time during such initial term or any extension
thereof:

(a) Employee shall die; or,

(b) the board of directors of the Company shall determine that:

(i) Employee has become disabled; or,

(ii) Employee has breached this agreement in any material
respect, which breach is not cured by Employee or is not capable of being cured
by Employee within thirty days after written notice to such breach is delivered
to Employee; or,

(iii) Employee has engaged in willful and material misconduct,
as in good faith and reasonable determined by the board of directors, including
willful and material failure to perform Employee's duties as an officer or
Employee of the Company.

Notwithstanding any termination of this agreement, Employee, in
consideration of Employee's employment hereunder to the date of such
termination, shall remain bound by the provisions of this agreement that
specifically relate to periods, activities or obligations upon or subsequent to
the termination of Employee's employment.

9.02 "DISABILITY" DEFINED. The board of directors may determine that
Employee has become disabled, for the purpose of this agreement, in the event
that Employee shall fail, because of illness or incapacity, to render services
of the character contemplated by this agreement over a period of ninety days
during any 180-day period. The existence or nonexistence of grounds for
termination of this agreement for any reason under section 9.01(b)(i) will be
determined in good faith by the board of directors after written notice given to
Employee at least thirty days prior to such determination. During such thirty-
day period, Employee shall be permitted to make a presentation to the board of
directors for its consideration.

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<PAGE>

calculations or copies thereof, which are the property of the Company or which
relate in any way to the business, products, practices or techniques of the
Company, and all other property, trade secrets and confidential information of
the Company, including, but not limited to, all documents which in whole or in
part contain any trade secrets or confidential information of the Company, which
in any of these cases are in Employee's possession or under Employee's control.

10. MISCELLANEOUS.

10.01 GOVERNING LAW. This agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota
without giving effect to its choice of law rules.

10.2 PRIOR AGREEMENTS. This agreement contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have made no agreements, representations or warranties relating
to me subject matter of this agreement which are not set forth herein.

10.03 WITHHOLDING TAXES. The Company may withhold from any benefits
payable under this agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

10.04 AMENDMENTS. No amendment or modification of this agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.

10.05 NO WAIVER. No term or condition of this agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this agreements except by a statement in writing signed by the
party against whom enforcement of the waiver or estopped is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived, and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.

10.06 SEVERABILITY. To the extent any provision of this agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation
of the foregoing, should the duration or geographical extent of, or business
activities covered by, any provision of this agreement be in excess of that
which is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent or activities that may validly
and enforceably be covered. Employee acknowledges the uncertainty of the law in
this respect and agrees that this agreement be given the construction that
renders its provisions valid and

-7-

<PAGE>

enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.

10.07 ASSIGNMENT. This agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party.

10.08 INJUNCTIVE RELIEF. Employee agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this agreement, including without limitation the provisions of sections 5, 7,
8 and 9.03. Accordingly, Employee specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this agreement and that such relief may be granted without the necessity of
proving actual damages. This provision with respect to injunctive relief shall
not however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.

IN WITNESS WHEREOF, Employee and the Company have executed this
agreement as of the date set forth in the first paragraph.

Nutrition Medical, Inc.

/s/ Richard J. Hegstrand By /s/ William L. Rush
- ------------------------------ --------------------------
Richard J. Hegstrand, CPA
Its President/CEO
-------------------------

-8-

<PAGE>

EMPLOYMENT AGREEMENT

THIS Agreement, dated as of September 1, 1994, by and between
NUTRITION MEDICAL, INC., a Minnesota corporation (the "Company"), and Joseph F.
Coffey, an individual resident of Minnesota ("Employee").

WHEREAS, the Company wishes to employ Employee to render services
for the Company on the terms and conditions set forth in this agreement, and
Employee wishes to be retained and employed by the Company on such terms and
conditions.

NOW, THEREFORE, in consideration of the premises and the
respective undertakings of the Company and Employee set forth below, the Company
and Employee agree as follows:

2. TERM. Unless terminated at an earlier date in accordance with
section 9 of this agreement, the term of Employee's employment hereunder shall
be for a period of One year (the "Initial Term"), commencing; on the date of
this agreement. Within sixty days of the expiration of the term, Company and
Employee may negotiate a new agreement unless both parties agree, in writing to
extend the term of this agreement of September 1, 1994. At any time, either
party may, by prior written notice to the other party of at least thirty days,
terminate this agreement.

3. POSITION AND DUTIES.

3.01 TITLE. During the term of it is agreements Employee
shall have the title of Vice President, Corporate Sales of the Company.

3.02 SERVICE WITH COMPANY. During the term of this
agreement, Employee agrees to perform such reasonable employment duties
as the management of the Company shall assign to Employee from time to
time.

3.03 PERFORMANCE OF DUTIES. Employee agrees to serve the
Company faithfully and to the best of Employee's ability and to devote
Employee's full time, attention and efforts to the business and affairs
of the Company during the term of this agreement. In the event Employee
wishes to pursue, on Employee's own time and with Employee's own
resources other business opportunities (the Business Opportunities") that
do not interfere with Employee's obligations hereunder and are not
directly competitive with the business of the Company, Employee shall
first obtain approval from management of the Company. Employee hereby
confirms that Employee is

<PAGE>

under no contractual commitments inconsistent with Employee's obligations
set forth in this agreement, including but not limited to noncompete or
similar agreements, and that during the term of this agreement, employee
will not render or perform services for any other corporation, firm,
entity or person which are inconsistent with the provisions of this
agreement.

4. COMPENSATION.

4.01 COMPENSATION. Employee agrees to the compensation for
all services to be rendered under this agreement during the term of this
agreement as set forth in the Company's letter to Employee dated September 1,
1994, attached hereto.

4.02 PARTICIPATION IN BENEFIT PLANS. During the term of
this agreement, Employee shall be entitled to receive and the Company shall
provide such medical, and hospitalization insurance and other fringe benefits as
are provided to the Company's other employees.

4.03 EXPENSES. The Company will pay or reimburse Employee
for all reasonable and necessary out-of-pocket expenses incurred by Employee in
the performance of Employee's duties under this agreement, subject to the
presentment of appropriate vouchers or other documentation in accordance with
the Company's normal policies for expense verification.

5. CONFIDENTIAL INFORMATION.

(a) Except as permitted or directed by the Company's board
of directors, during the term of this agreement or at any time thereafter
Employee shall not divulge, furnish or make accessible to anyone or use in any
way (other than in the ordinary course of the business of the Company) any
confidential or secret knowledge or information of the Company which Employee
has acquired or become acquainted with or will acquire or become acquainted with
prior to the termination of the period of Employee's employment by the Company
(including employment by the Company or any affiliated companies prior to the
date of this agreement), whether developed by employee or by others concerning
any trade secrets, confidential or secret designs, processes, formulae plans,
devices or material (whether or not patented or patentable) directly or
indirectly useful in any aspect of the business of the Company, any customer or
supplier lists of the Company, any confidential or secret development or
research work of the Company or any other confidential information or secret
aspects of the business of the Company. Employee acknowledges that the above
described knowledge or information constitutes a unique and valuable asset of
the Company and represents a substantial investment of time and expense by the
Company and its predecessors, and that any disclosure or other use of such
knowledge or information other than for the sole

-2-

<PAGE>

benefit of the Company would be wrongful and would cause irreparable harm to the
Company. Both during and after the term of this agreement, Employee will
refrain from any acts or omissions that would reduce the value of such knowledge
or information to the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information which is now published
or which subsequently becomes generally publicly known in the form in which it
was obtained from the Company, other than as a direct or indirect result of the
breach of this agreement by Employee . The foregoing obligations of
confidentiality shall also not apply to any knowledge or information known by
the Employee before the date of this agreement.

(b) Employee also agrees, during the term of this agreement
or at any time thereafter, not to divulge, furnish or make accessible to anyone
at the Company any confidential or secret knowledge or information the Employee
has received in any previous employment.

7. NONCOMPETITION COVENANT

7.01 AGREEMENT NOT TO COMPETE. Employee agrees that,
during the term of Employee's employment by the Company and for a period of two
years thereafter, employee shall not, directly or indirectly, engage in
competition with the Company in any manner or capacity (e.g., as an advisor,
principal, agent, partner, officer, director, stockholder, employee, member of
any association, or otherwise) in any phase of the business which the Company is
conducting during the term of this agreement, including the design, development,
manufacture, distribution, marketing, leasing or selling of accessories,
devices, or systems related to the products or services being sold by the
Company.

7.02 GEOGRAPHIC EXTENT OF COVENANT. The obligations of
Employee under section 7.01 shall apply to any geographic area in which the
Company:

(a) has engaged in business during the term of this
agreement through production, promotional, sales or marketing
activity, or otherwise, or

-3-

<PAGE>

(b) has otherwise established its goodwill, business
reputations or any customer or supplier relations.

7.03 LIMITATION ON COVENANT. Ownership by Employees as
passive investment, of less than 5% of the outstanding shares of capital stock
of any corporation listed on a national securities exchange or publicly traded
in the over-the counter market shall not constitute a breach of this section 7.

7.04 INDIRECT COMPETITION. Employee further agrees that,
during the term of this agreement and for a period of two years thereafter,
employee will not, directly or indirectly, assist or encourage any other person
in carrying; out, directly or indirectly any activity that would be prohibited
by the above provisions of this section 7 if such activity were carried out by
Employee, either directly or indirectly and in particular Employer agrees that
employee will not, directly or indirectly induce any Employee of the Company to
carry out, directly or indirectly, any such activity.

8. PATENT AND RELATED MATTERS.

8.01 DISCLOSURE AND ASSIGNMENT. Employee will promptly
disclose in writing to the Company complete information concerning each and
every invention, discovery, improvement, device,design, apparatus, practice,
process, method or product, whether patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by Employee, either
solely or in collaboration with others,during the term of this agreement,
whether or not during regular working hours, relating directly to the business,
products practices or techniques of the Company (hereinafter referred to as
"Developments"). Employee, to the extent that Employee has the legal right to
do so, hereby acknowledges that any and all of said Developments are the
property of the Company and hereby assigns and agrees to assign to the Company
any and all of Employee's right, title and interest in and to any and all of
such Developments.

8.02 FUTURE DEVELOPMENTS. As to any future Developments
made by Employee which relate to the business, products or practices of the
Company and which are first conceived or reduced to practice during the term of
this agreement but which are claimed for any reason to belong to an entity or
person other than the Company, Employee will promptly disclose the same in
writing to the Company and shall not disclose the same to others if the Company,
within twenty days thereafter, shall claim ownership of such Developments under
the terms of this agreement. If the Company makes such claims Employee agrees
that insofar as the rights (if any) of Employee are involved, it will be settled
by arbitration in accordance with the rules then obtaining of the American
Arbitration Association. The locale of the arbitration shall be Minneapolis
Minnesota (or other

-4-

<PAGE>

locale convenient to the Company's principal Employee offices). If the Company
makes no such claims Employee hereby acknowledges that the Company has made no
promise to receive and hold in confidence any such information disclosed by
Employee.

8.03 LIMITATION ON SECTION 8.01 AND 8.02. The provisions
of sections 8.01 and 8 02 shall not apply to any Development meeting the
following conditions:

(a) such development was developed entirely on Employee's
own time and

(b) such Development was made without the use of any
Company equipment, supplies, facility or trade secret information
and

(c) such Development does not relate (i) directly to the
business of the Company or (ii) to the Company's actual or
demonstratably anticipated research or development: and

(d) such Development does not result from any work
performed by Employee for the Company.

8.04 ASSISTANCE OF EMPLOYEE. Upon request and without
further compensation therefore, but at no expense to Employee, and whether
during the term of this agreement or thereafter, Employee will do all lawful
acts, including, but not limited to, the execution of papers and lawful oaths
and the giving of testimony, that in the opinion of the Company, its successors
and assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending and enforcing United States and foreign Letters Patent, including but
not limited to, design patents on any and all of such developments, and for
perfecting, affirming and recording the Company's complete ownership and title
thereto and to cooperate otherwise in all proceedings and matters relating
thereto.

8.05 RECORDS. Employee will keep complete, accurate and
authentic accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and records shall
be the property of the Company, and, upon its reasonable, written requests
Employee will promptly surrender same to it or, if not previously surrendered
upon its request or otherwise, Employee will surrender the same, and all copies
thereof, to the Company upon the conclusion of Employee's employment.

8.06 OBLIGATIONS. RESTRICTIONS AND LIMITATIONS. Employee
understands that the Company may enter into agreements or arrangements with
agencies of the United States Governments and that the Company may be subject to

-5-

<PAGE>

laws and regulations which impose oh aliens, restrictions and limitations on it
with respect to inventions and patents which may be acquired by it or which stay
be conceived or developed by employees consultants or other agents rendering
services to it. Employee agrees that Employee shall be bound by all such
obligations restrictions and limitations applicable to any such invention
conceived or developed by Employee during the tern of this agreement and shall
take any and all further action which may be required to discharge such
obligations and to comply with such restrictions and limitations.

9. TERMINATION.

9.01 GROUNDS FOR TERMINATION. This agreement shall
terminate prior to the expiration of the initial term set forth in section 2 or
any extension thereof in the event that at any time during such initial term or
any extension thereof:

(a) Employee shall die, or

(b) the board of directors of the Company shall determine that:

(i) Employee has become disabled, or

(iii) Employee has engaged in willful and material
misconduct, as in good faith and reasonably determined by the board of
directors, including willful and material failure to perform Employee's duties
as an officer or Employee of the Company.

Notwithstanding any termination of this agreement, Employee, in consideration of
Employee's employment hereunder to the date of such termination, shall remain
bound by the provisions of this agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Employee's
employment.

-6-

<PAGE>

the board of directors after written notice given to Employee at least thirty
days prior to such determination. During such thirty-day period, Employee shall
be permitted to make a presentation to the board of directors for its
consideration.

9.03 SURRENDER OF RECORDS AND PROPERTY. Upon termination
of Employee's employment with the Company, Employee shall deliver to the Company
upon written request and within a reasonable time all records, manuals, books,
blank forms, documents, letters, memoranda, notes, notebooks, reports, data,
tables, calculations or copies thereof, which are the property of the Company or
which relate in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and confidential information
of the Company, including, but not limited to, all documents which in whole or
in part contain any trade secrets or confidential information of the Company,
which in arty of these cases are in employee's possession or under employee's
control.

10. MISCELLANEOUS.

10.01 GOVERNING LAW. This agreement is made under and
shall be governed by and construed in accordance with the laws of the State of
Minnesota without giving effect to its choice of law rules.

10.02 PRIOR AGREEMENTS. This agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this agreement which are not set forth herein.

10.03 WITHHOLDING TAXES. The Company may withhold from any
benefits payable under this agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.

10.04 AMENDMENTS. No amendment or modification of this
agreement shall be deemed effective unless made in writing and signed by the
parties hereto.

10.05 NO WAIVER. No term or condition of this agreement
shall be deemed to have been waived, nor shall there be any estopped to enforce
any provisions of this agreements except by a statement in writing signed by the
party against whom enforcement of the waiver or estopped is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.

-7-

<PAGE>

10.06 SEVERABILITY. To the extent any provision of this
agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration/ extent or activities which may
validly and enforceable be covered. Employee acknowledges the uncertainty of
the law in this respect and agrees that this agreement be given the construction
which renders its provisions valid and enforceable to the maximum extent (not
exceeding its express terms) possible under applicable law.

10.07 ASSIGNMENT. This agreement shall not be assignable,
in whole or in part, by either party without the written consent of the other
party.

10.08 INJUNCTIVE RELIEF. Employee agrees that it would be
difficult to compensate the Company fully for damages for any violation of the
provisions of this agreement, including without limitation the provisions of
sections 5, 7, 8 and 9.03. Accordingly, Employee specifically agrees that the
Company shall be entitled to temporary and permanent injunctive relief to
enforce the provisions of this agreement and that such relief may be granted
without necessity of proving actual damages. This provision with respect to
injunctive relief shall not however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.

IN WITNESS WHEREOF, Employee and the Company have executed this
agreement as of the date set forth in the first paragraph.

NUTRITION MEDICAL, INC.

By /s/ William L. Rush
-----------------------------
Its President/CEO
-------------------------

/s/ Joseph F. Coffey
-------------------------------
Joseph F. Coffey

-8-

<PAGE>

EMPLOYMENT AGREEMENT

THIS Agreement, dated as of December 19, 1994, by and between
NUTRITION MEDICAL, INC., a Minnesota corporation (the "Company"), and Marlin G.
Rudebusch, an individual resident of Minnesota ("Employee").

NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Employee set forth below, the Company and
Employee agree as follows:

2. TERM. Unless terminated at an earlier date in accordance with
section 9 of this agreement, the term of Employee's employment hereunder shall
be for a period of One year (the "Initial Term"), commencing; on the date of
this agreement. Within sixty days of the expiration of the term, Company and
Employee may negotiate a new agreement unless both parties agree, in writing to
extend the term of this agreement of December 19, 1994. At any time, either
party may, by prior written notice to the other party of at least thirty days,
terminate this agreement.

3. POSITION AND DUTIES.

3.01 TITLE. During the term of it is agreements Employee shall
have the title of Vice President, Marketing of the Company.

3.02 SERVICE WITH COMPANY. During the term of this agreement,
Employee agrees to perform such reasonable employment duties as the
management of the Company shall assign to Employee from time to time.

3.03 PERFORMANCE OF DUTIES. Employee agrees to serve the Company
faithfully and to the best of Employee's ability and to devote Employee's
full time, attention and efforts to the business and affairs of the Company
during the term of this agreement. In the event Employee wishes to pursue,
on Employee's own time and with Employee's own resources other business
opportunities (the "Business Opportunities") that do not interfere with
Employee's obligations hereunder and are not directly competitive with the
business of the Company, Employee shall first obtain approval from
management of the Company. Employee hereby confirms that Employee is

<PAGE>

under no contractual commitments inconsistent with Employee's obligations
set forth in this agreement, including but not limited to noncompete or
similar agreements, and that during the term of this agreement, employee
will not render or perform services for any other corporation, firm, entity
or person which are inconsistent with the provisions of this agreement.

4. COMPENSATION.

4.02 PARTICIPATION IN BENEFIT PLANS. During the term of this
agreement, Employee shall be entitled to receive and the Company shall provide
such medical, and hospitalization insurance and other fringe benefits as are
provided to the Company's other employees.

4.03 EXPENSES. The Company will pay or reimburse Employee for
all reasonable and necessary out-of-pocket expenses incurred by Employee in the
performance of Employee's duties under this agreement, subject to the
presentment of appropriate vouchers or other documentation in accordance with
the Company's normal policies for expense verification.

5. CONFIDENTIAL INFORMATION.

(a) Except as permitted or directed by the Company's board of
directors, during the term of this agreement or at any time thereafter Employee
shall not divulge, furnish or make accessible to anyone or use in any way (other
than in the ordinary course of the business of the Company) any confidential or
secret knowledge or information of the Company which Employee has acquired or
become acquainted with or will acquire or become acquainted with prior to the
termination of the period of Employee's employment by the Company (including
employment by the Company or any affiliated companies prior to the date of this
agreement), whether developed by employee or by others concerning any trade
secrets, confidential or secret designs, processes, formulae plans, devices or
material (whether or not patented or patentable) directly or indirectly useful
in any aspect of the business of the Company, any customer or supplier lists of
the Company, any confidential or secret development or research work of the
Company or any other confidential information or secret aspects of the business
of the Company. Employee acknowledges that the above described knowledge or
information constitutes a unique and valuable asset of the Company and
represents a substantial investment of time and expense by the Company and its
predecessors, and that any disclosure or other use of such knowledge or
information other than for the sole

-2-
<PAGE>

benefit of the Company would be wrongful and would cause irreparable harm to
the Company. Both during and after the term of this agreement, Employee will
refrain from any acts or omissions that would reduce the value of such
knowledge or information to the Company. The foregoing obligations of
confidentiality, however, shall not apply to any knowledge or information
which is now published or which subsequently becomes generally publicly known
in the form in which it was obtained from the Company, other than as a direct
or indirect result of the breach of this agreement by Employee. The
foregoing obligations of confidentiality shall also not apply to any
knowledge or information known by the Employee before the date of this
agreement.

7. NONCOMPETITION COVENANT.

7.02 GEOGRAPHIC EXTENT OF COVENANT. The obligations of Employee under
section 7.01 shall apply to any geographic area in which the Company:

(a) has engaged in business during the term of this agreement
through production, promotional, sales or marketing activity, or otherwise,
or
-3-

<PAGE>

(b) has otherwise established its goodwill, business reputations
or any customer or supplier relations.

7.03 LIMITATION ON COVENANT. Ownership by Employees as passive
investment, of less than 5% of the outstanding shares of capital stock of any
corporation listed on a national securities exchange or publicly traded in the
over-the counter market shall not constitute a breach of this section 7.

7. 04 INDIRECT COMPETITION. Employee further agrees that,
during the term of this agreement and for a period of two years thereafter,
employee will not, directly or indirectly, assist or encourage any other person
in carrying; out, directly or indirectly any activity that would be prohibited
by the above provisions of this section 7 if such activity were carried out by
Employee, either directly or indirectly and in particular Employer agrees that
employee will not, directly or indirectly induce any Employee of the Company to
carry out, directly or indirectly, any such activity.

8. PATENT AND RELATED MATTERS.

8.01 DISCLOSURE AND ASSIGNMENT. Employee will promptly disclose
in writing to the Company complete information concerning each and every
invention, discovery, improvement, device,design, apparatus, practice, process,
method or product, whether patentable or not, made, developed, perfected,
devised, conceived or first reduced to practice by Employee, either solely or in
collaboration with others,during the term of this agreement, whether or not
during regular working hours, relating directly to the business, products
practices or techniques of the Company (hereinafter referred to as
"Developments"). Employee, to the extent that Employee has the legal right to
do so, hereby acknowledges that any and all of said Developments are the
property of the Company and hereby assigns and agrees to assign to the Company
any and all of Employee's right, title and interest in and to any and all of
such Developments.

8.02 FUTURE DEVELOPMENTS. As to any future Developments made by
Employee which relate to the business, products or practices of the Company and
which are first conceived or reduced to practice during the term of this
agreement but which are claimed for any reason to belong to an entity or person
other than the Company, Employee will promptly disclose the same in writing to
the Company and shall not disclose the same to others if the Company, within
twenty days thereafter, shall claim ownership of such Developments under the
terms of this agreement. If the Company makes such claims Employee agrees that
insofar as the rights (if any) of Employee are involved, it will be settled by
arbitration in accordance with the rules then obtaining of the American
Arbitration Association. The locale of the arbitration shall be Minneapolis
Minnesota (or other locale convenient to the Company's principal Employee
offices).. If the Company

-4-
<PAGE>

makes no such claims Employee hereby acknowledges that the Company has made no
promise to receive and hold in confidence any such information disclosed by
Employee.

8.03 LIMITATION ON SECTION 8.01 AND 8.02. The provisions of
sections 8.01 and 8 02 shall not apply to any Development meeting the following
conditions:

(a) such development was developed entirely on Employee's own time and

(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information and

(c) such Development does not relate (i) directly to the business of
the Company or (ii) to the Company's actual or demonstratably anticipated
research or development: and

(d) such Development does not result from any work performed by
Employee for the Company.

8.05 RECORDS. Employee will keep complete, accurate and
authentic accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and records shall
be the property of the Company, and, upon its reasonable, written requests
Employee will promptly surrender same to it or, if not previously surrendered
upon its request or otherwise, Employee will surrender the same, and all copies
thereof, to the Company upon the conclusion of Employee's employment.

-5-
<PAGE>

respect to inventions and patents which may be acquired by it or which stay
be conceived or developed by employees consultants or other agents rendering
services to it. Employee agrees that Employee shall be bound by all such
obligations restrictions and limitations applicable to any such invention
conceived or developed by Employee during the tern of this agreement and
shall take any and all further action which may be required to discharge such
obligations and to comply with such restrictions and limitations.

9. TERMINATION.

9.01 GROUNDS FOR TERMINATION. This agreement shall terminate
prior to the expiration of the initial term set forth in section 2 or any
extension thereof in the event that at any time during such initial term or any
extension thereof:

(a) Employee shall die, or

(b) the board of directors of the Company shall determine that:

(i) Employee has become disabled, or

(ii) Employee has breached this agreement in any material
respect, which breach is not cured by Employee or is not capable of
being cured by Employee within thirty days after written notice of
such breach is delivered to Employee, or

(iii) Employee has engaged in willful and material misconduct, as
in good faith and reasonably determined by the board of directors,
including willful and material failure to perform Employee's duties as
an officer or Employee of the Company.

Notwithstanding any termination of this agreement, Employee, in consideration of
Employee's employment hereunder to the date of such termination, shall remain
bound by the provisions of this agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Employee's
employment.

9.02 "DISABILITY" DEFINED. The board of directors may determine
that Employee has become disabled, for the purpose of this agreement, in the
event that Employee shall fail, because of illness or incapacity, to render
services of the character contemplated by this agreement over a period of ninety
days during any 1 80-day period. The existence or nonexistence of grounds for
termination of this agreement for any reason under section 9.01 (b)(i) will be
determined in good faith by the board of directors after written notice given to
Employee at least thirty days

-6-
<PAGE>

prior to such determination. During such thirty-day period, Employee shall
be permitted to make a presentation to the board of directors for its
consideration.

9.03 SURRENDER OF RECORDS AND PROPERTY. Upon termination of
Employee's employment with the Company, Employee shall deliver to the Company
upon written request and within a reasonable time all records, manuals, books,
blank forms, documents, letters, memoranda, notes, notebooks, reports, data,
tables, calculations or copies thereof, which are the property of the Company or
which relate in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and confidential information
of the Company, inducing, but not limited to, all documents which in whole or in
part contain any trade secrets or confidential information of the Company, which
in arty of these cases are in employee's possession or under employee's control.

10. MISCELLANEOUS.

10.01 GOVERNING LAW. This agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota
without giving effect to its choice of law rules.

10.03 WITHHOLDING TAXES. The Company may withhold from any
benefits payable under this agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.

10.04 AMENDMENTS. No amendment or modification of this agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.

10.05 NO WAIVER. No term or condition of this agreement shall be
deemed to have been waived, nor shall there be any estopped to enforce any
provisions of this agreements except by a statement in writing signed by the
party against whom enforcement of the waiver or estopped is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived

-7-

<PAGE>

10.06 SEVERABILITY. To the extent any provision of this
agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration/ extent or activities which may
validly and enforceable be covered. Employee acknowledges the uncertainty of
the law in this respect and agrees that this agreement be given the construction
which renders its provisions valid and enforceable to the maximum extent (not
exceeding its express terms) possible under applicable law.

10.07 ASSIGNMENT. This agreement shall not be assignable, in
whole or in part, by either party without the written consent of the other
party.

10.08 INJUNCTIVE RELIEF. Employee agrees that it would be
difficult to compensate the Company fully for damages for any violation of the
provisions of this agreement, including without limitation the provisions of
sections 5, 7, 8 and 9.03. Accordingly, Employee specifically agrees that the
Company shall be entitled to temporary and permanent injunctive relief to
enforce the provisions of this agreement and that such relief may be granted
without the necessity of proving actual damages. This provision with respect to
injunctive relief shall not however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.

IN WITNESS WHEREOF, Employee and the Company have executed this
agreement as of the date set forth in the first paragraph.

NUTRITION MEDICAL, INC.

By /s/ William L. Rush /s/ Marlin G. Rudebusch
------------------------------ ------------------------------

Its President/CEO Marlin G. Rudebusch
-----------------------------

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OFFICE LEASE

This lease made this 15th day of October, 1993, by and between The 308
Corporation, ( hereinafter called "Landlord"), 101 South First Avenue, Buffalo,
Minnesota and Nutrition Medical, Inc. (hereinafter called "Tenant"), 308 12th
Avenue South, Buffalo, Minnesota.

WITNESSETH, THAT:

1. DEMISED PREMISES. Landlord, subject to the terms and conditions
hereof, hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises as shown on Exhibit "A" (hereinafter referred to as the "Demised
Premises") known and described as Suite Number 3, consisting of approximately
2,726 square feet located on the ground floor of the building at 308 12th Avenue
South, Buffalo, (hereinafter referred to as the "Building"), to be used by
Tenant for general office and warehouse purposes and for no other purpose.
Landlord and Tenant have agreed to Tenant's lease of additional square footage
in the Building as set out more specifically in Paragraph 27 hereof. The legal
description of the property upon which the Building is located is described by
Exhibit A. Within one year from the date hereof, Landlord shall, at its
expense, install an asphalt or concrete surface on the north side of the
Building sufficient for 15 additional parking spaces.

2. TERM. Tenant shall use and occupy the Demised Premises for the term of
five years and 77 days commencing October 15, 1993 and ending December 31, 1998
(the "Term") unless sooner terminated as herein provided. Tenant's right to
renew this lease after December 31, 1998 is described in Exhibit B.

3. RENT.

a. Base Rent. The tenant shall pay as Base Rent for the Demised
Premises the sum of Thirteen thousand six hundred thirty dollars ($ 13,630.00)
annually, for the first twelve months of the Lease, payable without demand and
in advance in equal monthly installments of One thousand one hundred thirty six
and no/100 dollars ($1,136.00). The first installment is payable on January 1,
1994 and the remaining installments are payable in advance on the first day of
each and every calendar month during the term hereof. During the second twelve
months of this Lease, the annual Base Rent payments will increase to Eighteen
thousand six hundred twenty three dollars ($ 18,623.00) annually, payable in
equal monthly installments of One thousand five hundred fifty two dollars
($1,552.00) in advance on the first day of each of the following twelve calendar
months. During the third twelve months of this Lease the annual Base Rent
payments will increase to Twenty four thousand two hundred seventy six dollars
$24,276.00 payable in twelve equal monthly installments of Two thousand and
twenty three dollars ($2,023.00) in advance on the first day of each month.
During the fourth twelve months of Lease the annual Base Rent payments will
increase to Twenty eight thousand two hundred thirty six dollars ($28,236.00)
payable in twelve monthly installments of

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Two thousand three hundred fifty three dollars ($2,353.00) in advance on the
first day of each month. During the fifth twelve months of this Lease the
annual Base Rent payments will increase to Thirty two thousand one hundred
ninety six dollars ($32,196.00) payable in twelve monthly installments of Two
thousand six hundred eighty three dollars ($2,683.00) in advance on the first
day of each month. If the Term of this Lease begins on a date other than on the
first day of a month, rent from such date until the first day of the following
month shall be prorated at the rat of one-thirtieth (1/30) of the fixed monthly
rental for each day payable in advance. The Tenant shall pay said Base Rent to
Landlord, at the Office of Landlord at Building, or to such other party or to
such other address as Landlord may designate from time to time by written notice
to Tenant without demand and without deduction, set-off, or counterclaim except
as otherwise provided herein. If Landlord shall at any time or times accept
said Base Rent after it shall become due and payable, such acceptance shall not
excuse delay upon subsequent occasions, or constitute or be construed as a
waiver of any or all of the Landlord's rights hereunder. Tenant shall pay
interest at the rate of 12% per annum on all late payments of rent, or such
other maximum allowable interest rate should the aforesaid 12% rate violate any
applicable laws or regulations.

b. Additional Rent. Tenant shall pay as additional Rent the initial sum
of Six thousand two hundred seventy dollars ($6,270.00) annually; payable
without demand and in advance in twelve equal monthly installments of Five
hundred twenty two and 50/100 dollars ($522.50) simultaneously with Base Rent.
The amount payable as Additional Rent is $2.30 per square foot of floor space
leased by Tenant in the Demised Premises. It compensates Landlord for Tenant's
share of Landlord's estimated cost for real estate taxes on the Building, heat
and electricity and common area maintenance (such costs hereinafter referred to
as "Operating Costs"). Within 45 days after the end of each calendar year in
the lease term Landlord will provide Tenant with a summary of the Operating
Costs for the previous calendar year. The Landlord shall spread the Operating
Costs over the total rentable square footage of the Building and express said
costs as a per square foot dollar amount. If the Tenant's Additional Rent
payments have exceeded the amount attributable to the Demised Premises for the
period being measured, the amount of the excess shall be applied to the next
month's Additional Rent. If the amount paid by Tenant as Additional Rent during
the preceding twelve months is less than the amount actually attributable to the
Demised Premises, the amount of the under-payment will be due and payable by
Tenant with the next Additional Rent payment.

With each annual summary of Operating Costs, Landlord will estimate the
amount of monthly Additional Rent due and shall advise Tenant of that amount.
Tenant shall be responsible for paying the new estimated additional Rent for the
twelve months following Landlord's advice of the Amount.

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4. SECURITY DEPOSIT. As additional security for the full and prompt
performance by the Tenant of the terms and covenants of this Lease, Tenant has
deposited with the Landlord the sum of One thousand one hundred thirty six
dollars ($1,136.00). This security deposit may not be deemed by Tenant to
constitute rent for any month if Tenant defaults with respect to any provision
of this Lease, including, but not limited to the provisions relating to the
payment of rent. Landlord may (but shall not be required to) use, apply or
retain all or any part of this security deposit for the payment of any rent or
any other sum in default, or for the payment of any amount which Landlord may
spend or become obligated to spend by reason of Tenant's default. Within 21
days after the termination of this Lease, the security deposit provided for
herein shall be returned to Tenant, provided that Tenant shall have surrendered
the Demised Premises to Landlord in the condition in which it was leased by
Tenant, normal wear and tear excepted.

5. SERVICES. Provided that Tenant is not in default hereunder, Landlord
will provide the following services:

a. Furnish heat and air conditioning to provide normal temperature
conditions required in Landlord's judgment for comfortable occupancy of the
Demised Premises during the normal and usual building business hours, Monday
through Friday, from 8:00 a.m. to 6:00 p.m. and on Saturday from 8:00 a.m. to
noon; Sundays and holidays excepted. After-hours heat and air conditioning will
be available upon Tenant request at the then prevailing hourly rate to be billed
to Tenant.

b. Provide normal janitorial service to common areas similar to that
furnished in comparable general office space within the general area. Any and
all additional janitorial service desired by the Tenant shall be contracted for
by the Tenant directly, and the cost and payment thereof shall be and remain the
sole responsibility of the Tenant.

c. Repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating, and electrical systems
installed or furnished by Landlord, unless such maintenance and repairs are
caused in part or in whole by the act, neglect, fault or omission of any duty by
the Tenant, its agents, servants, employees or invitees, in which case Tenant
shall pay to Landlord the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for a reasonable time
after written notice of the need of such repair or maintenance is given to
Landlord by Tenant. There shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Building or the Demised Premises or in or to fixtures,
appurtenances and equipment therein.

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d. Provide water for drinking, lavatory and toilet purposes drawn
through fixtures installed by Landlord.

e. Furnish the Demised Premises with electrical power for lighting
and normal office equipment usage according to the provisions of this
subparagraph. Such power will be supplied at 120 volt alternating current. Any
other power requirements will be by special arrangement with the Landlord and
with installation costs and/or special monthly charges to be borne by Tenant.

The Tenant agrees not to install or operate in the Demised Premises any
electrically operated equipment except personal computers, copy machines, one
refrigerator and one microwave, other than typewriters, adding machines, copy
machines (standard or duplex outlet), and other normal electrically operated
office equipment used in modern offices, without first obtaining the prior
written consent of the Landlord, who may condition such consent upon the payment
by the Tenant of additional rent as compensation for such excess consumption of
electricity and/or water as may be occasioned by the operation of said equipment
or machinery. Landlord may, at its expense, install a separate meter to measure
Tenant's consumption of electricity in the Demised Premises. After Landlord's
installation of the meter, Tenant shall be liable for payment of the cost of
electricity to the Demised Premises. Tenant's liability for the electric
utility portion of Building operating costs shall cease when it assumes
liability for payment of electricity to the Demised Premises.

Tenant will not install any equipment of any kind or nature whatsoever
which may by itself or in combination with other equipment already in the
Demised Premises affect or necessitate any changes, replacements or additions to
or require the use of the water system, plumbing system, heating system, air
conditioning system or the electrical system of the Demised Premises without the
prior written consent of the Landlord, which may condition such consent upon the
payment by the Tenant of specific installation costs and/or special monthly
charges.

It is understood that Landlord does not warrant that any of the services
referred to above will be free from interruption from causes beyond the
reasonable control of the Landlord. Temporary (less than 3 days) interruption
of service and interruption of service for reasons beyond Landlord's control
shall never be deemed an eviction or disturbance of Tenant's possession of the
Demised Premises, or any part thereof, nor shall it render Landlord liable to
Tenant for damages, by abatement of rent or otherwise, nor shall it relieve
Tenant from performance of Tenant's obligations under the Lease.

By taking possession of the Demised Premises, Tenant shall be deemed to
have accepted the Demised Premises as being in good, sanitary order, condition
and

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repair. Tenant shall, at Tenant's sole cost and expense, keep the Demised
Premises and every part thereof in good condition and repair, damage thereto
from causes beyond the reasonable control of Tenant and ordinary wear and tear
excepted. Landlord shall have no obligation whatsoever to alter, remodel,
improve, repair, decorate or paint the Demised Premises or any part thereof
(unless agreed upon in writing by Landlord). The parties agree that Landlord
has made no representations to Tenant respecting the condition of the Premises
or the Building except as specifically set forth herein.

6. CARE OF DEMISED PREMISES. Tenant agrees that it shall:

a. Comply with any and all requirements of any public authority; and
with the terms of any state or federal statute or local ordinance or regulation
applicable to Tenant or its use of the Demised Premises.

b. Give Landlord access to the Demised Premises at all reasonable
times after reasonable notice, without charge or diminution of rent, to enable
Landlord to examine the same and to make such repairs, additions and alterations
as Landlord may deem advisable.

c. Keep the demised Premises in good order and condition and replace
all broken glass with glass of the same quality as that broken, save only glass
broken by fire and extended coverage type risks, and commit no waste on the
Demised Premises.

d. Recognize that improvements attached to the Demised Premises
become the property of the Building and may not be removed without approval of
the Landlord which approval may be subject to Tenant's paying for the cost of
repairs resulting from the removal of such improvements.

e. Upon the termination of this lease in any manner whatsoever,
remove Tenant's property and those of any other person claiming under Tenant,
and quit and deliver up the Demised Premises to Landlord peaceably and quietly
in as good order and condition as the same are now in or hereafter may be put in
by Landlord or Tenant, reasonable use and wear excepted. Property not removed
by Tenant at the termination of this Lease, shall be considered abandoned and
Landlord may dispose of the property as it deems expedient with reasonable cost
to be billed to the Tenant.

f. Not overload, damage or deface the Demised Premises or do any act
which may make void or voidable any insurance or extra premium payable for
insurance.

g. Not make any alteration, improvement, or addition to the Demised

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Premises without the prior written approval of the Landlord.

h. Observe the Building Rules and Regulations described in Exhibit B.
and which may be modified by Landlord from time to time without prior notice.

7. ASSIGNMENT AND SUBLETTING. Tenant shall not, without Landlord's prior
written consent, assign this Lease, or allow the same to be assigned by
operation of law or otherwise, or sublet the Demised Premises or any part
thereof, or use or permit the Demised Premises to be used for any purpose other
than above specified; provided, however, that a corporate tenant may, without
consent of Landlord, sublet to its parent or subsidiary, but such subletting
shall not relieve Tenant of its obligations under this Lease. Should Tenant
desire to assign or sublet all or a part of the Demised Premises, Tenant must
give Landlord a minimum of thirty (30) days written notice of such intention,
which notice must set forth all relevant details concerning such proposal.
Landlord shall not unreasonably withhold consent to the assignment or
subletting, provided, however, that Landlord may withhold its consent if
Landlord determines that the proposed usage of the sublet premises would be
inconsistent with other tenant usages in the Building or might interfere with
such tenants' peaceful enjoyment of their premises.

In the event that Landlord consents to the desired assignment or
subletting, on a monthly basis Tenant shall remit to Landlord fifty percent
(50%) of any rent increase (or other profit) which Tenant shall realize as a
result of said assignment or subletting. Failure to submit such share of the
profit shall be considered a breach of this Lease.

In the event that Landlord consents to any requested assignment or
subletting, Tenant shall thereafter at all times remain fully responsible and
liable for the payment of the Rent (Base and Additional) herein specified and
for compliance with all of the Tenant's other obligations under the terms,
provisions and covenants of this Lease. Receipt by Landlord of Rent from any
sublessee or occupant of the Demised Premises shall not be deemed a waiver of
the covenant in this Lease against subletting nor a release of Tenant under this
Lease.

8. DELAY IN POSSESSION. If Landlord shall be unable to give possession of
the Demised Premises on the date of the commencement of the term hereof by
reason of the fact that the Building is not sufficiently completed to make the
Demised Premises ready for occupancy, or by reason of the fact that a
certificate or occupancy has not been procured, or if the Landlord is unable to
give possession of the Demised Premises on the date of commencement of the term
hereof by reason of the holding over or retention of possession of any Tenant or
occupancy, or if repairs, improvements or decoration of the Demised Premises, or
of the Building of which the Demised premises form a part, are not completed, or
for any other reason, Landlord shall not be subject to any liability for the
failure to give possession on said

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date. Under such circumstances the Rent (Base and Additional ) reserved and
covenanted to be paid herein shall not commence until the possession of the
Demised Premises is given or the premises are available for occupancy by Tenant,
and no such failure to give possession on the date of commencement of the term
shall in any other respect affect the validity of this Lease or the obligation
of the Tenant hereunder, nor shall same be construed in any way to extend the
term of this Lease.

9. FIRE OR OTHER CASUALTY. Should the Demised premises be damaged by
fire or other casualty the following shall result: (i) should the Demised
Premises be rendered wholly unfit for occupancy and not be (in the reasonable
judgment of Landlord) susceptible to repair within ninety (90) days after
such damage, this lease shall terminate as of the date of such damage, and
Tenant shall pay Rent (Base and Additional) hereunder apportioned to the time
of such damage and shall immediately surrender the Demised Premises to
Landlord; (ii) should such damage, however, be (in the reasonable judgment of
the Landlord) susceptible to repair within ninety (90) days after such
occurrence, Landlord shall enter and make repairs without affecting this
Lease, but the Rent (Base and Additional) hereunder shall be reduced or
abated as shall be equitable while such repairs are being made, unless such
damage has been so slight as not to render a substantial part of the Demised
Premises unfit for occupancy, in which case Rent (base and Additional) shall
not be reduced Damage to the building which affects Tenant's access to the
Demised premises shall be treated as damage to the Demised Premises pursuant
to subparagraphs (i) and (ii) above In all cases, due allowance shall be made
for reasonable delays in effecting repairs where that delay is caused by
delay in adjustment or insurance loss, strikes, labor difficulties or any
cause beyond the Landlord's control. Provided that Tenant may terminate this
lease if Landlord undertakes repairs and, for reasons under Landlord's
control, does not substantially complete said repairs within 90 days of the
date on which repair work begins.

10. LIABILITY. Tenant agrees that Landlord and its building manager and
their officers, agents and employees shall not be liable to Tenant for any
damage to or loss of personal property in the Demised Premises, notwithstanding
any evidence that such damage or loss is the result of the negligence of
Landlord, its building manager, or their officers, agents or employees, with
Tenant agreeing to look solely to its insurers for any recovery. Tenant further
agrees that Landlord and its building manager, agents and employees shall not be
liable for any personal injury occurring on the Demised Premises, and Tenant
hereby agrees to indemnify and hold Landlord and its building manager and their
officers, agents and employees harmless against any and all costs and expenses
incurred by said parties because of any claim by Tenant or any employee, agent,
or invitee of Tenant for personal injury occurring on the Demised Premises
except to the extent restricted by applicable law.

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11. INSURANCE. Tenant agrees to provide for public liability insurance in
amounts previously agreed to by Landlord to cover Tenant's obligations pursuant
to paragraph 12 hereunder, and prior to the commencement of the term of this
Lease, provide Landlord with a certificate evidencing such insurance coverage
and with Landlord named as an additional insured thereunder.

12. MUTUAL RELEASE/WAIVER OF SUBROGATION. Except as set forth in
Paragraph 11 above, the Landlord and Tenant each hereby release and agree to
release the other from any and all liability or responsibility for any loss,
injury or damage to the Demised Premises, or its contents, or to any person,
caused by fire or any other casualty, personal injury or accident during the
term of this Lease, even if such fire, casualty, personal injury or accident may
have been caused by the negligence (but not the intentional and wrongful act) of
the other party or one for whom such party may be responsible. Inasmuch as the
above mutual waivers may preclude the assignment of any aforesaid claim by way
of subrogation (or otherwise) to an insurance company (or any other person),
each party hereto hereby agrees, if required by said policies, to give to each
insurance company which has issued to the party policies of fire and extended
coverage insurance and other insurance, including public liability insurance,
written notice of the terms of this mutual waiver, and to have said insurance
policies properly endorsed, if necessary, to prevent the invalidation of said
insurance coverage by reason of this waiver.

13. EMINENT DOMAIN If more than twenty-five percent of the Demised
Premises shall be taken or condemned for public or quasi-public use under any
statute or by right of eminent domain, or by private purchase in lieu thereof by
any competent authority, Tenant shall have no claim against the Landlord and
shall not have any claim or right to any portion of the amount that may be
awarded as damages or paid as a result of any such condemnation. All rights of
the Tenant to damages are hereby assigned by the Tenant to the Landlord. Upon
such condemnation or taking, the term of this Lease shall cease and terminate
from the date of such governmental taking or condemnation, and the Tenant shall
have no claim against the Landlord for the value of any unexpired term of the
Lease. If less than twenty-five percent of the Demised Premises shall be so
taken, and if such taking shall substantially affect the Demised Premises or the
means of access thereto, Landlord or Tenant shall have the right by delivery of
notice in writing, to terminate this Lease as of the date when possession shall
be so taken. If neither party shall so elect, this lease shall be and remain
unaffected by such taking except that, effective as of the date when possession
shall be so taken, the rent payable hereunder shall be diminished by any amount
which shall bear the same ration to the rent as the area of the part of the
Demised Premises taken bears to the area of the Demised Premises before such
taking.

14. INSOLVENCY. In the event of (i) the appointment of a receiver or
trustee to take possession of all or a portion of the assets of Tenant, or (11)
a general or limited

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assignment by Tenant for the benefit of creditors, or (iii) any action taken,
caused or suffered by Tenant or against Tenant for the purpose of subjecting the
assets of Tenant to any law relating to bankruptcy or insolvency, or (iv) any
execution issued against Tenant affecting Tenant's leasehold interests, such
action shall constitute a breach of this Lease by Tenant. Landlord, in the
event of such a breach, shall have without need of any notice, the rights
enumerated in this lease for events of default.

15. DEFAULT. If Tenant shall fail to pay the Rent (Base or Additional)
when due, and such default shall continue for five (5) days after written notice
thereof by Landlord, or if Tenant shall fail to perform or observe any of the
other covenants, terms or conditions contained in this Lease within thirty (30)
days after written notice thereof by Landlord, or in any of the events specified
in paragraph 14 occur, or if Tenant abandons the Demised Premises during the
term hereof and in any of the said cases (notwithstanding any former breach of
covenants or waiver thereof in any former instance) Landlord, in addition to all
other rights and remedies available to Landlord by law or by other provisions
hereof, may annul and cancel this Lease as to all future rights of Tenant.
Tenant further agrees that in case of any such termination Tenant will reimburse
Landlord for lost rents and other reasonable costs which Landlord may incur by
reason of such termination, including, but not being limited to costs of
restoring and repairing the Demised Premises and putting the same in rentable
condition, costs of renting the Demised Premises to another tenant, loss or
diminution of rents and other damage which Landlord may incur by reason of such
termination, and all reasonable attorney's fees and expenses incurred in
enforcing any of the terms of this Lease. Neither acceptance of rent by
Landlord, with or without knowledge of breach, nor failure of Landlord to take
action on account of any breach hereof or to enforce its rights hereunder, shall
be deemed a waiver of any breach, and absent written notice or consent, said
breach shall be a continuing one None of the foregoing remedies are exclusive
and all are cumulative.

Notwithstanding any of the foregoing, in the event that Tenant shall be
late in making payment of any Rent (Base or Additional) required pursuant to the
provisions of this Lease, and Tenant shall be require Landlord to give notice to
Tenant prior to such rent being delivered, Tenant shall then be responsible for
a late charge equal to twenty percent (20%) of the Rent (base or Additional) due
and owing, which payment is in addition to the interest owed pursuant to
paragraph 3 hereof, and such other expenses as may be recovered pursuant to this
paragraph. It is understood and agreed that the foregoing twenty percent (20%)
charge shall be deemed to be an administrative charge to be payable to the
Landlord for efforts taken to collect past due Rent, it being understood and
agreed that actual damages and expenses incurred may be difficult to ascertain,
and that such amount shall not be deemed a penalty. It is further understood
and agreed that Landlord need only deliver (3) such late notices and that in the
event of any further late payment by Tenant, Landlord may, but shall not be
obligated to, treat such late payment as not

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subject to cure and as a breach of this Lease without possibility of redemption
by Tenant. In such case Landlord may recover the Demised Premises and take any
other actions permissible pursuant to this paragraph.

16. NO HAZARDOUS/TOXIC SUBSTANCE OR WASTE. Tenant shall not allow the use
generation, treatment, storage, release, disposition, placement, deposit, or
location in or on the Demised Premises or the Building or adjacent real estate
owned by Landlord of any toxic or hazardous substances, materials, wastes,
pollutants or contaminants, as defined in or regulated by any federal, state or
local law, regulation, code or ordinance relating to human health or the
environment (hereinafter "Hazardous Substances"). Failure of Tenant to observe
the requirements of this paragraph shall constitute default in the Lease.
Tenant shall be liable for all of the costs of locating, testing for, removing
and legally disposing of said Hazardous Substances and shall pay the same within
5 days of receipt of Landlord's invoice for said costs, if Landlord pays said
costs. Failure of Tenant to pay said invoice when due shall be subject to the
imposition of the same rate of interest called for in paragraph 3. above for
late rent payments.

17. SUBORDINATION. This Lease is subject and subordinate to all ground or
underlying leases and to all mortgages and deeds of trust which may now or
hereafter affect such leases or the real property of which the Demised Premises
form a part, and to all renewals, modifications, consolidations, replacements
and extensions thereof. Notwithstanding the foregoing, the party secured by any
such ground lease, mortgage or deed of trust (the "Secured Party") shall have
the right to recognize this Lease and, in the event of any foreclosure sale or
other possession by a Secured Party, this Lease shall continue in full force and
effect at the option of the Secured Party, and Tenant shall execute, acknowledge
and deliver any instrument that has for its purpose and effect a subordination
of this Lease to the lien of the Secured Party.

18. ESTOPPEL CERTIFICATE. Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating (i) the date this lease commenced and the
date it expires (11) the date Tenant entered into occupancy of the Demised
Premises (iii) the amount of Base Rent and the method for calculating Additional
Rent, and the date to which such Rent (Base and Additional) has been paid (iv)
and certifying that this Lease is in full force and effect and has not been
assigned, modified, supplemented or amended in any way; that this Lease
represents the entire agreement between the parties as to this Lease; that all
conditions under this Lease to be performed by the Landlord have been satisfied;
that all required contributions by Landlord to Tenant on account of Tenant's
improvements have been received; that on the specified date there are no
existing defenses or offsets which the Tenant has against the enforcement of
this Lease by the Landlord; that no Base Rent has been paid in advance; and any
other reasonably requested matter affecting this Lease. It is

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intended that any such statement delivered pursuant to this paragraph may be
relied upon by a prospective purchaser of Landlord's interest, or a mortgagee of
Landlord's interest, or an assignee of any mortgage upon Landlord's interest in
the Building. If Tenant fails to respond within 10 days of receipt by Tenant of
a written request by Owner as herein provided, Tenant shall be deemed to have
given such certificate as above provided without modification and Tenant shall
be deemed to have admitted the accuracy of any information supplied by Landlord
to a prospective purchaser or mortgagee. It shall also be deemed that this
Lease is in full force and effect, that there are no uncured defaults in
Landlord's performance, that the security deposit is as stated in this Lease,
and that no more than one month's Base Rent has been paid in advance.

19. NOTICES. All bills, statements, notices or communications which
Landlord may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
Demised Premises, all such notices being effective upon delivery or mailing.
Any notice by Tenant shall be sent by registered or certified mail addressed to
Landlord at the address where the last previous Rent hereunder was payable, or
in the case of subsequent change, to the latest address furnished by Landlord to
Tenant.

20. HOLDING OVER. Should Tenant continue to occupy the Demised Premises
after expiration of the Term of this Lease or any renewal or renewals thereof,
or after a forfeiture, such tenancy shall be from month to month at a monthly
rent equal to twice the Base Rent paid for the last month of the Term of this
Lease and all Additional Rent Due as if the Lease terms and conditions were
otherwise in effect.

21. MISCELLANEOUS.

a. The word "Tenant", wherever used in this Lease, shall be construed
to mean tenants in all cases where there is more than one tenant, and the
necessary grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women shall in all cases be
assumed as though in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, obligate or inure to the benefit
of Landlord and Tenant and their respective heirs, legal representatives,
successors and assigns.

b. Tenant represents and warrants that it has not employed any broker
or agents as its representatives in the negotiation for or the obtaining of this
Lease.

c. The term "Landlord", as used in this Lease, means only the
Landlord at any given time of the land and Building containing the Demised
Premises. In the event of any sale of said land and Building, any previous
Landlord shall be entirely freed and relieved of all covenants and obligations
of the Landlord hereunder, and

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<PAGE>

it shall be deemed and construed without further agreement that any such
purchaser has assumed and agreed to carry out any and all covenants and
obligations of the Landlord hereunder.

22. LANDLORD'S IMPROVEMENTS. Landlord shall, at its own cost, supply
improvements listed on attached Exhibit C. In the event that Tenant shall
require improvements in addition to those listed in Exhibit C, Landlord shall
submit to Tenant a written estimate of the cost thereof. Tenant's written
acceptance of such cost and authorization will be required prior to the ordering
of materials or the commencement of construction. Tenant shall pay Landlord in
full for such improvements that are in addition to those shown by Exhibit C at
or before the commencement date of this lease.

23. RENT TAX. If during the term of this Lease, any tax is imposed by any
authority upon the privilege of renting the space leased hereunder or upon the
amount of rentals collected therefor, Tenant will pay as additional Rent each
month a sum equal to such tax or charge that is so imposed, but nothing herein
shall be construed to require Tenant to pay any income tax imposed upon
Landlord.

24. PRIOR AGREEMENTS AMENDMENTS. Neither party hereto has made any
representations or promises except as contained herein or in some further
writing signed by the party making such representation or promise. No agreement
hereinafter made shall be effective to change, modify, discharge or effect an
abandonment of this Lease in whole or in part unless such agreement is in
writing and signed by or on behalf of the party against whom enforcement of the
change, modification, discharge or abandonment is sought.

25. CAPTIONS. The captions of the paragraphs in this Lease are solely for
convenience and shall never be considered or given any effect in construing the
provisions hereof if any question of intent should arise.

26. WAIVERS. The failure of Landlord to exercise any of its rights
hereunder shall not be deemed a waiver of such rights, and Landlord shall not be
deemed to have waived any of its rights except as specified in writing and duly
signed by Landlord.

27. SPECIAL PROVISIONS. Landlord and Tenant have agreed that in
consideration of Landlord's agreement to discontinue its attempts to lease the
remaining leasable floor space on the first floor of the Building to other
tenants, Tenant will rent a minimum of twenty-five per-cent of the remaining
floor space on the first floor of the Building effective on each of the first
four anniversaries of the Lease term and to pay to Landlord as Base Rent and
Additional Rent for said additional space the amount of square foot rent payable
under paragraph 3. above on the Demised Premises originally leased by Tenant.
Landlord and Tenant agree

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<PAGE>

that the gross rentable floor space on the ground floor of the Building is Five
thousand three hundred sixty four square feet and that the additional square
footage required to be leased by Tenant each year during the final four years of
this lease is Six hundred sixty square feet.

IN WITNESS WHEREOF, the respective parties have executed this Lease or
caused it to be executed by their duly authorized representatives on the day and
year first herein written

LANDLORD TENANT

The 308 Corporation Nutrition Medical, Inc.

By: /s/ By: /s/ William L. Rush
------------------------ ----------------------

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<PAGE>

EXHIBIT "A"

Lot 5, Block 3, Highway 55 East Commercial Park Second Addition, according to
plat on file and of record in the Office of the County Recorder, in and for the
County of Wright, State of Minnesota, City of Buffalo, subject to easements and
exceptions of record.

[insert graphic]

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<PAGE>

EXHIBIT "B"

Tenant may elect to renew this Lease for an additional term of five years by
giving Landlord six months written notice of its election to renew. If Tenant
elects to renew, the Base Rent will be adjusted by an amount equal to the
increase or decrease in the Minneapolis/St. Paul All Urban Consumer Price Index
measured from the date of the original Lease to a date six months prior to the
expiration of this Lease. All other terms and conditions of this Lease shall
remain in full force and effect.

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<PAGE>

EXHIBIT "C"

(Landlord Improvements

1. Paint interior walls of office spaces with one coat of paint of the same
general color as presently on said walls.

2. Shampoo carpet in leased premises.

3. Construct 2 X 4 studwall with door measuring at least 36 inches wide in
area designated with red line on Exhibit A. hereto. Finish the wall with paint
on both sides, same color as in remainder of demised premises. Paint door
suitable color.

4. Construct "Cyclone" style fence wall on east side of area designated "109
Storage" on attached EXHIBIT "A" running from the west-most extension of wall
called for in paragraph 3 above north to concrete block wall. Wall shall
include two gates of same material measuring approximately four feet wide each
with center lock pin or equivalent for closure of gates.

5. Replace any burned-out light bulbs or tubes.

6. Repair ceiling in main floor bathroom.

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<PAGE>

ADDENDUM TO LEASE

This is an Addendum to the Lease dated 15th Oct., 1993, between The 308
Corporation, as Landlord, and Nutrition Medical, Inc., as Tenant, for space in
the building located at 308 12th Avenue South, Buffalo, MN (the "Lease"). The
terms of this Addendum shall supersede any inconsistent provisions of the Lease.

1. Nothing contained in the Lease shall require the Tenant to make or pay for
all or any part of the cost of improvements or alterations to the Building
or the Demised Premises which may be required to comply with any existing
or future law or regulation, unless necessitated by Tenant's particular use
of the premises which is not standard for other office tenants.

2. If Landlord fails to fully perform any of its obligations under this Lease
such failure continues for 30 days after written notice thereof is given by
Tenant (or, if such failure cannot be cured within 30 days, either fails to
commence the cure within such 30-day period or fails to diligently pursue
it to completion), Tenant may (but will not be required to) perform such
obligations, and all amounts paid by Tenant in doing so and all costs and
expenses incurred by Tenant in with doing so (together with interest at the
rate of 10% per annum from the date such costs and expenses are incurred)
will be payable by Landlord to Tenant on demand. If Landlord fails to make
such repayment, in addition to any other rights Tenant may have, Tenant
will have the right to offset the amount of the repayment against its rent
and other charges under this Lease.

3. Landlord warrants to Tenant that to the best of its knowledge, no toxic or
hazardous substances, materials wastes, pollutants or contaminants, as
defined in or regulated by any federal, state or local law, regulation code
or ordinance relating to human health or the environment (hazardous
Substances"), have been generated, treated, stored, released or disposed of
in or on, or otherwise placed, deposited in or located on the Demised
Premises.

4. Landlord shall pay all real estate taxes and installments of special
assessments levied against the premises and payable during the term of the
Lease, on or prior to the due dates.

5. Landlord hereby covenants that if Tenant pays the rent and other charges
and performs the covenants and agreements contained herein, Tenant shall
peaceably and quietly hold and enjoy the Demised Premises during the entire
term of this Lease and any extensions or renewals thereof.

6. Whenever Landlord's consent or approval is required pursuant to the Lease,
Landlord agrees not to unreasonably withhold or delay such approval.

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<PAGE>

7. The following shall be excluded from "Operating Costs":

a) costs relating to the original acquisition, development and
construction of the Center;

b) depreciation;

c) interest, finance charges, rent under ground leases and all related
costs;

d) the cost of repairs caused by the negligence of Landlord, Landlord's
property manager, other tenants or any of their respective agents or
employees;

e) bad debt losses, rent losses and reserves;

f) costs related to leasing other space in the Building;

g) capital expenditures;

h) amounts paid to any affiliate of Landlord in excess of the amounts
that would be charged by reputable unaffiliated parties;

i) interest or penalties incurred as a result of Landlord's failure to
pay costs when due;

j) internal expenses and overhead of Landlord's business;

k) costs of services not generally furnished for all tenants in the
Building;

l) management fees in excess of 3% of gross rents;

m) costs of complying with laws, regulations, ordinances or governmental
requirements relating to Hazardous Substances.

Landlord shall maintain all books and records relating to Operating Costs for a
particular calendar year for a period of at least three years after that
calendar year, in accordance with generally accepted accounting principles
consistently applied, and Tenant shall have the right, at any time during those
three years, to have Landlord's books and records audited by a certified public
accountant reasonably acceptable to both Tenant and Landlord. The results of
any such audit shall be conclusive, and any adjustment due from either party as
a result of such audit shall be paid within 30 days after receipt of the audit
report. Landlord shall pay Tenant interest on any overpayment disclosed as a
result of such audit, from the date of the overpayment

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<PAGE>

until the date of adjustment following the audit, if the overpayment exceeds 3%
of the actual Operating Costs. This provision shall survive the expiration or
termination of the Lease.

8. Notwithstanding anything to the contrary contained in this Lease, in the
event that for any reason within Landlord's control, any service or
facility required to be furnished by Landlord to the Demised Premises by
this Lease is interrupted for a period in excess of three consecutive
business days, and the conduct of Tenant's business is significantly
impaired or disturbed in all or part of the Demised Premises as a result of
the interruption, then Tenant will be entitled to an abatement of rent and
other charges payable hereunder that is proportionate to the part or whole
of the Demised Premises that is so affected, from the commencement of the
three day period for the balance of the time that the Demised Premises or
part thereof is so affected.

This Addendum has been executed by Landlord and Tenant as of the date first
written above.

THE 308 CORPORATION

By: /s/
------------------------
Its: President
--------------------

NUTRITION MEDICAL, INC.

By: /s/ William L. Rush
------------------------
Its: President/CEO
--------------------

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<PAGE>
LEASE AGREEMENT

THIS LEASE, made and entered into this 22nd day of February, 1996, by
and between Caliber Development Corporation and/or Assigns, whose address is
14405 21st Avenue, #118, Plymouth, Minnesota, hereinafter referred to as
"Lessor" and Nutrition Medical whose address is 308 12th Avenue South,
Buffalo, Minnesota 55313, hereinafter referred to as "Lessee".

Lessor in consideration of the rents, terms, covenants, conditions and
agreements hereinafter provided and described on the part of the Lessee to be
paid, kept and performed, does lease and let unto the Lessee, and Lessee does
hereby take and hire from Lessor and do hereby covenant, promise, and agree
as follows:

PROPERTY:

1. The parcel of real property known as Bass Lake Business Center II, 51st
Avenue and Nathan Lane, Plymouth, Minnesota and legally described as Legal to
Govern made a part hereof, together with the building and improvements
erected thereon ("Building") are hereinafter referred to as the "Property".

LEASED PREMISES:

2. The "Leased Premises" shall consist of that portion of the Building
erected upon the real estate described as Property crosshatched on Exhibit
"A" attached hereto and made a part hereof, designated as suite 120 and
consisting of approximately 3750 square feet of office and 3750 square feet
of warehouse totaling 7500 square feet. In the event that the actual square
footage contained in the Leased Premises differs in amount with the set forth
herein, the actual square footage contained in the Leased Premises shall be
that which is used for all purposes under this Lease. In the event the final
square footage is greater or lesser than 100 square foot different, the exact
rentable square footage shall be field verified and adjusted accordingly.

TERM:

3. The term of this Lease shall commence on the 1st day of September, 1996
(Commencement Date), and shall continue thereafter to and including the 30th
day of November, 2001, (Expiration Date) unless earlier terminated as
hereinafter provided. Lessee agrees that neither this Lease nor a short form
memorandum of this Lease will be recorded without the prior written consent
of the Lessor. At Lessor's request, Lessee agrees to execute for recording
purposes a short form or memorandum of this Lease, which short form or
memorandum of this Lease will set forth the Commencement Date, and the date
of termination of the lease term. If any option to renew is granted Lessee
herein and such renewal option is exercised, the word "term" shall also
include the renewal period.

<PAGE>

BASE RENT:

4. Lessee shall pay to Lessor at the address set forth below or at such
other place as Lessor may from time to time designate in writing, annual rent
of $54,000.00 payable in advance in successive monthly installments of
$4,500.00, on the first day of each and every calendar month during this
Lease ("Base Rent"). The first full month's rent is included with this Lease
as Check No. __________, dated __________, $__________, issued by __________.

RENT PAYMENT:

5. The monthly Base Rent together with any additional rent payable
hereunder shall be paid in advance without demand on the first day of each
month during the Lease Term in lawful money of the United States to Lessor at
its office, c/o Caliber Development Corp., 14405 21st AVenue, #118, Plymouth,
Minnesota, or at such other place or places and to such other party or
parties as Lessor may hereafter designate.

ADDITIONAL RENT:

6. This is a "Net" Lease and Lessee shall pay to Lessor throughout the term
of this Lease the following:

a. Lessee shall pay a sum equal to 25.86% of the Real Estate Taxes.
Lessee's pro rata share of real estate taxes shall be the ratio between the
area of the Leased Premises and the net rentable area of the Building, as
determined from time to time by the Lessor. The term "Real Estate Taxes"
shall mean all real estate taxes, all assessments, including interest
thereon, and any taxes in lieu thereof which may be levied upon or assessed
against the Property of which the Leased Premises are a part and which are
due and payable in any year during the term hereof. Lessee, in addition to
all other payments to Lessor by Lessee required hereunder shall pay to
Lessor, in each year during the term of this Lease and any extension or
renewal thereof, Lessee's proportionate share of such real estate taxes and
assessments. The payments to be made by Lessee shall be made with respect to
the Real Estate Taxes payable by Lessor during each such lease year. Lessor
will amortize any special assessments over maximum period allowed by taxing
authority. Lessor warrants that there are no special assessments payable at
Lease commencement.

Any tax year commencing during any lease year shall be deemed to
correspond to such lease year. In the event the taxing authorities include
in such real estate taxes and assessments the value of any improvements made
by Lessee, or of machinery, equipment, fixtures, inventory or other personal
property or assets of

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<PAGE>

Lessee, then Lessee shall pay all the taxes attributable to such items in
addition to its proportionate share of said aforementioned real estate taxes
and assessments.

b. A sum equal to 25.86% of the annual aggregate operating expenses
incurred by Lessor in the operation, maintenance and repair of the Property.
Lessee's pro rata share of operating expenses shall be the ratio between the
area of the Leased Premises and the net rentable area of the Building, as
reasonably and consistently determined from time to time by the Lessor. The
term "Operating Expenses" shall include but not be limited to maintenance,
repair, replacement and care of all common area lighting, common area
plumbing and roofs, landscaped areas, parking, including, but without
limitation the costs of patching or seal coating black-top or concrete
surfaces, marking and striping parking spaces or driveways, repair and
replacement of signs identifying the Property, cleaning of parking lot and
driveway surfaces, repairing and painting the lighting standards and
fixtures, electric current and lamps for parking lot lights, snow removal,
repair and maintenance of the exterior of the Building, common area utility
costs, insurance premiums, including any rent insurance premiums paid by
Lessor, management fee,(1) wages and fringe benefits of personnel employed
for such work,(2) costs of equipment purchased or leased and used for such
purposes,(2) cost of service contracts, cost of any repairs or alterations
required to comply with requirements of any governmental or
quasi-governmental authority, and the cost or portion thereof properly
allocable to the Leased Premises (amortized over such reasonable period as
Lessor shall determine together with the interest at the rate of 12% per
annum, on the unamortized balance) of any capital improvements made to the
Building by Lessor after the first year of the leased term which result in a
reduction of Operating Expenses or made to the Building by Lessor after the
date of this Lease that are required under any governmental law or regulation
that was not applicable to the Building at the time it was constructed.(3)

Prior to commencement of this Lease, and prior to the commencement of each
calendar year thereafter commencing during the term of this Lease or any renewal
or extension thereof, Lessor may estimate for each calendar year (i) the total
amount of Real Estate Taxes; (ii) the total amount of Operating Expenses; (iii)

- -----------------
(1) Management fee is 5% of Base and Additional Rent.

(2) Such costs to be allocated to the Building based on usage.

(3) Specifically excluded from Operating Expenses are principal and interest
payments, depreciation, leasing commissions, interest/penalties on late
payments of Real Estate Taxes, structural repairs to the building, bad debts
or reserves for bad debts, advertising and marketing costs, design fees, and
environmental remediation outside of Lessee's suite.

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<PAGE>

Lessee's share or Real Estate Taxes for such calendar year; (iv) Lessee's
share of Operating Expenses for such calendar year; and (v) the computation
of the annual and monthly rental payable during such calendar year as a
result of increases or decreases in Lessee's share of Real Estate Taxes and
Operating Expenses. Said estimates will be available at Lessor's office.

The amount of Lessee's share of Real Estate Taxes and Operating Expenses
for each calendar year, so estimated, shall be payable as Additional Rent, in
equal monthly installments, in advance, on the first day of each month during
such calendar year at the option of Lessor. In the event that such estimate
is delivered to Lessee after the first day of January of such calendar year,
said amount, so estimated, shall be payable as Additional Rent in equal
monthly installments, in advance, on the first day of each month over the
balance of such calendar year, with the number of installments being equal to
the number of full calendar months remaining in such calendar year.

Within 60 days upon completion of each calendar year during the term of
this Lease or any renewal or extension thereof, Lessor shall determine the
actual amount of the Real Estate Taxes and Operating Expenses payable in such
calendar year and Lessee's share thereof. If Lessee has underpaid its share
of Real Estate Taxes or Operating Expenses for such calendar year, the Lessee
will be billed its proportionate share. If Lessee has overpaid, Lessor shall
credit such excess against the most current monthly installment or
installments due Lessor for its estimate of Lessee's share of Real Estate
Taxes and Operating Expenses for the next following calendar year. Any
overpayment by Lessee at the end of the lease term will be refunded in cash,
if applicable. A pro rata adjustment shall be made for a fractional calendar
year occurring during the term of this Lease or any renewal or extension
thereof based upon the number of three hundred sixty-five (365) days and all
additional sums payable by Lessee or credits due Lessee as a result of the
provisions of this Article 6 shall be adjusted accordingly. Absent objection
from Lessee within 90 days of receipt of Lessor's estimate of operating
expenses, Lessor's estimate of operating expenses shall become final and
Lessee may not claim any readjustment. Lessee shall have a right to audit if
a discrepancy of more than 5% guests. Lessor will adjust its actual costs,
and pay for said cost of audit.

c. The payment of the sums set forth in this Article 6 shall be in
addition to the Base Rent payable pursuant to Article 4 of this Lease. In
the event the lease term shall begin or expire at any time during the
calendar year, the Lessee shall be responsible for this pro rata share of
Additional Rent under subdivisions a. and b. during the Lease and/or
occupancy time.

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<PAGE>

COVENANT TO PAY RENT:

7. The covenants of Lessee to pay the Base Rent and the Additional Rent are
each independent of any other covenant, condition, provision or agreement
contained in this Lease, and Lessee shall have no right of offset or
deduction as a result of any default by Lessor, except as expressly provided
in this Lease.

TIME OF POSSESSION:

8. In the event this Lease is executed prior to completion of the Building
on the Leased Premises and the Leased Premises are not substantially
completed on or before the Commencement Date, the rentals hereinafter
reserved shall abate until said Leased Premises have been substantially
completed, or until the Lessee takes occupancy, whichever date is earlier,
which date shall then become the Commencement Date of the lease term rather
than the date set forth in Article 3. Upon taking possession, Lessee agrees
to furnish to Lessor, a letter confirming the date of possessions, and the
Lease Commencement Date. If the Leased Premises shall, on the date of
commencement of the Term of this Lease, be in the possession and occupancy of
any person not lawfully entitled thereto, Lessor shall use due diligence to
obtain possession thereof for Lessee. If the Leased Premises shall not be
ready for occupancy at said time, because construction has not yet been
completed or by reason of any building operations, repairing or remodeling
(to be done by Lessor) Lessor shall use due diligence to complete such
construction, building operations, repairing and remodeling. Notwithstanding
the foregoing, it is agreed that Lessor shall not in any way be liable for
failure to obtain possession of the Leased Premises for Lessee, or to deliver
the possession thereof to Lessee with such building construction, operations,
repairing or remodeling completed, except that the rentals hereunder shall be
abated until the Leased Premises shall, on Lessor's part, be ready for the
occupancy of Lessee, this Lease remaining in all other things in full force
and effect.

ACCEPTANCE OF PREMISES:

9. The leasehold improvements to be completed by Lessor are described in
the attached Exhibit B. The related building construction allowances are in
the attached Exhibit C. Lessee will have five days after taking possession
of the Leased Premises to inspect them, and to report to Lessor any defects.
Lessee will be presumed to have accepted the condition of the Leased Premises
except only for defects noted during those first five years.

Any changes made by Lessee after this final approval of plans, Lessor
shall be paid 10 days from the date of billing after Lessee's occupancy.

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<PAGE>

COMMON AREA:

10. The term "common area" shall include all driveways, parking areas,
landscaped areas, walkways, restrooms or common entrances to the Building
shared by all occupants constituting a party of the Property. Lessee shall
have a non-exclusive right in common with other Lessees or occupants of the
Property to use such common areas of the Property. Lessor reserves the
absolute right to change, alter, decrease, or modify any common area and
other portions of the property not included with the Leased premises without
the consent of the Lessee. Lessee shall use the common areas in accordance
with such rules and regulations as may from time to time be made by Lessor
for the general safety, comfort and convenience of Lessor, occupants and
Lessees of the Leased Premises. Lessee shall cause its customers, employees
and invitees to abide by such rules and regulations.

Lessor shall repair, at its expense, the construction defects of the
Property, provided, however, that such defects must be brought to Lessor's
attention within six months of the commencement date and, provided further,
where repairs are required to be made by reason of the acts of Lessee, the
costs thereof shall be borne by Lessee and payable by Lessee to Lessor upon
demand.

The Lessor shall be responsible for all outside maintenance of the
Property, including grounds and parking areas. All such maintenance which is
the responsibility of the Lessor shall be provided as reasonably necessary to
the comfortable use and occupancy of Leased Premises during the business
hours, except Saturdays, Sundays and national holidays, upon the condition
that the Lessor shall not be liable for damages for failure to do so to
causes beyond its control.

INSURANCE:

11. The Lessee agrees to place and maintain, at the Lessee's own expense,
public liability insurance with respect to use and occupancy of the Leased
Premises and use of the common area, with limits of $1,000,000 on a combined
single limit basis for personal injury and property damage and shall have the
Lessor named as an additional insured thereon. Certificates of insurance
showing compliance with the foregoing requirements shall be furnished by
Lessee to Lessor. Said liability policy shall provide that it cannot be
canceled, modified, or terminated without thirty (30) days prior written
notice to the Lessor.

The Lessor shall, throughout the term of this lease, procure and
maintain insurance which covers the Property against fire and extended
coverage and such other risks as may be included at the discretion of the
Lessor. The Lessor shall, throughout the term of this Lease, procure and
maintain public liability insurance with respect to the Property with limits
of at least $1,000,000 on a combined single limit basis.

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<PAGE>

Lessor reserves the right to place rent insurance on the Property
insuring against the loss of rental income from this Lease in an amount not
to exceed a year's rent.

All policies of insurance shall carry a mutual waiver of subrogation
clause and Lessor and Lessee hereby release each other from and covenant that
neither shall be liable to the other, the other's insurance carrier or
carriers, or anyone claiming under or through the other for, all liability
for loss or damage whatsoever occasioned to property owned by said parties
which is caused by or might be incident to or may be the result of fire and
any other casualty regardless of the cause or origin of such loss or damage,
specifically including the negligence of the other party, the other's agents,
employees, invitees or guests. It being the intent of the parties that each
party shall be limited to recovery from any insurance which it carries or
assume the risk of such loss.

Lessee shall not carry any stock of goods or do anything in or about the
Leased Premises which in anyway impairs or invalidates the obligation of the
insurer under any policy of insurance.

PERSONAL PROPERTY AT RISK OF LESSEE:

12. All personal property in the Property shall be at the risk of the Lessee
only. The Lessor shall not be or become liable for any injury or damage to
persons or property, or to the Leased Premises or any furniture, equipment,
improvements or other changes made by Lessee or to Lessee or any other
persons or property as a result of fire, explosion, water leakage, sewage,
electric failure, gas or odors, or for any damage whatsoever done or
occasioned by or from any plumbing, gas, water or other pipes or any
fixtures, equipment, wiring or appurtenances whatsoever, or for any damage
arising from any act or neglect of other Lessees, occupants or employees of
the Building in which the Leased Premises are situated or arising by reason
of the use of wiring or appurtenances therein, or by the act or neglect of
any other person or caused in any manner whatsoever. Lessor shall not be
liable for any latent defect in the Leased Premises, unless caused by
Lessor's gross or willful negligence.

UTILITIES:

13. The Lessee is separately metered for gas and electricity and shall be
liable and agrees to pay the charges for all public utility services rendered
or furnished to the Leased Premises, including heat, water, gas, electricity,
refuse removal, telephone service, sewer, sewage treatment facilities and the
like which may be levied, imposed or assessed against the Leased Premises
during the Lease term.

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<PAGE>

In the event the Lessee uses water and sewer in substantial amounts or
for production purposes, the Lessor shall install at Lessee's expense a water
meter to sub-meter said water and sewer, and shall charge Lessee for said
water and sewer at rates as charged by the City.

Lessor shall not be liable to Lessee for any loss or damage of any kind
or destruction whatsoever caused or sustained by reason of failure of the
heating or ventilating and air conditioning system servicing the Leased
Premises or because of inability to obtain energy or utilities for any reason
beyond Lessor's control.

SUBLEASING OR ASSIGNMENT:

14. Lessee shall not assign, mortgage or encumber this Lease, nor sublet,
nor suffer or permit the Leased Premises or any part thereof to be used by
others, without the prior written consent which consent will not be
unreasonably withheld of Lessor in each instance; provided, however, that if
this Lease is assigned tony person or entity pursuant to the provisions of
the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
any and all monies or other considerations payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Lessor, shall be and remain the exclusive property of Lessor and shall not
constitute property of Lessor or of the estate of Lessee within the meaning
of the Bankruptcy Code. Any and all monies or other considerations
constituting Lessor's property under the preceding sentence not paid or
delivered to Lessor shall be held in trust for the benefit of Lessor and be
promptly paid or delivered to Lessor. This Lease can be assigned to an
affiliated entity of Lessee so long as the credit and financial statement is
equal to or granting of the original Lessee.

REPAIRS AND MAINTENANCE:

15. The Lessee covenants and agrees at its sole expense to keep and maintain
in good order and first class condition and repair the interior and
nonstructural portions of the Leased Premises, including but without
limitation the interior and exterior portions of all doors, doorchecks and
operators, loading docks, windows, plate glass, plumbing, water and sewage
facilities, fixtures, electrical equipment, interior walls, ceilings, signs,
interior building appliances and similar equipment used exclusively for the
Leased Premises, heating and air conditioning equipment, and further agrees
to replace any of said equipment when necessary, in Lessor's reasonable
opinion.(4) Lessee shall keep the Leased Premises and the fixtures and

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(4) Any cost of repairs and replacement, in agreement, greater than $1,500.00
annually shall be paid by Lessor. This excludes Lessee's HVAC Preventative,
HVAC Maintenance Program.

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equipment therein in a clean, safe and sanitary condition(5). The Lessee
shall keep and maintain all portions of the Leased Premises and the sidewalk
and areas adjoining the same in a clean and orderly condition, free of
accumulation of dirt, and rubbish. Lessee shall be responsible for the cost
of any repairs or alterations to the Leased Premises required to comply with
the requirements of any governmental or quasi-governmental authority, after
the Lease Commencement.

Lessee shall conserve heat, air conditioning, water, and electricity and
shall use due care in the use of the Leased Premises and of the common areas
on the Property and without qualifying the foregoing, shall not neglect or
misuse water fixtures, electric lights and heating and air conditioning
apparatus. Lessee shall pay promptly to Lessor forthwith, upon demand, an
amount equal to any cost incurred by lessor in repairing the Leased Premises
or the Building, where such repair was made necessary by the negligence of,
or misuse by Lessee or an employee, customer or invitee of the Lessee, or by
reason of any open window in the Leased Premises. Lessee will maintain a
minimum temperature to prevent freeze-up.

If the Lessee refuses or neglects to commence or complete any repairs
for which it is responsible or to maintain the Leased Premises in the
condition required above promptly and adequately, the Lessor may, but shall
not be required, to do so, and the Lessee shall pay all costs plus 15% for
overhead to lessor upon demand. The repairs will be done without liability
to Lessee for any loss or damage that may accrue to Lessee's merchandise
fixtures, or other property or to Lesser's business by reason thereof.

Lessee, at its sole cost and expense shall maintain a regularly
scheduled preventative, maintenance/service contract with a maintenance
contract for the service of all hot water, heating and air conditioning
systems and equipment within or servicing the Leased Premises. The
maintenance contractor and contract must be approved by Lessor and must
include appropriate/quarterly servicing, replacement of filters, replacement
or adjustment of drive belts, periodical lubrication and oil change and other
services suggested by the equipment manufacturer or by the contractor.
Lessor coordinates the regularly scheduled preventative maintenance program
with Lessee paying the contractor.

ALTERATIONS, INSTRUCTIONS, FIXTURES:

16. The Lessee agrees not to make any alterations of or upon any part of the
Leased Premises in excess of $1,000.00 except by and with the prior written
consent of the Lessor. If Lessor shall consent to any such alterations or
additions to the Leased

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(5) Lessor, as part of the Building OPerating Expenses, coordinates twice
annually exterior window cleaning.

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<PAGE>

Premises, Lessee warrants that they shall be made in accordance with all
applicable laws and shall remain for the benefit of, and at once become the
property of, the Lessor unless otherwise provided in said written consent and
shall be surrendered to Lessor upon termination of this Lease in good repair
or condition or, at Lessor's option, remove such alterations and additions
and restore the Leased Premises to its original condition; provided, however,
this clause shall not apply to movable equipment or furniture in good repair
or condition owned by Lessee which may be removed by Lessee at the end of the
term of this Lease if Lessee is not then in default; and the Lessee further
agrees, in the event of making such alterations as herein provided, to
indemnify and save harmless the Lessor from all expense, liens, claims or
damages due to persons or property on the Leased Premises out of or resulting
from the undertaking or making of said alterations or additions. Construction
of such alterations shall commence only upon Lessee obtaining and exhibiting
to lessor the requisite, approvals, licenses, permits and indemnification
against liens.

In connection with any alterations, additions, improvements or changes,
Lessor reserves the right to require that prior to the commencement of such
alterations, Lessee shall furnish Lessor with assurances, including such
bonds as LEssor reasonably deems necessary, that the contemplated
alterations, additions, improvements or changes will be completed according
to plan and will be paid for. Lessor may, at its option, discharge any such
lien, and the amount of the lien, together with costs and reasonable
attorney's fees, shall become additional rent due immediately hereunder.

USE OF PREMISES:

17. The Leased Premises shall be used exclusively for office, warehousing
and light manufacturing purposes and related office purposes or for such
manufacturing purposes as Lessor may expressly approve in writing. Lessee
shall not store any goods or merchandise or use the Leased Premises for any
purpose which will in any way impair or violate the requirements of any
policies of insurance on the Leased Premises or result in a rating of the
Leased Premises or an increase in the insurance premium on account thereof.
No part of the Leased Premises shall be used which will interfere with the
general safety, comfort and convenience of Lessor and Lessee or other Lessees
of the building.

Lessor represents that Lessee's use of Premises, as described by Lessee,
is permitted by applicable zoning regulations.

The Lessee and its use of the Leased Premises will comply with all laws,
statutes, ordinances, rules, orders, regulations and requirements of all
federal, state, city and local governments, and with all rules, orders and
regulations relating to the use of the Leased Premises, and shall not keep,
store, dispose of, transport or

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generate, on the Leased Premises any hazardous substances or wastes or
dangerous materials. Lessee shall indemnify and hold Lessor and any
mortgagee holding a mortgage on the Property harmless from any and all costs,
expenses, losses, actions, claims and liability in connection with the breach
by Lessee of any federal, state, or local law governing hazardous wastes and
substances and related environmental matters.

Lessor has made no representations as to any particular zoning or
permitted uses of the Leased Premises and Lessee is taking the Leased
Premises without reliance upon or any representation to Lessor as to the use
to which Lessee intends to use the Leased Premises.

SIGNS:

18. All signs require the written approval of Lessor. Any sign, lettering,
picture, notice or advertisement installed on or in any part of the Leased
Premises and visible from the exterior of the Building, or visible from the
exterior of the Leased Premises, shall, if approved by Lessor, be installed
by Lessor at Lessee's sole cost and expense. All signs are to be maintained
by Lessor at Lessee's expense. In the event of a violation of the foregoing
by Lessee, Lessor may remove the same without any liability and may charge
the expense incurred at such removal to Lessee. Lessee may not display any
signs, symbols or merchandise in windows. Lessor at its cost and to its
standards, provides building signage.

SUBORDINATION:

19. The Lessor reserves the right and privilege to declare this Lease either
senior to or, at its sole option, subject and subordinate to the lien of any
mortgages or deeds of trust now or hereafter placed upon the Lessor's
interest in the Leased Premises, and to any and all advances to be made
thereunder, and all renewals, modifications, extensions, consolidations and
replacements thereof. The Lessee covenants and agrees to execute and
deliver, upon demand, such further instrument or instruments subordinating
this Lease on the foregoing basis to the lien of any such mortgage or
mortgages or deed of trust as shall be desired by the Lessor or any present
or future mortgagee or holder of a deed of trust. Lessee shall execute and
deliver whatever instruments may be required for the above purposes and,
failing to do so within ten (10) days after demand in writing, does hereby
make, constitute and irrevocably appoint Lessor at its attorney in fact and
in its name, place and stead to do so.

CONDEMNATION OR EMINENT DOMAIN:

20. If the whole of the Leased Premises are taken by any public or
quasi-public authority under the power of eminent domain, or by private
purchase in lieu

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thereof, then this Lease shall automatically terminate upon the date
possession is surrendered, and rent shall be paid up to that day.

If any part constituting less than the whole of the Leased Premises
shall be acquired or condemned as aforesaid, and in the event that such
partial taking or condemnation shall materially affect the Leased Premises so
as to render the Leased Premises unsuitable for the business of the Lessee,
in the reasonable opinion of Lessor, then the term of this Lease shall cease
and terminate as of the date possession shall be taken by the condemning
authority and rent shall be paid to the date of such termination.

In the event of a partial taking or condemnation of the Property which
shall not materially affect the Leased Premises so as to render the Leased
Premises unsuitable for the business of the Lessee, in the reasonable opinion
of Lessor, this Lease shall continue in full force and affect but with a
proportionate abatement of the Base Rent and Additional Rent based on the
portion if any of the Leased Premises taken. Lessor reserves the right at
its option to restore the Building and the Leased Premises to substantially
the same condition as they were prior to such condemnation. In such event,
Lessor shall give written notice to Lessee, within 30 days following the date
possession shall be taken by the condemning authority, of Lessor's intention
to restore. Upon Lessor's notice of election to restore, Lessor shall
commence restoration and shall restore the Building and the Leased Premises
with reasonable promptness, subject to delays beyond Lessor's control and
delays in the making of condemnation or sale proceeds adjustments by Lessor;
and Lessee shall have no right to terminate this Lease except as herein
provided. Upon completion of such restoration, the rent shall be adjusted
based upon the portion, if any, of the Leased Premises restored.

All compensation awarded or paid upon such total or partial taking of
the Leased Premises shall belong to and be the property of the Lessor without
any participation by the Lessee, whether such damages shall be awarded as
compensation for diminution in value to the leasehold estate or to the fee
estate of the Leased Premises. Nothing contained herein shall be construed
to preclude the Lessee from prosecuting any claim directly against the
condemning authority in such proceedings for loss of business, damage to or
cost of removal of or for the value of the stock, trade fixtures, furniture,
and other personal property belonging to the Lessee; prided, however, that no
such claim shall diminish or otherwise adversely affect the Lessor's award or
the award of any fee mortgages.

RIGHT TO INSPECT:

21. Lessor, its agents and representatives may at any and all reasonable times
during the day and night enter to view and inspect the Leased Premises with
reasonable notice during normal business hours except in the case of
emergencies,

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or to make repairs, or to make such improvements or changes in the Leased
Premises or the Building as Lessor may deem proper. The right of entry
reserved in the immediately preceding sentence shall not be deemed to impose
any greater obligation of Lessor to maintain, repair or change the Leased
Premises than is specifically provided in this Lease. The Lessor, its agents
or representatives may, at any time in case of emergency, enter the Leased
Premises or the Building. There shall be no diminution of rent or liability
on the part of Lessor by reason of inconvenience, annoyance, disturbance,
loss of business, or injury to business on account of any such entry or acts
by Lessor, its agents or representatives, unless due to Lessor's gross or
willful negligence.

The Lessor may, during the progress of any work in the Leased Premises,
keep and store upon the Leased Premises all necessary materials, tools, and
equipment.

The Lessee agrees to allow the Lessor free access to the Leased Premises
to show the premises, and within seventy five (75) days of the termination of
this Lease, to place "for sale" or "for rent" signs on the Leased Premises.

RULES AND REGULATIONS:

22. Lessee shall use the Leased Premises and the common areas in e Property
in accordance with such rules and regulations as set forth in Exhibit D and
as may from time to time be made by Lessor for the general safety, comfort,
cleanliness, and convenience of the owners, occupants and Lessees of the
Property, and shall cause Lessee's customers, employees and invitees to abide
by such rules and regulations.

DAMAGE AND DESTRUCTION:

23. In the event that a significant portion of the Leased Premises or the
Building shall be substantially destroyed or so damaged by fire, explosion,
windstorm or other casualty as to be untenable, Lessor may restore the Leased
Premises within a reasonable time (after giving to Lessee the notice
hereinafter referred to) or may terminate this Lease and the term as of the
date of the destruction or damage, in either case by giving Lessee notice
within one hundred ninety (190) days after the date of the destruction or
damage. If, however, both the Building and the Leased Premises shall be so
slightly injured by any cause, as not to be rendered unfit for occupancy,
then the Lessor shall repair and restore the same with reasonable promptness
to as near as practicable its preexisting condition; provided, however,
Lessor shall not be obligated to expend any sums in excess of the amount of
insurance proceeds which it received on account of said casualty. Rent shall
be pro rated on the basis of usable space during such repairing or
restoration. Lessee shall have no claim against Lessor for the value of any
unexpired term of this Lease.

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<PAGE>

Lessor shall not be liable to Lessee, its agents, employees,
representatives, customers or invitees for any inconvenience, loss or damage
or for any injury to any person or property caused by or resulting from any
casualties, riots, strikes, picketing, accidents, breakdowns or any cause
beyond Lessor's reasonable control, or from any temporary failure or lack of
such services and Lessee shall indemnify lessor and hold Lessor harmless from
any claim or damage because of such inconvenience, loss, damage or injury
except due to Lessor's gross or willful negligence. No variation,
interruption or failure of such services incident to the making or repairs,
alterations or improvements or due to casualties, riots, strikes, picketing,
accidents, breakdowns or any cause beyond Lessor's reasonable control or
temporary failure or lack of such services shall be deemed an eviction of
Lessee or relieve Lessee from any of Lessee's obligations hereunder.

HOLDING OVER:

24. At Lessor's Option, in the event Lessee remains in possession of the
Leased Premises after the Expiration Date of this Lease and without the
execution of an extension agreement or a new Lease, it shall be deemed to be
occupying and Leased Premises as a Lessee from month-to-month, subject to all
the conditions, provisions and obligations of this Lease insofar as the same
can be applicable to a month-to-month tenancy, provided, however, that the
Base Rent required to be paid by Lessee monthly during any holdover period
shall be 150% and Lessee shall also pay Additional Rent as set forth in
Article 6 of this Lease. Sixty (60) days prior to the expiration date of
this Lease written notice to vacate will be given by Lessee to Lessor.

SECURITY AND DAMAGE DEPOSIT:

25. Lessee contemporaneously with the execution of this Lease has deposited
with Lessor the sum of $4,500.00 to earn 5% simple annual interest, made by
Check No. __________, dated __________, issued by __________ receipt of which
is acknowledged hereby by Lessor, which deposit is to be held by Lessor
without liability for interest as a security and damage deposit for the
faithful performance by Lessee during the term hereof or any extension
hereof. Prior to the time when Lessee shall be entitled to the return of
this security deposit, Lessor may co-mingle such deposit with Lessor's own
funds and to use such security deposit for such purpose as Lessor may
determine. In the event of the failure of Lessee to keep and perform any of
the terms, covenants and conditions of this Lease to be kept and performed by
Lessee during the term hereof or any extension hereof, then Lessor, either
with or without terminating this Lease, may (but shall not be required to)
apply such portion of said deposit as may be necessary to compensate or repay
Lessor for all losses or damages sustained or to be sustained by Lessor due
to such breach on the part of Lessee, including, but not limited to, overdue
and unpaid rent, any other sum payable by Lessee to Lessor pursuant to the
provisions of this Lease, damages or

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<PAGE>

deficiencies in the reletting of Leased Premises, and reasonable attorneys'
fees incurred by Lessor. Should the entire deposit or any portion thereof, be
appropriated and applied by Lessor, in accordance with the provisions of this
article, Lessee, upon written demand by Lessor, shall remit forthwith to
Lessor a sufficient amount of cash to restore said security deposit to me
original sum deposited, and Lessee's failure to do so within five (5) days
after receipt of such demand shall constitute a breach of this Lease. Said
security deposit shall be returned to Lessee, less any depletion thereof as
the result of the provisions of this article, at the end of the term of this
Lease or any renewal thereof, or upon the earlier termination of this Lease,
Lessee shall have no right to anticipate return of said deposit by
withholding any amount required to be paid pursuant to the provision of this
Lease or otherwise.

In the event Lessor shall sell the Property, or shall otherwise convey
or dispose of its interest in this Lease, such a conveyance or disposal shall
constitute an assignment by Lessor of said security deposit or any balance
thereof to Lessor's assignee, whereupon Lessor shall be released from all
liability for the return or repayment of such security deposit and Lessee
shall look solely to the said assignee for the return and repayment of said
security deposit. Said security deposit shall not be assigned or encumbered
by Lessee without the written consent of Lessor and any assignment or
encumbrance without such consent shall not bind Lessor. In the event of any
rightful and permitted assignment of this Lease by Lessee, said security
deposit shall be deemed to be held by Lessor as a deposit made by the
assignee, and Lessor shall have no further liability with respect to the
return of said security deposit to the Lessee.

ACTS OF DEFAULT:

26. Each of the following shall be deemed a default by the Lessee and a
breach of this Lease.

a) Failure to pay Base Rent or Additional Rent herein reserved, or any
part thereof, for a period of ten (10) days. Lessor will give notice to
Lessee or default, however, lack of notice does not constitute waiver of
Lessor's rights.

b) Failure to do, observe, keep and perform any of the other terms,
covenants, conditions, agreements and provisions of this Lease to be done,
observed, kept or performed by the Lessee for a period of thirty (30) days
after notice has been sent by Lessor.

c) The abandonment of the Leased Premises by the Lessee, but only if
Lessee is in monetary default as defined in Paragraph 26(a).

d) The Lessee or any guarantor of the Lessee's obligations hereunder
shall generally not pay its debts as they become due or shall admit in
writing its inability

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to pay its debts, or shall make a general assignment for the benefit of
creditors' or the Lessee or any such guarantor shall commence any case,
proceeding or other action seeking to have an order for relief entered on its
behalf as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property; or the Lessee or any such guarantor
shall take any corporate action to authorize or in contemplation of any of
the actions set forth above in this paragraph.

LESSOR'S RIGHT TO REMEDY DEFAULT:

27. In the event of any such uncured default by Lessee after notice as
aforesaid if required, and at any time thereafter, Lessor may as its option
and without limiting Lessor in the exercise of any other right or remedy it
may have on account of such default, and without any further demand or notice.

a) If Lessee defaults in the observance or performance of any of
Lessee's covenants, agreements or obligations hereunder wherein the default
can be cured by the expenditure of money, Lessor may, but without obligation,
and without limiting any of the remedies which it may have by reason of such
default, cure the default, charge the cost thereof to Lessee together with
any related expenses or costs, and Lessee shall pay the same forthwith upon
demand. In the event the same shall not be paid to Lessor within ten (10)
days from the date of billing, the same shall bear interest at the rate of
twelve (12%) per annum. When any sum of money hereunder becomes due to Lessor
by lessee, such shall be deemed to be Additional Rent due hereunder.

b) Declare this Lease at an end, reenter the Leased Premises with
process of law, eject all parties in possession and repossess and enjoy said
Leased Premises together with all additions, alterations and improvements
thereto.

c) Reenter the Leased Premises with process of law, eject all parties in
possession thereof and without terminating this Lease, at any time and from time
to time, relet the Leased Premises or any part or parts thereof, for the account
of Lessee or otherwise, receive and collect the rents therefor, applying the
same first to the payment of such reasonable expenses as Lessor may have
paid, assumed or incurred in recovering possession of the Leased Premises,
including costs, expenses and attorneys' fees, and for placing the same in
good order and condition or preparing or altering the same for reletting and
all other expenses, commissions and charges paid, assumed or incurred by
Lessor in reletting the Leased Premises, and then to me fulfillment of the
covenants of Lessee. Any such reletting as provided for herein may be for
the remainder of the Lease term of any renewal term of this Lease as

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originally granted or for a longer or shorter period, and Lessor may execute
any lease made pursuant to the term hereof in its own name. Lessee shall pay
to Lessor all such sums required to be paid by Lessee up to the time of
reentry by Lessor, and thereafter Lessee shall pay to Lessor until the end of
their term or any renewal term of this Lease the equivalent of the amount of
all rent and other charges required to be paid by Lessee under the terms of
this Lease, less the avails of such reletting during the initial or any
renewal term, if any, after payment of the reasonable expenses of Lessor as
aforesaid, and the same shall be due and payable on the same days that rent
is due hereunder.

d) In addition to or in lieu of the foregoing, Lessor may, with or
without termination of this Lease, declare this Lease to be in breach and
further declare that all unpaid Base Rent, Additional Rent, and all other
monies which would become payable with the passage of time, through the
expiration of the term reserved herein, including any attorney's fees
incurred by lessor in connection with any such default by Lessee, to be
immediately due and payable. Lessor must mitigate Lessee's losses.

The foregoing right of Lessor shall be cumulative to all other rights or
remedies now or hereafter given to Lessor by law or by the terms of this
Lease. The remedies of Lessor as hereinabove provided are in addition to and
not exclusive of any remedy of Lessor herein given or which may be permitted
by law.

LIENS:

29. Lessee shall not do or cause anything to be done whereby the Leased
Premises may be encumbered by any mechanic's or other liens. Whenever and as
often as any mechanic's or other lien is filed against said Leased Premises
purporting to be for labor or materials furnished or to be furnished to the
Lessee, the Lessee shall remove the lien of record by the payment or by
bonding with a surety company authorized to do business in the state in which
the Property is located, within twenty (20) days from the date of the filing
of said mechanic's or other lien. Should the Lessee fail to take the
foregoing steps within said twenty (20) day period, then the Lessor shall
have the right after written notice and an additional ten day grace period
among other things, to pay said lien without inquiring into the validity
thereof, and the Lessee shall forthwith reimburse the Lessor for the total
expense incurred by it in discharging said lien as Additional Rent hereunder.

WAIVER:

30. No waiver by Lessor of any breach of any covenant, condition or agreement
herein contained shall operate as a waiver of such covenant, condition or
agreement itself or of any subsequent breach thereof. No payment by Lessee or
receipt by Lessor of a lesser amount than the monthly installments of rent
herein

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stipulated or of Additional Rent due hereunder shall be deemed to be other
than an account of the earliest stipulated rent nor shall any endorsement or
statement on any check or letter accompanying the check for payment rent be
deemed an accord and satisfaction, and Lessor may accept such check or
partial payment without prejudice to Lessor's right to recover the balance of
such rent or to pursue any other remedy provided in this Lease. This Lease
contains the entire agreement between the parties, superceding all previous
oral or written agreements and representations, and may not be amended or
modified except in writing.

Lessor shall not be responsible for and hereby disclaims any
representations or warranties communicated or made by any leasing agent or
other representative of Lessor used in connection with the negotiating or
entering into of this Lease and Lessee acknowledges it has not relied on any
such representations in executing this Lease.

QUIET ENJOYMENT:

31. Lessor warrants that it has full right to execute and to perform this
Lease and to grant the estate demised, and that Lessee, upon payment of the
rents and other amounts due and the performance of all the terms, conditions,
covenants and agreements on Lessee's part to be observed and performed under
this Lease, may peaceably and quietly enjoy the Leased Premises for the
business uses permitted hereunder, subject, nevertheless, to the terms and
conditions of this Lease.

SURRENDER OF PREMISES:

32. On the Expiration Date or upon the termination hereof upon a day other than
the Expiration Date, Lessee shall peaceably surrender the Leased Premises broom-
clean in good order, condition and repair, reasonable wear and tear only
excepted. On or before the Expiration Date or upon termination of this Lease on
a day other than the Expiration Date, Lessee shall, at its expense, remove all
trade fixtures, personal property and equipment and signs from the Leased
Premises and any property not removed shall be deemed to have been abandoned.
Any damage caused in the removal of such items shall be repaired by Lessee and
at its expense. All alterations, additions, improvements and fixtures (other
than trade fixtures) which shall have been made or installed by Lessor or Lessee
upon the Leased Premises and all floor covering so installed shall remain upon
and be surrendered with the Leased Premises as a part thereof, without
disturbance, molestation or injury, and without charge, at the expiration or
termination of this Lease, subject to the provisions of Article 16 hereof. If
the Leased Premises are not surrendered on the Expiration Date or the date of
termination, Lessee shall indemnify Lessor against loss or liability claims,
without limitation made by any succeeding Lessee founded on such delay. Lessee
shall promptly surrender all keys for the Leased Premises to

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Lessor at the place then fixed for payment of rent and shall inform Lessor of
combinations of any locks and safes on the Leased Premises.

SURRENDER INVALID UNLESS WRITTEN:

33. No agreement to accept a surrender of the Leased Premises shall be valid
unless in writing signed by the Lessor. The delivery of keys to any employee
of the Lessor or the Lessor's agents as a termination of the Lease or a
surrender of the Leased Premises.

INTEREST:

34. All monies due under this Lease from Lessee to Lessor shall be due on
demand, unless otherwise specified and if not paid when due, shall bear
interest until paid at the rate of 12% per annum. Lessor reserves the right
to charge a late charge of $100 if monthly rent is not received by Lessor
within 10 days of when due, which late charge shall reimburse Lessor for
administrative expenses resulting from delay and shall be in addition to
interest due from Lessee.

NOTICE:

35. Any and all notices or demands required or permitted to be given
hereunder shall be deemed to be properly served if sent by registered or
certified mail, postage prepaid, addressed to Lessor at the address to which
rental payments are to be sent, or at such other address or addresses as
either party may hereafter designate in writing to the other. Any notice or
demand so mailed shall be effective for all purposes at the time of deposit
thereof in the United States mail. All notices to Lessee must be received by
an officer of the company.

ESTOPPEL CERTIFICATES:

36. Either party to this Lease will, at any time from time to time, upon not
less than ten (10) days prior request by the other party, execute,
acknowledge and deliver to the requesting party a statement in writing
certifying that this Lease is unmodified (or if modified then disclosure of
such modification shall be made) and in full force and effect on the date to
which the rents and other charges have been paid, and stating whether or not
said party has knowledge of any default hereunder on the part of the other
party in the performance of any covenant, agreement or conditions contained
herein and if so, specifying each such default, it being intended that any
such statement delivered pursuant to this Article may be relied upon by any
prospective purchaser, mortgagee or holder of a deed of trust of the Leased
Premises or any assignee of any such party.

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ATTORNMENT:

37. In the event of a sale or assignment of Lessor's interest in the
Premises, or the Building in which the Leased Premises are located, or if the
Premises come into custody or possession of a mortgagee or any other party
whether because of a mortgage foreclosure, or otherwise, Lessee shall atorn
to such assignee or other party and recognize such party as Lessor hereunder;
provided, however, Lessee's peaceable possession will not be disturbed so
long as Lessee faithfully performs its obligations under this Lease. Lessee
shall execute, on demand, any attornment agreement required by any such party
to be executed, containing such provisions and such other provisions as such
party may reasonably require.

NOVATION IN THE EVENT OF SALE:

38. In the event of the sale of the Property, Lessor shall be and hereby is
relieved of all the covenants and obligations created hereby accruing from
and after the date of sale, and such sale shall result automatically in the
purchaser assuming and agreeing to carry out all the covenants and
obligations of Lessor herein.

The Lessee agrees at any time and from time to time upon not less than
ten (10) days prior written request by the Lessor to execute, acknowledge and
deliver to the Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect as modified and stating the
modifications, and the dates to which the Base Rent and other charges have
been paid in advance, if any, it being intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser of the fee or mortgage or assignee of any mortgage upon the fee of
the Leased Premises.

SUCCESSORS AND ASSIGNS:

39. The terms, covenants and conditions hereof shall be binding upon and
inure to the successors and assigns of the parties hereto.

ABANDONMENT:

41. In the event Lessee shall remove its fixtures, equipment or machinery or
shall vacate the Leased Premises or any part thereof prior to the Expiration
Date of this Lease, or shall discontinue or suspend the operation of its
business conducted on the Leased Premises for a period of more than thirty
(30) consecutive days (except during any time when the Leased Premises may be
rendered untenantable by reason of fire or other casualty), then in any such
event Lessee shall be deemed to have abandoned the Leased Premises and Lessee
shall be in default under the terms of this Lease, but only if Lessee is in
monetary default as defined in Paragraph 6(a).

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<PAGE>

INTENT OF PARTIES:

42. Except as otherwise provided herein, the Lessee covenants and agrees
that if it shall any time fail to pay any cost or expense required to be paid
by Lessee pursuant to this Lease, or fail to take out, pay for, maintain or
deliver any of the insurance policies above required, or fail to make any
other payment or perform any other act on its part to be made or performed as
in this Lease provided, then the Lessor may, but shall not be obligated so to
do, and without notice to or demand upon the Lessee and without waiving or
releasing the Lessee from any obligations of the Lessee in is Lease
contained, pay any such cost or expense, effect any such insurance coverage
and pay premiums therefor, and may make any other payment or perform any
other act on the part of the Lessee to be made and performed as in this Lease
provided, in such manner and to such extent as the Lessor may deem desirable,
and in exercising any such right, to also pay all necessary and incidental
costs and expenses, employ counsel and incur and pay reasonable attorneys'
fees. All sums so paid by Lessor and all necessary and incidental costs and
expenses in connection with the performance of any such act by the Lessor
shall accrue interest thereon at the rate of 12 percent (12%) per annum.
Such expenditures by Lessor, shall be deemed Additional Rent hereunder, and
shall be payable to Lessor on demand. Lessee covenants to pay any such sum
or sums with interest as aforesaid and the Lessor shall have the same rights
and remedies in the event of the non-payment thereof by Lessee as in the case
of default by Lessee in the payment of the Base Rent payable under this Lease.

EXPLANATORY PROVISIONS:

43. a. This Lease and the Exhibits contain the entire understanding and
agreement between Lessor and Lessee and supersedes all prior understandings
and agreements and cannot be revised, adjusted or modified unless in writing
and executed in the same manner in which this Lease is executed.

b. This Lease shall be governed by and construed under the laws of
Minnesota.

c. In the event that any provision of this Lease shall be held invalid
or unenforceable, no other provisions of this Lease shall be effected by such
holding, and all of the remaining provisions of this Lease shall continue in
full force and effect pursuant to the terms hereof.

d. Article captions are inserted only for convenience in reference,
and are not intended, in any way, to define, limit or describe the scope,
intent and language of this Lease or its provisions.

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<PAGE>

INDEMNIFICATION:

44. Lessee and Lessor shall indemnify and defend one another and the
Property, at their own expense, against all claims, expenses and liabilities
arising from (a) failure of Lessee to perform any covenant required to be
performed by Lessee hereunder; (b) any accident, injury or damage which shall
happen in or about the Property, or resulting from the condition, maintenance
or operation of the Property; (c) failure to comply with any requirements of
any governmental authority; (d) any mechanic's liens or security agreement
filed against the Property or any equipment or material therein; and (e) any
act or negligence of Lessee, or its agents, contractors, employees or
licensees. This indemnification constitutes a significant, bargained for
provision of this Lease transaction and the amount of rent paid by lessee
reflects the existence of this provision.

EXHIBITS:

45. Reference is made to the following Exhibits which are attached hereto
and made a part hereof:

Exhibit Description
------- ------------

Exhibit A Description of the Leased Premises

Exhibit B Lessee's Leasehold Improvements

Exhibit C Lessee's Construction Allowances

Exhibit D Rules and Regulations

Exhibit E Addendum to Lease Agreement

DATE: 5 March 1996
-------------------------

LESSEE: NUTRITION MEDICAL, INC. LESSOR:
/s/ Richard J. Hegstrand Calibur Development Corp.
- ------------------------------- and/or assign
------------------------------
/s/
- ------------------------------- ------------------------------

Its CFO Its President
---------------------------- ---------------------------

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<PAGE>

EXHIBIT B

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<PAGE>

EXHIBIT C

LESSEE'S CONSTRUCTION ALLOWANCES

ATTACHED TO AND FORMING A PART OF THE LEASE AGREEMENT

With Lessee: Nutrition Medical Dated: February 22, 1996
------------------------ -----------------------------

Prior to the commencement of the term hereof, Lessor shall, at its own
expense, furnish and install within the Leased Premises and in accordance
with Exhibit B the following Construction Allowances: In this event the
Exhibit varies from the allowance as outlined below, than shall be subject to
mutual agreement of both parties.

a. PARTITIONS: ONE (1) LINEAL FOOT OF STANDARD PARTITION FOR EACH FOURTEEN
(14) SQUARE FEET OF RENTED OFFICE SPACE, WHICH WILL BE CONSTRUCTED OF 3
4/7" STEEL STUDS, WITH 5/8" GYPSUM BOARD ON EACH SIDE, WITH BASE TRIM. THE
CEILING HEIGHT IS 9 FEET. IT IS UNDERSTOOD THAT PARTITIONS ARE MEASURED
THROUGH DOOR OPENING.

b. ENTRANCE DOORS: One (1) 3'-0" x 7'-0" solid core oak veneer door with
light stain for each suite.

c. INTERIOR DOORS: One (1) 3'-0" x 6'-8" solid core oak veneer door with
light oak stain for each 250 sq. ft. of rented office space.

d. FLOOR COVERING: Lessor will provide wall-to-wall carpeting selected from
Lessor's building standards and colors, in the rented office space. Carpet
is glued down on concrete. Bathrooms will be tiled and the entries will be
quarry tile.

e. CEILING: 24" x 48" acoustical tile with 1" wide routing to simulate 12"
lay-in panels, set to conform with a ceiling height of nine feet.

f. WALL FINISHES: Walls to be painted with the Building Standard color.

g. FIRE PROTECTION SPRINKLER SYSTEM: Wet sprinkler system and fire protection
controls installed in the Building shell. Lessor shall provide one
sprinkler head for every 225 square feet of office space and every 130
square feet of warehouse space.

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<PAGE>

h. ELECTRICAL:

i) Lighting - a. Office: One (1) 2' x 4' 4-lamp fluorescent figure per
100 sq. ft.
b. Warehouse: One (1) 8' 2-lamp fluorescent fixture per
275 sq. ft.

ii) Outlets - Lessor shall provide one 91) for each 100 sq. foot of office
space.

iii) Light Switches - Lessor shall provide one (1) for each 250 sq. ft. of
office space.

iv) Telephone Outlets - No phone cable or equipment are installed by
Lessor.

v) Service shall be 100 amp, single phase, 120/208 volt.

i. HEATING AND AIR CONDITIONING SYSTEM: Gas-fired roof top heating/air
conditioning units for office area, metered with controls in each suite.
Shall be constructed by Lessor in accordance with the Standard
Specifications and in accordance with applicable energy codes. Warehouse
area heated by gas-fired unit heater.

j. SIGNAGE: Lessor to provide Building lettering to Building Standards.

k. All construction costs incurred by Lessor for construction beyond
allowances plus 15% overhead will be reimbursed by Lessee within 10 days of
billing.

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<PAGE>

EXHIBIT D

RULES AND REGULATIONS

ATTACHED TO AND FORMING A PART OF THE LEASE AGREEMENT

With Lessee: Nutrition Medical Dated: February 22, 1996
-------------------------- ----------------------------

1. Lessor agrees to furnish Lessee two keys without charge. Additional keys
will be furnished at a nominal charge. Lessee shall not change locks or
install additional locks on doors without prior written consent of Lessor.
Lessee shall not make or cause to be made duplicates of keys procured from
Lessor without prior approval of Lessor. All keys to Leased Premises shall
be surrendered to Lessor upon termination of this Lease.

2. Usual business hours are used herein shall mean the hours between 8 a.m.
and 6 p.m. Monday through Friday.

3. Lessee will refer all contractors, contractor's representatives and
installation technicians rendered any service on or to the Leased Premises
for Lessee to Lessor for Lessor's approval not to be unreasonably withheld
before performance of any contractual service. Lessee's contractors and
installation technicians shall comply with Lessor's rules and regulations
pertaining to construction and installation. This provision shall apply to
all work performed on or about the Leased Premises or Property, including
installation of telephones, telegraph equipment, electrical devices and
attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings and equipment or any other physical
portion of the Leased Premises or Property.

4. Lessee shall not at any time occupy any part of the Leased Premises or
Property as sleeping or lodging quarters.

5. Outside storage on the Property of any type of equipment, property or
materials owned or used on the Premise by Lessor or for its customers and
suppliers shall not be permitted.

6. Lessee shall not place, install or operate on the Leased Premises or in any
part of the Building any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein except for microwaves, or place or
use in or about the Leased Premises or Property any explosives, gasoline,
kerosene, oil, acids, caustics, or any flammable, explosive or hazardous
material without written consent of Lessor.

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<PAGE>

7. Lessor will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the Leased Premises or the Property
regardless of whether such loss occurs when the area is locked against
entry.

8. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the Leased Premises or Property.

9. Employees of Lessor shall not receive or carry messages for or to any
Lessee or other person or contract with or render free or paid services to
any Lessee or to any of Lessee's agents, employees or invitees.

10. None of the parking, lawn areas, entries, doors or stairways shall be
blocked or obstructed or any rubbish, litter, trash, or material of any
nature placed, emptied or thrown into these areas or such area used by
Lessee's agents, employees or invites at any time for purposes inconsistent
with their designation by Lessor.

11. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or by the defacing or injury of any part of
the building shall be borne by the person who shall occasioned it. No
person shall waste water by interfering with the faucets or otherwise.

12. No person shall disturb occupants of the Building by the use of any radios,
record players, tape recorders, musical instruments, the making of unseemly
noises or any unreasonable use.

13. Nothing shall be thrown out of the windows of the Building or down the
stairways.

14. Lessee and its employees, agents and invitees shall park their vehicles
only in those parking areas designated by Lessor. Lessee shall furnish
Lessor with state automobile license numbers of Lessee's vehicles and its
employees' vehicles within five days after taking possession of the Leased
Premises and shall notify Lessor of any changes within five days after such
change occurs. Lessee shall not leave any vehicle in a state of disrepair
(including without limitation, flat tires, out of date inspection stickers
or license plates) on the Property. If Lessee or its employees, agents or
invitees park their vehicles in areas other than the designated parking
areas or leave any vehicle in a state of disrepair, Lessor shall have the
right to remove such vehicles at Lessee's expense.

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<PAGE>

15. Parking shall be in compliance with all parking rules and regulations
including any sticker or other identification system established by Lessor.
Failure to observe the rules and regulations shall terminate Lessee's right
to use the parking area and subject the vehicle in violation of the parking
rules and regulations to removal and impoundment. No termination of
parking privileges or removal of impoundment of a vehicle shall create any
liability on Lessor or to be deemed to interfere with Lessee's right to
possession of a Leased Premises. Vehicles must be parked entirely within
the stall lines and all directional signs, arrows and posted speed limits
must be observed. Parking is prohibited in areas not striped for parking,
in aisles, where "No Parking" signs are posted, on ramps, in cross hatched
areas, and in other areas as may be designated by Lessor. Parking stockers
or other forms of identification supplied by Lessor shall remain the
property of Lessor and not the property of Lessee and are not transferable.
Every person is required to park and lock his vehicle. All responsibility
for damage to vehicles or persons is assumed by the owner of the vehicle or
its driver.

16. The Lessee is responsible for the cleaning of his own entry, bathrooms and
windows.

17. The Lessee will provide and keep in working order all necessary fire
extinguishers to provide adequate protection and meet all city, state and
federal requirements.

18. Lessee shall not lay floor covering within the Leased Premises without
written approval of the Lessor. The use of cement or other similar
adhesive materials not easily removed with water is expressly prohibited.

19. Lessee agrees to cooperate and assist Lessor in the prevention of
canvassing, soliciting and peddling within the Building.

20. Lessor reserves the right to exclude from the Building between the hours of
6:00 p.m. and 8:00 a.m. on weekdays and at all hours on Saturday, Sunday
and legal holidays, all persons who are not known to the Building security
personnel.

21. It is Lessor's desire to maintain the Property in the highest standard of
dignity and good taste consistent with comfort and convenience for Lessees.
Any action or condition not meeting this high standard should be reported
directly to Lessor. Your cooperation will be mutually beneficial and
sincerely appreciated. Lessor reserves the right to make such other and
further reasonable rules and regulations as in its judgment may from time
to time be necessary, for the safety, care and cleanliness of the Leased
Premises and for the preservation of good order therein.

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<PAGE>

EXHIBIT E

ADDENDUM TO LEASE AGREEMENT

With Lessee: Nutrition Medical Dated: February 22, 1996
------------------------- -----------------------------

LESSOR AND LESSEE HEREBY AMEND THE FOLLOWING TERMS AND CONDITIONS OF THE
ATTACHED LEASE AGREEMENT:

1. Lessor, at its cost and to its construction standards stipulated in Exhibit
B, will construct Lessee's suite as provided in Exhibit C. Construction
upgrades provided by Lessor include those noted in Exhibit B and a $3,500
allowance for cabling and telephones. Lessee will reimburse Lessor the
cost of all sidelight windows and $1,000 for construction upgrades.

2. On September 1, 1999, with ninety days prior written notice by Lessee to
Lessor, Lessee at its option, may lease and expand into the adjoining
3,000-5,000 sq. ft. suite identified as Expansion #1, size to be determined
at Lessor's discretion. The Base Rental rates for office and warehouse
shall coincide with Lessee's then existing rates with an improvement
allowance to finish any office areas in a similar manner to the initial
Leased Premises. The minimum amount of office shall be the lesser of 40%
of the total area of Expansion #1 or the actual amount of office area from
the prior tenant in Expansion #1.

3. On August 31, 199, with ninety days prior written notice to Lessor, Lessee
may cancel the remaining term of the Lease if LEssor cannot provide for
Lessee's expansion needs. Lessee will inform Lessor of its expansion needs
in writing no later than March 1, 1999.

4. On September 1, 2000, Lessee's Base Rent will be increased by 5% to $56,700
annually and $4,725 monthly.

5. Lessee, with ninety days prior written notice to Lessor, has one (1) five
year Option to Renew. Lessee will receive an improvement allowance of up
to $3.00 per sq. ft. of office area for minor reconfiguration or
redecoration in Lessee's office area.

6. If Lessee has exercised the aforementioned Option to Renew, on September 1,
2001, with ninety days prior written notice by Lessee to Lessor, Lessee at
its option, may lease and expand into the adjoining 3,000-5,000 sq. ft.
identified as Expansion #2, size to be determined at Lessor's discretion.
The Base Rental rates shall coincide with Lessee's then existing rates with
an improvement allowance to finish any office areas in a similar manner to
the initial Leased

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<PAGE>

Premises. The minimum amount of office shall be the
lesser of 40% of the total area of Expansion #2 or the actual amount of
office area from the prior tenant in Expansion #2.

EXCEPT AS PROVIDED FOR IN THE ABOVE DESCRIBED AMENDMENTS, THE TERMS AND
CONDITIONS ON THE ATTACHED LEASE AGREEMENT ARE UNCHANGED AND REMAIN IN FULL
FORCE AND EFFECT.

Date 5 March 1996
------------------------------

LESSEE: LESSOR:

Nutrition Medical Caliber Development Corp. and/or
Assigns

/s/ Richard J. Hegstrand /s/
- ----------------------------- -----------------------------------

Its CFO Its President
-------------------------- --------------------------------

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<PAGE>

EXHIBIT F

AMERICAN WITH DISABILITIES ACT

AMERICANS WITH DISABILITIES ACT ("ADA") Notwithstanding anything contained
in the Lease to the contrary, Lessor represents that it is currently making
good faith efforts to bring the common areas into compliance with the
requirements of Title III of the ADA. Lessee represents and covenants that
it shall conduct its occupancy and use of the Leased Premises in accordance
with the ADA (including, but not limited to, modifying its policies,
practices and procedures, and providing auxiliary aids and services to
disabled persons). If the Lease prides that the Lessee is to complete
certain alterations and improvements of the Lease Premises, Lessee agrees
that all such work shall comply with the ADA. Furthermore, Lessee covenants
and agrees that any and all future alterations or improvements made by Lessee
to the Lease Premises shall comply with the ADA. Lessor and Lessee agree to
indemnify the other for any costs, claims, damages, losses or expenses
(including the costs of consulting and legal fees) arising out of the other's
breaching its respective responsibilities for compliance with the ADA as
required in this Lease. This indemnity shall survive the termination of this
Lease.

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<PAGE>

EXHIBIT G

HAZARDOUS MATERIALS

HAZARDOUS MATERIALS. (a) "Except for products reasonably necessary and
customarily associated with the use of the Leased Premises described in
section 17 of this Lease, Lessee shall not use, generate, manufacture,
produce, store, release, discharge or dispose of on, in or under the Leased
Premises or the Property of which the Leased Premises are a part, or
transport to or from the Leased Premises or the Property, any Hazardous
Materials (as defined below), or allow any other person or entity to do so.

(b) Lessee shall comply with all local, state or federal laws, ordinances or
regulations relating to Hazardous Materials on, in, under or about the Leased
Premises.

(c) Lessee shall promptly notify Lessor should Lessee receive notice of or
otherwise become aware of any (i) pending or threatened environmental
regulatory action against Lessee, the Leased Premises or the Property; (ii)
claims made or threatened by any third party relating to any loss or injury
resulting from any Hazardous Material; or (iii) release or discharge or
threatened release or discharge of any Hazardous Material in, on, under or
about the Leased Premises or the Property.

(d) Lessee shall protect, indemnify and hold harmless Lessor, its directors,
officers, employees, agents, successors and assigns from and against any and
all loss, damage, cost, expense or liability (including attorney's fees and
costs) directly or indirectly out of or attributable to Lessee's failure to
comply with this section 17, including without limitation (i) all foreseeable
consequential damages; and (ii) the costs of any required or necessary
repair, cleanup, or detoxification of the Leased Premises or the Property and
the preparation and implementation of any closure, remedial or other required
plans. This indemnity shall survive termination or cancellation of this
Lease for any reason.

(e) Upon 24 hours prior notice, Lessee shall permit Lessor or its agents to
inspect the Leased Premises in order to confirm Lessee's compliance with this
section 17; Lessee shall also provide Lessor copies of all notices it may
receive concerning the environmental condition of the Leased Premises (or the
Property) from any governmental agency.

(f) "Hazardous Materials" shall mean any flammable materials,
petroleum-based substances, solvents, explosives, radioactive materials,
hazardous wastes, toxic substances or related materials, including, without
limitation, any substances defined as or included in the definition of
"hazardous substances", "hazardous

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<PAGE>

wastes", "hazardous materials", or "toxic substances", under any applicable
federal or state laws or regulations.

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<PAGE>

SIDE AGREEMENT TO LEASE AGREEMENT
BETWEEN CALIBER DEVELOPMENT AND/OR ASSIGNS,
AS LESSOR, AND NUTRITION MEDICAL, AS LESSEE
DATED FEBRUARY 22, 1996

1. It is understood that Lessee shall receive the first three months after
occupancy Base Rent free.

2. Lessee will receive an additional 1 month Base Rent abatement for every 30
day delay past the September 1, 1996 delivery date (pro rated if < or > 30
days).

3. Caliber Development Corporation agrees to corporately guarantee this
obligation.

Nutrition Medical, Inc. Date: 5 March 1996
--------------------------

/s/ Richard J. Hegstrand, CFO Calibur Development Corp.
- -------------------------------- and/or assigns
Lessee -------------------------------
/s/, President
-------------------------------
Lessor

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EXHIBIT H

ADDENDUM TO LEASE AGREEMENT

With Lessee: Nutrition Medical Dated: March 31, 1996
------------------------- -------------------------

THE ORIGINAL LEASE DATED FEBRUARY 27, 1996, REMAINS IN FULL FORCE AND EFFECT
EXCEPT FOR THE FOLLOWING MODIFICATIONS:

1. The Leased Premises are immediately increased by an additional 1, 000 sq.
ft. and now total 8,500 sq. ft., of which 3,750 sq. ft. are office and
4,750 sq. ft. are warehouse area.

2. Base Rent is increased by $412.00 monthly and $4,944.00 annually, to
$4,912.00 and $58,944.00 annually.

3. Additional Rent, as defined in paragraphs 6a and 6b of the original Lease
Agreement, is increased to 29.31%.

4. Lessor, at its cost and to its construction standards stipulated in Exhibit
B, will construct additional office area in this expansion area of Lessee's
suite upon Lessee's request.

5. Upon Lessor's construction of any additional office area in this expansion
area, Lessee will then pay the office rate of $9.50 per sq. ft. plus the
Base Rate increase on September 1, 2000, as stipulated in Exhibit E,
paragraph 4.

6. Lessee will reimburse Lessor for any unamortized costs to build-out the
additional office in this expansion area, if the Lessee is not in occupancy
longer than three years. Lessor will provide Lessee with the price of all
anticipated improvements prior to the commencement of any work and shall
use an interest factor of 10% annually to determine the unamortized cost of
Lessor's work. This reimbursement shall be payable upon the termination
date of the Lease if such rights are exercised under the terms of the Lease
between Lessor and Lessee.

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<PAGE>

EXCEPT AS PROVIDED FOR IN THE ABOVE DESCRIBED AMENDMENTS, THE TERMS AND
CONDITIONS ON THE ATTACHED LEASE AGREEMENT ARE UNCHANGED AND REMAIN IN FULL
FORCE AND EFFECT.

Date: 25 April 1996
----------------------------

LESSEE: LESSOR:

Nutrition Medical Caliber Development Corp. and/or
Assigns

/s/ Richard J. Hegstrand /s/
- ------------------------------ ---------------------------------

Its CFO Its President
--------------------------- ------------------------------

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<PAGE>

Exhibit 11.1

NUTRITION MEDICAL, INC.
STATEMENT OF COMPUTATION
OF NET LOSS PER SHARE

Six months ended
Years ended December 31, June 30,
------------------------ --------------------
1994 1995 1995 1996
---------- --------- --------- --------
Primary and Fully Diluted:

Average shares outstanding . 1,300,329 2,059,808 1,524,391 3,105,797

SAB No. 83 - for stock issued
and options or warrants
granted at exercise prices
less than the initial
public offering price during
the 12 months preceding the
initial public offering
using the treasury method . 1,115,019 1,115,019 1,115,019 1,115,019
--------- --------- --------- ---------

Total. . . . . . . . . . . . 2,415,348 3,174,827 2,639,411 4,220,816
--------- --------- --------- ---------
--------- --------- --------- ---------

Net loss . . . . . . . . . . $(694,689) $(959,623) $(409,267) $(253,415)
--------- --------- --------- ---------
--------- --------- --------- ---------

Net loss per share . . . . . $ (0.29) $ (0.30) $ (0.16) $ (0.06)
--------- --------- --------- ---------
--------- --------- --------- ---------

<PAGE>

Exhibit 23.2

CONSENT OF ERNST & YOUNG LLP

We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated March 22,
1996 in the Registration Statement (Form SB-2 No. 333- ) and related
Prospectus of Nutrition Medical, Inc. for the registration of 1,250,000
shares of its Common Stock.

ERNST & YOUNG LLP

Minneapolis, Minnesota
August 8, 1996