COLORADO MEDTECH INC, S-3/A, 1998-11-03

COLORADO MEDTECH INC
S-3/A, 1998-11-03
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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As filed with the Securities and Exchange Commission on November 3, 1998
SEC Registration No. 333-64705
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
TO

FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

COLORADO MEDTECH, INC.
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(Exact name of registrant as specified in its charter)

Colorado 84-0731006
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(State of Incorporation) (I.R.S. Employer ID. No.)

6175 Longbow Drive, Boulder, Colorado 80301, (303) 530-2660
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(Address, including zip code, and telephone number, including area
code of Registrant's Principal Executive Offices)

Bruce L. Arfmann
Colorado MEDtech, Inc.
6175 Longbow Drive
Boulder, Colorado 80301
(303) 530-2660
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(Name, address, including zip code and telephone number
including area code of agent for service)

Copies to:
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Peter J. Jensen, Esq.
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
(303) 546-1300
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /_/

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /x/

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
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /

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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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PROSPECTUS 3,781,756 SHARES

COLORADO MEDTECH, INC.
COMMON STOCK
(NO PAR VALUE)

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This Prospectus relates to up to 3,781,756 shares (the "Shares") of the
common stock, no par value (the "Common Stock"), of Colorado MEDtech, Inc. (the
"Company"), which may be offered from time to time by the Selling Shareholders
named herein under "Selling Shareholders". The Shares fall into two categories:
(i) those that are now owned by Selling Shareholders as a result of purchases
from the Company in private transactions in reliance on Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), and Regulation D
promulgated thereunder as the basis for exemption from registration; and (ii)
those that may be purchased in the future by Selling Shareholders from the
Company upon the exercise of certain non-qualified stock options (the
"Options") held by Selling Shareholders which were originally issued by the
Company in connection with its acquisition of Novel Biomedical, Inc. (such
Selling Shareholders are referred to as the "Novel Shareholders").

The Company will not receive any of the proceeds from the sale of the
Shares. Selling Shareholder Vencor Operating, Inc. ("Vencor") has entered
into an Agency Agreement with the Company, Advest, Inc. and Bigelow &
Company, pursuant to which the Shares held by Vencor are to be sold at a
price of $6.375 per share, if which Shares 655,000 are being purchased by the
Company. The distribution of the Shares by the Novel Shareholders is not
subject to any underwriting agreement. The Shares offered by the Novel
Shareholders may be sold from time to time at designated prices that may be
changed, at market prices prevailing at the time of sale, at prices relating
to such prevailing market prices or at negotiated prices. In addition, the
Novel Shareholders may sell the Shares through customary brokerage channels,
either through broker-dealers acting as agents or principals. The Novel
Shareholders may effect such transactions by selling Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of underwriting discounts, concessions, commissions or fees from the Novel
Shareholders and/or purchasers of the Shares for whom such broker-dealers may
act as agent, or to whom they sell as principal, or both (which compensation
to a particular broker-dealer might be in excess of customary commissions).
Any broker-dealers that participate with any of the Selling Shareholders in
the distribution of Shares may be deemed to be underwriters and any
commissions received by them and any profit on the resale of Shares
positioned by them might be deemed to be underwriting discounts and
commissions within the meaning of the Securities Act, in connection with such
sales.

The Common Stock of the Company trades on the Nasdaq Stock Market
National Market system under the symbol "CMED". As of the close of trading on
November 2, 1998, the closing sale price of the Common Stock as quoted on the
Nasdaq Stock Market National Market system was $7.13 per share. Total
expenses of the offering are estimated to be $20,900, all of which will be
paid by the Company.

SEE "RISK FACTORS" COMMENCING ON PAGE 3 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

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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.

The date of this Prospectus is November 3, 1998.

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AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") on Form S-3
under the Securities Act for registration of the shares of Common Stock offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and where such contract or other document is an
exhibit to the Registration Statement, each such statement is qualified in all
respects by the provisions of such exhibit, to which reference is hereby made.

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Such periodic reports, proxy statements and other information,
and a copy of the Registration Statement, can be copied and inspected at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion
of the Registration Statement may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Company files certain of its materials with the Commission
electronically. The Commission maintains a World Wide Web site (www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements for each fiscal year.

DOCUMENTS INCORPORATED BY REFERENCE

The Company will furnish without charge to each person, including any
beneficial owner to whom this Prospectus is delivered, upon the request of such
person, a copy of any or all of the documents referred to below, other than
exhibits to such documents. All requests for copies of such documents should be
directed in writing to Bruce L. Arfmann, Vice President and Chief Financial
Officer, Colorado MEDtech, Inc., 6175 Longbow Drive, Boulder, Colorado 80301.

The following documents filed by the Company with the Commission are
incorporated herein by reference:

1) Annual Report on Form 10-K for the fiscal year ended June 30,
1998.
2) Current Report on Form 8-K dated September 30, 1998.

3) Proxy Statement in connection with the November 20, 1998
annual meeting of shareholders.

4) A description of the Common Stock contained in the Company's
Registration Statement No. 2-83841-D on Form S-18, dated May 17, 1983.

All documents filed subsequent to the date of this Prospectus by the
Company with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act prior to the termination of the offering of the Shares shall be
deemed to be incorporated herein by reference from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

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RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS
INCLUDING THOSE SET FORTH IN THE FOLLOWING "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.

CUSTOMER RISK FACTORS

The Company's success depends on the success of its customers and their
products that are developed or manufactured by the Company. Any unfavorable
developments or adverse effects on the sales of those products or its customers'
businesses could have a corresponding adverse effect on the Company. The Company
believes that its customers and their products (and, accordingly, the Company)
are generally subject to the following risks:

COMPETITIVE ENVIRONMENT

The medical products industry is highly competitive, subject to significant
technological change, and requires ongoing investment to keep pace with
technological developments and quality and regulatory requirements. The medical
products industry consists of numerous companies, ranging from start-up to
well-established companies. The competitors of the Company's customers may
succeed in developing or marketing technologies and products that will be better
accepted in the marketplace than the products manufactured by the Company for
its customers or that would render its customers' technology and products
obsolete or noncompetitive. Some of the Company's customers are emerging
medical technology companies that have competitors and potential competitors
with substantially greater capital resources, research and development staffs
and facilities and substantially greater experience in developing and
commercializing new products. The Company's customers may not be successful in
marketing or distributing their products, or may not respond to pricing,
marketing or other competitive pressures or the rapid technological innovation
demanded by the marketplace and, as a result, may experience a dramatic drop in
product sales, which would have an adverse effect on the Company's business,
results of operations and financial condition.

UNCERTAIN MARKET ACCEPTANCE OF NEW PRODUCTS; PRODUCT OBSOLESCENCE

There can be no assurance that the Company's customers' will be able to
gain any significant market acceptance for the products developed or
manufactured for them by the Company. Market acceptance may depend on a variety
of factors, including educating the target market regarding the use of a new
procedure and convincing health care payers that the benefits of the product and
its related treatment regimen outweigh its costs. Market acceptance and market
share are also affected by the timing of market introduction of competitive
products. Some of the Company's customers, especially emerging medical
technology companies, have limited or no experience in marketing their products
and may be unable to establish effective sales and marketing and distribution
channels to successfully commercialize their products.

CUSTOMER REGULATORY COMPLIANCE

The Food and Drug Administration (the "FDA") regulates many of the products
developed and manufactured by the Company for its customers, and requires
certain clearances or approvals before new medical devices can be marketed. As a
prerequisite to any introduction of a new device into the medical marketplace,
the Company or its customers must obtain necessary product clearances or
approvals from the FDA or other regulatory agencies. There can be no assurance
that such clearances or approvals will be obtained on a timely basis, if at all.

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Certain medical devices manufactured by the Company may be subject to the
need to obtain FDA approval of a premarket approval application ("PMA"), which
requires substantial preclinical and clinical testing and may cause delays and
prevent introduction of such instruments. Other instruments can be marketed
only by establishing "substantial equivalence" to a predicate device in a 510(k)
premarket notification. In addition, products intended for use in foreign
countries must comply with similar requirements and be certified for sale in
those countries. A customer's failure to comply with the FDA's requirements can
result in the delay or denial of approval to proceed with the device. Delays in
obtaining regulatory approval are frequent and, in turn, can result in delaying
or canceling customer orders from the Company. There can be no assurance that
the Company's customers will obtain or be able to maintain all required
clearances or approvals for domestic or exported products on a timely basis, if
at all. The delays and potential product cancellations inherent in the
regulatory approval and ongoing regulatory compliance of products developed or
manufactured by the Company may have a material adverse effect on the Company's
business, reputation, results of operations and financial condition.

CUSTOMERS' FUTURE CAPITAL REQUIREMENTS

Some of the Company's customers, especially emerging medical technology
companies, are not profitable and may have little or no revenues, but they have
significant working capital requirements for which the customer may be required
to raise additional funds through public or private financings. Adequate funds
for their operations may not be available when needed, if at all. Insufficient
funds may require a customer to suspend its research and development spending,
delay development of a product, clinical trials (if required) or the commercial
introduction of a product. Depending on the significance of a customer's
product to the Company's revenues or profitability, any adverse effect on a
customer resulting from insufficient funds could result in an adverse effect on
the Company's business, results of operations and financial condition.

UNCERTAINTY REGARDING THIRD-PARTY REIMBURSEMENT

Governmental and insurance industry efforts to reform the health care
industry and reduce health care spending have affected, and will continue to
affect, the market for medical devices. Adverse governmental regulation
relating to the Company's or its customers' products which might arise from
future legislative, administrative or insurance industry policy cannot be
predicted and the ultimate effect on private insurer and governmental health
care reimbursement is unknown. Government and other commercial insurance
companies are increasingly vigorous in their attempts to contain health care
costs by limiting both coverage and the level of reimbursement for new
therapeutic products even if approved for marketing by the FDA. If adequate
coverage and reimbursement levels are not provided by government and commercial
payers for uses of the Company's new and existing products, the market
acceptance of these products and the Company's profitability would be adversely
affected.

RELIANCE ON MAJOR CUSTOMERS

In the fiscal year ended June 30, 1998, two (2) customers accounted for
approximately forty-five percent (45%) of the Company's consolidated
revenues. In the fiscal year ended June 30, 1997, three (3) customers
accounted for approximately forty-five percent (45%) of the Company's
consolidated revenues. In the fiscal year ended June 30, 1996, two (2)
customers accounted for approximately forty percent (40%) of the Company's
consolidated revenues. As a contract developer and manufacturer, the
Company has historically obtained a significant share of its revenue from a
small number of customers, but the identity of those major customers tends to
change from year to year. A significant reduction in orders from any of
these customers could have a material adverse effect on the Company's
business and results of operations. Vencor, Inc., a Selling Shareholder under
this prospectus, accounted for less than 10% of the Company's consolidated
revenues in each of the fiscal years ended June 30, 1998, 1997 and 1996.

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COMPETITION

The Company faces competition from a variety of sources, including
consulting, commercial product development and manufacturing companies.
Competition also comes from commercial and university research laboratories and
from current and prospective customers who evaluate the Company's capabilities
against the merits of designing, engineering and manufacturing products
internally. Many of the Company's competitors have substantially greater
financial, research and development manufacturing resources than the Company.
Competition from any of the foregoing sources could place pressure on the
Company to accept lower margins on its contracts or lose existing or potential
business, which could result in a material adverse effect on the Company's
business, results of operations and financial condition.

VARIABILITY OF OPERATING RESULTS

The Company's annual and quarterly operating results are affected by a
number of factors, including the volume and timing of revenue from customer
orders, which varies due to (i) variation in demand for the customer's products
as a result of, among other things, product life cycles, competitive conditions
and general economic conditions, (ii) suspension or cancellation of a customer's
development project or R&D budget for reasons often unrelated to the project;
(iii) a change in a customer's R&D strategy as a result of sale or merger of the
customer to another company; and (iv) delays in projects associated with the
approval process for changes to a project. Because the Company's outsourcing
services business organization and its related cost structure anticipate
supporting a certain minimum level of revenues, the Company's limited ability to
adjust its short-term cost structure may compound the adverse effect of any
significant revenue reduction. Any one of these factors or a combination
thereof could result in a material adverse effect on the Company's business,
results of operations and financial condition. Due to the foregoing factors, it
is possible that the Company's operating results may from time to time be below
the expectations of public market analysts and investors. In such event, the
price of the Company's securities could be adversely affected.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent on the continued
service of certain of its key managerial, technical and engineering
personnel, particularly its President and Chief Executive Officer, John V.
Atanasoff II, and the Company's continuing ability to attract, train,
assimilate and retain highly qualified engineering, technical and managerial
personnel experienced in commercializing medical products. Competition for
such personnel is intense, the available pool of qualified candidates is
limited and there can be no assurance that the Company can retain its key
engineering, technical and managerial personnel or that it can attract,
train, assimilate or retain other highly qualified engineering, technical and
managerial personnel in the future. The loss of Mr. Atanasoff or any of the
Company's other key personnel or the inability of the Company to hire, train,
assimilate or retain qualified personnel could have a material adverse effect
on the Company's business, results of operations and financial condition.

RISKS ASSOCIATED WITH NEW PRODUCTS

The success of the Company's proprietary medical products operations
will depend upon its ability to enhance existing products and to develop and
introduce, on a timely and cost-effective basis, new products and features
that meet changing end user requirements and emerging industry standards.
Substantial research and development will be required to maintain the
competitiveness of the Company's products. Medical device development
projects can be lengthy and costly, and are subject to changing requirements,
programming difficulties, issues of adequate qualified personnel and
unforeseen factors which can result in delays. There can be no assurance that
the Company will be successful in identifying, developing, manufacturing and
marketing product enhancements or new products that will respond to
technological change or evolving industry standards.

COMPLIANCE WITH REGULATORY REQUIREMENTS

The Company is subject to a variety of regulatory agency requirements in
the United States and foreign countries relating to many of the products that it
develops and manufactures for its customers. The process of obtaining and
maintaining required regulatory approvals and otherwise remaining in regulatory
compliance is lengthy, expensive and uncertain.

The FDA inspects manufacturers of certain types of devices before
providing a clearance to manufacture and sell such device, and the failure to
pass such an inspection could result in delay in moving ahead with a project.
The Company is required to comply with the FDA's Quality System Regulation
for Medical Devices ("QSR") regulations for the manufacture of medical
products. In addition, in order for the Company's instruments to be exported
and for the Company and its customers to be qualified to use the "CE" mark in
the European Union, the Company maintains ISO

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9001/EN 46001 certification which, like the QSRs, subjects the Company's
operations to periodic surveillance audits. To ensure compliance with QSR
requirements, the Company expends significant time, resources and effort in the
areas of training, production and quality assurance. Failure to comply with QSR
regulations or other FDA or applicable legal requirements can lead to warning
letters, government sanctions and serious penalties. In addition, the continued
sale of any products manufactured by the Company may be halted or otherwise
restricted. Any such actions could have an adverse effect on the willingness of
customers and prospective customers to do business with the Company. In
addition, any such noncompliance or increased cost of compliance could have a
material adverse effect on the Company's business, results of operations and
financial condition.

PRODUCT RECALLS, PRODUCT LIABILITY AND INSURANCE

Most of the products the Company designs or manufactures are medical
devices, many of which may be used in life-sustaining or life-supporting roles.
The tolerance for error in the design, manufacture or use of these products may
be small or nonexistent. If a product designed or manufactured by the Company
is found to be defective, whether due to design or manufacturing defects, to
improper use of the product or to other reasons, the product may need to be
recalled, possibly at the Company's expense. Furthermore, the adverse effect of
a product recall on the Company might not be limited to the cost of the recall.
Recalls, especially if accompanied by unfavorable publicity or termination of
customer contracts, could result in substantial costs, loss of revenues and a
diminution of the Company's reputation, each of which would have a material
adverse effect on the Company's business, results of operations and financial
condition.

The manufacture and sale of the medical devices developed and manufactured
by the Company involves the risk of product liability claims. Although the
Company generally obtains indemnification from its customers for products it
manufactures to the customers' specifications and in addition maintains product
liability insurance, there can be no assurance that the indemnities will be
honored or the coverage of the Company's insurance policies will be adequate.
In addition, the Company generally provides a design defect warranty and
indemnifies its customers for failure of a product to conform to design
specifications and against defects in materials and workmanship. Product
liability insurance is expensive and in the future may not be available on
acceptable terms, in sufficient amounts, or at all. A successful claim brought
against the Company in excess of its insurance coverage or any material claim
for which insurance coverage was denied or limited and for which indemnification
was not available could have a material adverse effect on the Company's
business, results of operations and financial condition.

YEAR 2000 ISSUE

Many existing computer systems and applications, and other control
devices, use only two digits to identify a year in the date code field, and
were not designed to account for the upcoming change in the century. As a
result, such systems and applications could fail or create erroneous results
unless corrected so that they can process data related to the year 2000. The
Company relies on its systems, applications and devices in operating and
monitoring all major aspects of its business, including financial systems
(such as general ledger, accounts payable and accounts receivable modules),
inventory and receivables systems, customer services, infrastructure,
embedded computer chips, networks and telecommunications equipment and end
products. The Company also relies, directly and indirectly, on systems of
external business enterprises such as distributors, suppliers, creditors,
financial organizations, and of governmental entities, for accurate exchange
of data. The Company does not believe that its proprietary products or any of
its outsourcing services projects involve any material year 2000 risks, and
the Company does not presently anticipate that the costs to address the year
2000 issue will have a material adverse effect on the Company's financial
condition, results of operations or liquidity. Even if the internal systems
of the Company are not materially affected by the year 2000 issue, the
Company could be affected through disruptions in the operation of the
enterprises with which the Company and the systems and software in its
proprietary products and its outsourcing products interacts. If the year
2000 issue affects the ability of the Company's component suppliers to meet
delivery schedules for the components needed to manufacture the Company's
products, the Company may not be able to timely meet its obligations to its
customers. This would likely have an adverse impact on the Company's
business, financial condition and operating results which could be material.
There can be no assurance that year 2000 issues will not have a material
adverse effect on the Company's business, financial condition or results of
operations.

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CUSTOMER CONFLICTS

The medical technology industry reflects vigorous competition among its
participants. Although the Company generally does not enter into
non-competition agreements, on occasion the Company's agreements prohibit it
from working for certain competitors of its customers. The Company's growth
may be adversely affected if its customers require it to enter into
non-competition agreements that prevent the Company from manufacturing
instruments for its customers' competitors. Any conflicts among its customers
could prevent or deter the Company from obtaining contracts to manufacture
successful instruments, which could result in a material adverse effect on its
business, results of operations and financial condition.

SHARES ELIGIBLE FOR FUTURE SALE

On the date of this prospectus there were a total of approximately
10,740,846 shares of common stock outstanding, of which 5,451,582 are freely
tradeable. The remaining 5,289,264 shares are held by officers and directors
of the Company and their affiliates (including 3,500,000 shares held by
Vencor, Inc. which are registered under the registration statement of which
this prospectus is a part). Such shares are eligible for sale in the public
markets in accordance with the volume restrictions of Rule 144 under the
Securities Act of 1933. In addition there are outstanding warrants and stock
options to purchase 3,234,072 shares of common stock, 1,749,121 of which are
currently exercisable or become exercisable in 60 days from the date of this
prospectus. Except as limited by Rule 144 volume limitations applicable to
affiliates, shares issued upon the exercise of the Company's warrants and
options generally are available for sale in the open market. Options to
purchase 332,000 shares underlie non-qualified stock options which expire in
January 1999, and the Company expects such options will be exercised prior to
such date. Because such options are non-qualified stock options, it is
expected that a portion of the shares will be sold to fund the taxes
associated with the exercise of the options. Future sales of the shares of
common stock referred to above could adversely affect the market price of the
common stock.

CONTROL BY MANAGEMENT

Prior to this offering, executive officers and directors of the Company
and their affiliates owned approximately 5,289,264, or 49%, of the
outstanding common stock. 3,500,000 of such shares are held by Vencor, Inc.,
a Selling Shareholder under this prospectus. This concentration in the hands
of insiders has the effect of reducing the effective float of the common
stock. Accordingly, these individuals have the ability to influence the
election of the Company's directors and to effectively control most corporate
actions. This concentration of ownership may also have the effect of
delaying, deterring or preventing a change in control of the Company.

Pursuant to agreements with Vencor entered into at the time it purchased
common stock from the Company, the Company agreed to take steps necessary to
elect one representative of Vencor to the Company's board of directors for so
long as Vencor owns at least 500,000 shares of common stock, and an
additional representative for so long as Vencor owns at least 1,500,000
shares of common stock. Pursuant to such agreements, Michael Barr, an
officer of Vencor, has served as a director of the Company since 1993.
Vencor waived its right to the additional board seat for the fiscal years
1995-1998. Mr. Barr has announced his resignation from Vencor. Vencor
intends to name a designee to fill his position on the Company's board of
directors in the immediate future. The Company believes that no executive
officers or directors of the Company or their affiliates intend to purchase
any of the Shares offered pursuant to this prospectus. If no executive
officers or directors of the Company or their affiliates purchase any of the
Shares and if Vencor sells all 3,500,000 Shares it is offering, then
following this offering the current executive officers and directors of the
Company and their affiliates will beneficially own or have voting control
over approximately 15% of the outstanding common stock. The Company will
repurchase 655,000 of the Shares being offered by Vencor. After the offering,
the current executive officers and directors of the Company and their
affiliates will beneficially own or have voting control over approximately
18% of the outstanding common stock.

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USE OF PROCEEDS

The Company will not receive any part of the proceeds from the sale of the
Shares. All net proceeds from the sale of the Shares will go to the Selling
Shareholders.

SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
Common Stock beneficially owned by the Selling Shareholders as of August 31,
1998, and as adjusted to give effect to the sale of such securities. The
Shares are being registered to permit public secondary trading of such
securities, and the Selling Shareholders may offer such securities for resale
from time to time. See "Plan of Distribution".

The Shares of Common Stock being offered by the Selling Shareholders
fall into two categories: (i) 3,500,000 Shares owned by Vencor Operating,
Inc. as a result of purchases from the Company in private transactions in
reliance on Section 4(2) of the Securities Act and Regulation D promulgated
thereunder as the basis for exemption from registration; and (ii) 281,756
Shares which may be purchased in the future by Novel Shareholders from the
Company upon the exercise of Options held by Novel Shareholders. With
respect to the latter category of Shares, the Registration Statement of which
this Prospectus is a part registers only the resale of Shares that are
issuable upon the exercise of such Options, and does not register the Options
themselves. Except as set forth below, none of the Selling Shareholders has
had a material relationship with the Company within the past three years
other than as a result of ownership of securities of the Company. The Shares
may be offered from time to time by the Selling Shareholders named below or
their nominees, and this Prospectus may be required to be delivered by
persons who may be deemed to be underwriters in connection with the offer or
sale of such securities. See "Plan of Distribution". In accordance with the
rules of the Commission, the columns "Common Stock Owned After Offering" show
the amount of securities owned by the Selling Shareholders after the
offering. The numbers in such columns assume all Shares registered and
offered by this Prospectus, shown in the column "Common Stock Offered", are
sold by the Selling Shareholders. However, the Selling Shareholders are not
required to sell any of the Shares offered, and the Selling Shareholders may
sell as many or as few Shares as they choose. See "Plan of Distribution".

Pursuant to agreements entered into at the time Vencor purchased common
stock from the Company, the Company has agreed to take steps necessary to elect
one representative of Vencor to the Company's board of directors for so long as
Vencor owns at least 500,000 shares of common stock, and an additional
representative for so long as Vencor owns at least 1,500,000 shares of common
stock. Pursuant to such agreements, Michael Barr, an officer of Vencor, has
served as a director of the Company since 1993. Vencor waived its right to the
additional board seat for the fiscal years 1995-1998. Mr. Barr has announced
his resignation from Vencor. Vencor intends to name a designee to fill his
position on the Company's board of directors in the immediate future. The
Company's sales to Vencor and corresponding percentage of total revenues in the
fiscal years ended June 30, 1998, 1997 and 1996 are as follows: 1998 --
$67,000 (0.1%); 1997 -- $1,473,000 (5.2%); 1996 -- $381,000 (2.0%).

Name of Common Stock Common Stock
Selling Shareholders Owned Prior to Offering(1) Common Stock Owned After Offering
- -------------------- -------------------------- Offered --------------------
Amount Percent(2) ------- Amount(3) Percent(2)
------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Vencor Operating, Inc. 3,500,000 31.8% 3,500,000 0 --
Andcor Human Resources 10,500 -- 10,500 0 --
Lloyd Armstrong 41,000 -- 41,000 0 --
Paul Backer 2,477 -- 2,477 0 --
Tammy Bren 2,515 -- 2,515 0 --
Lisa Cheney 3,245 -- 3,245 0 --
Norm Dann 25,313 -- 25,313 0 --

</TABLE>

8
<PAGE>

Name of Common Stock Common Stock
Selling Shareholders Owned Prior to Offering(1) Common Stock Owned After Offering
- -------------------- -------------------------- Offered --------------------
Amount Percent(2) ------- Amount(3) Percent(2)
------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Wyn Davies 30,500 -- 30,500 0 --
Kim Dorr 2,961 -- 2,961 0 --
Tim Hidani 18,198 -- 18,198 0 --
Angi Hillyard 11,383 -- 11,383 0 --
Jonathan Kagan(4) 170,000 1.5% 100,000 70,000 --
Bob Laine 3,125 -- 3,125 0 --
Cindy Olsen 9,317 -- 9,317 0 --
Ricci Smelser 9,387 -- 9,387 0 --
Ae Suk Yim 3,710 -- 3,710 0 --
Frank Vargas 4,375 -- 4,375 0 --
Rodney Young 3,750 -- 3,750 0 --
All Selling Shareholders 3,851,756 34.9% 3,781,756 70,000 --

</TABLE>

- -----------------------
(1) Includes the following Shares which may be purchased by Selling
Shareholders upon the exercise of the Options: Andcor Human Resources -
10,500; Lloyd Armstrong - 41,000; Paul Backer - 2,477; Tammy Bren - 2,515;
Lisa Cheney - 3,245; Norm Dann - 25,313; Wyn Davies - 30,500; Kim Dorr -
2,961; Tim Hidani - 18,198; Angi Hillyard - 11,383; Jonathan Kagan -
100,000; Bob Laine - 3,125; Cindy Olsen - 9,317; Ricci Smelser - 9,387; Ae
Suk Yim - 3,710; Frank Vargas - 4,375; Rodney Young - 3,750.
(2) No percent of class is shown for holders of less than 1%. Percentage
computations are based on 11,022,602 shares of Common Stock outstanding,
computed by adding the 281,756 shares issuable upon exercise of the Options
to the 10,740,846 shares of common stock outstanding on August 31, 1998.
(3) Assumes sale of all Common Stock offered hereby. See "Plan of
Distribution".

(4) Mr. Kagan is president of the Company's wholly-owned subsidiary, Novel
Biomedical, Inc.

PLAN OF DISTRIBUTION

Vencor Operating Inc. ("Vencor") has entered into an Agency Agreement
(the "Agency Agreement") with the Company, Advest, Inc. and Bigelow &
Company, pursuant to which Vencor will sell the Shares it holds to purchasers
who have been solicited by the selling agents under the Agency Agreement,
and their subagents, if any, at a price of $6.375 per share, and Vencor will
pay such selling agents a commission of $0.195 per share. 655,000 of such
Shares are being purchased by the Company. The distribution of the Shares by
the Novel Shareholders is not subject to any underwriting agreement. The
Shares offered by the Novel Shareholders may be sold from time to time at
designated prices that may be changed, at market prices prevailing at the
time of sale, at prices relating to such prevailing market prices or at
negotiated prices. The Novel Shareholders are not required to sell any of
the Shares offered, and the Novel Shareholders may sell as many or as few
Shares as they choose. In addition, the Novel Shareholders may sell the
Shares through customary brokerage channels, either through broker-dealers
acting as agents or principals. The Novel Shareholders may effect such
transactions by selling Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting
discounts, concessions, commissions or fees from the Novel Shareholders
and/or purchasers of the Shares for whom such broker-dealers may act as
agent, or to whom they sell as principal, or both (which compensation to a
particular broker-dealer might be in excess of customary commissions). Any
broker-dealers that participate with any of the Selling Shareholders in the
distribution of Shares may be deemed to be underwriters and any commissions
received by them and any profit on the resale of Shares positioned by them
might be deemed to be underwriting discounts and commissions within the
meaning of the Securities Act, in connection with such sales. The Company has
entered into a Selling Agreement with the Novel Shareholders. Such Selling
Agreement and the Agency Agreement each contain the Company's agreement to
indemnify the Selling Shareholders and the selling agents under the Agency
Agreement for losses or damages, including losses or damages under the
Securities Act, to which the Selling Shareholders or the selling agents may
become subject arising out of or based upon untrue statements of fact contained
in the Registration Statement of which this Prospectus is a part.

INDEMNIFICATION

9
<PAGE>

capacity with the Company, that his or her conduct was in the best interests of
the Company, or in all other cases, that his or her conduct was at least not
opposed to the Company's best interests; and, (iii) in the case of a criminal
proceeding, the person had no reasonable cause to believe his or her conduct was
unlawful. If the officer or director is successful on the merits in such a
proceeding, the Colorado Act requires the Company to indemnify the officer or
director against all expenses, including attorneys' fees incurred in connection
with any such proceeding. The Colorado Act authorizes the Company to advance
expenses incurred in defending any such proceeding under certain circumstances.
Article VIII of the Company's Articles of Incorporation, as amended, provide
that the Company shall indemnify its officers and directors to the fullest
extent permitted by the Colorado Act.

The Colorado Act permits the Company to limit the personal liability of its
directors for monetary damages for breaches of fiduciary duty as a director,
except for breaches that involve the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, acts involving unlawful dividends or stock redemptions or
transactions from which the director derived an improper personal benefit.
Article XIII of the Company's Articles of Incorporation, as amended, includes
such a provision which limits the personal monetary liability of its directors.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

EXPERTS

The consolidated financial statements of the Company appearing in its
Annual Report (Form 10-K) for the year ended June 30, 1998, have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

LEGAL OPINION

The legality of the Common Stock offered will be passed upon for the
Company by Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder, CO
80302.

10
<PAGE>

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

No person has been authorized to give any information or make any
representations other than those contained in this Prospectus in connection with
the sale or offering of any Shares of Common Stock covered by this Prospectus,
and if given or made, such other information or representations must not be
relied upon as having been authorized by Colorado MEDtech, Inc. or the Selling
Shareholders. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, in any jurisdiction to any person to whom it is not lawful to
make such offer or solicitation in such jurisdiction. Under no circumstances
should the delivery of this Prospectus or the sale or offering of any Shares of
Common Stock covered by this Prospectus create any implication that there has
been no change in the business or operations of Colorado MEDtech, Inc. since the
date of this Prospectus.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Documents Incorporated by Reference. . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

</TABLE>

3,781,756 Shares

COLORADO MEDTECH, INC.

Common Stock (No Par Value)

PROSPECTUS

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

November 3, 1998

11
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses in connection with the issuance and distribution of the
securities being registered, other than brokerage discounts, fees or
commissions, are:

<TABLE>

<S> <C>
Commission Registration Fee $ 7,809
Accounting Fees and Expenses 2,500
Legal Fees and Expenses 10,000
Miscellaneous Expenses 591
-------
Total $20,900

</TABLE>

All expenses, except the registration fee, are estimated. The Company will
pay all expenses in connection with this offering.

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Colorado Business Corporation Act (the "Colorado Act") permits the
Company to indemnify an officer or director who was or is a party or is
threatened to be made a party to any proceeding because of his or her position,
if: (i) the officer or director acted in good faith; (ii) the person reasonably
believed, in the case of conduct in an official capacity with the Company, that
his or her conduct was in the best interests of the Company, or in all other
cases, that his or her conduct was at least not opposed to the Company's best
interests; and, (iii) in the case of a criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. If the officer or
director is successful on the merits in such a proceeding, the Colorado Act
requires the Company to indemnify the officer or director against all expenses,
including attorneys' fees incurred in connection with any such proceeding. The
Colorado Act authorizes the Company to advance expenses incurred in defending
any such proceeding under certain circumstances. Article VIII of the Company's
Articles of Incorporation, as amended, provide that the Company shall indemnify
its officers and directors to the fullest extent permitted by the Colorado Act.

II-1
<PAGE>

ITEM 16. EXHIBITS

Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
1.1* Form of Selling Agreement.
1.2 Agency Agreement dated November 3, 1998 by and among the Company,
Vencor, Inc., Vencor Operating, Inc., Advest, Inc. and Bigelow &
Company.
4.1 Form of Certificate for Shares of Common Stock.(1)
5.1* Opinion of Chrisman, Bynum & Johnson, P.C.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Chrisman, Bynum & Johnson, P.C. (contained in the opinion
filed as Exhibit 5.1).
24.1* Power of attorney (included in signature page of original filing).

</TABLE>

- ---------

*Previously filed.

(1) Incorporated by reference from the Company's Registration Statement No.
2-83841-D on Form S-18, dated May 17, 1983.

ITEM 17. UNDERTAKINGS

(1) The undersigned Registrant hereby undertakes:

A. To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to this
Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;

provided, however, that the undertakings set forth in Paragraph (i)
and (ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the Registrant pursuant to Section
13 or Section 15(d) of the Exchange Act that are incorporated by reference in
this Registration Statement.

B. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

C. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d)

II-2
<PAGE>

of the Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) Insofar as indemnification for liabilities arising under 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 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>

SIGNATURES

Pursuant to 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 for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boulder, State of
Colorado, on the 3rd day of November, 1998.

COLORADO MEDTECH, INC.

By: /s/ John V. Atanasoff II
-----------------------------------------------
John V. Atanasoff II, Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

Signature Title Date
- --------- ------ -----
/s/ John V. Atanasoff II Chief Executive Officer, November 3, 1998
- --------------------------- President and Director
John V. Atanasoff II (Principal Executive Officer)

* Director November 3, 1998
- ---------------------------
Dean A. Leffingwell

* Director November 3, 1998
- ---------------------------
Ira M. Langenthal

* Director November 3, 1998
- ---------------------------
Robert L. Sullivan

* Director November 3, 1998
- ---------------------------
Clifford W. Mezey

* Director November 3, 1998
- ---------------------------
Michael R. Barr

II-4
<PAGE>

* Director November 3, 1998
- ---------------------------
John E. Wolfe

/s/ Bruce L. Arfmann Chief Financial Officer November 3, 1998
- --------------------------- (Principal Accounting
Bruce L. Arfmann Officer)

*By /s/ John V. Atanasoff II
---------------------------
John V. Atanasoff II,
Attorney-in-fact

II-5
<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Exhibit Page
- ------ ---------------------- ----
<S> <C> <C>
1.1* Form of Selling Agreement.
1.2 Agency Agreement dated November 3, 1998 by and among the
Company, Vencor Inc., Vencor Operating, Inc., Advest, Inc.
and Bigelow & Company.
4.1* Form of Certificate for Shares of Common Stock.(1)
5.1* Opinion of Chrisman, Bynum & Johnson, P.C.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Chrisman, Bynum & Johnson, P.C. (contained in the
opinion filed as Exhibit 5.1).
24.1* Power of attorney (included in signature page of original
filing).

</TABLE>

- ---------

*Previously filed.

(1) Incorporated by reference from the Company's Registration Statement No.
2-83841-D on Form S-18, dated May 17, 1983.

II-6

<PAGE>

3,560,000 SHARES

COLORADO MEDTECH, INC.
COMMON STOCK, NO PAR VALUE

AGENCY AGREEMENT

November 3, 1998

ADVEST, INC.
BIGELOW & COMPANY
c/o Advest, Inc.
90 State House Square
Hartford, CT 06103

Dear Sirs and Mesdames:

Colorado MEDtech, Inc., a Colorado corporation (the "Company"),
Vencor, Inc., a Delaware corporation, and Vencor Operating, Inc., a Delaware
corporation and wholly-owned subsidiary of Vencor, Inc. (Vencor, Inc. and
Vencor Operating, Inc. are collectively referred to as the "Selling
Shareholder"), confirm their agreement with each of you (individually, a
"Selling Agent" and together, the "Selling Agents") with respect to the
proposed public sale by the Selling Shareholder of an aggregate of 3,560,000
shares (the "Shares") of the Company's common stock, no par value (the
"Common Stock").

The Company and the Selling Shareholder, intending to be
legally bound, hereby confirm their agreement with the Selling Agents as
follows:

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, each of the Selling
Agents that:

(a) A registration statement on Form S-3 (File No.
333-64705) with respect to the Shares, including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Act"), and one or more amendments to such registration statement may
have been so filed. After the execution of this Agreement, the Company will
file with the Commission either (i) if such registration statement, as it may
have been amended, has become effective under the Act and information has
been omitted

<PAGE>

therefrom in accordance with Rule 430A under the Act, a prospectus in the
form most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement) with such changes or insertions as are required by Rule 430A or
permitted by Rule 424(b) under the Act and as have been provided to and
approved by the Selling Agents, or (ii) if such registration statement, as it
may have been amended, has not become effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy of
which amendment has been provided to and approved by Advest, Inc. ("Advest")
prior to the execution of this Agreement. As used in this Agreement, the
term "Registration Statement" means such registration statement, as amended
at the time when it was or is declared effective, including (A) all financial
statements, schedules and exhibits thereto, (B) all documents (or portions
thereof) incorporated by reference therein, and (C) any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus
(as hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion included in such registration statement or
any amendment or post-effective amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement at the
time it was or is declared effective), including all documents (or portions
thereof) incorporated by reference therein; and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act or, if no prospectus is required to be so filed, such term means the
prospectus included in the Registration Statement, in either case, including
all documents (or portions thereof) incorporated by reference therein. As
used herein, any reference to any statement or information as being "made,"
"included," "contained," "disclosed" or "set forth" in any Preliminary
Prospectus, a Prospectus or any amendment or supplement thereto, or the
Registration Statement or any amendment thereto (or other similar references)
shall refer both to information and statements actually appearing in such
document as well as information and statements incorporated by reference
therein.

(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that purpose has
been instituted or threatened by the Commission or the securities authority
of any state or other jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no proceeding
for that purpose has been instituted or threatened or, to the knowledge of
the Company, contemplated by the Commission or the securities authority of
any state or other jurisdiction.

(c) When any Preliminary Prospectus was filed with the
Commission it contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder.
Each document, if any, filed or to be filed pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by
reference in the Prospectus complied or will comply when so filed in all

-2-

<PAGE>

material respects with the Exchange Act and the applicable rules and
regulations of the Commission thereunder. When the Registration Statement or
any amendment thereto was or is declared effective, and at the Time of
Delivery (as hereinafter defined), it (i) contained and will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and
the rules and regulations of the Commission thereunder and (ii) did not and
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When
the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required to be so filed, when the Registration Statement
or the amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and at the Time of Delivery, the
Prospectus, as amended or supplemented at any such time, (i) contained and
will contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder and
(ii) did not and will not include 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 were made, not
misleading. The foregoing provisions of this paragraph (c) do not apply to
statements or omissions made in the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by
either Selling Agent for use therein. It is understood that the statements
set forth in the Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto (X) in the second sentence
of the second paragraph of the cover page of the Prospectus, and (Y) in the
first sentence of the first paragraph of the section entitled "Plan of
Distribution," constitute the only written information furnished to the
Company by either Selling Agent specifically for use in the Registration
Statement or any amendment thereto or the Prospectus and any amendment or
supplement thereto, as the case may be.

(d) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries is a
party or to which any of the properties of the Company or any subsidiary is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.

(e) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has full power and authority
(corporate and other) to own or lease its properties and conduct its business as
described in the Prospectus. The Company has full power and authority
(corporate and other) to enter into this Agreement and to

-3-

<PAGE>

perform its obligations hereunder. Each of the Company and its subsidiaries
is duly qualified to transact business as a foreign corporation and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole.

(f) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued shares of
capital stock of the Company, have been duly authorized and validly issued,
are fully paid and nonassessable and conform to the descriptions of the
Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company or any of its subsidiaries has been issued or is
owned or held in violation of any statutory (or to the knowledge of the
Company, any other) preemptive rights of shareholders, and no person or
entity (including any holder of outstanding shares of capital stock of the
Company or its subsidiaries) has any statutory (or to the knowledge of the
Company, any other) preemptive or other rights to subscribe for any of the
Shares. None of the capital stock of the Company has been issued in
violation of applicable federal or state securities laws.

(g) All of the issued shares of capital stock of each
subsidiary are owned beneficially by the Company or one of its subsidiaries,
free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting agreements, proxies,
voting trusts, equities or claims of any nature whatsoever. Other than the
subsidiaries and the equity securities described in the Prospectus held in
the investment portfolios of the Company and such subsidiaries (the
composition of which is not materially different than the disclosures in the
Prospectus as of specific dates), the Company does not own, directly or
indirectly, any capital stock or other equity securities of any other
corporation or any ownership interest in any partnership, joint venture or
other association.

(h) Except as disclosed in the Prospectus and except
for those that have been issued in compensatory transactions in the ordinary
course of business since June 30, 1998, which compensatory transactions have
not had a material dilutive effect, there are no outstanding (i) securities
or obligations of the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock of the Company or any of its subsidiaries,
(ii) warrants, rights or options to subscribe for or purchase from the
Company or any of its subsidiaries any such capital stock or any such
convertible or exchangeable securities or obligations or (iii) obligations of
the Company or any of its subsidiaries to issue any shares of capital stock,
any such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.

(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) neither the
Company nor any of its

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<PAGE>

subsidiaries has incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company and its subsidiaries, (ii) the
Company has not purchased any of its outstanding capital stock or declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock, (iii) there has not been any change in the capital stock,
long-term debt or short-term debt except in the ordinary course of business
of the Company or any of its subsidiaries, and (iv) there has not been any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the financial position, results of operations
or business of the Company and its subsidiaries, in each case other than as
disclosed in or contemplated by the Prospectus.

(j) There are no contracts, agreements or
understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by such
person or, requiring the Company to include such securities in the securities
registered pursuant to the Registration Statement (or any such right has been
effectively waived) or requiring the registration of any securities pursuant
to any other registration statement filed by the Company under the Act,
except for the piggyback registration rights of the option and warrant
holders of Novel Biomedical, Inc. Neither the filing of the Registration
Statement nor the offering or sale of Shares as contemplated by this
Agreement gives any security holder of the Company any rights for or relating
to the registration of any shares of Common Stock or any other capital stock
of the Company, except such as have been satisfied or waived.

(k) Neither the Company nor any of its subsidiaries is,
or with the giving of notice or passage of time or both would be, in
violation of its articles of incorporation or bylaws or in default under any
material indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or to which any of their respective properties or assets are subject.

(l) The Company does not require any consent, approval,
authorization, order or declaration of or from, or registration,
qualification or filing with, any court or governmental agency or body in
connection with the sale of the Shares or the consummation of the
transactions contemplated by this Agreement, except the registration of the
Shares under the Act (which, if the Registration Statement is not effective
as of the time of execution hereof, shall be obtained as provided in this
Agreement) and such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under state securities or blue sky
laws in connection with the offer, sale of the Shares by the Selling Agents.

(m) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or investigation
pending or, to the

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<PAGE>

Company's knowledge, threatened in which the Company or any of its
subsidiaries is a party or of which any of their respective properties or
assets are the subject which, if determined adversely to the Company or any
subsidiary, would individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of the
Company and its subsidiaries taken as a whole. Neither the Company nor any
subsidiary is in violation of, or in default with respect to, any law,
statute, rule, regulation, order, judgment or decree, except as described in
the Prospectus or such as do not and will not individually or in the
aggregate have a material adverse effect on the financial position, results
of operations or business of the Company and its subsidiaries taken as a
whole, and neither the Company nor any subsidiary is required to take any
action in order to avoid any such violation or default.

(n) Arthur Andersen LLP, which has certified certain
financial statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus, are independent
public accountants as required by the Act, the Exchange Act and the
respective rules and regulations of the Commission thereunder.

(o) The consolidated financial statements and schedules
(including the related notes) of the Company and its consolidated
subsidiaries included or incorporated by reference in the Registration
Statement, the Prospectus and/or any Preliminary Prospectus were prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and fairly present the financial position and
results of operations of the Company and its subsidiaries, on a consolidated
basis, at the dates and for the periods presented. The selected financial
data set forth under the captions "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included or incorporated by reference in the Registration Statement, the
Prospectus and/or any Preliminary Prospectus fairly present, on the basis
stated therein, the information included therein, and have been compiled on a
basis consistent with that of the audited financial statements included in
the Registration Statement. The supporting notes and schedules included in
the Registration Statement, the Prospectus and/or any Preliminary Prospectus
fairly state in all material respects the information required to be stated
therein in relation to the financial statements taken as a whole. The
unaudited interim consolidated financial statements included or incorporated
by reference in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of Rule 10-01 of
Regulation S-X under the Act.

(p) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming due execution by the Selling Shareholder
and the Selling Agents, constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, subject,
as to enforcement, to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws relating to or affecting the enforcement of
creditors' rights generally and to general equitable principles

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<PAGE>

and except as the enforceability of rights to indemnity and contribution
under this Agreement may be limited under applicable securities laws or the
public policy underlying such laws.

(q) The sale of the Shares and the performance of this
Agreement and the consummation of the transactions herein contemplated will
not (with or without the giving of notice or the passage of time or both) (i)
conflict with or violate any term or provision of the articles of
incorporation or bylaws or other organizational documents of the Company or
any subsidiary, (ii) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which the
Company or any subsidiary is a party or to which any of their respective
properties or assets is subject, (iii) conflict with or violate any law,
statute, rule or regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Company or any
subsidiary or any of their respective properties or assets or (iv) result in
a breach, termination or lapse of the corporate power and authority of the
Company or any subsidiary to own or lease and operate their respective assets
and properties and conduct their respective business as described in the
Prospectus.

(r) When the Shares to be sold by the Selling
Shareholder hereunder have been duly delivered against payment therefor as
contemplated by this Agreement, the Shares will be validly issued, fully paid
and nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. The certificates
representing the Shares are in proper legal form under, and conform in all
respects to the requirements of, the Colorado Business Corporation Act and
the requirements of the Nasdaq National Market System.

(s) The Company has not distributed and will not
distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, a Preliminary Prospectus,
the Prospectus and other material, if any, permitted by the Act.

(t) Neither the Company nor any of its officers,
directors or affiliates has (i) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares or
(ii) since the filing of the Registration Statement (A) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of, the
Shares or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

(u) Neither the Company, nor any subsidiary is an
"investment company" or a company "controlled" by an investment company as
such terms are defined in

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<PAGE>

Sections 3(a) and 2(a)(9), respectively, of the Investment Company Act of
1940, as amended (the "Investment Company Act"), and, if the Company or any
subsidiary conducts its business as set forth in the Registration Statement
and the Prospectus, will not become an "investment company" and will not be
required to register under the Investment Company Act.

2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER.
The Selling Shareholder represents and warrants to, and agrees with, each of
the Selling Agents that:

(a) This Agreement has been duly authorized, executed
and delivered by the Selling Shareholder, and assuming due execution by the
Company and the Selling Agents, constitutes the valid and binding agreement
of the Selling Shareholder, enforceable against the Selling Shareholder in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights generally and
to general equitable principles and except as the enforcement of rights to
indemnity and contribution under this Agreement may be limited under
applicable securities laws or the public policy underlying such laws.

(b) The execution and delivery by the Selling
Shareholder of, and the performance by the Selling Shareholder of its
obligations under, this Agreement will not (with or without the giving of
notice or the passage of time or both) (i) conflict with any term or
provision of the Selling Shareholder's articles of incorporation or bylaws or
other organizational documents, as amended, (ii) result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Selling Shareholder is a party or to
which its properties or assets is subject or (iii) conflict with or violate
any law, statute, rule or regulation or any order, judgment or decree of any
court or governmental agency or body having jurisdiction over the Selling
Shareholder or any of the Selling Shareholder's properties or assets.

(c) The Selling Shareholder has, and on the Time of
Delivery (as hereinafter defined) will have, valid title to the Shares and
the legal right and power, and all authorization and approval required by
law, to enter into this Agreement and to sell, transfer and deliver the
Shares.

(d) When duly delivered against payment therefor as
contemplated by this Agreement, the Shares will be validly issued, fully paid
and nonassessable.

(e) Delivery of the Shares pursuant to this Agreement
will pass title to the Shares free and clear of all liens, security
interests, pledges, charges, equities and other encumbrances.

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<PAGE>

(f) The Selling Shareholder does not require any
consent, approval, authorization, order or declaration of or from, or
registration, qualification or filing with, any court or governmental agency
or body in connection with the sale of the Shares or the consummation of the
transactions contemplated by this Agreement, except for the registration of
the Shares under the Act and such as may be required by the NASD or under
state securities or blue sky laws in connection with the offer and sale of
the Shares by the Selling Agents.

(g) The Selling Shareholder has not (i) taken, directly
or indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares or (ii) since the filing of the Registration
Statement (A) sold, bid for, purchased or paid anyone any compensation for
soliciting purchases of, the Shares or (B) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.

(h) When the Registration Statement or any amendment
thereto was or is declared effective, and at the Time of Delivery, it, to the
best of the knowledge of the Selling Shareholder, did not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading. When the
Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required to be so filed, when the Registration Statement
or the amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and at the Time of Delivery, the
Prospectus, as amended or supplemented at any such time, to the best of the
knowledge of the Selling Shareholder, did not and will not include 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 were made, not misleading. The foregoing provisions of this
paragraph (i) do not apply to statements or omissions made in the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by either Selling Agent
specifically for use therein. It is understood that the statements set forth
in the Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto (X) in the second sentence of the second
paragraph of the cover page of the Prospectus, and (Y) in the first sentence
of the first paragraph of the section entitled "Plan of Distribution,"
constitute the only written information furnished to the Company by or on
behalf of either Selling Agent specifically for use in the Registration
Statement or any amendment thereto or the Prospectus and any amendment or
supplement thereto, as the case may be.

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<PAGE>

3. APPOINTMENT OF SELLING AGENTS. Subject to the terms and
conditions herein set forth, the Selling Shareholder appoints each Selling
Agent to act as its agent, and each Selling Agent agrees to use its best
efforts, to solicit offers to purchase the Shares upon the terms and
conditions set forth in the Prospectus. The Selling Agents may engage such
subagents as they may select from time to time in connection with the
solicitation of offers hereunder. The Selling Shareholder agrees to sell the
Shares in accordance with the terms hereof for $6.375 per Share. The
Selling Shareholder agrees to pay to Advest at the Time of Delivery by wire
transfer of immediately available funds a commission for the account of the
Selling Agents equal to $0.195 for each Share sold hereunder (such commission
to be divided between the Selling Agents in such manner as they, in their
discretion, shall determine). The Selling Agents shall communicate to the
Company and the Selling Shareholder, orally or in writing, each offer to
purchase Shares received by them. The Selling Agents shall have the right,
in their discretion reasonably exercised, to reject any offer to purchase the
Shares in whole or in part, and any such rejection shall not be deemed a
breach of their agreements contained herein. The Company and the Selling
Shareholder reserve the right, in their sole discretion, to suspend
solicitation of the purchases of the Shares at any time for any period of
time or permanently. Upon receipt of instructions from the Company and the
Selling Shareholder, the Selling Agents will forthwith suspend solicitation
of purchases until such time as the Selling Agents have been advised that
solicitation may be resumed.

4. DELIVERY OF SHARES; CLOSING. All of the Shares will be
sold and paid for at the same price and at the same time, and the commission
to the Selling Agents described in Section 3 will be paid, in a common
closing. Certificates in definitive form for the Shares to be offered by the
Selling Agents hereunder shall be delivered by the Selling Shareholder to
Advest, against payment by the purchaser(s) of the purchase price therefor by
wire transfer of immediately available funds to such account as the Selling
Shareholder shall designate in writing. The closing of the sale and purchase
of the Shares shall be held at the offices of Seyfarth, Shaw, Fairweather &
Geraldson, 55 East Monroe, Chicago, Illinois 60603 or 1270 Avenue of the
Americas, New York, New York 10020, at the option of Advest, except that
physical delivery of such certificates shall be made at the office of Advest,
90 State House Square, Hartford, Connecticut 06103. The time and date of
such delivery and payment shall be at 10:00 a.m., New York, New York time, on
the third (3rd) full business day after this Agreement is executed or at such
other time and date as the Selling Agents and the Selling Shareholder may
agree upon in writing. Such time and date for delivery of the Shares is
herein called the "Time of Delivery." The Selling Shareholder will make such
certificates available for checking and packaging at least 24 hours prior to
the Time of Delivery at the office of Advest, 90 State House Square,
Hartford, Connecticut 06103.

5. COVENANTS OF THE COMPANY. The Company covenants and
agrees with each of the Selling Agents that:

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<PAGE>

(a) The Company will use its best efforts to cause the
Registration Statement, if not effective prior to the execution and delivery
of this Agreement, to become effective. If the Registration Statement has
been declared effective prior to the execution and delivery of this
Agreement, the Company will file the Prospectus with the Commission pursuant
to and in accordance with subparagraph (1) (or, if applicable and if
consented to by you, subparagraph (4)) of Rule 424(b) within the time period
required under Rule 424(b) under the Act. The Company will advise you
promptly of any such filing pursuant to Rule 424(b). The Company will file
timely all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act.

(b) The Company will not file with the Commission the
prospectus or the amendment referred to in Section 1(a) hereof, any amendment
or supplement to the Prospectus or any amendment to the Registration
Statement unless the Selling Agents have received a reasonable period of time
to review any such proposed amendment or supplement and consented to the
filing thereof and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective as promptly as possible.
Upon the request of the Selling Agents, the Company will promptly prepare and
file with the Commission, in accordance with the rules and regulations of the
Commission, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in
connection with the offer and sale of the Shares by the Selling Agents and
will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. If required, the
Company will file any amendment or supplement to the Prospectus with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act. The Company will advise the Selling Agents, promptly after
receiving notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus or
any amendment or supplement thereto has been filed and will provide evidence
to the Selling Agents of each such filing or effectiveness.

(c) The Company will advise the Selling Agents promptly
after receiving notice or obtaining knowledge of (i) when any post-effective
amendment to the Registration Statement is filed with the Commission, (ii)
the receipt of any comments from the Commission concerning the Registration
Statement, (iii) when any post-effective amendment to the Registration
Statement becomes effective, or when any supplement to the Prospectus or any
amended Prospectus has been filed, (iv) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
part thereof or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (v) the
suspension of the qualification of the Shares for offer or sale in any
jurisdiction or of the initiation or threatening of any proceeding for any
such purpose, (vi) any request made by the Commission or any securities
authority of any other jurisdiction for amending the Registration Statement,
for amending or

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<PAGE>

supplementing the Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop order or
suspension and, if any such stop order or suspension is issued, to obtain the
withdrawal thereof as promptly as possible.

(d) If the delivery of a prospectus relating to the
Shares is required under the Act at any time prior to the expiration of nine
months after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or supplemented
would include an 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 were made, not misleading, or if for
any reason it is necessary during such same period to amend or supplement the
Prospectus, the Company will promptly notify the Selling Agents and upon
their request (but at the Company's expense) prepare and file with the
Commission an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance and will furnish without
charge to each Selling Agent as many copies of such amended or supplemented
Prospectus as the Selling Agents may from time to time reasonably request.

(e) The Company promptly from time to time will take
such action as the Selling Agents may reasonably request to qualify the
Shares for offering and sale under the securities or blue sky laws of such
jurisdictions as the Selling Agents may request and will continue such
qualifications in effect for as long as may be necessary to complete the sale
of the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction. The Company will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Shares have been qualified as above provided.

(f) The Company will promptly provide the Selling
Agents, without charge, (i) one manually executed copy of the Registration
Statement as originally filed with the Commission and of each amendment
thereto, including all exhibits and all documents or information incorporated
by reference therein, and (ii) so long as a prospectus relating to the Shares
is required to be delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as the
Selling Agents may reasonably request. The terms "amendment" and
"supplement" as used in this Agreement, shall include all documents
subsequently filed by the Company with the Commission pursuant to the
Exchange Act that are deemed to be incorporated by reference in the
Prospectus.

(g) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its security holders an earnings statement of the Company and
its subsidiaries, if any, covering a period of at least 12 months beginning
after the effective date of the Registration Statement (which need not be
audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder.

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<PAGE>

"Availability Date" means the forty-fifth (45th) day after the end of the
fourth fiscal quarter following the fiscal quarter in which the Registration
Statement went effective, except that if such fourth fiscal quarter is the
last quarter of the Company's fiscal year, "Availability Date" means the
ninetieth (90th) day after the end of such fourth fiscal quarter.

(h) During the period of three years after the
effective date of the Registration Statement, the Company will furnish to the
Selling Agents, without charge, (i) copies of all reports or other
communications (financial or other) furnished to shareholders and (ii) as
soon as they are available, copies of any reports and financial statements
furnished to or filed with the Commission, the NASD or any national
securities exchange.

(i) Prior to the termination of the distribution
contemplated by this Agreement, neither the Company nor any of its officers,
directors or affiliates will (i) take, directly or indirectly, any action
designed to cause or to result in, or that might reasonably be expected to
cause or result in, the stabilization or manipulation of the price of any
security of the Company or (ii) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares.

(j) In case of any event, at any time within the period
during which a prospectus is required to be delivered under the Act, as a
result of which any Preliminary Prospectus or the Prospectus, as then amended
or supplemented, would contain an untrue statement of a material fact, or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, if it is necessary at any time to amend any Preliminary
Prospectus or the Prospectus to comply with the Act or any applicable
securities or blue sky laws, the Company promptly will prepare and file with
the Commission, and any applicable state securities commission, an amendment,
supplement or document that will correct such statement or omission or effect
such compliance and will furnish to the Selling Agents such number of copies
of such amendment(s), supplement(s) or document(s) as the Selling Agents may
reasonably request. For purposes of this subsection (k), the Company will
provide such information to the Selling Agents, the Selling Agents' counsel
and counsel to the Company as shall be necessary to enable such persons to
consult with the Company with respect to the need to amend or supplement the
Registration Statement, any Preliminary Prospectus or the Prospectus or file
any document, and shall furnish to the Selling Agents and the Selling Agents'
counsel such further information as each may from time to time reasonably
request.

(k) The Company will use its best efforts to maintain,
the qualification or listing of the shares of Common Stock (including,
without limitation, the Shares) on the Nasdaq National Market System.

6. COVENANTS OF THE SELLING SHAREHOLDER. The Selling
Shareholder covenants and agrees with each of the Selling Agents that:

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<PAGE>

(a) The Selling Shareholder will cooperate to the
extent necessary to cause the Registration Statement, if not effective prior
to the execution and delivery of this Agreement, to become effective.

(b) The Selling Shareholder will pay all federal and
other taxes, if any on the transfer or sale of the Shares that are sold by
the Selling Shareholder.

(c) The Selling Shareholder will do or perform all
things required to be done or performed by the Selling Shareholder prior to
the Time of Delivery to satisfy all conditions precedent to the delivery of
the Shares pursuant to this Agreement.

(d) The Selling Shareholder has not taken, nor will it
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price
of Common Stock to facilitate the sale or resale of the Shares.

(e) Prior to the Time of Delivery, the Selling
Shareholder will advise you promptly upon becoming aware, to the best of its
knowledge, and if requested by you, will confirm such advice in writing, of
any change in the Company's financial position, results of operation or
business, or of the happening of any event, as a result of which the
Registration Statement or the Prospectus would contain an untrue statement of
a material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, or if it is necessary to amend the Registration
Statement or the Prospectus in order to state a material fact required by the
Act or the regulations thereunder to be stated therein or necessary to make
the statements therein not misleading or of the necessity to amend the
Prospectus to comply with the Act or any other law.

7. EXPENSES.

(a) The Company or the Selling Shareholder will pay all
costs and expenses incident to the performance of the obligations of the Company
under this Agreement, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated pursuant to Section 10 hereof,
including, without limitation, all costs and expenses incident to (i) the
printing of and mailing expenses associated with the Registration Statement, the
Preliminary Prospectus and the Prospectus and any amendments or supplements
thereto and this Agreement, and related documents (collectively, the "Agency
Documents"); (ii) the fees, disbursements and expenses of the Company's counsel
and accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation and, if applicable,
filing of the Registration Statement (including all amendments thereto), any
Preliminary Prospectus, the Prospectus

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<PAGE>

and any amendments and supplements thereto and the Agency Documents; (iii)
the delivery of copies of the foregoing documents to the Selling Agents; (iv)
the filing fee of the Commission relating to the Shares; (v) the preparation,
issuance and delivery to the Selling Agents of any certificates evidencing
the Shares, including transfer agent's and registrar's fees; (vi) the
qualification of the Shares for offering and sale under state securities and
blue sky laws, including filing fees and fees and disbursements of counsel
for the Selling Agents (and local counsel therefor) relating thereto; (vii)
any expenses for travel, lodging and meals incurred by the Company and any of
its officers, directors and employees in connection with any meetings with
prospective investors in the Shares; and (viii) all other costs and expenses
reasonably incident to the performance of the Company's obligations hereunder
that are not otherwise specifically provided for in this Section 7.

(b) The Selling Shareholder agrees to pay or cause to
be paid all taxes, if any, on the transfer and sale of the Shares being sold
by the Selling Shareholder.

(c) The Selling Agents agree to pay or cause to be paid
the costs of advertising the offering, including, without limitation, with
respect to the placement of "tombstone" advertisements in publications
selected by Advest.

8. CONDITIONS OF THE SELLING AGENTS' OBLIGATIONS. The
obligations of the Selling Agents hereunder to use their best efforts to
solicit offers to purchase the Shares shall be subject, in their discretion,
to the accuracy of the representations and warranties of each of the Company
and the Selling Shareholder contained herein as of the date hereof and as of
the Time of Delivery, to the accuracy of the statements of the Company's
officers made pursuant to the provisions hereof, to the performance by the
Company of its covenants and agreements hereunder, and to the following
additional conditions precedent:

(a) If the registration statement as amended to date
has not become effective prior to the execution of this Agreement, such
registration statement shall have been declared effective not later than
11:00 a.m., Hartford, Connecticut time, on the date of this Agreement
or such later date and/or time as shall have been consented to by the Selling
Agents in writing. If required, the Prospectus and any amendment or
supplement thereto shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing and in
accordance with Section 5(a) of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceedings for that purpose shall have been instituted,
threatened or, to the knowledge of the Company and the Selling Agents,
contemplated by the Commission; and all requests for additional information
on the part of the Commission shall have been complied with to your
reasonable satisfaction.

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<PAGE>

(b) You shall have received an opinion, dated the Time
of Delivery, of Chrisman, Bynum & Johnson, P.C., counsel for the Company, in
form and substance satisfactory to you and your counsel, to the effect that:

(i) The Company and its subsidiaries
are in good standing under the laws of their respective states of
incorporation. Such counsel is not aware of any facts which would cause it
to doubt that the Company was duly incorporated in the State of Colorado.

(ii) The Company's authorized, issued
and outstanding capital stock is as disclosed in the Prospectus. All of the
issued shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Stock contained in the Prospectus. None of the
issued shares of Common Stock of the Company is owned or held in violation of
any statutory (or, to the knowledge of such counsel, any other) preemptive
rights of shareholders, and no person or entity (including any holder of
outstanding shares of Common Stock of the Company or capital stock of its
subsidiaries) has any statutory (or, to the knowledge of such counsel, any
other) preemptive or other rights to subscribe for any of the Shares.

(iii) Except as disclosed in the
Prospectus and except for those that have been issued in compensatory
transactions in the ordinary course of business since June 30, 1998, which
compensatory transactions have not had a material dilutive effect, there are,
to such counsel's knowledge, no outstanding (A) securities or obligations of
the Company or any of its subsidiaries convertible into or exchangeable for
any capital stock of the Company or any subsidiary, (B) warrants, rights or
options to subscribe for or purchase from the Company or any of its
subsidiaries any such capital stock or any such convertible or exchangeable
securities or obligations or (C) obligations of the Company or any of its
subsidiaries to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or
options.

(iv) When the Shares have been duly
delivered against payment therefor as contemplated by this Agreement, the
Shares will be duly authorized, validly issued and fully paid and
nonassessable, the holders thereof will not be subject to personal liability
solely by reason of being such holders and the Shares will conform to the
description of the Common Stock contained in the Prospectus; the certificates
evidencing the Shares will comply with all applicable requirements of
Colorado law.

(v) There are no contracts, agreements
or understandings known to such counsel between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or, requiring

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the Company to include such securities in the securities registered pursuant
to the Registration Statement (or any such right has been effectively waived)
or requiring the registration of any securities pursuant to any other
registration statement filed by the Company under the Act.

(vi) The sale of the Shares being sold
at the Time of Delivery and the performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with
or violate any provision of the articles of incorporation or bylaws of the
Company or any of its subsidiaries, in each case as amended to date, or to
such counsel's knowledge, any existing law, statute, rule or regulation, or
in any material respect, conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or to which any of their respective properties or
assets is subject, or, conflict with or violate any order, judgment or decree
known to such counsel, of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets.

(vii) To such counsel's knowledge, no
consent, approval, authorization, order or declaration of or from, or
registration, qualification or filing with, any court or governmental agency
or body is required for the sale of the Shares or the consummation of the
transactions contemplated by this Agreement, except such as have been or will
have been obtained and are or will be in effect, and except the registration
of the Shares under the Act and such as may be required by the NASD or under
state securities or blue sky laws in connection with the offer and sale of
the Shares by the Selling Agents.

(viii) This Agreement has been duly
authorized, executed and delivered by the Company and, assuming due execution
by the Selling Shareholder and the Selling Agents, constitutes the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights generally and
to general equitable principles and except as the enforceability of rights to
indemnity and contribution under this Agreement may be limited under
applicable securities laws or the public policy underlying such laws.

(ix) Neither the Company nor any of its
subsidiaries is an "investment company" or a company "controlled" by an
investment

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<PAGE>

company as such terms are defined in Sections 3(a) and 2(a)(9), respectively,
of the Investment Company Act.

(x) The Registration Statement and the
Prospectus and each amendment or supplement thereto (other than the financial
statements, the notes and schedules thereto and other financial data included
therein, to which such counsel need express no opinion), as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the respective rules and
regulations thereunder. The descriptions in the Registration Statement and
the Prospectus of contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel do not know of
any contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required.

Such counsel shall also state that they have participated in
the preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of and counsel to the Selling Agents at which the contents of
the Registration Statement, the Prospectus and related matters were discussed
and, although such counsel has not passed upon or assumed any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, and although such counsel has not
undertaken to verify independently the accuracy or completeness of the
statements in the Registration Statement or the Prospectus, nothing has come
to such counsel's attention to lead them to believe that the Registration
Statement, or any further amendment thereto made prior to the Time of
Delivery, on its effective date and as of the Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, not misleading, or that the Prospectus, or any amendment
or supplement thereto made prior to the Time of Delivery, as of its issue
date and as of the Time of Delivery, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that such
counsel need express no belief regarding the financial statements, the notes
and schedules thereto and other financial data contained in the Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).

In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deem proper, on certificates of
officers of the Company, public officials and letters from officials of the
NASD. Copies of such certificates of officers of the Company and other
opinions shall be addressed and furnished to the Selling Agents and furnished
to counsel for the Selling Agents.

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<PAGE>

(c) You shall have received from Jill L. Force,
general counsel for the Selling Shareholder, in form and substance
satisfactory to you and your counsel, to the effect that:

(i) This Agreement has been duly
authorized, executed and delivered by the Selling Shareholder.

(ii) The execution and delivery by the
Selling Shareholder of, and the performance by the Selling Shareholder of its
obligations under, this Agreement will not conflict or violate any provision
of the articles of incorporation or bylaws or other organizational documents
of the Selling Shareholder, or, to the best of such counsel's knowledge, any
existing law, statute, rule or regulation, or in any material respect,
conflict with, or (with or without the giving of notice or the passage of
time or both) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument known to
such counsel to which the Selling Shareholder is a party or, conflict with or
violate any judgment, order or decree known to such counsel, of any
governmental body, agency or court having jurisdiction over the Selling
Shareholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Selling Shareholder of its obligations under this
Agreement, except such as may be required by the securities or blue sky laws
of the various states in connection with the offer and sale of the Shares.

(iii) The Selling Shareholder has valid
title to the Shares and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and to sell, transfer
and deliver the Shares.

(iv) Delivery of the Shares pursuant to
this Agreement will pass title to the Shares free and clear of any security
interests, claims, liens, equities and other encumbrances.

(v) Such counsel, without any
independent investigation (A) has no reason to believe that (other than the
financial statements, the notes and schedules thereto and other financial
data included therein as to which such counsel need not express any belief)
the Registration Statement and the prospectus included therein at the time
the Registration Statement became effective contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and (B)
has no reason to believe that (other than the financial statements, notes and
schedules thereto and other financial data included therein as to which such
counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the

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<PAGE>

statements therein, in the light of the circumstances under which they were
made, not misleading.

(d) Seyfarth, Shaw, Fairweather & Geraldson, counsel
for the Selling Agents, shall have furnished to you such opinion or opinions,
dated the Time of Delivery, with respect to the incorporation of the Company,
the validity of the Shares being delivered at the Time of Delivery, the
Registration Statement, the Prospectus, and other related matters as you may
reasonably request, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters. Such opinion or opinions may be rendered in reliance upon the
opinion of Chrisman, Bynum & Johnson, P.C. as to matters governed by the law
of the State of Colorado.

(e) Since the date of the latest audited financial
statements included in the Prospectus, neither the Company nor any of the
Subsidiaries shall have sustained any change, or any development involving a
prospective change (including, without limitation, a change in management or
control of the Company), in or affecting the position (financial or
otherwise), results of operations, net worth or business prospects of the
Company and its subsidiaries, otherwise than as disclosed in or contemplated
by the Prospectus, the effect of which, in either such case, in your sole
judgment makes it impracticable or inadvisable to proceed with the sale and
delivery of the Shares being delivered at the Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof.

(f) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) any suspension or limitation in trading
in securities generally on the New York Stock Exchange, and/or the American
Stock Exchange or any setting of minimum prices for trading on such exchange,
or in the Common Stock of the Company by the Commission or the Nasdaq
National Market System; (ii) a moratorium on commercial banking activities in
New York, Colorado or Connecticut declared by either federal or state
authorities; or (iii) any outbreak or escalation of hostilities involving the
United States, declaration by the United States of a national emergency or
war or any other national or international calamity or emergency if the
effect of any such event specified in this clause (iii) in your sole judgment
makes it impracticable or inadvisable to proceed with the sale and

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<PAGE>

delivery of the Shares being delivered at the Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof.

(g) The Company shall have furnished to you at the Time
of Delivery certificates of the chief executive and chief financial officers
of the Company satisfactory to you, as to the accuracy of the respective
representations and warranties of the Company herein at and as of the Time of
Delivery with the same effect as if made at the Time of Delivery, as to the
performance by the Company of all of its respective obligations hereunder to
be performed at or prior to the Time of Delivery.

(h) The representations and warranties of the Company
in this Agreement and in the certificates delivered by the Company pursuant
to this Agreement shall be true and correct in all material respects when
made and on and as of the Time of Delivery as if made at such time, and the
Company shall have performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or satisfied
by the Company at or before the Time of Delivery.

(i) The Shares shall continue to be listed on the
Nasdaq National Market System.

9. INDEMNIFICATION AND CONTRIBUTION.

(a) The Company agrees to indemnify and hold harmless
each Selling Agent against any losses, claims, damages or liabilities, joint
or several, to which such Selling Agent 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 made by the Company in Section 1 of this
Agreement; (ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order
to qualify the Shares under the securities or blue sky laws thereof or filed
with the Commission or any securities association or securities exchange
(each an "Application"); or (iii) the omission of or alleged omission to
state in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or any
Application of a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse each Selling
Agent for any legal or other expenses reasonably incurred by such Selling
Agent in connection with investigating, defending against or appearing as a
third-party witness in connection with any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that neither the Company nor the
Selling Shareholder shall be liable in any such case to the extent

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<PAGE>

that any such loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by either Selling Agent expressly for
use therein (which information is solely as set forth in Sections 1(c) and
2(h) hereof). The Selling Shareholder agrees to indemnify and hold harmless
each Selling Agent against any losses, claims, damages or liabilities, joint
or several, to which such Selling Agent 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 any untrue statement or
alleged untrue statement made by the Selling Shareholder in Section 2 of this
Agreement and will reimburse each Selling Agent for any legal or other
expenses reasonably incurred by such Selling Agent in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action. Neither
the Company nor the Selling Shareholder will, without the prior written
consent of the Selling Agents, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of
which indemnification may be sought under this Section 9 (whether or not
either Selling Agent is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional
release of each Selling Agent from all liability arising out of such claim,
action, suit or proceeding (or related cause of action or portion thereof).

(b) The Selling Agents agree to indemnify and hold
harmless the Company and the Selling Shareholder against any losses, claims,
damages or liabilities to which the Company and the Selling Shareholder 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 false or misleading statements regarding the Company or
its business in connection with the sale of the Shares, in each case to the
extent, but only to the extent, that such false or misleading statement was
not made in reliance upon and in conformity with written information
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, and (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or any Application or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case 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 and the Selling Shareholder by the Selling Agents expressly for use
therein (which information is solely as set forth in Sections 1(c) and 2(h)
hereof); and will reimburse the Company and the Selling Shareholder for any
legal or

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<PAGE>

other expenses reasonably incurred by the Company and the Selling Shareholder
in connection with investigating or defending any such loss, claim, damage,
liability or action.

(c) Promptly after receipt by an indemnified party
under subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may have to any indemnified party otherwise than
under such subsection (a) or (b). In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party); PROVIDED, HOWEVER, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to it or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnified party shall
have the right to select separate counsel to defend such action on behalf of
such indemnified party. After such notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof. Nothing in this Section 9(c) shall
preclude an indemnified party from participating at its own expense in the
defense of any such action so assumed by the indemnifying party.

(d) If the indemnification provided for in this Section
9 is for public policy reasons unavailable to an indemnified party under
subsection (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 not only the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Selling Agents on the other hand
from the offering of the Shares, but also the relative faults of the Company,
Selling Shareholders and the Selling Agents. 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
subsection (c) above, 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

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relative fault of the Company and the Selling Shareholder on the one hand and
the Selling Agents on the other hand in connection with the statements or
omissions that 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 and the
Selling Shareholder on the one hand and the Selling Agents on the other hand
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company and the
Selling Shareholder bear to the total commissions received by the Selling
Agents hereunder. 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 Selling Shareholder on
the one hand or the Selling Agents on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Selling
Shareholder and the Selling Agents agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Selling Agents were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this subsection
(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this subsection (d), the Selling Agents shall be required
to contribute an amount in the aggregate in excess of the total commissions
received by the Selling Agents hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.

(e) The obligations of the Company and the Selling
Shareholder under this Section 9 shall be in addition to any liability which
the Company or the Selling Shareholder may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and employee of
the Selling Agents and to each person, if any, who controls any Selling Agent
within the meaning of the Act or the Exchange Act; and the obligations of the
Selling Agents under this Section 9 shall be in addition to any liability
which the respective Selling Agents may otherwise have and shall extend, upon
the same terms and conditions, to each officer, trustee and director of the
Company and to each person, if any, who controls the Company or the Selling
Shareholders within the meaning of the Act or the Exchange Act.

10. TERMINATION. This Agreement may be terminated in the sole
discretion of Advest by notice to the Company and the Selling Shareholder
given prior to the Time of Delivery in the event that (i) any condition to
the obligations of the Selling Agents set forth in Section 8 hereof has not
been satisfied, (ii) the Selling Shareholder shall have failed,

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refused or been unable to deliver the Shares or the Company or Selling
Shareholder shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on their respective parts to be
performed or satisfied hereunder at or prior to the Time of Delivery, in
either case other than by reason of a default by either of the Selling
Agents, or (iii) the Company and the Selling Shareholder shall have
permanently suspended solicitation of the purchase of the Shares pursuant to
Section 3 hereof or shall have suspended such solicitation for a period or
periods exceeding 30 days in the aggregate. If this Agreement is terminated
pursuant to this Section 10, the Company or Selling Shareholder will
reimburse the Selling Agents upon demand for all out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by
them in connection with the proposed offer and sale of the Shares.

11. SURVIVAL. The respective indemnities, agreements,
representations, warranties and other statements of the Company, its
officers, the Selling Shareholder and the Selling Agents, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on
behalf of either Selling Agent or any controlling person referred to in
Section 9(e) or the Company, or any officer, trustee or director or
controlling person of the Company referred to in Section 9(e), and shall
survive delivery of and payment for the Shares. The respective agreements,
covenants, indemnities and other statements set forth in Sections 5, 6 and 9
hereof shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement.

12. NOTICES. All communications hereunder shall be in writing
and, if sent to Advest, shall be mailed, delivered or telecopied and
confirmed by mail to Advest, Inc., 90 State House Square, Hartford, CT 06103,
Attention: Douglas McConnell (with a copy to Seyfarth, Shaw, Fairweather &
Geraldson, 55 East Monroe Street, Chicago, Illinois, 60603, Attention: Carl
Klein); if to Bigelow & Company, shall be sufficient in all respect if
mailed, delivered or telecopied and confirmed by mail to Bigelow & Company,
1401 17th Street, Ste. 1380, Denver, CO 80202, Attention: (Paul Sinsar), (with
a copy to Bob Ahrenholz, Kutak Rock, fax 303-292-7799; if to the Company shall
be sufficient in all respects if mailed, delivered or telecopied and confirmed
by mail to Colorado MEDtech, Inc., 6175 Longbow Drive, Boulder, Colorado,
80301, Attention: Bruce L. Arfmann, (with a copy to Chrisman, Bynum &
Johnson, P.C., 1900 Fifteenth Street, Boulder Colorado, 80302, Attention:
Peter J. Jensen); if to the Selling Shareholder, shall be sufficient in all
respects if mailed, delivered or telecopied and confirmed by mail to Vencor,
Inc., c/o James H. Gillenwater, Jr., 3300 Aegon Center, 400 West Market
Street, Louisville, Kentucky 40202, (with a copy to Joseph L. Landenwich,
3300 Aegon Center, 400 West Market Street, Louisville, Kentucky 40202).

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13. BINDING EFFECT. This Agreement shall be binding upon, and
inure solely to the benefit of, the Selling Agents, the Company and the
Selling Shareholder and to the extent provided in Sections 9 and 11 hereof,
the officers, trustees, directors and employees and controlling persons
referred to therein and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
the Selling Shareholder shall be deemed a successor or assign by reason
merely of such purchase.

14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to any provisions regarding conflicts of laws.

15. COUNTERPARTS. This Agreement may be executed by any one
or more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.

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If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one of the counterparts hereof,
and upon the acceptance hereof by each of the Selling Agents, this letter
will constitute a binding agreement among the Selling Agents, the Company and
the Selling Shareholder.

Very truly yours,

COLORADO MEDTECH, INC.

By: /s/ John V. Atanasoff
-----------------------------------
Name: John V. Atanasoff
Title: President, CEO

VENCOR, INC.

By: /s/ Richard A. Lechleiter
-----------------------------------
Name: Richard A. Lechleiter
Title: VP of Finance

VENCOR OPERATING, INC.

By: /s/ Richard A. Lechleiter
-----------------------------------
Name: Richard A. Lechleiter
Title: VP of Finance

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

ADVEST, INC.

By: /s/ Robert T. Keane, Jr.
------------------------------
Name: Robert T. Keane, Jr.
Title: Vice President

BIGELOW & COMPANY.

By: /s/ Paul Sinsar
------------------------------
Name: Paul Sinsar
Title: Managing Director

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