FISCHER IMAGING CORP, S-2/A, 1996-06-27

FISCHER IMAGING CORP
S-2/A, 1996-06-27
X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996

REGISTRATION NO. 333-3559
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2

TO
FORM S-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FISCHER IMAGING CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 36-2756787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

12300 NORTH GRANT STREET
DENVER, COLORADO 80241
(303) 452-6800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

MORGAN W. NIELDS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
FISCHER IMAGING CORPORATION
12300 NORTH GRANT STREET
DENVER, COLORADO 80241
(303) 452-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:

<TABLE>
<S> <C>
PAUL HILTON, ESQ. DAVID J. SEGRE, ESQ.
N. ANTHONY JEFFRIES, ESQ. KENNETH M. SIEGEL, ESQ.
DAVIS, GRAHAM & STUBBS LLP WILSON SONSINI GOODRICH & ROSATI
370 SEVENTEENTH STREET, SUITE 4700 PROFESSIONAL CORPORATION
DENVER, COLORADO, 80202 650 PAGE MILL ROAD
(303) 892-9400 PALO ALTO, CALIFORNIA 94304
(415) 493-9300
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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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, check the following box. / /

If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, please check the following box. / /

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

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

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

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

SUBJECT TO COMPLETION, DATED JUNE 27, 1996

PROSPECTUS
dated , 1996

1,350,000 SHARES

FISCHER IMAGING CORPORATION LOGO

COMMON STOCK

Of the 1,350,000 shares of Common Stock offered hereby, 1,200,000 shares are
being sold by Fischer Imaging Corporation (the "Company"), and 150,000 shares
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sales of shares by the Selling Stockholders.

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "FIMG." On June 12, 1996, the last reported sale price of the Common
Stock on the Nasdaq National Market was $14.375 per share. See "Price Range of
Common Stock."

SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
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Per Share........ $ $ $ $
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Total(3)......... $ $ $ $
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</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting offering expenses payable by the Company and certain
Selling Stockholders estimated at $350,000, and $10,000, respectively.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 202,500 additional shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less the Underwriting
Discount. If the Underwriters exercise this option in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."

The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the certificates representing the shares of Common Stock will be made at the
offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1996.

PIPER JAFFRAY INC. NEEDHAM & COMPANY, INC.
<PAGE> 3

FISCHER IMAGING CORP [LOGO]

Fischer Imaging Corporation designs, manufactures and markets specialty and
general purpose medical imaging systems for the diagnosis and treatment of
disease. The Company's newest product lines are directed towards medical
specialties in which image-guided, minimally-invasive therapies are replacing
open surgical procedures.

<TABLE>
<S> <C> <C>
-----------------------------------

PICTURE 1
-----------------------------------
Mammotest(R) stereotactic core needle
biopsy system

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PICTURE 2 PICTURE 3
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Mammovision(R) breast biopsy workstation SENOSCAN(R) full-field digital mammography
system (under development)
</TABLE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
---------------------

Fischer(R), Fischer Imaging(R), Mammotest(R), Mammovision(R), and TRAUMEX(R) are
registered trademarks of, and HFX(TM), SENOSCAN(TM), Target on Scout(TM),
EPACE(TM), EPIC(TM), and EP/Stim(TM) are trademarks of, the Company. The
registered trademarks of other companies are also used in this Prospectus.

2
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Except
where otherwise indicated, the information contained in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised. This Prospectus,
including the information incorporated by reference herein, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."

THE COMPANY

Fischer Imaging Corporation (the "Company") designs, manufactures and
markets specialty and general purpose medical imaging systems for the diagnosis
and treatment of disease. The Company's newest product lines are directed
towards medical specialties in which image-guided, minimally-invasive therapies
are replacing open surgical procedures. These products are used primarily in the
diagnosis and treatment of breast cancer, heart disease and vascular disease.
The Company also designs and manufactures specialty x-ray imaging components and
subsystems for several leading medical products companies as an original
equipment manufacturer ("OEM") and sells general radiology systems for use in
hospitals, clinics and physicians' offices.

The Company is a leader in the development of imaging systems addressing
the screening and diagnosis of breast cancer. Breast cancer is the leading cause
of cancer death among women aged 40 to 55 and the second leading cause of cancer
death among all women in the United States. The Company estimates that the costs
of all elements of screening and diagnosing breast cancer in the United States
were approximately $5.9 billion in 1995. The incidence of breast cancer
increases with age. Thus, the Company believes that the large number of aging
baby boomers coupled with increased breast cancer screening rates and education
will lead to an increase in the number of breast cancer screening and diagnostic
procedures.

The Company offers a full line of imaging systems intended for the breast
cancer market including screening and diagnostic mammography, stereotactic core
needle biopsy and ultrasound breast imaging. In addition, the Company is
currently developing a full-field digital mammography system. The Company's
Mammotest stereotactic core needle biopsy system pioneered the development of
the market for stereotactic core needle biopsy, a cost-effective, less-invasive
alternative to surgical biopsy which has been rapidly adopted over the past
several years. Although the prone stereotactic core needle biopsy market
comprises only a portion of the total breast biopsy market, the Company believes
its installed base of approximately 500 Mammotest systems represents the
majority of prone stereotactic core needle biopsy systems sold to date. In
addition, the Company's SENOSCAN digital mammography system under development
may represent a significant technological advance in the imaging of breast
tissue, especially in younger women. Current film screen mammography technology
is limited in its ability to image the dense breast tissue of younger women.

The Company is also focused on imaging systems intended for the
electrophysiology ("EP") and endovascular procedure markets. EP procedures
generally attempt to diagnose and treat cardiac arrhythmia (irregular
heartbeat), such as ventricular tachycardia (very rapid heartbeat), and are
increasingly performed in dedicated EP laboratories requiring specialized x-ray
imaging equipment. The Company offers a full range of specialty EP imaging
systems, stimulators and recorders for use in the growing number of diagnostic
EP study procedures and EP device implantations. The Company's EP/X and EP/X2
imaging systems offer specially designed features for the electrophysiologist at
cost-effective prices. The Company's 2000 Series specialized endovascular
imaging systems are targeted for use by the vascular surgeon in conjunction with
the growing number of image-guided, less-invasive procedures performed in the
operating room, including carotid and peripheral artery stenting and
laparoscopic cholecystectomy. In addition, the 2000 Series may be used in
connection with abdominal aortic aneurysm ("AAA") stent grafting, when and if
this procedure is approved by the FDA.

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<PAGE> 5

Key elements of the Company's growth strategy include:

- Respond rapidly to clinical innovations. By maintaining close
relationships with leading physicians who develop new clinical
techniques, the Company intends to maintain a leading position in the
development of innovative imaging products that enable cost-effective,
minimally-invasive procedures.

- Focus on the breast cancer market. The Company has pioneered stereotactic
core needle breast biopsy products and is focused on developing and
selling products for use in breast cancer screening, diagnosis and
treatment. In addition, the Company is leveraging its leading
technological position in this market to develop new breast imaging and
biopsy products using full-field digital, ultrasound and magnetic
resonance imaging technology.

- Develop proprietary products for image-guided, minimally-invasive
procedures. The Company believes that the acceptance of
minimally-invasive procedures will result in a greater need for
innovative imaging systems. The Company intends to continue to offer
proprietary products serving emerging medical specialties focused on
breast cancer, EP and endovascular procedures.

- Leverage OEM relationships. The Company intends to maintain strong OEM
relationships with leading medical equipment manufacturers. These
relationships provide the Company with opportunities to share in the
development and use of new technologies, to receive third party funding
for new product development, to increase manufacturing volumes for
components and subsystems used in other products and, in most cases, to
maintain an ownership interest in product design.

- Expand international sales and strengthen domestic sales channels. The
Company intends to continue to expand its international sales through its
offices in Europe and Australia and recently China. In addition, the
Company intends to strengthen its domestic sales channels by emphasizing
cooperative efforts between its dealer network and direct sales force.

The Company currently markets its products domestically through its direct
sales force and certain dealers. The Company currently has approximately 30
direct sales people whose territories primarily cover large metropolitan areas
and approximately 30 independent dealers which cover the remainder of the United
States. The Company's products are sold internationally through 10 direct sales
people and 50 independent dealers. The Company is expanding its international
sales efforts to serve medical markets outside the United States since many of
these countries are improving their healthcare infrastructures.

The Company was incorporated in the state of Minnesota in 1973 and was
reincorporated in Delaware in 1991. As used in this Prospectus, the term
"Company" refers to Fischer Imaging Corporation, a Delaware corporation, and its
subsidiaries, and to its predecessor, a Minnesota corporation. The Company's
principal offices are located at 12300 North Grant Street, Denver, Colorado,
80241 and its telephone number is (303) 452-6800.

4
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 1,200,000 shares
Common Stock offered by the Selling
Stockholders................................... 150,000 shares
Total Common Stock offered..................... 1,350,000 shares
Common Stock to be outstanding after the
Offering....................................... 8,223,143 shares(1)
Use of proceeds.................................. To repay certain indebtedness and for
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.................... FIMG
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary consolidated financial data of the
Company and should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto and other financial information included
therein.

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $25,168 $41,033
Total assets............................................................................. 56,897 67,688
Total debt............................................................................... 5,870 796
Total stockholders' investment........................................................... 35,608 51,473
</TABLE>

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(1) Includes 1,333,333 shares of Series D Convertible Preferred Stock which may
be converted into an equal number of shares of Common Stock. Excludes
914,100 shares of Common Stock issuable upon exercise of stock options
outstanding as of May 31, 1996 at a weighted average exercise price of $8.47
per share.

(2) Includes restructuring provisions of $0.8 million and $2.4 million in 1993
and 1994, respectively, relating to the relocation of a product line, the
realignment of service operations, and the restructuring of the Company's
product lines and operations to focus on its core business. In 1994, the
Company also recorded $1.9 million of non-restructuring charges, including
inventory write-downs and increases in reserves.

(3) The Series A Preferred Stock was redeemed in September 1991 following the
Company's initial public offering.

(4) See Note 2 of Notes to Consolidated Financial Statements.

(5) Adjusted to reflect the sale of the 1,200,000 shares of Common Stock offered
by the Company hereby at an assumed offering price of $14.375 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

5
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RISK FACTORS

An investment in the Common Stock offered hereby involves certain risks. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before making an
investment.

RISK OF LOSSES

The Company, although profitable in 1995, experienced a net loss of $5.6
million in 1994 and had breakeven results in 1993. The loss in 1994 reflected a
$2.4 million restructuring provision and $1.9 million of non-restructuring
charges, including inventory write-downs and increases in reserves. The
Company's 1993 operating results were unfavorably impacted by a $0.8 million
restructuring provision. Future profitability will depend on many factors,
including demand for the Company's products and the Company's ability to
maintain or increase gross margins, control or reduce manufacturing and other
costs, avoid the need for future restructuring charges, implement its marketing
and sales strategies in the United States and internationally, maintain orders
under OEM agreements, renew OEM agreements on favorable terms, and develop and
introduce new products that successfully compete. There can be no assurance that
the Company will be profitable in future periods. See "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

RISKS OF FLUCTUATIONS IN FINANCIAL RESULTS

The Company has experienced, and is likely to continue to experience,
significant quarterly and annual fluctuations in net revenues, operating results
and net income, depending on such factors as the timing of large system
shipments to customers, the timing of orders under OEM contracts and related
manufacturing and shipment scheduling, new product introductions and new
marketing programs by the Company and its competitors, delays in contract
development projects, the effect of economic conditions on the Company's
markets, the effects of managed healthcare on capital expenditures and
reimbursement, increases in marketing and research costs in relation to sales,
regulatory clearance of new products, seasonal purchasing patterns of hospitals
and the timing of purchasing decisions by customers. Additionally, because the
timing of the occurrence of such factors is difficult to anticipate and many of
the Company's costs are fixed, the Company may not be able to sufficiently
reduce its costs in periods when its revenues are less than anticipated and it
may suffer unexpected losses or lower income in these periods. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RISKS OF TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The market for the Company's products is characterized by rapid and
significant changes in competitive technologies, evolving medical industry
standards and the frequent introduction of new products. Competing core needle
biopsy systems and other products competitive with the Company's products have
recently been introduced which could adversely affect the Company's sales,
profitability and market share. For example, a major surgical supply company is
aggressively marketing a large diameter core needle biopsy device with a
competitor's breast biopsy table. Alternative surgical procedures or
technologies or new medications may also be developed and marketed. For example,
new products based on new technologies could replace or reduce the importance of
current procedures that utilize the Company's products and render these products
uncompetitive. Accordingly, the Company's success will depend in part on its
ability to respond quickly to new product introductions, marketing campaigns and
medical and technological changes through the development of new products. There
can be no assurance that the Company will be able to develop new products in the
future on a timely or cost-effective basis, if at all, or that the Company's
current products will not be rendered obsolete or noncompetitive. See
"Business -- Research and Development."

RISKS OF NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE

6
<PAGE> 8

mography system known as SENOSCAN which is in prototype form and has not yet
undergone clinical trials or received clearance or approval from the U.S. Food
and Drug Administration ("FDA"). In addition, significant efforts are being
expended on EP systems, advanced image processing and high frequency generator
design. These products involve technological innovation and require significant
planning, design, development and testing at the technological, product and
manufacturing process levels. These activities require significant investments
in research and development, equipment, inventory, manufacturing and marketing
by the Company. Lengthy and expensive clinical trials could also be required
prior to submission to the FDA and FDA clearance or approval. There can be no
assurance that the Company will be able to successfully design, manufacture and
market these new products or that the new products will receive FDA clearance or
approval. In addition, the Company's newest products may be used with
minimally-invasive surgical procedures and the Company believes that it must
demonstrate to physicians and managed healthcare organizations the clinical
benefits, safety, efficacy and cost-effectiveness of its products for such
procedures. In particular, the Company must demonstrate that its products are an
attractive alternative to other products and methods that may be widely
accepted. There can be no assurance that surgeons will embrace such techniques
as replacements for open surgical procedures or that hospitals will be willing
to invest in and utilize the Company's products. Lack of widespread acceptance
of these products could have a material adverse effect on the Company's future
revenues and earnings. See "Business -- Research and Development."

DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS

The Company seeks to protect its proprietary rights through a combination
of technical experience, patent, trade secret and trademark protection and
nondisclosure agreements. The Company's future success will depend in part on
its ability to obtain and enforce patent protection for its products and
processes, to preserve its trade secrets and to operate without infringing on
the patent or proprietary rights of others.

While the Company has numerous U.S. and foreign issued patents and pending
patent applications covering various aspects of its products, there can be no
assurance that the Company's patents, and any patents that may be issued in the
future, will provide the Company with significant competitive advantages or
protection of its intellectual property. No assurance can be given that any
patents owned or applied for by the Company will not be challenged, invalidated
or circumvented. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights in its products to the same extent as do the laws
of the United States. Attempts to enforce the Company's patents likely would be
time consuming and costly. In addition, since many other companies hold patents
in fields in which the Company operates, the Company could be found to have
infringed third-party patents and could be required to alter its products or
processes, pay licensing fees, which may not be available to the Company on
commercially reasonable terms, if at all, or cease manufacturing and selling any
infringing products and pay damages for past infringement.

In addition, the Company relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through appropriate confidentiality and
proprietary information agreements. There can be no assurance that proprietary
information or confidentiality agreements with employees, consultants and others
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by competitors.

In April 1992, the Company filed a patent infringement lawsuit against
Lorad ("Lorad"), a division of Trex Medical Corporation ("Trex Medical"), an
indirect, majority-owned subsidiary of Thermo Electron Corporation, in the
United States District Court for the District of Colorado alleging that Lorad
had infringed a Company patent covering its Mammotest stereotactic breast biopsy
system. The action seeks to enjoin Lorad and its agents from the manufacture,
use and sale of their allegedly infringing stereotactic breast biopsy system.
The Company is also seeking treble damages and attorneys' fees. The Company
intends to seek an early trial date for this litigation, although it appears
that the suit may not come to trial until 1997. The Company has incurred and
will continue to incur substantial costs in connection with the Lorad
litigation, and could incur substantial costs in other suits in which the
Company may assert its patent rights against others or in defending itself
against suits brought by others.

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<PAGE> 9

The Company has received notice from the holder of a U.S. patent alleging
infringement by certain of the Company's products and offering the Company a
license to use the patent on terms that are not acceptable to the Company.
Although the Company has not concluded its review of the patent, the Company
believes that only one former product and one current product could potentially
be implicated by the patent. Based on the foregoing, the Company believes that,
if required to take a license to the patent, any license fees payable would not
have a material adverse effect on the Company's financial position. However,
there can be no assurances that the Company's other products could not
potentially be implicated by this patent or that this matter will not otherwise
have a material adverse effect on the Company. See "Business -- Patents and
Proprietary Rights."

COMPETITION

The Company encounters and expects to continue to encounter intense
competition in the sale of its products. The Company believes that the principal
competitive factors affecting the market for its products include the clinical
aspects of the products, product features, product performance and quality,
upgrade flexibility, price and customer service. The Company's competitors
include large multinational corporations and their operating units, including GE
Medical Systems, a division of General Electric Company, Siemens AG ("Siemens"),
Hitachi Medical Corporation ("Hitachi"), Toshiba America Medical Systems, Inc.
("Toshiba"), Shimadzu Precision Systems, Inc. -- Medical Systems Division
("Shimadzu") and Picker International, Inc. ("Picker"), as well as a number of
other companies such as Trex Medical. These companies typically have larger
installed customer bases and far greater financial, management, manufacturing,
sales and marketing and other resources than the Company. As a result, they may
be able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
manufacture, promotion and sale of their products than the Company. Moreover, a
significant portion of the Company's sales are to medical equipment companies
who integrate the Company's products into their own systems or resell these
products under their own label. There can be no assurance that such companies
will not choose to purchase from alternative sources or internally manufacture
competing products. In some cases, products sold by these companies compete with
products offered by the Company and its independent dealers. The Company also
faces competition from vendors selling used x-ray imaging equipment,
particularly general radiology systems, at prices substantially below the prices
of the Company's products. In addition, competition could increase if new
companies enter the market or if existing competitors expand their product lines
or intensify efforts within existing product lines. For example, a competitor
recently announced the commercial introduction of an ultrasound-based breast
imaging system which it claims will reduce the number of breast biopsies
performed. There can be no assurance that the Company's current products or
products under development will be sufficient to enable it to compete
effectively. In addition, the Company competes for acquisition opportunities,
OEM and service contracts and experienced personnel. See
"Business -- Competition."

DEPENDENCE ON SIGNIFICANT OEM CUSTOMERS

In 1995, sales under OEM contracts constituted approximately 40% of the
Company's total revenues. GE Medical Systems, the holder of a 19% interest in
the Company, was the Company's largest OEM customer in 1995, accounting for
approximately 10.3% of its total revenues. Sales to the Company's four largest
customers, which are all OEM customers, accounted for approximately 34% of the
Company's 1995 total revenues. Many of these OEM customers are also competitors
of the Company and have larger installed customer bases and far greater
financial, management, manufacturing, sales and marketing and other resources
than the Company. The business strategies and manufacturing practices of the
Company's OEM customers are subject to change and such changes may result in
decisions by these customers to seek other sources for products currently
manufactured by the Company or to manufacture these products internally.
Additionally, these OEM customers have increasingly sought to obtain price
concessions from the Company or the pass through of cost savings achieved by the
Company in the form of lower prices. The Company's OEM contracts are usually
non-exclusive. OEM customers generally may modify, limit or terminate the
contract or purchase orders under the contract on short notice with modest or no
penalties. OEM customer orders may be influenced by factors relating to the OEM
customer's business such as sales of the product, changes in product or
marketing strategy, changes in components of the end product manufactured by
others and development of

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<PAGE> 10

new products. Additionally, the timing of product orders under these OEM
contracts has fluctuated and is likely to continue to fluctuate on a quarterly
or annual basis. Under these OEM contracts, the Company is required to design,
develop and manufacture its products to meet the specifications of the OEM
customers and from time to time the Company may be required to correct
deficiencies identified in these products. These agreements involve complex
products and changing product specifications and requirements that may lead to
the renegotiation of these agreements from time to time. These negotiations may
result in disagreements which could adversely affect relationships with OEM
customers. Moreover, the Company's OEM contracts do expire and revenues under
OEM contracts may decline significantly. The Company may not be able to replace
revenues lost in such situations. There can be no assurance that the Company
will be able to maintain its existing, or establish new, OEM relationships and
the loss of any of its OEM relationships could have a material adverse effect on
the Company's business and profitability. See "Business -- OEM Agreements and
- -- Relationship with GE Medical Systems."

MANUFACTURING AND OPERATING RISKS

The Company develops and manufactures innovative and sophisticated products
for minimally-invasive breast cancer, EP, endovascular and interventional
markets as well as a broad line of products for the general radiology market.
The scope of the product lines offered and the need for product customization
requires a number of separate manufacturing processes and components and
significant management and engineering time and expertise. Additionally, as the
Company develops new products it will be required to refine the prototypes of
these products and develop new processes to manufacture these products in
commercial quantities. The Company has encountered and may continue to encounter
difficulties involving inventory supply, length of production cycles and
shortages of manufacturing personnel. Due to the shifting demand for the
Company's products and the high fixed costs associated with manufacturing these
products, the Company may encounter difficulty managing its operating costs.
There can be no assurance that the Company will be able to reliably or
efficiently manufacture its existing or new products at commercially reasonable
costs on a timely basis, if at all. Failure to effectively manage the
development and manufacture of its products could adversely effect the Company's
business and results of operations. See "Business -- Manufacturing."

DEPENDENCE ON KEY SUPPLIERS

Many of the components used by the Company in existing products and
products under development are purchased from single sources. An interruption in
the delivery of these or other supplies would require the Company to identify
and qualify alternative components or vendors. There can be no assurance that
the Company would be able to obtain components from alternate sources on a
timely basis and on a commercially reasonable basis, if at all, and that the
Company would not suffer a material adverse effect as a result. See
"Business -- Manufacturing."

GOVERNMENT REGULATION OF MANUFACTURING AND PRODUCTS; RISKS OF NONCOMPLIANCE WITH
FDA REGULATIONS

The Company's business is subject to substantial regulation by the FDA and
equivalent agencies in foreign countries. Failure to comply with applicable
regulatory requirements can result in, among other things, civil and criminal
fines, orders to repair or replace devices or to refund the device purchase
price, suspensions and withdrawals of approvals, product recalls, detentions or
seizures, injunctions and criminal prosecutions.

FDA regulations require manufacturers of medical devices to adhere to
certain "Good Manufacturing Practices" ("GMP"), which include testing, quality
control and documentation and other procedures. The Company's manufacturing
facilities are subject to periodic inspection by the FDA. In March 1995, the
Company was issued a warning letter by the FDA concerning documentation and
other deficiencies at its Denver facility. The Company rectified these
deficiencies and resolved this matter with the FDA in June 1995. In September
1995, the Company received a warning letter from the FDA with respect to
documentation and other deficiencies at its Chicago facility. The Company
believes it has corrected the deficiencies discussed in that letter and is
seeking third-party certification of its corrections. There can be no assurances
that these deficiencies have been corrected or that the Company will be able to
comply with the FDA's regulations in the

9
<PAGE> 11

future. Noncompliance could result in an FDA enforcement action and could have a
material adverse effect on the Company. See "Business -- Government Regulation."

The FDA has post-marketing controls that include the requirement to file
medical device reports ("MDRs") when the Company becomes aware of information
suggesting that one of its marketed products may have caused or contributed to a
death, serious injury or serious illness. An MDR also is required when the
Company becomes aware that one of its products has malfunctioned and that a
recurrence of that malfunction could cause or contribute to a death, serious
injury or serious illness. The Company must utilize field performance
information, which includes any MDR reportable events, in its quality control
system to make any changes necessary to reduce or eliminate similar events in
the future. The FDA utilizes MDRs to determine whether it should exercise its
enforcement powers, such as mandatory product recalls, temporary suspensions of
approvals, or withdrawal of 510(k) marketing clearances or PMA approvals. Either
a failure to comply with the MDR requirements, or the filing of MDR reports that
indicate unexpected product hazards, could have a material adverse effect on the
Company.

The Company is also regulated by the FDA under the Radiation Control for
Health and Safety Act of 1968 which specifically addresses radiation emitting
products. Under this law, the Company must submit initial reports on any new
x-ray systems requiring certification that they meet FDA performance standards.
In addition, the Company must submit installation reports to the FDA certifying
compliance with installation instructions of the manufacturer. Under certain
circumstances, the Company also is required to submit product defect reports
("PDRs") concerning its radiation emitting products to the FDA and, sometimes,
to the first purchasers of the products. PDRs describe any safety related
product defects or the failure of a product to conform to an applicable standard
of which the Company has become aware. Additionally, the Company is required to
submit accidental radiation occurrence ("ARO") reports to the FDA whenever one
of its products accidentally releases radiation that results in an injurious or
potentially injurious exposure to any person. However, the Company need not file
both an MDR and an ARO report on the same incident. A failure to comply with
these regulations could have a material adverse effect on the Company.
Furthermore, discovery of unexpected product hazards or failures to meet
required standards through the reporting system could also have a material
adverse effect on the Company.

Sales of medical devices outside of the United States are subject to FDA
export and international regulatory requirements that vary from country to
country. The time required to obtain approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. There can be no assurance that the Company will obtain
regulatory approvals in such countries or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
The Company has recently obtained the certifications necessary to permit the
"CE" mark to be affixed to its products currently being sold in Europe. The CE
mark is an international symbol of quality which will become required for sales
into the member countries of the European Union beginning in mid-1998. While the
Company has obtained approval to sell into the European Union, there can be no
assurance that the Company will be able to obtain other international regulatory
approvals. Failure to obtain necessary regulatory approvals, the restriction,
suspension or revocation of existing approvals, or any failure to comply with
regulatory requirements outside the United States could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, significant costs and delays may be encountered. See
"Business -- Government Regulation."

GOVERNMENTAL REGULATION; NO ASSURANCE OF REGULATORY APPROVAL OF NEW PRODUCTS

10
<PAGE> 12

FDA during 1996. If the FDA indicates that a PMA is required for any of the
Company's new products, the application will require extensive clinical studies,
manufacturing information and most likely a review by a panel of experts outside
the FDA. Clinical studies would need to be conducted in accordance with FDA
requirements. Failure to comply with FDA requirements could result in the FDA's
refusal to accept the data or the imposition of regulatory sanctions. FDA review
of a PMA application can take significantly longer than that for a 510(k)
premarket notification and could take several years to complete. There can be no
assurance that the necessary clearances or approvals for any of the Company's
new products, including SENOSCAN, will be obtained on a timely basis, if at all.
Failure to obtain necessary regulatory approvals, the restriction, suspension or
revocation of existing approvals, if obtained, or any failure to comply with
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.

HEALTHCARE REFORM; UNCERTAINTY OF PATIENT REIMBURSEMENT

The Federal government and state, local and foreign governments have
considered or adopted and may in the future consider or adopt healthcare
policies intended to curb rising healthcare costs. Such policies include
rationing of government-funded reimbursement for healthcare services and
imposing price controls upon providers of medical products and services. In the
past, healthcare reform has adversely affected the Company by limiting hospital
budgets for the purchase of medical equipment including the Company's products.
Consolidation in the healthcare industry has reduced the number of hospitals in
the United States and, in some cases, reduced the demand for medical imaging
equipment. In addition, healthcare cost containment pressures have lead to the
formation of purchasing and shared facility arrangements among hospital chains
and large medical equipment manufacturers, thereby reducing the demand for
medical equipment and increasing centralization of decision-making regarding
equipment purchases. The Company cannot predict what healthcare reform
legislation or regulation, if any, will be enacted in the United States or
elsewhere. Significant changes in healthcare reimbursement systems in the United
States or elsewhere could have a material adverse effect on the Company.

The Federal government also regulates the reimbursement of fees related to
certain diagnostic procedures or medical conditions and capital equipment
acquisition costs connected with services to Medicare beneficiaries. Recent
legislation has limited Medicare reimbursement of these fees, which may have the
effect of limiting the availability of reimbursement for procedures or
conditions, and as a result may inhibit or reduce demand by healthcare providers
for the Company's products. Additionally, hospitals may continue to face other
capital constraints which prevent them from investing in such equipment. In
addition, widespread use of procedures utilizing the Company's SENOSCAN digital
or breast magnetic resonance imaging mammography systems, which are currently
under development, would likely require reimbursement in excess of those
currently permitted under Medicare guidelines. As a result, the demand for these
systems may be limited. While the Company cannot predict what effect the polices
of government entities and other third party payors will have on future sales of
the Company's products, there can be no assurance that such policies would not
have a material adverse impact on the business of the Company.

RISK OF MARKET WITHDRAWAL OR PRODUCT RECALL

Complex medical devices, such as the Company's products, can experience
performance problems in the field that require review and possible corrective
action by the manufacturer. The Company periodically receives reports from users
of its products relating to performance difficulties they have encountered.
These or future product problems could result in market withdrawals or recalls
of products, which could have a material adverse affect on the Company's
business, financial condition and results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

Revenues from customers based outside the United States accounted for 17.8%
and 23.7% of the Company's total revenues in fiscal 1994 and 1995, respectively.
These revenues included sales to foreign OEM customers which accounted for 9.9%
and 13.0% of the Company's 1994 and 1995 total revenues, respectively. The
Company anticipates that its international business will continue to grow in
importance over the next

11
<PAGE> 13

several years. In addition, the Company has OEM contracts with several foreign
and multinational companies that distribute the Company's products
internationally and within the United States. Establishing and expanding
international sales can be expensive, managing and overseeing foreign operations
may be difficult, and products may not receive market acceptance. Risks of doing
business outside the U.S. include the following: agreements may be difficult to
enforce and receivables difficult to collect through a foreign country's legal
system; foreign customers may have longer payment cycles; foreign countries may
impose additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs or adopt other restrictions on foreign trade; U.S. export
licenses may be difficult to obtain; and the protection of intellectual property
in foreign countries may be more difficult to enforce. There can be no assurance
that the Company's international business will grow or that any of the foregoing
risks will not result in a material adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

The Company's future performance is partially dependent on the services of
Morgan W. Nields, the Company's Chairman, Chief Executive Officer and largest
common stockholder. The Company has no employment agreement with Mr. Nields. The
Company carries $5 million of key man life insurance on Mr. Nields. In addition,
the continued success of the Company will depend heavily on its ability to
attract and retain highly qualified engineering, management, manufacturing,
marketing and sales personnel. There can be no assurance that the Company will
be able to continue to attract and retain such people. Failure to hire and
retain such personnel could have a material adverse effect the Company.

POTENTIAL PRODUCT LIABILITY

The Company's business exposes it to potential product liability claims
which are inherent in the manufacture and sale of medical devices, and as such
the Company may face substantial liability to patients for damages resulting
from the faulty design or manufacture of products. The Company has been a
defendant from time to time in product liability actions. The Company maintains
product liability insurance with coverage limits of $5 million per occurrence
and per year in the aggregate. There can be no assurance that product liability
claims will not exceed coverage limits or that such insurance will continue to
be available at commercially reasonable rates, if at all. Consequently, a
product liability claim or other claim in excess of insured liabilities or with
respect to uninsured liabilities could have a material adverse effect on the
business and financial condition of the Company.

CONTROL BY MANAGEMENT AND CERTAIN STOCKHOLDERS

Upon completion of this Offering, the Company's officers and directors will
beneficially own, in the aggregate, 1,762,715 shares, or 25.1% of the Company's
Common Stock. As a result, the officers and directors will be able to exercise
significant influence on the election of the Company's Board of Directors and
thereby direct the policies of the Company.

Additionally, GE Medical Systems owns 1,333,333 shares of the Company's
Series D Convertible Preferred Stock (the "Convertible Preferred Stock") that is
convertible at any time, at the option of the holder, into an equivalent number
of shares of Common Stock. Although the Convertible Preferred Stock is
non-voting, except as required by law, if GE Medical Systems were to convert the
Convertible Preferred Stock into Common Stock, it would own 16.2% of the
Company's outstanding common stock after the Offering. GE Medical Systems would
therefore be able to significantly influence the policies of the Company. See
"Business -- Relationship with GE Medical Systems."

PRICE VOLATILITY OF COMMON STOCK

The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time in recent years that have often been
unrelated or

12
<PAGE> 14

disproportionate to the operating performance of particular companies. These
broad fluctuations may adversely affect the market price of the Common Stock.
See "Price Range of Common Stock."

NO DIVIDENDS ON COMMON STOCK

For the foreseeable future, the Company anticipates that all earnings, if
any, will be retained for the operation and expansion of its business and that
it will not pay cash dividends. See "Dividend Policy."

CERTAIN ANTI-TAKEOVER EFFECTS

The Company's Certificate of Incorporation and Bylaws include provisions
that may be deemed to have anti-takeover effects and may delay, defer or prevent
a takeover attempt that stockholders might consider in their best interests.
These provisions include the ability of the Board of Directors to issue shares
of preferred stock in one or more series with such rights, obligations and
preferences as the Board of Directors may provide, a "fair price" provision, a
provision that requires stockholder action to be taken at meetings and not by
written consent, a provision under which only the Board of Directors may call
meetings of stockholders, certain advance notice procedures for nominating
candidates for election to the Board of Directors and staggered terms for its
Board of Directors. See "Description of Capital Stock -- Certain Anti-Takeover
Provisions."

In December 1994, the Company's Board of Directors adopted a stockholder
rights plan and, pursuant thereto, issued preferred stock purchase rights
("Rights") to the holders of its common stock. The Rights have certain
anti-takeover effects. If triggered, the Rights would cause substantial dilution
to a person or group of persons (other than certain exempt persons, including
Morgan W. Nields, one of the Company's founders and its Chairman of the Board
and Chief Executive Officer, Kinney L. Johnson, one of the Company's founders
and a director, and GE Medical Systems) who acquires more than 15% of the Common
Stock on terms not approved by the Board of Directors. See "Description of
Capital Stock -- Stockholder Rights Plan; Series C Junior Participating
Preferred Stock." Additionally, in connection with the Company's sale of
Convertible Preferred Stock to GE Medical Systems in June 1995, GE Medical
Systems has the right to convert the Convertible Preferred Stock for 1,333,333
shares of Common Stock, or 16.2% of the Company's outstanding Common Stock
following this Offering. In connection with this transaction, GE Medical Systems
also received certain contingent rights, including rights to use a manufacturing
license for the Company's Tilt-C technology, in return for the cancellation of
the Convertible Preferred Stock in the event of a change of control of the
Company or certain other events. The Rights and the Company's agreements with GE
Medical Systems could discourage or make more difficult a tender offer,
acquisition, merger or other similar transaction, even if favorable to the
Company's stockholders. See "Business -- Relationship with GE Medical Systems."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock after this
Offering, or the perception that such sales could occur, could have a material
adverse effect on the market price of the Company's Common Stock and could
impair its ability to raise capital through the sale of equity securities. The
Company will have approximately 6,890,000 shares of Common Stock outstanding
immediately following the Offering. As of May 31, 1996, there were 914,100
shares reserved for issuance upon exercise of outstanding stock options, 167,350
of which were then exercisable. Additionally, 1,333,333 shares of the Company's
Convertible Preferred Stock, which are convertible at any time into an
equivalent number of shares of Common Stock, are outstanding. GE Medical
Systems, the holder of the Convertible Preferred Stock, has certain demand
registration rights with respect to this stock beginning December 20, 1996, as
well as certain piggyback registration rights. See "Business -- Relationship
with GE Medical Systems."

Future sales of shares of Common Stock under Rule 144 of the Securities Act
by existing stockholders of Common Stock (through the exercise of registration
rights or otherwise) or through the issuance of shares of Common Stock upon the
exercise of options or otherwise could have an adverse effect on the price of
the Common Stock. Pursuant to agreements among the Underwriters and all of the
Company's present officers, directors and certain stockholders, 1,762,715 shares
of Common Stock will be eligible for sale on the expiration of lock-up
agreements 90 days after the date of this Offering, subject to the volume and
other limitations set forth in Rule 144. See "Shares Eligible for Future Sale."

13
<PAGE> 15

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock being offered hereby (at an assumed offering price of $14.375 per share),
after deducting the underwriting discount and estimated expenses of this
Offering payable by the Company, are estimated to be approximately $15.9 million
($18.6 million if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any of the proceeds from the sale of Common Stock
by the Selling Stockholders. See "Principal and Selling Stockholders."

The Company intends to use the net proceeds of this Offering for the
following purposes: (i) to repay indebtedness under the Company's bank line of
credit ($4.0 million as of March 31, 1996), which bears interest at a floating
rate of prime plus 1% (9.25% as of March 31, 1996) and matures on February 1,
1997 and (ii) to repay up to $1.1 million of other indebtedness which bears
interest at a weighted average interest rate of 6.6% and matures at various
times in 1996. The remaining proceeds will be used for general corporate
purposes, including working capital. Although the Company is not currently
engaged in any negotiations or discussions with third parties regarding the
acquisition of any other business, a portion of the proceeds may be used for
acquisitions. Pending such uses, the Company intends to invest the net proceeds
from the Offering in investment-grade, short-term, interest-bearing securities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq National Market under the symbol
"FIMG." The table below sets forth, for each of the periods indicated, the high
and low closing sale prices per share of the Common Stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter.................................................... $ 7.50 $ 5.50
Second Quarter................................................... 6.25 3.75
Third Quarter.................................................... 5.00 3.00
Fourth Quarter................................................... 6.88 4.25
1995
First Quarter.................................................... $ 5.75 $ 3.63
Second Quarter................................................... 6.63 4.00
Third Quarter.................................................... 9.13 4.00
Fourth Quarter................................................... 11.25 8.25
1996
First Quarter.................................................... $14.75 $10.25
Second Quarter (through June 12, 1996)........................... 15.00 12.38
</TABLE>

For a recent closing sale price for the Common Stock, see the cover page of
this Prospectus. As of June 25, 1996, the Company had 210 common stockholders of
record.

DIVIDEND POLICY

Since becoming a public company in 1991, the Company has not declared or
paid any cash dividends on its Common Stock. If the Company does pay any
dividends on its Common Stock in the future, it will be required to pay
equivalent dividends on its Convertible Preferred Stock. The Company currently
intends to retain future earnings for use in the operation and expansion of its
business and therefore does not anticipate paying cash dividends in the
foreseeable future.

14
<PAGE> 16

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1996 and as adjusted to give effect to the sale of
the 1,200,000 shares of Common Stock offered hereby at an assumed offering price
of $14.375 per share, and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................ $ 5,689 $ 615
======= =======
Long-term debt......................................................... 181 181
------- -------
Stockholders' investment:
Common Stock ($.01 par value) 25,000,000 shares authorized; 5,682,410
shares issued and outstanding; 6,882,410 issued and outstanding as
adjusted(1)....................................................... 57 69
Series C Junior Participating Preferred Stock ($.01 par value)
500,000 shares authorized, no shares outstanding actual or as
adjusted.......................................................... -- --
Series D Convertible Preferred Stock ($.01 par value) 1,333,333
shares authorized, issued and outstanding actual and as adjusted;
liquidation preference of $10,000,000............................. 13 13
Additional paid-in capital........................................... 35,600 51,453
Accumulated earnings................................................. 46 46
Cumulative translation adjustment.................................... (108) (108)
------- -------
Total stockholders' investment............................... 35,608 51,473
------- -------
Total capitalization......................................... $35,789 $51,654
======= =======
</TABLE>

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

(1) Excludes 921,500 shares of Common Stock issuable upon exercise of stock
options outstanding at a weighted average exercise price of $8.46 per share.

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth certain selected consolidated financial data
and is qualified by the detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The consolidated balance sheet
data as of December 31, 1994 and 1995, and the consolidated statement of
operations data for each of the three years in the period ended December 31,
1995 are derived from the Company's Consolidated Financial Statements, which
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report included elsewhere herein. The consolidated balance
sheet data as of December 31, 1991, 1992 and 1993 and the consolidated statement
of operations data for each of the two years in the period ended December 31,
1992 are derived from the Company's Consolidated Financial Statements, which
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports, which statements are not included herein.

The selected consolidated financial data presented below as of and for the
three-month periods ended April 2, 1995 and March 31, 1996 are derived from the
unaudited consolidated financial statements of the Company included in this
Prospectus. In the opinion of management, the unaudited consolidated financial
statements reflect all normal recurring adjustments necessary to present fairly
the financial data for the unaudited periods described above. The results of
operations for the Company for the three-month period ended March 31, 1996 are
not necessarily indicative of the results of operations that may be expected for
the entire fiscal year ending December 31, 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ---------------------
--------------------------------------------------- APRIL 2, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $57,560 $67,082 $73,332 $68,473 $76,750 $16,625 $20,073
Cost of sales.................................. 35,235 41,098 43,741 44,526 46,905 10,695 11,588
------- ------- ------- ------- ------- ------- -------
Gross profit................................. 22,325 25,984 29,591 23,947 29,845 5,930 8,485
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development..................... 5,918 4,360 6,176 5,595 6,690 1,665 1,464
Selling, marketing and service............... 9,482 14,283 16,641 15,573 15,461 3,299 4,358
General and administrative................... 2,716 3,885 5,321 4,697 4,800 1,141 1,131
Restructuring provisions..................... -- -- 796 2,419 -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses............... 18,116 22,528 28,934 28,284 26,951 6,105 6,953
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations.............. 4,209 3,456 657 (4,337) 2,894 (175) 1,532
Interest expense............................... (976) (416) (933) (1,247) (678) (255) (220)
Other income (expense), net.................... 271 62 77 (56) 61 (39) 111
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before income taxes............ 3,504 3,102 (199) (5,640) 2,277 (469) 1,423
Provision (benefit) for income taxes........... 400 878 (199) 0 0 0 350
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)............................ 3,104 2,224 0 (5,640) 2,277 (469) 1,073
Dividends and costs related to Series A
Preferred Stock.............................. 314 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings (loss) attributable to common and
common equivalent shares..................... $ 2,790 $ 2,224 $ 0 $(5,640) $ 2,277 $ (469) $ 1,073
======= ======= ======= ======= ======= ======= =======
Net earnings (loss) per common and common
equivalent share............................. $ .65 $ .40 $ .00 $ (1.02) $ .36 $ (.08) $ .15
======= ======= ======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding........................... 4,316 5,586 5,495 5,526 6,331 5,548 7,211
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................ $23,676 $22,645 $19,408 $12,057 $23,968 $12,263 $25,168
Total assets................................... 39,039 53,619 56,551 46,889 55,650 46,273 56,897
Total debt..................................... 2,793 9,476 11,582 9,441 4,722 9,063 5,870
Total stockholders' investment................. 24,169 26,711 27,033 21,643 33,584 21,519 35,608
</TABLE>

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
This Prospectus, including the information incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. These forward-looking
statements involve risks and uncertainties. The Company's actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."

OVERVIEW

The Company designs, manufactures and markets specialty and general purpose
medical imaging systems for the diagnosis and treatment of disease. The
Company's newest product lines are directed towards medical specialties in which
image-guided, minimally-invasive therapies are replacing open surgical
procedures. These products are used primarily in the diagnosis and treatment of
breast cancer, heart disease and vascular disease. The Company also designs and
manufactures specialty x-ray imaging components and subsystems for several
leading medical products companies as an OEM and sells general radiology systems
for use in hospitals, clinics and physicians' offices.

After several years of revenue growth, the Company's revenues declined in
1994 reflecting general x-ray equipment industry trends. In 1993 and 1994, the
Company recorded restructuring provisions of $0.8 million and $2.4 million,
respectively, and, in 1994, also recorded $1.9 million of non-restructuring
charges that included inventory writedowns and increases in reserves. In 1995,
the Company increased its revenues and regained profitability. The 1995 results
reflected better market conditions and increased OEM sales as well as the
Company's cost containment efforts. Future profitability will depend on many
factors, including demand for the Company's products and the ability of the
Company to maintain or increase gross margins, control manufacturing and other
costs, implement its marketing and sales strategies in the United States and
internationally, maintain orders under OEM agreements, renew OEM agreements on
favorable terms and develop and introduce new products that successfully
compete. See "Risk Factors -- Risk of Losses."

The Company has experienced and is likely to continue to experience
significant quarterly and annual fluctuations in net revenues, operating results
and net income, depending on such factors as the timing of large system
shipments to customers, the timing of orders under OEM contracts and related
manufacturing and shipment scheduling, new product introductions and new
marketing programs by the Company and its competitors, delays in contract
development projects, the effect of economic conditions on the Company's
markets, the effects of managed healthcare on capital expenditures and
reimbursement, increases in marketing and research costs in relation to sales,
regulatory clearance of new products, seasonal purchasing patterns of hospitals
and the timing of purchasing decisions by customers. Additionally, because the
timing of the occurrence of such factors is difficult to anticipate and many of
the Company's costs are fixed, the Company may not be able to sufficiently
reduce its costs in periods when its revenues are less than anticipated and may
suffer unexpected losses or lower income in these periods. See "-- Quarterly
Operating Data."

The Company is expanding its international sales and marketing efforts,
which can be expected to result in losses from its international operations
until its international revenues reach sufficient levels. Additionally, the
Company's exposure to the risks of international business, including foreign
currency risks, may increase as its international business grows. The Company
attempts to minimize these risks through measures including, but not limited to,
requiring payments in U.S. dollars and the use of dollar-denominated letters of
credit. There can be no assurance, however, that the Company will be successful
in its international sales efforts or in minimizing any associated risks. See
"Risk Factors -- Risks Associated with International Operations."

17
<PAGE> 19

RESULTS OF OPERATIONS

The following table sets forth the percentage of net revenues represented
by certain data included in the Company's statement of operations for the
periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
----- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 59.6 65.0 61.1 64.3 57.7
----- ----- ----- ----- -----
Gross profit.................................. 40.4 35.0 38.9 35.7 42.3
----- ----- ----- ----- -----
Operating expenses:
Research and development...................... 8.4 8.2 8.7 10.0 7.3
Selling, marketing and service................ 22.7 22.7 20.1 19.8 21.7
General and administrative.................... 7.3 6.9 6.3 6.9 5.6
Restructuring provisions...................... 1.1 3.5 -- -- --
----- ----- ----- ----- -----
Total operating expenses.............. 39.5 41.3 35.1 36.7 34.6
----- ----- ----- ----- -----
Earnings (loss) from operations............... 0.9 (6.3) 3.8 (1.1) 7.6
Interest expense................................ (1.3) (1.8) (0.9) (1.5) (1.1)
Other income (expense), net..................... 0.1 (0.1) 0.1 (0.2) 0.6
----- ----- ----- ----- -----
Earnings (loss) before income taxes............. (0.3) (8.2) 3.0 (2.8) 7.1
Provision (benefit) for income taxes............ (0.3) 0.0 0.0 0.0 1.7
----- ----- ----- ----- -----
Net earnings (loss)............................. 0.0% (8.2)% 3.0% (2.8)% 5.3%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED APRIL 2, 1995

Net Revenues. First quarter 1996 net revenues were $20,073,000, an increase
of 20.7% from first quarter 1995 revenues of $16,625,000. Revenue growth for the
first quarter of 1996 principally reflects expanded OEM revenues (primarily Tilt
C systems sold to GE Medical Systems), improved sales of mammography and general
radiography products, principally through the Company's direct sales channel,
and service revenue improvements. In the first quarter of 1996, the Company
experienced a decline in revenues from international direct and dealer channels
compared to the first quarter of 1995 due primarily to a large system sale that
occurred in the first quarter of 1995. The Company does not believe the reduced
international revenues in the first quarter of 1996 is indicative of
international revenues for the entire year.

Gross Profit. For the first quarter of 1996, gross profit expressed as a
percentage of net revenues was 42.3%, up from 35.7% for the first quarter of
1995, principally due to reductions in manufacturing costs as well as higher
absorption of manufacturing costs associated with increased volumes. Gross
margins also benefited from increases in high margin service revenues.

Research and Development Expenses. Research and development expenses for
the first quarter of 1996 and 1995 were $1,464,000 and $1,665,000 respectively,
a $201,000, or 12.1%, decrease. As a percentage of net revenues, research and
development expenses decreased to 7.3% for the first quarter of 1996 from 10.0%
for the first quarter of 1995. The decrease is primarily attributable to
engineering efforts temporarily assigned to product enhancement and other
production activities during the first quarter of 1996. The Company anticipates
that these engineering efforts will be refocused on research and development
activities during the second quarter of 1996.

Selling, Marketing and Service Expenses. Selling, marketing and service
expenses for the first quarter of 1996 and 1995 were $4,358,000 and $3,299,000,
respectively, or 21.7% and 19.8% of net revenues, respectively. The increase in
selling, marketing and service expense as a percentage of net revenues reflects
increases in sales through the direct sales channel, for which the Company
incurred commission expenses, as compared to the comparable three months of
1995.

18
<PAGE> 20

General and Administrative Expenses. General and administrative expenses
for the first quarter of 1996 were $1,131,000, or approximately the same as the
$1,141,000 for the first quarter of 1995. General and administrative expenses
declined as a percentage of net revenues from 6.9% to 5.6%, due primarily to an
increased level of net revenues.

Interest Expense. Interest expense for the first quarter of 1996 and 1995
was $220,000 and $255,000, respectively. The decrease from 1995 to 1996 is
principally due to reductions in the outstanding borrowings under the Company's
revolving line of credit and other borrowing arrangements.

Net Earnings (Loss). For the first quarter of 1996, the Company reported
net earnings of $1,073,000 compared with a net loss of $469,000 for the first
quarter of 1995. Earnings for the first quarter of 1996 were favorably impacted
by the results of ongoing cost reduction efforts and by increased OEM revenues
and sales of mammography products, principally through the direct sales channel,
as compared to the first quarter of 1995.

1995 COMPARED TO 1994

Net Revenues. Net revenues for 1995 increased 12.1% to $76.8 million from
$68.5 million. The revenue increase was primarily due to OEM sales increases,
principally Tilt-C systems sold to GE Medical Systems, as well as a 7% increase
in mammography systems revenues, sold through the Company's direct sales channel
and through dealers.

Gross Profit. Gross profit as a percentage of net revenues increased from
35.0% in 1994 to 38.9% in 1995. This increase was primarily due to improvements
in margins for OEM products, increases in high margin service revenue, and the
favorable effects of efforts to improve factory utilization and reduce
manufacturing costs.

Research and Development Expenses. Research and development expenses in
1995 were $6.7 million, as compared to $5.6 million in 1994. As a percentage of
net revenues, research and development expenditures increased from 8.2% in 1994
to 8.7% in 1995. The Company has maintained its commitment to research and
development as the key to its long-term success. The 1995 increase in
expenditures is primarily related to the development of digital imaging products
for mammography.

Selling, Marketing and Service Expenses. Selling, marketing and service
expenses for 1995 amounted to $15.5 million, approximately the same level as
1994. As a percentage of net revenues, selling, marketing and service was
reduced from 22.7% to 20.1%, primarily as a result of the increase in OEM sales
(which involve limited selling, advertising and service expenses) and the
Company's decision to utilize an improved and expanded dealer network for the
sale of its products, with the efforts of the Company's direct sales force
concentrated more efficiently in major markets. The result of this redirection
of sales effort was a reduction in commissions and other personnel-related
selling costs. Improvements in accounts receivable collection activities also
contributed to the decline in selling, marketing and service expense, as reserve
requirements for uncollectible accounts were reduced.

General and Administrative Expenses. General and administrative expenses
were $4.8 million in 1995 compared to $4.7 million in 1994, or 6.3% and 6.9% of
net revenues, respectively. The reduction in general and administrative expenses
as a percentage of net revenues was primarily due to a reduction in legal
expenses related to the Lorad patent infringement litigation in 1995 as compared
to 1994.

Restructuring and Other Charges. As more fully discussed in the following
section "1994 Compared to 1993", 1994 results included a $2.4 million charge
before tax for the estimated cost of implementing a restructuring plan to
refocus the business on its core competencies. The third quarter of 1994 also
included $1.9 million of non-restructuring expenses.

Interest Expense. Interest expense amounted to $0.7 million in 1995 and
$1.2 million in 1994. The 1995 decrease was primarily due to a decrease in
average amounts outstanding under the Company's line of credit and reductions in
the amount payable under the non-competition agreement entered into in
connection with the Company's purchase of Bloom Associates Ltd. in September
1992. The decrease in average amounts

19
<PAGE> 21

outstanding was due to the June 1995 equity investment by GE Medical Systems and
improved operating results. See "Liquidity and Capital Resources."

1994 COMPARED TO 1993

Net Revenues. Net revenues for 1994 declined 6.6% to $68.5 million from
$73.3 million. The revenue decline was primarily due to the reduction in sales
of general radiology systems that are sold primarily through the Company's
dealer channel. Sales of mammography systems, sold through the Company's direct
sales channel as well as through dealers, decreased approximately 14%. The
increase in OEM sales partially offset these shortfalls.

Gross Profit. Gross profit as a percentage of net revenues declined to
35.0% in 1994 from 40.4% in 1993. This decline was primarily due to increased
manufacturing variances, in large part caused by the decline in volume, as well
as a decline in average selling prices caused generally by the pricing
strategies of competitors.

Research and Development Expenses. Research and development expenses in
1994 were $5.6 million compared to $6.2 million in 1993. As a percentage of net
revenues, research and development expenses were 8.2% in 1994 and 8.4% in 1993.

Selling, Marketing and Service Expenses. Selling, marketing and service
expenses for 1994 amounted to $15.6 million, reflecting a reduction of
approximately $1.0 million, or 6.4%, from 1993. As a percentage of net revenues,
these expenses were 22.7% in both 1994 and 1993. While the dollar reduction was
generally due to variable expenses associated with the revenue decline,
additional expense reductions were generated in marketing by refocusing
marketing resources into more productive activities. Significant dollar savings
were generated in advertising and marketing shows and exhibits.

General and Administrative Expenses. General and administrative expenses
were $4.7 million in 1994 compared to $5.3 million in 1993. These amounts
represent 6.9% and 7.3% of net revenues in 1994 and 1993, respectively. The
decrease in general and administrative expenses was due primarily to the
reduction in legal fees from the level incurred in 1993 as a result of the
commencement of a patent infringement action against Lorad in April 1992.

Restructuring and Other Charges. In the third quarter of 1994, the Company
recorded a charge of $2.4 million before tax for the estimated cost of
implementing a restructuring plan to refocus the business to its core
competencies. The key elements of this plan included discontinuing certain low
volume tangential products from the Company's product portfolio, redesigning and
streamlining the manufacturing process and upgrading certain installed customer
equipment. Approximately $1.8 million of the restructuring charge related to
inventory written down to reflect the impact of discontinuing certain products.
Approximately $0.4 million of the restructuring charge was committed to product
enhancement, and the remainder represented charges for severance associated with
streamlining manufacturing and business processes.

In the third quarter of 1994 the Company also recorded $1.9 million of
non-restructuring expenses. Approximately $1.0 million of these expenses was due
to inventory write-downs while the remainder reflected increased reserves.

Interest Expense. Interest expense amounted to $1.2 million in 1994 and
$0.9 million in 1993. The 1994 increase was due to an increase in the average
amount outstanding under the Company's line of credit during 1994, an increase
in the interest rate applicable to the line of credit, and an increase in the
Company's borrowings under capital lease obligations, partially offset by the
reduction in the amount payable under the noncompetition agreement entered into
in connection with the Company's September 1992 purchase of Bloom Associates,
Ltd.

INCOME TAXES

The Company's effective tax rate was 0% in 1995 and 1994. The 0% effective
tax rate in 1995 was the result of net operating profits, offset by a reduction
in the valuation allowance on deferred tax assets of approximately $1.5 million.
The 0% effective tax rate in 1994 was the result of net operating losses
generated

20
<PAGE> 22

for tax purposes, offset by a valuation allowance on deferred tax assets of
approximately $2.8 million. At December 31, 1995, the Company had approximately
$2.2 million of net current deferred tax assets, which represent the amount of
tax benefits on existing net deductible temporary differences and tax credits
that are more likely than not to be realized against taxable income of future
years.

Based upon anticipated earnings for the year, an anticipated reduction in
the valuation allowance on deferred tax assets, and a review of other factors
giving rise to differences between statutory and effective income tax rates, the
Company has estimated its effective tax rate for the year ended December 31,
1996 to be approximately 25.0% and, accordingly, has provided income taxes in
the first quarter of 1996 of $350,000, against its first quarter earnings before
taxes of $1.4 million.

FUTURE TRENDS AND UNCERTAINTIES

Although diagnostic imaging products consume only approximately one-half of
one percent of total healthcare costs, the Company believes that the need to
provide lower cost alternatives and improve product functionality and
utilization is clearly a key priority for companies serving this market. The
Company has focused its product development for the past several years on
less-invasive, more cost effective alternatives to complement conventional
methods and procedures. Management believes that all medical device companies
will be forced to develop products and technologies that address both patient
care and economic issues.

This Prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. These forward-looking
statements involve risks and uncertainties. The Company's actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operations for the three months ended March 31, 1996 was $1.5
million compared to $0.4 million provided from operations for the same period in
1995. The increase in cash used in operations principally reflects higher
investment in inventories and reductions in customer deposits and accounts
payable, partially offset by $1.6 million of net earnings before depreciation
and amortization, as well as improved accounts receivable collection activities
which have reduced accounts receivable balances as of March 31, 1996 as compared
to April 2, 1995.

During 1995, the Company utilized $3.3 million of cash in operations and
$1.0 million in investing activities, while generating $4.8 million from
financing activities, resulting in a $0.5 million increase in cash. The
utilization of cash in operations was primarily due to an increase in working
capital caused by a higher level of net revenues and production activity.
Compared to December 31, 1994, accounts receivable at December 31, 1995
increased by $5.5 million, inventories increased by $3.1 million, and other
current liabilities decreased by $0.9 million due primarily to reduced customer
deposits. These uses of cash were partially offset by a $2.6 million increase in
accounts payable and by net earnings before depreciation and amortization of
$4.7 million. Cash utilized in investing activities during 1995 was reduced from
$1.8 million in 1994 to $1.0 million in 1995, due entirely to efforts to contain
capital expenditures not financed through capital lease arrangements. Cash
generated from financing activities during 1995 reflected the Company's June
1995 sale of 1,333,333 shares of Series D preferred stock to GE Medical Systems
for $9.5 million, net of related expenses, offset by debt reductions, including
borrowings under the Company's line of credit, totaling $4.9 million.

During 1994, the Company's operations provided $4.0 million of cash. The
Company utilized $1.8 million of cash in investing activities and $1.9 million
in financing activities, resulting in a net cash increase of $0.3 million. Cash
generated from operations was due primarily to improved accounts receivable
collection activities, which resulted in a $7.1 million reduction in accounts
receivable, and reductions in inventory and other current assets of $1.4 million
and $1.1 million, respectively, partially offset by the net loss from operations
(excluding noncash depreciation and amortization) of $3.4 million. Capital
expenditures not financed through capital lease arrangements for 1994 amounted
to $1.8 million. Net payments under the line of credit and long-term debt
repayment were $1.0 million and $1.1 million, respectively.

21
<PAGE> 23

During 1993, the Company's operations provided $0.2 million of cash,
arising primarily from net earnings before depreciation and amortization of $2.2
million, offset by a $2.3 million decrease in accounts payable. The Company had
net borrowings of $3.3 million under line of credit facilities and repaid
approximately $1.2 million in long-term debt in 1993. The long-term debt
repayments primarily consisted of payments under a non-competition agreement
that the Company entered into in connection with the acquisition of Bloom
Associates, Ltd. The Company's 1993 investing activities utilized $2.2 million
in cash for capital expenditures and $0.5 million for the purchase of preferred
stock in Tetrad Corporation.

The Company utilizes capital lease arrangements to finance some of its
equipment needs. During 1995 and 1994, the Company acquired $0.2 million and
$0.7 million, respectively, of capital equipment through capital lease
arrangements. The Company currently has no material capital expenditure
commitments and anticipates that, absent unforeseen developments, its capital
expenditures for 1996 will not vary materially from prior years.

As of March 31, 1996, the Company had $0.6 million in cash and cash
equivalents and working capital of $25.2 million. The Company has in place a
$15.0 million working capital line of credit, which expires February 1, 1997 and
is secured by accounts receivable, inventory and fixed assets. The maximum
amount available under this line of credit is subject to borrowing base
restrictions which are a function of defined balances in accounts receivable,
inventory and fixed assets. As of March 31, 1996, borrowing availability under
this line of credit was approximately $11.0 million beyond actual borrowings as
of that date of $4.0 million. The Company believes that the estimated net
proceeds from this Offering, its current level of profitability and available
borrowing capacity will be sufficient to fund foreseeable working capital and
capital expenditure needs.

INFLATION

While inflation has not had a material impact upon the Company's operating
results in the past, there can be no assurance that the Company's business will
not be affected by inflation in the future.

QUARTERLY OPERATING DATA

The following table sets forth certain unaudited operating data for each of
the four quarters in 1994 and 1995 and the first quarter of 1996.

<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER(1) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ---------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $16,927 $17,649 $ 15,525 $18,372 $16,625 $18,065 $19,055 $23,005 $20,073
Gross profit...................... 6,547 6,342 4,354 6,704 5,930 7,379 7,316 9,220 8,485
Earnings (loss) from operations... 381 183 (4,304) (597) (175) 558 1,005 1,506 1,532
Net earnings (loss)............... 101 (69) (4,692) (980) (469) 397 883 1,466 1,073
Net earnings (loss) per share..... $ .02 $ (.01) $ (.85) $ (.18) $ (.08) $ .07 $ .13 $ .21 $ .15
</TABLE>

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

(1) Results for the third quarter of 1994 reflect restructuring and
non-restructuring expenses of $2.4 million and $1.9 million, respectively.

The preceding quarterly financial data illustrate the fluctuations in
financial results experienced by the Company. Quarterly financial results are
influenced by such factors as the timing of large system shipments to customers,
the timing and reductions in of orders under OEM contracts and related
manufacturing and shipment scheduling, new product introductions and new
marketing programs by the Company and its competitors, delays in contract
development projects, the effect of economic conditions on the Company's
markets, the effects of managed healthcare on capital expenditures and
reimbursement for healthcare, increases in marketing and research costs in
relation to sales, regulatory clearance of new products, seasonal purchasing
patterns of hospitals and the timing of purchasing decisions by customers. See
"Risk Factors -- Risks of Fluctuations in Financial Results."

22
<PAGE> 24

BUSINESS

OVERVIEW

STRATEGY

The Company develops innovative products for select medical markets where
evolving diagnostic and therapeutic procedures have required new imaging
technology. The key elements of the Company's growth strategy include:

- Respond rapidly to clinical innovations. The Company is a leader in
developing innovative imaging products that enable cost-effective,
minimally-invasive procedures. The Company believes that its engineering and
design expertise, as well as its close relationships with leading physicians who
develop new clinical techniques, will enable it to continue to be a leader in
new product development for diagnostic procedures and image-guided therapies.

- Focus on the breast cancer market. The Company has pioneered stereotactic
core needle breast biopsy products and is focused on developing and selling
products for breast cancer screening, diagnosis and treatment. The Company is
leveraging its leading technological position in this market to develop new
breast imaging and biopsy products using full-field digital, ultrasound and
magnetic resonance imaging technology.

- Develop proprietary products for image-guided, minimally-invasive
procedures. The advantages of reduced patient trauma, lower costs and
demonstrated effectiveness offered by minimally-invasive procedures have
resulted in increased acceptance of these procedures, which the Company believes
will result in a greater need for specialty imaging systems. The Company intends
to continue to offer proprietary products serving the image-guided,
minimally-invasive procedure markets for breast cancer, EP and endovascular
procedures.

- Leverage OEM relationships. The Company intends to maintain strong OEM
relationships with leading medical equipment manufacturers. These relationships
provide the Company with opportunities to share in the development and use of
new technologies, to receive third party funding for new product development, to
increase manufacturing volumes for components and subsystems used in other
products and, in most cases, to maintain an ownership interest in product
designs.

- Expand international sales and strengthen domestic sales channels. The
Company intends to continue to expand its international sales. The Company has
offices in Europe and Australia and has recently opened a representative office
in China to increase its international revenues and market share. In addition,
the Company intends to strengthen its domestic sales channels by emphasizing
cooperative efforts between its dealer network and direct sales force.

23
<PAGE> 25

COMPANY PRODUCTS

The Company's current proprietary products include specialty imaging
systems that serve image-guided, minimally-invasive markets, and general
radiology products. The Company also designs and manufactures specialty x-ray
imaging components and subsystems as an OEM for several leading medical
equipment manufacturers, including GE Medical Systems, Varian Associates, Inc.
("Varian"), Storz Medical AG ("Storz"), Picker International, Inc. ("Picker")
and Dornier Madizintechnik GmbH ("Dornier"). The following table summarizes the
proprietary products offered by the Company.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PRODUCT
LAUNCH DATE OR
DEVELOPMENT
PRODUCT DESCRIPTION STATUS
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Breast Cancer Imaging and Biopsy
Products
- -------------------------------------------------------------------------------------------------
Mammotest/Mammovision Stereotactic needle biopsy 1989/1992
system
Mammotest Plus/Mammovision Plus Stereotactic needle biopsy 1996/1996
system with 360 degree access
and expanded field of view
Performa(TM)(1) Ultrasound for diagnosis and 1996
guided core needle biopsy
HFX Diagnostic film screen 1995
mammography system
SENOSCAN Digital mammography system Clinical Trials: 1996
Magnetic Resonance Biopsy System MRI guided core needle biopsy Prototype: 1996
system
- -------------------------------------------------------------------------------------------------
Electrophysiology Products
- -------------------------------------------------------------------------------------------------
EP/X Single-plane x-ray imaging 1995
system
EP/X(2) Cost-effective bi-plane x-ray 510(k) pending
imaging system
EP/Stim Computer controlled stimulator 510(k) to be
filed in 1996
Recording systems Recording systems used in EP Various
procedures
- -------------------------------------------------------------------------------------------------
Endovascular and Interventional
Products
- -------------------------------------------------------------------------------------------------
2000 Series Endovascular imaging system 1991
for operating room
Imager III Multi-purpose interventional 1995
x-ray imaging system
- -------------------------------------------------------------------------------------------------
General Radiology Products
- -------------------------------------------------------------------------------------------------
TRAUMEX X-ray imaging system for 1995
trauma radiology
Digital X radiographic systems General radiographic systems 1995
used for chest, abdomen and
skeletal system
90 Series (with DPS-100 digital imaging Tilting table systems 1996
computer systems) including digital imaging
computer system used for
general radiographic and
fluoroscopic procedures
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) Marketed for Accoustic Imaging, an indirect subsidiary of Dornier, in
conjunction with the sale of the Company's Mammotest and HFX mammography
systems. Initial sales expected to occur in 1996.

24
<PAGE> 26

BREAST CANCER IMAGING AND BIOPSY MARKETS

Market Overview

Breast cancer is the leading cause of cancer death among women in the
United States aged 40 to 55 and the second leading cause of cancer death among
all women in the United States. According to the American Cancer Society,
approximately 184,000 new cases of breast cancer are expected to be diagnosed
and approximately 44,000 women are expected to die from the disease in 1996. The
incidence of breast cancer increases with age, rising from about 100 cases per
100,000 women starting at age 40 to about 400 cases per 100,000 women at the age
of 65. Thus, the Company believes that the large number of aging baby boomers
coupled with increased breast cancer screening rates and education will lead to
an increase in the number of breast cancer screening and diagnostic procedures.
Several physician organizations and the American Cancer Society recommend that
women receive a baseline mammogram between the ages of 35 and 40, a new
mammogram every two years between the ages of 40 and 50, and an annual mammogram
thereafter. However, the Jacob's Institute of Women's Health estimates that only
about 40% of women over age 40 in the United States are regularly following
these guidelines. The direct costs for screening, diagnosis and treatment of
breast cancer in the United States were estimated by the Company at
approximately $8.5 billion in 1995, of which approximately $1.7 billion was
spent on screening-related procedures and $4.2 billion was spent on
diagnostic-related procedures. In response to increased public and political
awareness of breast cancer in the 1990s, federal research expenditures for
breast cancer have increased dramatically in the last six years.

Breast Cancer Screening and Diagnosis

Successful treatment of breast cancer depends in large part on the early
detection of malignant lesions in the breast. According to the National Cancer
Institute ("NCI"), the five-year survival rate decreases from more than 90% to
72% after the cancer has spread to the lymph nodes, and to 18% after it has
spread to other organs such as the lungs, liver or brain. Current methods of
detecting breast cancer typically include clinical and self examination and
screening mammography. While these methods can indicate the presence of lesions
in the breast, they cannot indicate whether the lesions are benign or malignant.
If a clinical or self examination or screening mammogram detects a lesion of a
suspicious nature, or if other symptoms of breast cancer are present, additional
diagnostic mammography is typically ordered. In addition, if the abnormality is
a mass, diagnostic ultrasound may be performed. There are more than 12,000
mammography systems in use in the United States today. According to the FDA, the
number of mammograms performed in the United States grew from 15 million in 1990
to 25 million in 1995.

If the results of a diagnostic mammogram are indeterminate, a breast biopsy
is typically performed. Two to four percent of women receiving screening
mammograms undergo biopsies, although practice patterns vary significantly. The
Company believes that 1.1 million biopsies were performed in 1995, of which
300,000 were for palpable lesions and 800,000 were for non-palpable lesions
detected by screening mammography. Seventy to ninety percent of biopsies
currently result in a benign diagnosis. The most common forms of biopsy
procedures are open surgical, stereotactic core needle and ultrasound-guided
core needle biopsies.

Open Surgical Biopsy. Open surgical biopsy has been the most commonly used
method of diagnosing breast cancer for many years. Although open surgical biopsy
typically provides the tissue sample necessary for a definitive diagnosis, the
procedure has several disadvantages. Open surgical biopsy is generally performed
in an operating room with general anesthesia. The procedure takes approximately
one hour and requires one to two days of recuperation at home. In some cases,
the deep skin incision required for the procedure and the large amount of tissue
removed may result in permanent breast disfigurement. Open surgical biopsies can
also leave internal tissue scars that can impair the ability of subsequent
mammograms to detect potentially cancerous lesions. In the United States, the
aggregate cost of an open surgical biopsy, including surgical fees and operating
room charges, ranges from approximately $2,500 to $5,000.

Stereotactic Core Needle Biopsy. Stereotactic core needle biopsy was
pioneered by the Company and a group of radiologists with the development of the
Company's Mammotest system in the late 1980s. As an alternative to open surgical
biopsy, stereotactic core needle biopsy offers a less-invasive procedure, lower
cost and minimal scarring of the breast, while maintaining accuracy in cancer
detection. Stereotactic core needle

25
<PAGE> 27

biopsies using systems such as the Company's Mammotest system can be performed
in a physician's office, breast imaging center or hospital. Although the
procedure was initially performed by radiologists, it is now being more widely
adopted by surgeons as they become aware of the accuracy and less-invasive
nature of the procedure. Surgical societies are now scheduling training
workshops for their members to learn how to perform stereotactic core needle
biopsies, and sales to surgical practices or ambulatory surgery centers have
accelerated recently. The procedure is typically billed at between $750 and
$1,200.

During the stereotactic core needle biopsy procedure, the patient lies
prone in a face down position on top of a stereotactic x-ray imaging table with
her breast protruding through an opening in the table, creating a work space
below the table for the physician. An x-ray imaging system is located on the
underside of the table that enables the physician to localize a lesion in a
three-dimensional field and accurately position the core needle within one
millimeter of the targeted lesion for sampling. During the less than one-hour
procedure, the patient is given a local anesthetic and a small nick is made in
the patient's skin. Typically, the physician takes 5 to 10 samples of tissue
from the potentially cancerous site. As with open surgical biopsy, the samples
are sent to the pathology laboratory for analysis. At the conclusion of the
procedure, the skin nick is covered by a band-aid.

The number of stereotactic core needle biopsy procedures performed has
grown rapidly in the last five years. The Company estimates that approximately
200,000 core needle biopsy procedures were performed in the United States in
1995, up from less than 500 in 1990. The increased acceptance and use of core
needle biopsy techniques has been driven by the clinical and cost advantages of
core needle biopsies, as well as a number of other factors. Improved tissue
removal systems such as the Mammotome(TM) device from Biopsys Medical, Inc.
(which can be used in conjunction with the Company's Mammotest system) have
provided surgeons with a percutaneous core needle procedure that can remove
tissue samples as effectively as a typical open surgical biopsy. Increased
public awareness of these techniques has also been a factor. Since 1993, several
television programs have aired stories on the benefits of stereotactic core
needle biopsy which the Company believes raised the awareness of women and
managed care organizations as to the cost savings and less-invasive nature of
the procedure. Finally, failure to diagnose breast cancer on a timely basis is
currently the leading cause of malpractice lawsuits against physicians, which
the Company believes is encouraging physicians to request more biopsies.

Ultrasound-Guided Core Needle Biopsy. Ultrasound imaging can play an
important adjunctive role to mammography based on its ability to characterize
masses in breast tissue. For example, benign cysts can be diagnosed reliably
with ultrasound and, with state of the art ultrasound equipment, some masses in
addition to cysts can be diagnosed as benign. Additionally, ultrasound does not
expose a patient to x-ray radiation. In general, ultrasound is underutilized as
a breast imaging modality in part because the quality of the equipment has only
recently improved to the level needed for breast imaging and because
mammographers often are not sufficiently trained in breast ultrasound imaging
techniques. Although the Company believes a significant number of non-palpable
breast lesions could be biopsied under ultrasound guidance, only a small
percentage of such biopsies are currently performed using this modality.
Nonetheless, the Company believes that the large number of breast lesions that
could be biopsied under ultrasound guidance and the ability of ultrasound to
characterize certain breast masses without the use of x-ray radiation will
result in the increased use of ultrasound for both the diagnosis of breast
masses and core needle biopsies in the future.

New Breast Cancer Diagnostic Technologies

There are a number of new and developing technologies, such as digital
mammography and magnetic resonance imaging, that may be used to detect and
diagnose breast cancer. The Company has products under development using each of
such technologies. See "Breast Cancer Imaging and Biopsy Markets -- Breast
Cancer Products Under Development."

Digital Mammography. Digital mammography provides a number of advantages
over conventional mammography. Because a digital mammography system separates
the display of a mammogram from the detection and creation of the image (a film
screen mammogram acts both as a detector and display) the contrast may be varied
on the display monitor. In this way, dense breast tissue can be interpreted
appropriately

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without subjecting the patient to a second mammogram. Digital mammography may be
especially useful in screening women under age 50 due to the limited ability of
film screen mammography to image the denser breast tissue of younger women. As
reported by the American Cancer Society, women under age 50 still experience
significant incidence of breast cancer, with 23% of breast cancer cases detected
in women under age 50 (42,600 cases in 1995). Moreover, according to a
physicians' insurers survey, over 70% of all malpractice payments made between
1985 and 1994 for failure to diagnose breast cancer resulted from a failure to
diagnose such cancer in women under age 50. In addition, a properly designed
digital mammography detector system can reduce the radiation required for a
diagnostic mammogram by at least a factor of two. Other benefits from a digital
mammography system include real time acquisition (film processing is not
necessary), storage of the mammogram in digital memory or on digital archival
media, computer aided diagnosis and telemammography.

Magnetic Resonance Imaging. Magnetic resonance imaging is an evolving
modality for imaging breast cancer. Breast magnetic resonance imaging ("Breast
MR"), with the intravenous injection of a contrast agent, has been demonstrated
in clinical research to be more effective at detecting the extent of known
breast cancer as compared to film screen mammography or ultrasound. Breast MR
can detect lesions not seen on film screen mammography or ultrasound. However,
since the lesions cannot currently be diagnosed as benign or malignant with
Breast MR, there is a need for a capability to perform core needle biopsy under
MR guidance.

The Company believes that the primary use of Breast MR, combined with
biopsy capabilities, will be to stage known breast cancers, providing physicians
and patients with additional information concerning the appropriateness of
lumpectomy as opposed to mastectomy. Additionally, Breast MR is expected to be
used in patients who require frequent follow up due to the risk of breast cancer
recurrence. Typically, such patients have previously undergone breast conserving
surgeries, such as partial mastectomies or lumpectomies. The Company believes
that over 1 million women have undergone breast conserving surgeries and another
100,000 women undergo them every year. The Company believes that as the
population of women who have undergone breast conserving treatments increases,
the demand for Breast MR and MR biopsy systems will also increase. In addition,
Breast MR may also be used to diagnose special cases where breast cancer may be
suspected but where film screen mammography and ultrasound produce negative
findings.

Breast Cancer Products

The Company serves the mammography market with stereotactic core needle
biopsy products and screening and diagnostic mammography systems.

Mammotest/Mammovision. The Company's Mammotest stereotactic core needle
biopsy system, first introduced in 1989, is designed expressly for core needle
biopsy of the breast and represents substantial improvements over open surgical
biopsy for most patients requiring diagnosis for breast cancer. The Mammotest
system consists primarily of an elevating, prone position table, a mammographic
x-ray imaging system and a stereotactic needle guidance system. The Company is
one of only two manufacturers worldwide of prone position tables. In 1992, the
Company introduced Mammovision, the first FDA cleared charge coupled device
("CCD") imaging system that permits near real time imaging of breast tissue.
With the aid of proprietary software for the Mammovision computer, coordinates
of the lesion can be quickly calculated using a computer trackball. These
coordinates are then sent via a computer interface to the Autoguide, a motor
driven needle holder assembly that precisely aims the biopsy needle directly at
the lesion. Mammovision has become a standard for providing computer based
imaging for the Mammotest system.

Since 1990, approximately 500 Mammotest systems have been installed
worldwide, with the vast majority in the United States. The list price of the
Mammotest system with Mammovision is $225,000. A Mammovision sold separately has
a list price of $95,000.

Mammotest Plus/Mammovision Plus. The Company introduced Mammotest Plus and
Mammovision Plus in November 1995. The Mammotest Plus system permits its
operator 360 degree access to the breast and incorporates the software and
hardware features of Target on Scout and Lateral Arm that allow small breasts
(compressed to less than 2.5cm) and breasts with lesions located near the axilla
or very posterior to the chest wall to be biopsied more easily. Mammovision Plus
is a new CCD imaging system that provides an optional

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expanded field of view (10 x 5cm versus 5 x 5cm) as well as the ability to
remove the camera from the Mammotest table. This feature permits the operator to
install the Mammovision Plus camera on the Company's HFX diagnostic mammography
system. Thus, near real time digital imaging can be performed in conjunction
with standard diagnostic mammography. As a result, the cost elements of the
system can be amortized across a larger number of procedures thus effectively
expanding the Company's market for Mammotest Plus and Mammovision Plus systems.
The list price of a Mammotest Plus system with a Mammovision Plus is
approximately $280,000.

Performa 7.5 Mhz Ultrasound System. The Company has entered into an
agreement with Acoustic Imaging, an indirect subsidiary of Dornier, to
distribute the Performa dedicated ultrasound breast imaging system in
conjunction with the sale of the Company's Mammotest and HFX diagnostic
mammography systems. Performa allows core needle biopsies to be performed with
ultrasound guidance if the lesion can be visualized under ultrasound. The
Company began marketing these dedicated ultrasound breast imaging systems early
in the second quarter of 1996. The list price for the Performa breast ultrasound
system is $45,000.

HFX Mammography System. HFX is a diagnostic mammography system designed to
perform high quality, low dose breast examinations quickly, easily and
efficiently. Through a proprietary x-ray tube, the HFX generates excellent
spatial resolution, especially at the front edge of the image receptor where
magnification mammography examinations are performed. The HFX can be provided in
a two-tube configuration and integrated with the Mammotest to provide a
cost-efficient system capable of performing both mammography and stereotactic
core needle breast biopsies. The HFX mammography system ranges in price from
$50,000 to $70,000.

Breast Cancer Products Under Development

SENOSCAN Digital Mammography System. The Company is a leader in the
development of full-field digital mammography systems. Digital mammography
provides a number of advantages over currently available film screen
mammography, including an improved ability to image dense breast tissue, reduced
radiation dosage to the patient, real time imaging and the ability to store
images in a digital format. Additionally, digital mammography images may be
transmitted over high-speed telecommunication networks, thus allowing remote
diagnosis and review of suspicious mammograms. The Company believes that its
SENOSCAN full-field digital mammography system, which was introduced as a
prototype in late 1995, will offer all of these advantages.

The Company believes there is a large potential market for digital
mammography. The Company's SENOSCAN digital mammography system under development
may represent a significant technological advance in the imaging of breast
tissue, especially in younger women. Current film screen mammography technology
is limited in its ability to image the dense breast tissue of younger women. As
reported by the American Cancer Society, women under age 50 experience
significant incidence of breast cancer, with 23% of breast cancer cases detected
in women under age 50 (42,600 cases in 1995).

The Company will soon install SENOSCAN systems in at least two locations
for clinical testing to be performed on 400 to 500 patients. The Company expects
this clinical testing to begin in the second half of 1996. This clinical
testing, which is being partially funded by NCI, will image patients for an
agreement study of film screen and digital mammography. The Company plans to
submit a 510(k) application, together with the results of these clinical trials,
to the FDA in late 1996, and will seek clearance of SENOSCAN for diagnostic
labelling. See "-- Government Regulation."

While the Company expects that its SENOSCAN system will cost at least three
times as much as conventional film screen mammography systems, it believes that
the increased benefits from improved imaging will more than offset the increased
capital costs. See "-- Government Reimbursement."

Prototype MR Biopsy System. The Company has designed and manufactured a
prototype MR biopsy system that is compatible with the General Electric Signa
1.5T magnetic resonance imaging system, which constitute a significant portion
of the 4,000 installed magnetic resonance imaging systems believed to be in

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operation in the United States. Clinical trials of the prototype system will
begin shortly to further test the system's ability to reliably biopsy breast
lesions using magnetic resonance imaging as its guidance modality. The Company
believes that the primary use of Breast MR, combined with biopsy capabilities,
will be to stage known cancers providing the physician and patient with
additional information concerning the appropriateness of lumpectomy as opposed
to mastectomy. See "Risk Factors -- Risks of New Product Development and Market
Acceptance."

ELECTROPHYSIOLOGY MARKETS

Market Overview

The Company estimates that of the 500,000 annual heart attack deaths in the
United States, more than 400,000 are related to ventricular tachycardia (very
rapid heartbeat) or other cardiac arrhythmias that may induce sudden death.
Cardiac arrhythmias are irregular heartbeats that arise when the normal pattern
of conduction of electrical impulses in the heart is disrupted. Cardiac
arrhythmias can range from isolated premature contractions to tachycardia that
may lead to life-threatening episodes of ventricular fibrillation.

Atrial fibrillation is a common, normally non-life threatening form of
atrial tachycardia. As of 1992, approximately 2.0 million people in the United
States had this condition. Atrial fibrillation is normally treated by
cardioversion at a hospital or physician's office. In cardioversion, an external
electrical shock is applied to the chest to restore a normal pattern of
conduction of electrical impulses in the heart. Episodes of atrial fibrillation
are a frequent cause of strokes due to emboli (clots) formed in the heart
dislodging and blocking cerebral arteries. An industry source estimates that
atrial fibrillation causes 75,000 strokes each year.

Diagnosis and Treatment of Cardiac Arrhythmia

In 1992, over 3.7 million people in the United States suffered from some
type of cardiac arrhythmia. The treatment these patients receive typically
involves a diagnostic EP study and the prescription of an anti-arrhythmic drug,
corrective open heart surgery, the implantation of an implantable cardiovertor
defibrillator ("ICD") or interventional therapy such as radio frequency ("RF")
ablation. The Company estimates that approximately 200,000 EP studies were
performed in 1995 and expects this number to increase in the future as a result
of the growing use of these therapies.

EP studies are typically undertaken in a dedicated electrophysiology
laboratory ("EP Lab") by inducing arrhythmias in patients. The arrhythmia is
generally induced by electrostimulation of the heart through the percutaneous
introduction of catheters into veins leading into the heart. Tilt table testing
is also performed to observe presence or absence of syncope (transient fainting)
when the patient is moved to a natural, upright position. If it is determined
that the patient might benefit from a surgical or other interventional
procedure, the electrical activity in the patient's heart is generally mapped in
an effort to locate the precise area of the heart that is causing the arrhythmia
or tachycardia. EP x-ray imaging positioners, stimulators and recording devices
are used during these procedures, all of which the Company manufactures.

The Company expects the EP market to expand over the next several years
based on the rapid growth of ICD implantation and the development of RF ablation
and new catheter based technologies for the treatment of ventricular tachycardia
and atrial fibrillation. ICDs are typically implanted in patients who have
experienced ventricular tachycardia and are diagnosed to be at risk of
ventricular fibrillation and sudden cardiac death. Due to the increased number
of approved devices and increased indications of use, implantation of ICDs has
grown significantly over the past several years. The Company expects strong
growth in the use of ICDs as a result of recent studies which have indicated
that ICDs may provide a more effective therapy for ventricular fibrillation than
existing drug therapies and based on the development of transvenous leads for
ICDs and smaller device sizes that allow pectoral implantation. The advent of
transvenous leads and pectoral implantation will allow ICDs to be implanted in
outpatient dedicated device implantation suites which can be operated less
expensively than standard operating rooms. The Company believes the growth of
pectoral implantation of ICDs will provide an expanding market opportunity for
such a dedicated device implantation suite which will require x-ray imaging
equipment.

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During the last five years, RF ablation has been increasingly used to treat
atrial arrhythmias such as Wolf-Parkinson-White syndrome. RF ablation involves
locating an electrical abnormality in a chamber of the heart and using
specialized EP catheters to deliver energy from an external source in an amount
sufficient to ablate the abnormal tissue. RF ablation has also been used
successfully to treat certain ventricular tachycardia. Recent research by
electrophysiologists has focused on the use of catheter-based technology used in
an EP interventional procedure to permanently cure certain patients with
recurrent atrial fibrillation.

Products

The Company's strategy is to develop and market an integrated, dedicated EP
Lab which contains stimulation, recording and x-ray imaging capabilities for use
in diagnostic and therapeutic EP procedures. An integrated EP system offers the
potential of consolidating controls and monitors in order to speed EP procedures
and reduce requirements for ancillary personnel. The Company's EP products offer
specialized features specifically designed for the electrophysiologist. The
Company offers a choice of ceiling and floor mounted c-arm positioners which
incorporate motorized isocentric c-arm movement (allowing multiple fluoroscopic
views of the patient's heart without moving the patient), a ceiling suspended
table capable of vertical patient positioning, and pulse progressive fluoroscopy
capable of reducing x-ray dosage by up to 80%.

Until recently, most EP procedures have been performed in cardiac
catheterization laboratories or performed with mobile fluoroscopic systems. The
Company, with the cooperation of the University of Colorado Health Sciences
Center, developed the first dedicated EP system in 1985, and since that time has
sold approximately 70 dedicated EP systems, primarily to teaching hospitals in
the United States.

EP/X. In 1995, the Company introduced the EP/X system, an economical, state
of the art single plane x-ray imaging system. The EP/X system meets most general
purpose EP requirements for both community and teaching hospitals. The EP/X is
offered optionally with the Company's patented automatic pulse progressive
fluoroscopy system. The list price of the system ranges from $300,000 to
$380,000. As a result of healthcare industry cost containment pressures, the
majority of the Company's EP system orders have recently included the EP/X
system.

EP/X(2). The EP/X(2) is a new, cost-effective, ceiling suspended, bi-plane
fluoroscopy system. The Company believes that bi-plane imaging will be
increasingly required for new, developing EP procedures such as catheter
treatment for ventricular tachycardia or atrial fibrillation. The Company
believes the flexibility of the ceiling suspended system will allow versatile
use of the bi-plane x-ray system whether in a dedicated EP laboratory or in a
surgical suite. The Company anticipates that EP/X(2) will complement its
existing, more expensive, bi-plane Cardiac CX/Pegasus imaging system. The
EP/X(2) is expected to carry a list price of $800,000, or 20% below the lowest
priced competitive systems currently available. The Company has submitted a
510(k) notification for the EP/X(2), which is currently pending with the FDA.

EP Stimulators. The Company currently markets the DTU-215 EP Stimulator, a
four-channel stimulator for use in EP labs. In 1996, the Company plans to
introduce the EP/Stim, a computer controlled stimulator that allows direct
communication with the Company's EPACE product described below. The DTU-215 EP
Stimulator lists for $22,000. The Company anticipates submitting a 510(k)
notification for the EP/Stim in 1996.

EPIC. EPIC is a computerized image management system used to integrate and
display x-ray images and electrocardiogram ("ECG") signals during an EP
procedure. The EPIC can handle both bi-plane and single plane images and
provides the ability to display three ECG signals from the EPACE recording
system on the x-ray imaging system in both the control room and the procedure
room.

EPACE. The EPACE product is a computer-based 32 channel recording system.
It is also the foundation for the Company's integrated EP Lab, in which EPACE is
linked by a computer interface to the EPIC imaging computer and the newly
developed EP/Stim computer controlled stimulator.

Competitors in the EP market such as GE Medical Systems, Philips
Electronics, Siemens and Toshiba provide single-plane systems for the EP Lab at
prices ranging from $500,000 to $600,000. The Company's dedicated EP systems are
designed specifically for the requirements of the electrophysiologist and are
offered

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at prices under $400,000 for the EP/X single-plane system. As a result, the
Company is able to compete on both price and product features.

ENDOVASCULAR AND INTERVENTIONAL MARKETS

Market Overview

The most common form of cardiovascular disease is atherosclerosis, a
disease characterized by the thickening of the arteries caused by deposits of
"plaque," a fatty substance. Atherosclerosis affects both coronary and
peripheral arteries. Open surgical procedures have traditionally been performed
in the operating room by vascular surgeons to repair the partially-blocked
arteries that have been impairing the normal flow of blood. Some of the most
frequent procedures involve the carotid, iliac, femoral and popliteal arteries.
In addition, vascular surgeons repair aneurysms (balloon like enlargements of an
artery) which, if left untreated, may rupture and frequently cause death.

Emerging Treatments for Vascular Disease

During the last decade, percutaneous catheter techniques have been
developed to treat a significant number of vascular disorders. Percutaneous
catheter-based procedures guided by high performance x-ray imaging are
significantly less-invasive and less costly than open surgical procedures. These
procedures were initially developed by cardiologists and radiologists and
performed in cardiac catheterization or angiographic laboratories in the
cardiology or radiology departments.

Angioplasty, one of the most frequently performed procedures, involves
x-ray imaging guidance of a catheter introduced into a blood vessel. The
catheter is guided to the vascular narrowing and a balloon is inflated to reopen
the artery to normal flow. While peripheral angioplasty has been quite
successful, a significant portion of treated vessels reocclude over time. More
recent developments include the implantation of a stent delivered to the
narrowing on a catheter. Recent studies have shown that stents keep the artery
open for a longer duration. In addition, catheter based techniques to remove
plaque have demonstrated success and frequently are performed in conjunction
with stent deployment.

More recently, vascular surgeons are purchasing x-ray imaging systems for
installation in the operating room, and vascular surgeons are becoming trained
in the performance of these newer, less-invasive vascular (non-coronary)
procedures. Historically, mobile c-arm intensifiers have provided x-ray imaging
capability for vascular surgeons. However, more complex procedures, such as
carotid stenting and abdominal aortic aneurysm ("AAA") repair using stent
grafts, require more sophisticated x-ray imaging capability in the operating
room.

AAAs are difficult to treat vascular enlargements which, if left untreated,
become increasingly susceptible to rupture, usually resulting in death. Several
companies have developed stent grafts which are deployed across the aneurysm
following percutaneous catheter introduction. The x-ray imaging requirements for
percutaneous AAA repair are demanding and typically cannot be met by the
capabilities of mobile c-arm intensifier systems. There are currently no FDA
approved stent grafts for treating AAA; however, clinical trials are underway in
several centers. The Company believes that stent grafts will eventually provide
a less-invasive method of treating the 190,000 AAAs diagnosed yearly in the
United States. Currently, only 45,000 patients undergo open surgery annually in
large part due to the high mortality and morbidity associated with the
procedure.

In addition, the use of laparoscopic cholecystectomy (minimally-invasive
gall bladder removal) procedures has grown dramatically over the last five
years. These procedures normally require the use of x-ray systems in the
operating room to perform intraoperative cholangiograms (x-ray studies of the
gallbladder). The Company believes that continued growth in the use of
laparoscopic and other minimally-invasive procedures will increase the demand
for dedicated x-ray systems in the operating room.

The Company believes that vascular surgeons would prefer to perform
catheter directed techniques such as peripheral angioplasty and stent placements
in the operating room using angiographic x-ray imaging systems with similar
angiographic capabilities as found in dedicated x-ray laboratories. The Company
also

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believes that vascular surgeons would prefer to perform new evolving and high
risk procedures such as AAA repairs and carotid and iliac stenting in the
operating room where open surgery would be immediately available if necessary.

Products

2000 Series. The 2000 Series includes dedicated specialized x-ray imaging
systems designed for installation in an operating room. These systems include a
ceiling suspended isocentric c-arm x-ray imaging system with state of the art
angiographic and digital image management capabilities. These systems include a
surgical table with motorized control for rotation, tilting and elevation. An
unobstructed 80 inch cantilevered carbon fiber table top supports the patient
and permits full body x-ray imaging of patients. The surgical table provides
full capability for the performance of open surgical procedures, including open
heart operations.

The 2000 Series includes variable frame rate progressive fluoroscopy for
x-ray dose reduction of up to 80% with no loss in image quality. The Company
believes this feature is very important because the 2000 Series systems are
frequently used by many non-radiology trained specialists to perform procedures
such as catheter placements, pacemaker implantation and general orthopedics.

The Company is not aware of any other company making dedicated x-ray
imaging systems for surgery with similar features to the 2000 Series systems. A
number of manufacturers provide less expensive mobile c-arm intensifier systems
to meet x-ray imaging requirements in surgery. However, the 2000 Series systems
incorporate improved image quality, ease and speed of positioning, x-ray dose
reduction and on-line angiographic image processing, thus providing unique
advantages over a mobile c-arm. The Company believes that these product features
are important to surgeons who perform endovascular procedures in the operating
room. Since 1991, the Company's 2000 Series systems have been distributed by
International Surgical Systems ("ISS") under an OEM agreement. ISS's list price
for the 2000 Series products is approximately $475,000. See "-- OEM
Agreements -- ISS."

Imager III/DPS-100. The Company's Imager III system is a universal x-ray
imaging system designed for a wide variety of interventional radiology
procedures, primarily endovascular procedures. These systems incorporate digital
image processing computers, which allow a reduction in x-ray dose and
improvement in image quality, and sophisticated positioning control of the
patient and x-ray source, which allow the physician to efficiently achieve all
angulations necessary to perform a procedure. The DPS-100 is a low-cost computer
system used as a digital imaging device with the Imager III and in general
purpose fluoroscopy. The DPS-100 provides a cost-effective solution for the
incorporation of digital imaging capabilities. The list prices of the Imager III
systems range from $500,000 to $800,000 depending on the components included.

OEM AGREEMENTS

The Company also designs and manufactures specialty x-ray imaging
components and subsystems for several leading medical products companies as an
OEM. In 1995, sales under OEM contracts constituted approximately 40% of the
Company's total revenues. These OEM relationships provide the Company with
opportunities to share in the development and use of new technologies, to
receive third party funding of new product development costs, to increase
manufacturing volumes for components and subsystems used in other products and,
in most cases, to maintain an ownership interest in product designs. Although
these OEM contracts expire on various dates between 1997 and 2001, they
generally provide that the OEM customers may reduce or terminate their orders
under these contracts, or terminate these contracts altogether, prior to the
applicable contract's expiration date. See "Risk Factors -- Dependence on
Significant OEM Customers."

GE Medical Systems. GE Medical Systems, the holder of a 19% interest in the
Company, is currently the Company's largest OEM customer, accounting for
approximately 10.3% of the Company's total revenues in 1995. Under the OEM
contract with GE Medical Systems, GE Medical Systems is required to purchase
certain minimum annual quantities of Tilt C positioners from the Company. The
Tilt C positioner is a multi-purpose 90 degree tilting table with a cantilevered
table top and sophisticated positioner controls. These multi-purpose systems are
used in interventional procedures, such as biopsies, as well as in general
imaging studies. The Company may also independently sell systems incorporating
its Imager III version of the Tilt C system sold to GE Medical Systems under
this OEM contract. This agreement expires in December 1997.

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Varian. The Company provides a line of x-ray generators and imaging systems
to Varian for incorporation into Varian's Ximatron radiotherapy simulator
system. The Company has provided Varian with imaging systems since 1983 and is
currently working under a multi-year contract with Varian. This agreement
expires in October 1998.

Storz. In 1988, the Company entered into a ten-year agreement with Storz
under which the Company has designed and manufactures the c-arm x-ray imaging
system used with Storz Medical's Modulith SLX lithotripter (a non-invasive
system for breaking kidney stones). The Modulith SLX is sold worldwide although
it has been sold in the United States only since FDA clearance was received in
March 1995.

Picker. The Company supplies Picker with a complete line of general
radiology systems. Picker markets a complete radiographic and fluoroscopic
system which includes the Company's x-ray generator, table and tube stand. This
agreement expires in February 1997.

Dornier. The Company supplies Dornier with x-ray imaging systems for sale
with Dornier's lithotripter systems. Dornier received FDA clearance to sell its
newest lithotripter (incorporating the Company's components) in the United
States in May 1995. This agreement expires in December 2001.

ISS. The Company sells its 2000 Series specialty x-ray imaging system to
ISS under an OEM agreement. Under this agreement, ISS is responsible for sales
and marketing of these systems into the surgical market, while the Company is
responsible for installation, applications training and service for 2000 Series
systems sold by ISS. ISS currently has five direct sales people selling the 2000
Series in the United States and conducts joint marketing activities with the
Company in Western Europe and South America. This agreement expires in December
1998.

GENERAL RADIOLOGY PRODUCTS

In addition to the breast cancer and electrophysiology and OEM products
described above, the Company also sells other diagnostic x-ray imaging systems
and other products used for general x-ray procedures. These systems are sold
domestically and internationally through direct and dealer distribution channels
for use in hospitals, clinics and physician's offices for general radiographic
and fluoroscopic screening.

TRAUMEX. The Company's TRAUMEX x-ray imaging system provides unique
positioning capabilities which require minimal patient movement, making it well
suited for emergency room applications. It also serves as a versatile general
radiographic system for hospitals. During 1995, the Company began shipping an
upgraded version of TRAUMEX that included new features and certain improvements
in reliability. The list price of the Company's TRAUMEX system ranges from
$140,000 to $200,000.

Digital X. The Company also manufactures and sells Digital X and other
general radiographic systems to hospitals and clinics. The Digital X
radiographic product line includes x-ray imaging products for use in clinics and
physicians' offices, which generally sell for approximately $35,000, and systems
for hospitals which generally sell in the range of $80,000 to $120,000.

90 Series. The Company's 90 Series systems are composed of radiographic and
fluoroscopic tables used in conjunction with generators and imaging chains and
are sold through direct, dealer and OEM channels. The Company also sells a line
of radiographic and fluoroscopic systems designed for real time x-ray imaging
which are sold to both clinics and hospitals with list prices ranging from
$175,000 to $250,000.

SALES AND MARKETING

In the United States, the Company currently markets its products through
its direct sales force and certain dealers. Direct sales offer the Company
higher margins, more control over the sales process and customer contacts, and
ongoing service revenues. The Company believes that more sophisticated products
such as certain breast cancer, EP and endovascular systems require a focused and
dedicated sales force. As a result, the majority of the Company's sales of
Mammotest and EP systems are made through its direct sales force. The Company
believes that general radiology systems are more appropriately sold by dealers
because such products require broader distribution and more competitive pricing.
Accordingly, the Company markets

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its general radiology systems through its dealer organization. Certain of the
Company's dealers market the Company's entire product line, while others focus
exclusively on the general radiology market. As of March 31, 1996, the Company
had approximately 30 direct sales people whose territories primarily cover large
metropolitan areas and approximately 30 independent dealers which cover the
remainder of the United States.

Historically, the Company has focused its marketing efforts in the United
States. Recently, however, the Company has expanded its international marketing
efforts to support the Company's expansion into the European, Asian and Latin
American markets. In 1984, the Company formed a subsidiary in Australia to
manage its sales there and to manage a network of dealers in Asia. In 1993, the
Company created a European sales subsidiary to manage both dealers and direct
sales personnel in Europe. International sales are also made through a network
of dealers in Latin America and the Middle East. In January 1996, the Company
opened a representative office in China. As of March 31, 1996, the Company had
10 direct sales people and approximately 50 dealers conducting the Company's
international sales efforts.

The Company's key marketing activities include trade shows, professional
journal advertising, telemarketing and the organization and administration of
seminars, conferences and physician training programs. The telemarketing group
develops sales leads and assesses customer satisfaction with the Company's
products and both direct and dealer service performance.

The Company's service organization is responsible for installing the
Company's products and providing warranty service. Company products sold by the
direct sales force carry limited warranties covering parts and labor for periods
ranging from six to twelve months. Company products sold through dealers and to
OEM customers carry limited warranties with terms ranging from six to twelve
months which cover only parts or components supplied by the Company. Service
personnel provide maintenance service under service contracts or at hourly rates
from eight locations in the United States. The Company plans to continue to
expand its direct service organization to complement the planned growth in the
Company's direct sales organization. The Company's direct service organization
services its products in certain foreign countries. In other foreign countries,
the Company services its products through dealers and third parties. As of March
31, 1996, the Company employed 57 field and technical support engineers and 11
administrative and management personnel in its U.S. service organization.

RESEARCH AND DEVELOPMENT

The Company has a number of potential new products in various stages of
development. Currently, the Company's research and development efforts are
focused on the development of SENOSCAN, a full field digital mammography system
employing CCD imaging technology. In addition, the Company is expending
significant research efforts on EP systems, advanced image processing and high
frequency generator design. Research and development expenditures totalled $6.2
million, $5.6 million and $6.7 million in 1993, 1994 and 1995 respectively. A
portion of these research and development expenditures is reimbursed by the
Company's OEM customers.

NCI, through payments made to certain members of the National Digital
Mammography Development Group (a consortium of GE Medical Systems and four
universities), has provided funding for the clinical testing of SENOSCAN. The
Company is also a party to a Cooperative Research and Development Agreement with
the Lawrence Livermore National Laboratory to jointly develop design parameters
for a digital mammography system, and has a research arrangement with the
University of Toronto's Department of Medical Physics to jointly evaluate the
Company's digital mammography detector system. See "-- Breast Cancer Imaging and
Biopsy Market -- Breast Cancer Products Under Development."

The Company believes that its ability to develop technical innovations and
apply them to new products designed for targeted clinical applications has been
and continues to be important to its success. The Company's key areas of
engineering expertise include digital image processing, structural mechanical
design, microprocessor control of servo systems, high voltage x-ray generator
design and high resolution video systems. As of March 31, 1996, the Company
employed 86 engineers and technicians in the research and development function.

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<PAGE> 36

The Company's products under development require significant investments in
equipment, inventory, manufacturing and marketing by the Company. Lengthy and
expensive clinical trials could also be required prior to submission to the FDA
and FDA clearance or approval. For example, the Company is developing a number
of new products for the breast cancer market that have not yet undergone
clinical trials or received FDA clearance or approval, and are only in the
prototype or earlier stages. There can be no assurance that the Company will be
able to successfully design, manufacture and market these new products, that the
new products will receive FDA clearance or approval, or that these products will
be accepted by the marketplace. Lack of widespread acceptance of these products
could have a material adverse effect on the Company's future revenues and
earnings. See "-- Government Regulation."

MANUFACTURING

The Company's products are manufactured at its manufacturing facilities in
Denver, Colorado and Chicago, Illinois. Production processes at the facilities
include machining, fabrication, printed circuit board assembly and testing,
subassembly, system assembly and final testing. The Company has invested in
various automated and semi-automated equipment for the fabrication and machining
of parts and assemblies incorporated in its products. The Company may from time
to time further invest in such equipment when cost-justified. The Company's
quality assurance program includes various quality control measures from
inspection of raw materials, purchased parts and assemblies through on-line
inspection. See "Risk Factors -- Manufacturing and Operating Risks."

The Company's manufacturing facilities are subject to periodic inspection
by the FDA. In March 1995, the Company was issued a warning letter by the FDA
concerning documentation and other deficiencies in the manufacturing practices
at its Denver facility. The Company rectified these deficiencies and resolved
this matter with the FDA in June 1995. In September 1995, the Company received a
warning letter from the FDA with respect to documentation and other deficiencies
at its Chicago facility. The Company believes it has corrected the deficiencies
discussed in that letter and is in the process of obtaining third-party
certification of these corrections. There can be no assurance that these
deficiencies have been corrected or that the Company will be able to comply with
the FDA's regulations in the future. Noncompliance could result in an FDA
enforcement action and could have a material adverse effect on the Company. See
"Risk Factors -- Government Regulation of Manufacturing and Products; Risks of
Noncompliance with FDA Regulations."

The Company's manufacturing processes are, for the most part, vertically
integrated, although selective outsourcing is employed to take advantage of
economies of scale at outside manufacturing facilities and to alleviate
manufacturing bottlenecks. The Company purchases materials and components from
various suppliers that are either standard products or built to Company
specifications. See "Risk Factors -- Manufacturing and Operating Risks." Certain
components used in existing products of the Company, as well as products under
development, are frequently purchased from single sources. The Company believes
that alternative sources for such components can generally be obtained when
necessary, although the need to change suppliers or to alternate between
suppliers might cause material delays in delivery or significantly increase the
Company's costs. See "Risk Factors -- Dependence on Key Suppliers."

COMPETITION

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<PAGE> 37

products under their own label. There can be no assurance that such companies
will not choose to purchase from alternative sources or internally manufacture
competing products. In some cases, the products sold by these companies compete
with products offered by the Company and its independent dealers. The Company
also faces competition from vendors selling used x-ray imaging equipment,
particularly general radiology systems, at prices substantially below the prices
of the Company's products. In addition, competition could increase if new
companies enter the market or if existing competitors expand their product lines
or intensify efforts within existing product lines. There can be no assurance
that the Company's current products or products under development will be
sufficient to enable it to compete effectively. In addition, the Company
competes for acquisition opportunities, OEM and service contracts and
experienced personnel.

The Company's Mammotest system principally competes with Lorad's
prone-positioning breast biopsy system, which Lorad has aggressively priced.
Many larger companies, including GE Medical Systems, Philips and Siemens also
offer stereotactic add-on systems. See "Patents and Proprietary Rights" for a
discussion of the Company's patent infringement litigation against Lorad.

Additionally, U.S. Surgical Corporation ("U.S. Surgical") has recently
introduced a 20 millimeter diameter tissue removal system. The U.S. Surgical
biopsy system is sold with a stereotactic table which Lorad manufactures for
U.S. Surgical on a private label basis.

PATENTS AND PROPRIETARY RIGHTS

The Company seeks to protect its proprietary rights through a combination
of technical experience, patent, trade secret and trademark protection and
nondisclosure agreements. The Company's future success will depend in part on
its ability to obtain and enforce patent protection for its products and
processes, preserve its trade secrets and operate without infringing on the
patent or proprietary rights of others.

While the Company has numerous U.S. and foreign issued patents and pending
patent applications covering various aspects of its products, there can be no
assurance that the Company's patents, and any patents that may be issued in the
future, will provide the Company with significant competitive advantages or
protection of its intellectual property. The Company's issued patents cover,
among other things, certain features of its Mammotest stereotactic breast biopsy
system, and its allowed patents include a patent on certain features of its
SENOSCAN digital mammography system and MR biopsy system. In addition, the laws
of some foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States. The Company
anticipates that any attempt to enforce its patents would be time consuming and
costly. No assurance can be given that any patents owned or applied for by the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. In
addition, since many other companies hold patents in fields in which the Company
operates, the Company could be found to have infringed third-party patents and
could be required to alter its products or processes, pay licensing fees, which
may not be available to the Company on commercially reasonable terms, if at all,
or cease making and selling any infringing products and pay damages for past
infringement.

In addition, the Company relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through appropriate confidentiality and
proprietary information agreements. These agreements generally provide that all
confidential information developed or made known to the individual by the
Company during the course of the individual's relationship with the Company is
to be kept confidential and not disclosed to third parties, except in specific
circumstances. The agreements generally provide that all inventions conceived by
the individual in the course of rendering services to the Company shall be the
exclusive property of the Company. There can be no assurance that proprietary
information or confidentiality agreements with employees, consultants and others
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to,
or independently developed by, competitors.

In April 1992, the Company filed a patent infringement lawsuit against
Lorad in the United States District Court for the District of Colorado. The
Company owns patent No. 5,078,142, covering certain features of its Mammotest
stereotactic breast biopsy system and believes that Lorad has infringed certain
claims of its

36
<PAGE> 38

patent with the introduction of its mammographic biopsy system. The action seeks
to enjoin Lorad and its agents from the manufacture, use and sale of the
allegedly infringing stereotactic breast biopsy system. The Company is also
seeking treble damages and attorneys' fees. The Company intends to seek the
earliest possible trial date for this litigation. It is possible that this suit
will not come to trial until after the resolution of a case currently before the
U. S. Supreme Court, Werner-Jenkinson Company, Inc. v Hilton Davis Chemical Co.
Although the Company is not a party to the Werner-Jenkinson case, certain issues
related to the doctrine of equivalence raised in that case are similar to issues
raised in the Company's suit against Lorad. Therefore, the U. S. District Court
for the District of Colorado may delay the trial date for the Lorad suit until
after the Supreme Court's decision in the Werner-Jenkinson case.

The Company has received notice from the holder of a U. S. patent alleging
infringement by certain of the Company's products and offering the Company a
license to use the patent on terms that are not acceptable to the Company.
Although the Company has not concluded its review of the patent, the Company
believes that only one former product and one current product could potentially
be implicated by the patent. Based on the foregoing, the Company believes that,
if required to take a license to the patent, any license fees payable would not
have a material adverse effect on the Company's financial position.

The Company has technology license agreements with third parties under
which it pays nominal royalties in connection with its sale of products using
the third party's technology. The Company pays royalties under a technology
license for the TRAUMEX system.

In connection with the Company's sale of Preferred Stock to GE Medical
Systems in June 1995, the Company granted GE Medical Systems a contingent
license to the Company's technology relating to an OEM product. GE Medical
Systems' rights to use this manufacturing license in return for the cancellation
of the Preferred Stock is contingent upon its continued ownership of all of the
shares of the Preferred Stock, and upon a change in control of the Company. See
"-- Relationship with GE Medical Systems."

GOVERNMENT REGULATION

FDA regulations require manufacturers of medical devices to adhere to
certain "Good Manufacturing Practices" ("GMP"), which include testing, quality
control and documentation procedures. The Company's manufacturing facilities are
subject to periodic inspection by the FDA. In March 1995, the Company was issued
a warning letter by the FDA concerning documentation and other deficiencies at
its Denver facility. The Company rectified these deficiencies and resolved this
matter with the FDA in June 1995. In September 1995, the Company received a
warning letter from the FDA with respect to documentation and other deficiencies
at its Chicago facility. The Company believes it has corrected the deficiencies
discussed in that letter and is seeking third-party certification of its
corrections. Although the Company strives to operate within the requirements
imposed by the FDA, there can be no assurances that these deficiencies have been
corrected or that the Company will be able to comply with the FDA's regulations
in the future. Noncompliance could result in an FDA enforcement action and could
have a material adverse effect on the Company. See "Risk Factors -- Government
Regulation of Manufacturing and Products; Risks of Noncompliance with FDA
Regulations."

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<PAGE> 39

comply with the MDR requirements or the filing of MDR reports that indicate
unexpected product hazards, could have a material adverse effect on the Company.

Each of the Company's products is required to receive FDA clearance or
approval prior to commercialization. To date, all of the Company's products have
been classified by the FDA as Class II medical devices and have been eligible
for FDA marketing clearance pursuant to the FDA's 510(k) premarket notification
process, which is generally less time consuming than the more involved premarket
approval ("PMA") process for Class III medical devices. The Company believes
that most of its currently anticipated future products and substantial
modifications to existing products will be eligible for the 510(k) premarket
notification process. However, the FDA has not yet classified full-field digital
imaging mammography systems like the SENOSCAN system being developed by the
Company. The FDA recently released a memorandum suggesting that clearance for
full-field digital imaging mammography systems may be obtained through a 510(k)
notification with clinical trials involving approximately 500 subjects. The
Company plans to submit a 510(k) notification for SENOSCAN and the results of
the clinical trials to the FDA during 1996. If the FDA indicates that a PMA is
required for any of the Company's new products, the application will require
extensive clinical studies, manufacturing information and most likely a review
by a panel of experts outside the FDA. Clinical studies would need to be
conducted in accordance with FDA requirements. Failure to comply with FDA
requirements could result in the FDA's refusal to accept the data or the
imposition of regulatory sanctions. FDA review of a PMA application can take
significantly longer than that for a 510(k) premarket notification and could
take several years to complete. There can be no assurance that the necessary
clearances or approvals for any of the Company's new products, including
SENOSCAN, will be obtained on a timely basis, if at all. Failure to obtain
necessary regulatory approvals, the restriction, suspension or revocation of
existing approvals, or any failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations.

Sales of medical devices outside of the United States are subject to FDA
export and international regulatory requirements that vary from country to
country. The time required to obtain approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. There can be no assurance that the Company will obtain
regulatory approvals in such countries or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
The Company has recently obtained the certifications necessary to permit the
"CE" mark to be affixed to those products currently being sold in Europe. The CE
mark is an international symbol of quality which will become required for sales
into the member countries of the European Union beginning in mid-1998. While the
Company has obtained approval to sell into the European Union, there can be no
assurance that the Company will be able to obtain other international regulatory
approvals. In addition, significant costs and delays may be encountered in
obtaining such regulatory approvals.

The Company is also regulated by the FDA under the Radiation Control for
Health and Safety Act of 1968 which specifically addresses radiation emitting
products. Under this law, the Company must submit initial reports on any new
x-ray systems that require certification that they meet FDA performance
standards. In addition, the Company must submit installation reports to the FDA
certifying compliance with installation instructions of the manufacturer. Under
certain circumstances, the Company also is required to submit product defect
reports ("PDRs") concerning its radiation emitting products to the FDA and,
sometimes, to the first purchasers of the products. PDRs describe any safety
related product defects or the failure of a product to conform to an applicable
standard of which the Company has become aware. Additionally, the Company is
required to submit accidental radiation occurrence ("ARO") reports to the FDA
whenever one of its products accidentally releases radiation that results in an
injurious or potentially injurious exposure to any person. However, the Company
need not file both an MDR and an ARO report on the same incident. A failure to
comply with these regulations could have a material adverse effect on the
Company. Furthermore, discovery of unexpected product hazards or failures to
meet required standards through the reporting system could also have a material
adverse effect on the Company.

The Company is also subject to other Federal, state, local and
international laws and regulations related to worker health and safety,
environmental protection and export controls. The Company believes it is in
compliance in all material respects with these other laws and regulations.

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<PAGE> 40

GOVERNMENT REIMBURSEMENT

Medicare reimbursement for hospitals represents about 30% of all hospital
revenues. Since 1983, Medicare reimbursement has been based on a fixed amount
for admitting a patient with a specific diagnosis. Hospital profit margins have
been reduced significantly since the introduction of Diagnosis Related Groups
("DRGs"). As DRG reimbursement is a fixed amount based on a specific diagnosis,
hospitals have incentive to use less costly treatment methods. If a new
technology is considered to be more cost effective, hospitals will frequently
make capital expenditures to provide cost savings. Frequently, DRG reimbursement
is reduced to reflect the adoption of a new procedure or technique and, as a
result, hospitals are generally willing to implement new cost saving
technologies before these downward adjustments in DRG rates become effective.

In 1991, the Health Care Financing Administration ("HCFA") published rules
to change the method of capital reimbursement for hospitals. The rules changed
capital reimbursement from a system based on costs to one based on prospective
payment. The rules provide for a ten year transition and permit hospitals with
unusually low or high capital reimbursement methods to be reimbursed fairly. The
Company believes that these capital reimbursement rules impact the expansion of
facilities more heavily than medical equipment purchases.

In early 1992, Medicare also began to phase in over a five year period a
system whereby reimbursements to physicians are based on the lower of their
actual charges or a fee schedule amount based on a "resource-based relative
value scale." This replaced a "charge-based" fee schedule, and generally lowers
the reimbursements received by radiologists and cardiologists from the previous
method.

The Company believes that since minimally-invasive surgical techniques are
generally less expensive than open or conventional surgery, its stereotactic
breast biopsy, EP and endovascular systems provide hospitals the opportunity to
reduce costs and, therefore, that the Company generally benefits from cost
containment programs.

The Company's new products may require reimbursement in excess of levels
currently permitted under Medicare guidelines. See "Risk Factors -- Healthcare
Reform; Uncertainty of Patient Reimbursement."

RELATIONSHIP WITH GE MEDICAL SYSTEMS

In June 1995, the Company completed a private sale of 1,333,333 shares of
its Convertible Preferred Stock to GE Medical Systems for $10 million.

The Convertible Preferred Stock has no voting rights, except as provided by
law. The Convertible Preferred Stock ranks senior to the Company's Common Stock
and all other preferred stock or other equity securities of the Company. The
Convertible Preferred Stock is convertible at the option of the holder at any
time into an equal number of shares of Common Stock. The Convertible Preferred
Stock bears no stated dividend but its holders are entitled to receive
equivalent dividends to any dividends paid on any other preferred stock or other
equity securities of the Company. The Convertible Preferred Stock is not
redeemable by the Company. The Convertible Preferred Stock has a liquidation
preference of $7.50 per share and is protected by customary anti-dilution
provisions.

In the event certain companies acquire control of the Company, GE Medical
Systems has the right, if it continues to beneficially own all of the originally
outstanding shares of Convertible Preferred Stock, to either (i) surrender all
of the Convertible Preferred Stock in exchange for a non-exclusive manufacturing
license to the Company's Tilt C diagnostic imaging systems (the "Tilt C
License"), (ii) participate in any merger of the Company with such companies, or
(iii) receive $10 million in cash if under clause (ii) above it would receive
cash and marketable securities of less than $10 million in value. Additionally,
if the Company violates certain net worth or other covenants, GE Medical Systems
has the right, if it continues to beneficially own all of the originally
outstanding shares of Convertible Preferred Stock, to surrender the Convertible
Preferred Stock for the non-exclusive Tilt C License.

GE Medical Systems also agreed to certain customary standstill provisions,
which expire on the earlier of June 20, 2000 or the date upon which GE Medical
Systems beneficially owns less than 5% of the Company's outstanding Common
Stock.

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<PAGE> 41

In connection with the foregoing transactions, the Company and GE Medical
Systems entered into a Registration Rights Agreement, dated as of June 20, 1995,
which grants to GE Medical Systems certain demand and piggyback registration
rights with respect to the Common Stock obtainable upon conversion of the
Convertible Preferred Stock. GE Medical Systems has declined to participate in
this Offering.

BACKLOG

The Company's backlog generally includes only product orders for which
delivery is requested within the succeeding twelve month period. Although the
Company has multi-year agreements with several OEM customers and occasionally
has other orders with longer than twelve month lead times, such orders are
included in backlog only at the time when the requested delivery date falls
within the twelve month period and specific purchase orders are released and
accepted by the Company.

As of December 31, 1994 and 1995, the Company's backlog was approximately
$24.0 million and $26.5 million, respectively. Backlog as of any particular date
should not be relied upon as being indicative of the Company's net revenues for
any future period.

FACILITIES

The Company maintains leased office and manufacturing facilities in Denver,
Colorado and Chicago, Illinois. The Denver facilities include approximately
125,000 square feet of office and manufacturing space and are leased from a
partnership whose general partners are Morgan W. Nields, the Company's Chairman
of the Board and Chief Executive Officer, and Kinney L. Johnson, a member of the
Company's Board of Directors. The Denver facilities include the Company's
headquarters. The Illinois facilities consist of approximately 150,000 square
feet of office and manufacturing space. The Company's general radiology systems
are manufactured at the Illinois facility. All other products are manufactured
in Denver. The Company also leases office space in Denmark, Germany, Australia
and China. The Company believes its facilities will provide the capacity to
accommodate several years of growth.

PRODUCT LIABILITY

The Company has been a defendant from time to time in product liability
claims. The Company maintains product liability insurance with coverage limits
of $5 million per occurrence per year in the aggregate. During the last five
years, the Company has not paid any significant sums relating to product
liability claims.

LEGAL PROCEEDINGS

The Company is a defendant in various lawsuits incident to the operation of
its business. Management believes that there are no pending legal proceedings
against the Company that would have a material adverse effect on the
consolidated financial position of the Company. See "Patents and Proprietary
Rights" for a discussion of the Company's patent infringement suit against Lorad
Corporation.

EMPLOYEES

As of March 31, 1996, the Company had approximately 560 employees,
including 300 in manufacturing, 83 in engineering, 127 in sales, marketing and
service and 50 in administration. None of the Company's employees are parties to
a collective bargaining agreement. The Company considers relations with its
employees to be good.

SCIENTIFIC ADVISORY BOARDS

The Company maintains a Medical Advisory Board and an Electrophysiology
Advisory Board to provide advice to the Company with respect to new developments
in the medical field. The Company seeks the advice of its Medical Advisory Board
members for opinions on the relative importance of new techniques in medicine,
as well as the impact of new and developing procedures on the Company,
particularly in the fields of

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<PAGE> 42

radiology and cardiology. The Electrophysiology Advisory Board advises the
Company on developments in the field of electrophysiology. From time to time,
members of these boards or their institutions may purchase products from the
Company. Members receive no compensation from the Company other than
reimbursement of expenses and nominal honoraria. One of the Medical Advisory
Board Members, David G. Bragg, M.D., is also a director of the Company.

<TABLE>
<S> <C>
Medical Advisory Board Members Affiliation

David G. Bragg, M.D. ............ Professor and Chairman of Radiology,
University of Utah School of Medicine
Salt Lake City, Utah
Joseph P. Galichia, M.D. ........ Galichia Cardiovascular Cardiology Group P.A.
Wichita, Kansas
William R. Hendee, Ph.D. ........ Senior Associate Dean for Research, Medical College of
Wisconsin
Milwaukee, Wisconsin
Spencer B. King, M.D. ........... Director of Interventional Cardiology, Emory Hospital
Atlanta, Georgia
Wende Logan-Young, M.D. ......... Breast Clinic of Rochester
Rochester, New York
William M. Thompson, M.D. ....... Professor and Chairman of Radiology, University of
Minnesota
Minneapolis, Minnesota
Electrophysiology Advisory

Board Members Affiliation

Michael J. Baker, M.D. .......... Penrose Hospital
Colorado Springs, Colorado
David E. Haines, M.D. ........... University of Virginia Health Sciences Center
Charlottesville, Virginia
Warren Jackman, M.D. ............ Director of Clinical Electrophysiology,
University of Oklahoma Health Sciences Center
Oklahoma City, Oklahoma
Richard M. Luceri, M.D. ......... Florida Arrhythmia Consultants
Ft. Lauderdale, Florida
John M. Miller, M.D. ............ Temple University Department of Medicine, Cardiology
Section
Philadelphia, Pennsylvania
Gerald Naccorelli, M.D. ......... Hershey Medical Center, Cardiology Division
Hershey, Pennsylvania
Michael J. Reiter, M.D. ......... University of Colorado, Cardiology Department
Denver, Colorado
John R. Windle, M.D. ............ University of Nebraska Medical Center
Omaha, Nebraska
Carol A. Zaher, M.D. ............ Kaiser Permanente
Los Angeles, California
</TABLE>

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<PAGE> 43

MANAGEMENT

DIRECTORS AND OFFICERS

The Company's directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Morgan W. Nields..................... 50 Chairman of the Board and Chief Executive Officer
Richard F. Balla..................... 58 Vice President, Operations-Chicago
Anthony G. DeCarolis................. 49 Vice President, Sales and Marketing
Charles L. Dumas..................... 61 Vice President, Operations
James A. Newcomb..................... 49 Vice President, Finance and Chief Financial
Officer
Mike Tesic, Ph.D. ................... 58 Vice President, Engineering
Carla J. Wolin....................... 46 Vice President, Administration and Secretary
David G. Bragg, M.D. ................ 62 Director(1)
Thomas J. Cable...................... 56 Director(2)
Kinney L. Johnson.................... 52 Director(1)
Frank W.T. LaHaye.................... 67 Director(2)
Lawrence A. Lehmkuhl................. 58 Director(2)
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

Executive officers are appointed by and serve at the pleasure of the Board of
Directors.

Morgan W. Nields. Mr. Nields has served as Chairman of the Board and Chief
Executive Officer since the Company's incorporation in 1973 and served as
President from August 1990 until December 1992. Mr. Nields is a Director and a
member of the Board of Governors of the National Electrical Manufacturers
Association (NEMA). He holds a BA degree from Williams College and an MBA from
the Amos Tuck School of Business Administration at Dartmouth College.

Richard F. Balla. Mr. Balla joined the Company in November 1988 as Vice
President, Manufacturing-Chicago, when the Company purchased the Raytheon
Medical Systems Division. In July 1990, he became Vice President,
Operations-Chicago. Mr. Balla holds a BSEE degree from Chicago Technical
College.

Anthony G. DeCarolis. Mr. DeCarolis joined the Company in May 1995 as Vice
President, Sales and became Vice President, Sales and Marketing shortly
thereafter. Prior to joining the Company, Mr. DeCarolis served in national sales
management positions for Toshiba America Medical Systems from 1989 to March 1995
and in management positions at General Electric Company from 1985 to 1989. Mr.
DeCarolis holds a BS degree from the University of Pittsburgh.

Charles L. Dumas. Mr. Dumas joined the Company in September 1994 as Vice
President, Operations. Prior to joining the Company, Mr. Dumas served as Vice
President and General Manager of the Relay Products Division of Genicom
Corporation, a data processing and computer peripherals company, from January
1990 to August 1994. Mr. Dumas has also held similar positions with Quotron
Systems, NBI, Inc. and ITT Courier, Inc. from 1980 to 1990. Mr. Dumas holds a
BSEE degree from the University of Alabama and attended graduate school at
Arizona State University.

James A. Newcomb. Mr. Newcomb joined the Company in June 1995 as its Vice
President, Finance and Chief Financial Officer. Previously, Mr. Newcomb was Vice
President of Finance, Chief Financial Officer for Neodata Services, Inc., a
direct marketing and fulfillment company, from September 1993 to May 1994, and
Vice President Controller of Teco Energy, Inc., a diversified utility holding
company, from June 1989 to August 1993. From 1985 to 1989, Mr. Newcomb was Vice
President of Finance for the defense electronics business of Allied Signal Inc.
Mr. Newcomb holds a BA degree in Economics from Beloit College in Wisconsin and
an MBA from the Amos Tuck School of Business Administration at Dartmouth
College.

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<PAGE> 44

Mike Tesic, Ph.D. Dr. Tesic joined the Company in November 1993 as Vice
President, Engineering. Prior to joining the Company, Dr. Tesic served as Vice
President of Engineering and Strategic Development of Lunar Corporation, a
direct marketing and fulfillment company, from January 1992 to November 1993.
Dr. Tesic was Manager of Research and Development for Varian's Magnetic
Resonance Spectroscopy business from July 1986 to January 1992 and, prior to
that, held several management positions with Picker International. Dr. Tesic
holds a Ph.D. degree in physics from Case Western Reserve University.

Carla J. Wolin. Ms. Wolin joined the Company in February 1992 as Director
of Human Resources and Risk Management and in 1994 became the Company's Vice
President, Administration. In June 1995, she assumed the additional
responsibilities of Secretary of the Corporation. From February 1990 to January
1992, Ms. Wolin served as Vice President of Human Resources and Risk Management
of Aerospatiale Helicopter Corporation. Ms. Wolin holds a BS degree in business
from Capital University and attended graduate school at Rockford College.

David G. Bragg, M.D. Dr. Bragg has been a director of the Company since
1985. Dr. Bragg has been Professor and Chairman of the Department of Radiology,
University of Utah School of Medicine since 1970. He is a member of the American
Board of Radiology. He is also a director of the American Investment Bank, N.A.

Thomas J. Cable. Mr. Cable has been a director of the Company since 1984.
Mr. Cable founded and has been general partner of Cable & Howse Ventures, Inc.,
a venture capital firm, since 1977. He is a director of EndoSonics Corporation,
Ostex International Corporation and Mycogen Corporation.

Kinney L. Johnson. Mr. Johnson has been a director of the Company since
1973 and was actively involved with the management of the Company from 1973
through February 1985. Since February 1985, Mr. Johnson has been a principal at
Capital Health Venture Partners, a venture capital firm located in Denver,
Colorado. Mr. Johnson is a director of The Spectranetics Corporation and
Somatogen, Inc.

Frank W.T. LaHaye. Mr. LaHaye has been a director of the Company since
1984. Mr. LaHaye has been a general partner of Peregrine Associates and Miller &
LaHaye, the partnerships that have served as the general partners of Peregrine
Ventures and Peregrine Ventures II Venture Capital Funds, since 1981 and 1984,
respectively. Mr. LaHaye is an unaffiliated outside director or trustee of
twenty-eight mutual funds or trusts of the Franklin/Templeton Group of Funds. He
is chairman and director of Quarterdeck Corporation and a director of Digital
Transmission Systems, Inc.

Lawrence A. Lehmkuhl. Mr. Lehmkuhl has been a director of the Company since
1993, when he was appointed by the remaining directors to fill a vacancy on the
Board of Directors. He retired from St. Jude Medical, Inc., a medical device
manufacturer, where he has held, variously, the positions of Chairman of the
Board, President and Chief Executive Officer. Mr. Lehmkuhl was employed by
American Hospital Supply Corporation from 1966 through the date of his
appointment as President and Chief Executive Officer of St. Jude Medical, Inc.
in February 1985. Mr. Lehmkuhl is also a director of St. Jude Medical, Inc.,
Aequitron Medical, Inc., and Kera Vision, Inc.

43
<PAGE> 45

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 31, 1996, and as
adjusted to reflect the sale of shares offered hereby, by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock; (ii) each director of the Company; (iii) each executive officer of
the Company; (iv) each Selling Stockholder; and (v) all directors and executive
officers of the Company as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) NUMBER OF SHARES OFFERING(1)
DIRECTORS, OFFICERS AND ----------------------- TO BE SOLD IN --------------------
FIVE PERCENT STOCKHOLDERS NUMBER PERCENT THE OFFERING NUMBER PERCENT
- ------------------------------------ --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
GE Medical Systems, a division of
General Electric Company(2)....... 1,333,333 19.0% -- 1,333,333 16.2%
P.O. Box 414
Milwaukee, Wisconsin 53201
Morgan W. Nields
12300 North Grant St.
Denver, CO 80241
Direct ownership(3)............... 746,677 -- 746,677
Indirect ownership
The Robert L. Nields
Trust(4).......................... 196,442 25,919 170,523
Florence Wesson Nields
Irrevocable Trust(4)......... 144,862 25,919 118,943
Total direct and indirect
ownership...................... 1,087,981 19.0 51,838 1,036,143 14.9
Kinney L. Johnson(5)................ 503,000 8.8 35,000 468,000 6.8
2084 S. Milwaukee
Denver, CO 80210
David G. Bragg, M.D.(6)............. 9,000 * -- 9,000 *
Thomas J. Cable(7).................. 19,064 * -- 19,064 *
Frank W.T. LaHaye(8)................ 159,901 2.8 -- 159,901 2.3
Lawrence A. Lehmkuhl(9)............. 14,000 * -- 14,000 *
Richard F. Balla(10)................ 25,451 * -- 25,451 *
Anthony G. DeCarolis(11)............ 10,000 * -- 10,000 *
Charles L. Dumas(12)................ 500 * -- 500 *
James A. Newcomb.................... 18,000 * -- 18,000 *
Mike Tesic, Ph.D.................... -- -- -- -- --
Carla J. Wolin(13).................. 2,656 * -- 2,656 *
All directors and executive officers
as a group (12 persons)(14)....... 1,849,553 31.7 86,838 1,762,715 25.1
OTHER SELLING STOCKHOLDERS
Gerald Czajkowski(15)............... 7,068 * 7,018 50 *
Norval Northcott(15)................ 49,126 * 49,126 -- *
Steven Wagner(15)................... 7,068 * 7,018 50 *
</TABLE>

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

* Less than 1%

(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed. A beneficial owner is
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power or
investment power

44
<PAGE> 46

over the security. Number of shares includes all shares underlying options
that will be exercisable within 60 days of May 31, 1996. Shares not
outstanding but deemed outstanding by virtue of the right of a person or a
member of the group to acquire them within 60 days are treated as
outstanding only when determining the amount and percent beneficially owned
by such person or group.

(2) Represents 1,333,333 shares of Convertible Preferred Stock that are
immediately convertible into 1,333,333 shares of Common Stock at the option
of their holder. Until converted, the Convertible Preferred Stock is
non-voting, except as required by law.

(3) The amount shown includes 47,500 shares which may be purchased pursuant to
options exercisable by August 1, 1996.

(4) Mr. Nields is a co-trustee and a beneficiary of both trusts and exercises
shared voting and investment power as to such shares.

(5) Includes 15,000 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(6) Represents 9,000 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(7) Includes 16,000 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(8) Mr. LaHaye is a general partner of the general partner of each of Peregrine
Ventures II, L.P. ("PVII") and Peregrine Ventures, L.P. ("PV"). The table
includes 79,145 shares held by PVII and 64,756 shares held by PV. Mr.
LaHaye is a general partner of Miller & LaHaye, the general partner of PVII
and is a general partner of Peregrine Associates, the general partner of
PV. Mr. LaHaye exercises shared voting and investment power with respect to
all of such shares and disclaims beneficial ownership of such shares. The
amount shown also includes 16,000 shares which may be purchased pursuant to
options exercisable by August 1, 1996.

(9) Represents 14,000 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(10) Represents 23,750 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(11) Includes 5,000 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(12) Represents 500 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(13) Includes 2,500 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(14) Includes 144,250 shares which may be purchased pursuant to options
exercisable by August 1, 1996.

(15) Approximately 16% of each of Messrs. Czajkowski's, Northcott's and Wagner's
net proceeds from the sale of their shares will be paid into an escrow
account established in connection with the Company's acquisition of their
minority interests in one of its subsidiaries. The proceeds will ultimately
be paid out to these men, the Company or a combination thereof based on
certain adjustments which may be made in June 1996 to the purchase price of
these interests.

45
<PAGE> 47

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $0.01 par value per share, of which approximately 6,890,000
shares will be outstanding upon the completion of this Offering, and 5,000,000
shares of preferred stock, $0.01 par value per share (the "Preferred Stock"),
issuable in series, of which 500,000 shares have been designated as Series C
Junior Participating Preferred Stock ("Junior Preferred Stock"), none of which
are outstanding, and 1,333,333 shares have been designated as Convertible
Preferred Stock, all of which are outstanding. The following description of the
capital stock of the Company and certain provisions of the Company's Certificate
of Incorporation ("Certificate") and Bylaws are qualified in their entirety by
reference to such documents, copies of which have been previously filed with the
Securities and Exchange Commission. As of June 25, 1996, the Company's Common
Stock was held of record by 210 stockholders and its Convertible Preferred Stock
was held of record by one stockholder, GE Medical Systems.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of Incorporation
does not provide for cumulative voting for the election of directors. Subject to
the dividend rights of any outstanding Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor,
and, subject to the liquidation preferences of any outstanding Preferred Stock,
are entitled to receive, pro rata, all assets of the Company available for
distribution to such holders upon liquidation. Holders of Common Stock have no
preemptive, subscription or redemption rights. The transfer agent and registrar
for the Common Stock is American Securities Transfer Inc., Denver, Colorado.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Company is authorized to
issue 5,000,000 shares of Preferred Stock, which may be issued from time to time
in one or more series upon authorization by the Company's Board of Directors.
The Board of Directors, without further approval of the stockholders, are
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and any other
rights, preferences, privileges and restrictions applicable to each series of
the Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to gain control of the Company and discourage bids for the
Company's Common Stock at a premium or otherwise adversely affect the market
price of the Common Stock.

In June 1995, the Company completed a private sale of 1,333,333 shares of
its Convertible Preferred Stock (as described below) to GE Medical Systems for
$10 million. See "Business -- Relationship with GE Medical Systems."

In connection with the issuance of the Rights (as described below), the
Company designated 500,000 shares of Preferred Stock as Junior Preferred Stock.
Shares of the Junior Preferred Stock could become issuable under certain
circumstances if the Rights become exercisable and are exercised.

STOCKHOLDERS RIGHTS PLAN; SERIES C JUNIOR PARTICIPATING PREFERRED STOCK

In November 1994, the Board of Directors of the Company declared a dividend
of one right to purchase Junior Preferred Stock (a "Right") for each outstanding
share of Common Stock to stockholders of record at the close of business on
November 14, 1994. Each share of subsequently issued Common Stock, including
each share of Common Stock offered hereby, will also incorporate one Right. The
Rights will expire on November 3, 2004. Each Right will entitle stockholders, in
certain circumstances, to buy one one-hundredth of a newly issued share of
Junior Preferred Stock at the initial purchase price of $25.00 per share.

46
<PAGE> 48

The Rights will be exercisable and transferable apart from the Common Stock
only if a person or group (other than certain exempt persons, including Morgan
W. Nields, one of the Company's founders and its Chairman of the Board and Chief
Executive Officer, Kinney L. Johnson, one of the Company's founders and a
director, and GE Medical Systems) acquires beneficial ownership of 15% or more
of the Common Stock, or commences a tender or exchange offer upon the
consummation of which such person or group would beneficially own 15% or more of
the Common Stock.

The Company will generally be entitled to redeem the Rights at $.001 per
Right at any time until a person or group (other than the exempt persons) has
become the beneficial owner of 15% or more of the Common Stock. Under the Rights
"flip-in" feature, if any such person or group becomes the beneficial owner of
15% or more of the Common Stock, then each Right not owned by such person or
group or certain related parties will entitle its holder to purchase, at the
Right's then current purchase price, shares of Common Stock (or in certain
circumstances as determined by the Board of Directors, cash, other property or
other securities) having a value of twice the Right's purchase price.

Under the Rights "flip-over" provision, if, after any other person or group
(other than the exempt persons) becomes the beneficial owner of 15% or more of
the Common Stock, the Company is involved in a merger or other business
combination transaction with another person, or the Company sells 50% or more of
its assets or earning power in one or more transactions, each Right will entitle
its holder to purchase, at the Right's then current purchase price, shares of
common stock of such other person having a value of twice the Right's purchase
price.

The Junior Preferred Stock is not redeemable and, unless otherwise provided
in connection with the creation of a subsequent series of Preferred Stock, is
subordinate to all other series of the Company's Preferred Stock. Each share of
Junior Preferred Stock represents the right to receive, when and if declared, a
quarterly dividend at an annual rate equal to the greater of $1.00 per share or
100 times the quarterly per share cash dividends declared on the Common Stock
during the immediately preceding fiscal year. In addition, each share of Junior
Preferred Stock represents the right to receive 100 times any noncash dividends
(other than dividends payable in Common Stock) declared on the Common Stock, in
like kind. In the event of the liquidation, dissolution or winding up of the
Company, each share of Junior Preferred Stock will represent the right to
receive a liquidation payment in an amount equal to the greater of $1.00 per
share or 100 times the liquidation payment made on each share of Common Stock.
Each share of Junior Preferred Stock has 100 votes, voting together with the
Common Stock. In the event of any merger, consolidation, or other transaction in
which Common Stock is exchanged, each share of Junior Preferred Stock represents
the right to receive 100 times the amount received per share of Common Stock.
The rights of the Junior Preferred Stock as to dividends, liquidation, voting
rights and merger participation are protected by customary anti-dilution
provisions.

SERIES D CONVERTIBLE PREFERRED STOCK

The Convertible Preferred Stock has no voting rights, except as provided by
law. The Convertible Preferred Stock ranks senior to the Company's Common Stock
and all other Preferred Stock or other equity securities of the Company. The
Convertible Preferred Stock is convertible at the option of the holder at any
time into an equal number of shares of Common Stock. The Convertible Preferred
Stock bears no stated dividend but its holders are entitled to receive
equivalent dividends to those paid on any other Preferred Stock or other equity
securities of the Company. The Convertible Preferred Stock is not redeemable by
the Company. The Convertible Preferred Stock has a liquidation preference of
$7.50 per share and is protected by customary anti-dilution provisions.
Additionally, for as long as GE Medical Systems continues to hold all of the
outstanding shares of Convertible Preferred Stock, it will have certain
contingent rights, including rights to use a non-exclusive manufacturing license
for the Company's Tilt C technology, in return for the cancellation of the
Convertible Preferred Stock in the event of a change of control of the Company
or certain other events. For a further description of these rights and of other
related agreements with GE Medical Systems, see "Business -- Relationship With
GE Medical Systems."

47
<PAGE> 49

CERTAIN ANTI-TAKEOVER PROVISIONS

In addition to the Stockholders Rights Plan and certain aspects of the
Preferred Stock (described above), the Company's Certificate also contains
certain provisions which may have the effect of delaying, deferring or
preventing a change of control of the Company. The Certificate provides that the
Board of Directors shall consist of three classes of directors, each serving for
a three-year term ending in a successive year. Each class currently consists of
two directors. This provision may make it more difficult to effect a takeover of
the Company because it would generally take two annual meetings of stockholders
for an acquiring party to elect a majority of the Board of Directors. As a
result, a classified Board of Directors may discourage proxy contests for the
election of directors or purchases of a substantial block of stock because it
could operate to prevent a potential acquiror from obtaining control of the
Board of Directors in a relatively short period of time.

The Certificate also includes a "fair price" provision that requires the
affirmative vote of two-thirds of the outstanding shares of capital stock
entitled to vote generally in the election of directors (in lieu of the majority
vote otherwise required by Delaware law) to approve certain business
combinations, including certain mergers, security issuances, recapitalizations,
liquidations and the sale, lease or transfer of a substantial part of the
Company's assets, involving the Company or a subsidiary and an owner of 5% or
more of the outstanding Common Stock (an "interested stockholder"), unless such
business combination is approved by a majority of the directors unaffiliated
with the interested stockholder or the stockholders receive a "fair price" for
their holdings and other procedural requirements are met. A "fair price" is an
amount at least equal to the greater of (i) the highest price per share paid by
the interested stockholder for any shares acquired by it when it became such a
stockholder or within two years prior to the announcement of the proposed
business combination or (ii) the highest market value or liquidation value per
share on the date of such announcement or the date the person became an
interested stockholder.

In addition, the Certificate provides that stockholders may take action
only at a duly called and held meeting and may not take action by written
consent. This provision may make it more difficult to effect a takeover of the
Company by means of certain transactions, such as a merger or sale of assets, by
requiring a potential acquiror to hold a stockholders' meeting before such a
transaction could be consummated.

The Certificate also provides that the "fair price" provision, the
"staggered board" provision and the provisions concerning voting rights of
stockholders may be amended only by a vote of two-thirds of the outstanding
shares of capital stock entitled to vote generally in the election of directors,
voting as a single class.

The Company is subject to Section 203 of the Delaware General Corporation
Law, which section imposes restrictions on business combinations (as defined
therein) with interested persons (defined therein as any person who acquires 15%
or more of the Company's outstanding voting stock). In general, the Company is
prohibited from engaging in business combinations with an interested person for
a period of three years from the date a person becomes an interested person,
subject to certain exceptions. By restricting the ability of the Company to
engage in business combinations with an interested person, the application of
Section 203 to the Company may provide a barrier to takeovers not approved in
advance by the Company's Board of Directors.

48
<PAGE> 50

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
approximately 6,890,000 shares (7,092,500 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock assuming no stock
options are exercised. Of these shares, all of the 1,200,000 shares (1,402,500
shares if the Underwriters' over-allotment option is exercised in full) sold by
the Company in this Offering and 3,927,285 shares outstanding prior to this
Offering will be freely transferable by persons other than "affiliates" of the
Company, without restriction under the Securities Act.

The remaining 1,762,715 shares of Common Stock will be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption contained in
Rule 144. All such restricted securities will be eligible for sale under Rule
144. Certain stockholders and all of the officers and directors of the Company
have agreed not to offer to sell, sell or otherwise dispose of such shares, for
at least 90 days after the date of the Purchase Agreement without the prior
written consent of Piper Jaffray Inc. The Company understands that Piper Jaffray
Inc. may, in its discretion, waive these agreements at any time.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least two years, including the "affiliate" of the Company (as that term is
defined under the Securities Act), is entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock of the Company or (ii) the average
weekly trading volume of the then outstanding shares during the four calendar
weeks preceding each such sale. A person (or persons whose shares are
aggregated) who is not deemed an "affiliate" of the Company and who has
beneficially owned shares for at least three years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
Affiliates, including members of the Board of Directors and senior management,
continue to be subject to such limitations.

Additionally, as of May 31, 1996, 914,100 shares of Common Stock have been
reserved for issuance under the Company's employee and director stock option
plans, 167,350 of which were then exercisable and 1,333,333 shares of Common
Stock have been reserved for issuance upon the conversion of an equal number of
shares of Convertible Preferred Stock then outstanding.

No predictions can be made as to the effect, if any, that public sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market, or the perception that such sales could
occur, could have an adverse impact on the market price.

49
<PAGE> 51

UNDERWRITING

The Company and the Selling Stockholders have entered into a Purchase
Agreement (the "Purchase Agreement") with the Underwriters listed in the table
below. Subject to the terms and conditions set forth in the Purchase Agreement,
the Company and the Selling Stockholders have agreed to sell 1,200,000 shares
and 150,000 shares of Common Stock, respectively, to the Underwriters, and each
of the Underwriters has severally agreed to purchase, the number of shares of
Common Stock set forth opposite each Underwriter's name in the table below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Piper Jaffray Inc.......................................................
Needham & Company, Inc..................................................

---------
Total.........................................................
==========
</TABLE>

Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances, the
purchase commitment of the nondefaulting Underwriters may be increased or
decreased or the Purchase Agreement may be terminated.

The Underwriters have advised the Company and the Selling Stockholders that
the Underwriters propose to offer the Common Stock directly to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not more
than $ per share. Additionally, the Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering, the public offering price and other selling
terms may be changed by the Underwriters.

In connection with this Offering, the Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this Offering, in accordance
with Rule 10b-6A under the Exchange Act. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
independent market makers and purchases limited by such prices. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.

The Company has granted to the Underwriters an option, exercisable by the
Underwriters within 30 days from the date of this Prospectus, to purchase up to
an additional 202,500 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.

50
<PAGE> 52

The Company, its officers and directors, the Selling Stockholders and
certain other stockholders of the Company have agreed that they will not sell,
offer to sell, issue, distribute or otherwise dispose of a total of 1,762,715
shares of Common Stock for a period of 90 days after commencement of this
Offering without the prior written consent of Piper Jaffray Inc.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal
matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The Financial Statements of the Company at December 31, 1995, and 1994, and
for each of the three years in the period ended December 31, 1995, appearing in
this Prospectus and the Registration Statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included herein in reliance
upon such reports given upon the authority of said firm as experts in accounting
and auditing in given said reports.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement on Form S-2 under the Securities Act
with respect to the shares of Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which are omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. For further information
with respect to the Company and the shares offered by this Prospectus, reference
is made to the Registration Statement, including the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any contract or any other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the registration statement or such
other document, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement, of which this Prospectus is a
part, together with such exhibits and schedules may be obtained, upon payment of
the fee prescribed by the Securities and Exchange Commission, or may be examined
without charge, at the office of the Securities and Exchange Commission.

The Company is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information may be inspected and copies
of such materials may be obtained from the Public Reference Section of the
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Securities and Exchange Commission: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and Room 1400, 7 World Trade
Center, 13th Floor, New York, New York 10048, upon payment of the charges
prescribed therefor by the Securities and Exchange Commission.

51
<PAGE> 53

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended, and (ii) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, are incorporated herein by reference. All other
reports filed by the Company pursuant to Sections 13(a) or 15(d) of the Exchange
Act since the end of the fiscal year covered by the above-referenced Annual
Report and prior to the date of this Prospectus are incorporated by reference in
this Prospectus. 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 statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference in this Prospectus
(except for certain exhibits to such documents). Written requests for such
copies should be directed to Secretary, Fischer Imaging Corporation, 12300 North
Grant Street, Denver, Colorado 80241; telephone number (303) 452-6800.

52
<PAGE> 54

FISCHER IMAGING CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996...... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995, and for the Three Months Ended April 2, 1995 and March 31, 1996............... F-4
Consolidated Statements of Stockholders' Investment for the Years Ended December 31,
1993, 1994 and 1995, and for the Three Months Ended March 31, 1996.................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995, and for the Three Months Ended April 2, 1995 and March 31, 1996............... F-6
Notes to Consolidated Financial Statements............................................ F-7
Schedule II -- Valuation and Qualifying Accounts...................................... F-21
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Fischer Imaging Corporation:

We have audited the accompanying consolidated balance sheets of FISCHER
IMAGING CORPORATION (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fischer Imaging Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Denver, Colorado,
February 1, 1996.

F-2
<PAGE> 56

FISCHER IMAGING CORPORATION

CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 508 $ 968 $ 580
Trade accounts receivable, net of allowance for doubtful
accounts of approximately $449 and $896 at December 31,
1994 and 1995, and $421 at March 31, 1996,
respectively........................................... 14,466 19,957 19,190
Inventories............................................... 17,707 20,790 22,745
Other current assets...................................... 2,005 3,202 3,370
------- ------- -------
Total current assets.............................. 34,686 44,917 45,885
------- ------- -------
PROPERTY AND EQUIPMENT (at cost):
Manufacturing equipment................................... 7,188 7,591 7,798
Office equipment and leasehold improvements............... 5,294 4,789 4,598
------- ------- -------
12,482 12,380 12,396
Less -- Accumulated depreciation and amortization......... 7,815 8,288 8,236
------- ------- -------
Property and equipment, net....................... 4,667 4,092 4,160
------- ------- -------
INTANGIBLE ASSETS, net (Note 3)............................. 5,610 4,798 4,833
DEFERRED COSTS AND OTHER ASSETS............................. 1,926 1,843 2,019
------- ------- -------
7,536 6,641 6,852
------- ------- -------
Total assets...................................... $46,889 $55,650 $56,897
======= ======= =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Disbursements in transit.................................. $ 1,378 $ 1,088 $ 725
Notes payable and current maturities of long-term debt
(Note 5)............................................... 7,580 4,344 5,689
Trade accounts payable.................................... 5,771 8,352 7,658
Accrued salaries and wages................................ 2,004 2,192 2,247
Other current liabilities................................. 5,896 4,973 4,398
------- ------- -------
Total current liabilities......................... 22,629 20,949 20,717
LONG-TERM DEBT (Note 5)..................................... 1,861 378 181
OTHER NONCURRENT LIABILITIES................................ 756 739 391
------- ------- -------
Total liabilities................................. 25,246 22,066 21,289
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' INVESTMENT:
Common Stock, $.01 par value, 25,000,000 shares
authorized, 5,515,664, 5,550,691 and 5,682,410 shares
issued and outstanding at December 31, 1994 and 1995
and March 31, 1996, respectively....................... 55 56 57
Series C Junior Participating Preferred Stock, $.01 par
value, 500,000 shares authorized, no shares issued and
outstanding............................................ -- -- --
Series D Convertible Preferred Stock, $.01 par value,
1,333,333 shares authorized, issued and outstanding;
liquidation preference of $10,000,000 (Note 7)......... -- 13 13
Additional paid-in capital................................ 25,008 34,679 35,600
Accumulated (deficit) earnings............................ (3,304) (1,027) 46
Cumulative translation adjustment......................... (116) (137) (108)
------- ------- -------
Total stockholders' investment.................... 21,643 33,584 35,608
------- ------- -------
Total liabilities and stockholders' investment.... $46,889 $55,650 $56,897
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE> 57

FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER THREE MONTHS ENDED
31, ----------------------
------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................. $73,332 $68,473 $76,750 $16,625 $20,073
COST OF SALES............................ 43,741 44,526 46,905 10,695 11,588
------- ------- ------- ------- -------
Gross profit................... 29,591 23,947 29,845 5,930 8,485
------- ------- ------- ------- -------
OPERATING EXPENSES:
Research and development............... 6,176 5,595 6,690 1,665 1,464
Selling, marketing and service......... 16,641 15,573 15,461 3,299 4,358
General and administrative............. 5,321 4,697 4,800 1,141 1,131
Restructuring provisions (Note 6)...... 796 2,419 -- -- --
------- ------- ------- ------- -------
Total operating expenses....... 28,934 28,284 26,951 6,105 6,953
------- ------- ------- ------- -------
EARNINGS (LOSS) FROM OPERATIONS.......... 657 (4,337) 2,894 (175) 1,532
Interest expense....................... (933) (1,247) (678) (255) (220)
Other income (expense), net............ 77 (56) 61 (39) 111
------- ------- ------- ------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES...... (199) (5,640) 2,277 (469) 1,423
Provision (benefit) for income taxes... (199) -- -- -- 350
------- ------- ------- ------- -------
NET EARNINGS (LOSS)...................... $ -- $(5,640) $ 2,277 $ (469) $ 1,073
======= ======= ======= ======= =======
NET EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE....................... $ -- $ (1.02) $ .36 $ (.08) $ .15
======= ======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.......... 5,495 5,526 6,331 5,548 7,211
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 58

FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SERIES C
JUNIOR SERIES D
COMMON STOCK PARTICIPATING CONVERTIBLE ADDITIONAL ACCUMULATED CUMULATIVE
----------------- PREFERRED PREFERRED PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT TOTAL
-------- ------ ------------- ----------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992..... 5,438,601 $54 $-- $-- $24,587 $ 2,336 $(266) $26,711
Shares purchased under employee
stock purchase plan.......... 29,985 -- -- -- 236 -- -- 236
Exercise of stock options...... 11,153 -- -- -- 30 -- -- 30
Tax benefit from sale of option
shares....................... -- -- -- -- 23 -- -- 23
Cumulative translation
adjustment................... -- -- -- -- -- -- 33 33
Net earnings................... -- -- -- -- -- -- -- --
--------- --- --- --- ------- ------- ----- -------
BALANCE, December 31, 1993..... 5,479,739 54 -- -- 24,876 2,336 (233) 27,033
Shares purchased under employee
stock purchase plan.......... 31,438 1 -- -- 121 -- -- 122
Exercise of stock options...... 4,487 -- -- -- 11 -- -- 11
Cumulative translation
adjustment................... -- -- -- -- -- -- 117 117
Net loss....................... -- -- -- -- -- (5,640) -- (5,640)
--------- --- --- --- ------- ------- ----- -------
BALANCE, December 31, 1994..... 5,515,664 55 -- -- 25,008 (3,304) (116) 21,643
Shares purchased under employee
stock purchase plan.......... 22,027 1 -- -- 102 -- -- 103
Exercise of stock options...... 13,000 -- -- -- 61 -- -- 61
Cumulative translation
adjustment................... -- -- -- -- -- -- (21) (21)
Sale of 1,333,333 shares of
Series D Preferred, net of
related costs................ -- -- -- 13 9,508 -- -- 9,521
Net earnings................... -- -- -- -- -- 2,277 -- 2,277
--------- --- --- --- ------- ------- ----- -------
BALANCE, December 31, 1995..... 5,550,691 56 -- 13 34,679 (1,027) (137) 33,584
Shares purchased under employee
stock purchase plan.......... 24,522 -- -- -- 115 -- -- 115
Exercise of stock options...... 44,035 -- -- -- 255 -- -- 255
Acquisition of minority
interest in subsidiary....... 63,162 1 -- -- 551 -- -- 552
Cumulative translation
adjustment................... -- -- -- -- -- -- 29 29
Net earnings................... -- -- -- -- -- 1,073 -- 1,073
--------- --- --- --- ------- ------- ----- -------
BALANCE, March 31, 1996
(unaudited).................. 5,682,410 $57 $-- $13 $35,600 $ 46 $(108) $35,608
========= === === === ======= ======= ===== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 59

FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER THREE MONTHS ENDED
31, ----------------------
------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................................... $ -- $(5,640) $ 2,277 $ (469) $ 1,073
------- ------- ------- ------ -------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities --
Depreciation and amortization...................... 2,194 2,283 2,443 553 572
Provision for minority interests................... 17 (68) 117 7 (36)
Other.............................................. -- 3 165 60 (7)
Net changes in assets and liabilities --
(Increase) decrease in trade accounts
receivable.................................... (487) 7,134 (5,491) 1,325 767
(Increase) decrease in inventories............... (142) 1,424 (3,083) (778) (1,955)
(Increase) decrease in other current assets...... (700) 1,080 (1,197) (476) (168)
Increase in intangible assets.................... -- (522) -- -- --
(Increase) decrease in deferred costs and other
assets........................................ (1,143) 374 83 28 (176)
Increase (decrease) in disbursements in
transit....................................... 1,586 (446) (290) 163 (363)
(Decrease) increase in trade accounts payable.... (2,278) 2 2,581 506 (694)
Increase (decrease) in accrued salaries and
wages......................................... 453 (458) 188 120 55
Increase (decrease) in other current
liabilities................................... 1,346 (449) (923) (644) (575)
(Increase) decrease in other noncurrent
liabilities................................... (598) (712) (134) (25) 19
------- ------- ------- ------ -------
Total adjustments............................. 248 9,645 (5,541) 839 (2,561)
------- ------- ------- ------ -------
Net cash provided by (used in) operating
activities.................................. 248 4,005 (3,264) 370 (1,488)
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (2,248) (1,773) (1,021) (136) (407)
Proceeds from sale of assets.......................... 52 5 -- -- --
Equity investment..................................... (500) -- -- -- --
------- ------- ------- ------ -------
Net cash used in investing activities......... (2,696) (1,768) (1,021) (136) (407)
------- ------- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock.................... 266 133 164 102 370
Proceeds from sale of preferred stock, net............ -- -- 9,521 -- --
Net borrowings (repayments) under line of credit
agreements......................................... 3,321 (1,025) (3,141) (131) 1,327
Repayments of long-term debt.......................... (1,238) (1,116) (1,778) (247) (219)
Decrease (increase) in cumulative translation
adjustment......................................... 33 117 (21) 243 29
------- ------- ------- ------ -------
Net cash provided by (used in) financing
activities.................................. 2,382 (1,891) 4,745 (33) 1,507
------- ------- ------- ------ -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.... (66) 346 460 201 (388)
CASH AND CASH EQUIVALENTS, beginning of period.......... 228 162 508 508 968
------- ------- ------- ------ -------
CASH AND CASH EQUIVALENTS, end of period................ $ 162 $ 508 $ 968 $ 709 $ 580
======= ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.............. $ 897 $ 1,071 $ 785 $ 346 $ 326
======= ======= ======= ====== =======
Cash paid during the period for income taxes.......... $ 370 $ 775 $ 242 $ -- $ 325
======= ======= ======= ====== =======
Equipment acquisitions through capital lease
financing.......................................... $ 23 $ 723 $ 200 $ -- $ 40
======= ======= ======= ====== =======
Noncash acquisition of minority interest in
subsidiary......................................... $ -- $ -- $ -- $ -- $ 552
======= ======= ======= ====== =======
Tax benefits from disqualifying disposition of common
stock issued to employees from exercise of stock
options (recorded as increase to paid-in
capital)........................................... $ 23 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 60

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED APRIL 2, 1995 AND MARCH 31, 1996 IS UNAUDITED)

(1) BUSINESS ORGANIZATION

Fischer Imaging Corporation (the "Company") and its wholly owned
subsidiaries, Fischer Imaging Midwest, Inc. ("FIMW", a domestic marketing
subsidiary) and Fischer Imaging Australia Pty. Limited ("FIA", a foreign
marketing subsidiary); 90% owned Fischer Imaging Europe A/S ("FIE", a Danish
marketing subsidiary); designs, manufactures, and markets specialty and general
purpose x-ray imaging systems for the diagnosis and treatment of disease. The
Company's principal product lines are directed toward medical specialties in
which minimally invasive techniques are replacing open surgical procedures. The
Company's existing products are principally marketed to the healthcare industry.

In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the consolidated results of
operations and cash flows for the three month periods ended April 2, 1995 and
March 31, 1996.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

All significant intercompany transactions have been eliminated in
consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include investments in highly liquid instruments
with an original maturity of three months or less.

Inventories

Inventories, which include costs of materials, direct labor and
manufacturing overhead, are priced at the lower of cost (using primarily the
last-in, first-out ("LIFO") method of valuation) or market. Writedowns for
excess and obsolete inventories are charged to expense in the period when
conditions giving rise to the writedowns are first recognized.

Inventories consist of the following components (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
(UNAUDITED)
FIFO cost --
Raw materials..................................... $ 7,447 $12,040 $11,372
Work in process and finished goods................ 11,546 9,952 12,575
LIFO valuation adjustment........................... (1,286) (1,202) (1,202)
------- ------- -------
Total inventory........................... $17,707 $20,790 $22,745
======= ======= =======
</TABLE>

F-7
<PAGE> 61

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Current Assets

Other current assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income taxes................................. $1,019 $2,244 $2,085
Prepaid expenses and other............................ 986 958 1,285
------ ------ ------
Total other current assets.................. $2,005 $3,202 $3,370
====== ====== ======
</TABLE>

Property and Equipment

Significant additions and improvements are capitalized at cost, while
maintenance and repairs which do not improve or extend the life of the
respective assets are charged to operations as incurred.

Manufacturing and office equipment are depreciated on a straight-line
basis, over the estimated useful lives (ranging from three to eight years) of
the respective assets. Leasehold improvements are amortized, on a straight-line
basis, over the lesser of the estimated useful life or the remaining term of the
related lease.

Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. The effect of adopting SFAS 121
as of January 1, 1996 had no material impact on the Company's results of
operations or financial position.

Intangible assets, resulting from an acquisition, are stated at cost net of
accumulated amortization and are being amortized using the straight-line method
over their estimated useful lives which range from 10 to 14 years. All other
intangible assets, comprised primarily of licensing agreements, are amortized
over periods ranging from three to seven years.

Software Development Costs

Certain costs to enhance existing application software products or to
develop new software products have been capitalized in accordance with Statement
of Financial Accounting Standards No. 86. These costs, classified as deferred
costs and other assets in the accompanying consolidated balance sheets, are
being amortized on a straight-line basis over an estimated useful life of three
years. Although new enhancements or competitive pressures might reduce in the
near term the anticipated future revenues and estimated economic lives against
which software development carrying costs have been evaluated, management
believes such estimates are reasonable based upon present information.

F-8
<PAGE> 62

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer deposits and deferred revenue................ $2,907 $2,132 $1,692
Accrued warranty and installation costs............... 2,167 1,140 1,196
Other................................................. 822 1,701 1,510
------ ------ ------
Total other current liabilities............. $5,896 $4,973 $4,398
====== ====== ======
</TABLE>

Foreign Operations

The functional currency for the Company's foreign operations is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated at the respective year end exchange rates, while the statements of
operations are translated at average exchange rates during the year. Exchange
rate fluctuations on translating foreign currency into U.S. dollars result in
unrealized gains or losses referred to as translation adjustments, which are
recorded as a separate component of stockholders' investment.

Revenue Recognition

The Company recognizes revenue when title and risk of ownership passes to
the customer which, as to shipments with FOB destination terms, is when received
by the customer and, for shipments with FOB shipping point terms, upon departure
from the Company's dock.

Concentration of Credit Risk

The Company's revenues generally are concentrated among customers in the
healthcare industry. The Company establishes an allowance for uncollectible
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information. During 1993, 1994, and 1995 and the
three months ended March 31, 1996, the following customers represented greater
than 5% of the Company's revenues:

<TABLE>
<CAPTION>
MARCH 31,
1996
1993 1994 1995 -----------
---- ---- ---- (UNAUDITED)
<S> <C> <C> <C> <C>
Dornier........................................... -- -- 6.1% 3.6%
GE Medical Systems................................ -- -- 10.3% 18.4%
Picker International.............................. 7.5% 9.6% 7.6% 6.6%
Varian Associates................................. 13.1% 11.5% 9.8% 7.9%
</TABLE>

Sponsored Research and Development

The Company engages in research and development activities for other
companies. This sponsored research and development is recognized as revenue as
the requirements are fulfilled or as certain development milestones are
completed under the terms and conditions of the related research and development
agreements. Costs incurred in connection with these activities are recognized in
cost of sales as incurred.

Net Earnings (Loss) Per Common and Common Equivalent Share

Net earnings (loss) per share is computed based on results of operations
attributable to common stock and the weighted average number of common and
common equivalent shares outstanding during each of the periods. The preferred
shares issued during the second quarter of 1995 (see Note 7) are treated as
common

F-9
<PAGE> 63

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock equivalents. The Company uses the treasury stock method for determining
the effect of outstanding stock options on earnings per share.

Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Effective in 1995, the Company adopted the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that companies which
do not choose to account for stock-based compensation as prescribed by the
statement, shall disclose the pro forma effects on earnings and earnings per
share as if SFAS 123 had been adopted. Additionally, certain other disclosures
are required with respect to stock compensation and the assumptions used to
determine the pro forma effects of SFAS 123.

Reclassifications

Certain reclassifications have been made in the financial statements of
prior periods to conform to the current period presentation.

(3) INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................ $ 2,515 $ 2,515 $ 2,736
Covenant not to compete............................. 3,569 3,569 3,569
Licensing agreements and other...................... 1,380 1,060 1,035
------- ------- -------
7,464 7,144 7,340
Less-Accumulated amortization....................... (1,854) (2,346) (2,507)
------- ------- -------
Intangible assets, net.................... $ 5,610 $ 4,798 $ 4,833
======= ======= =======
</TABLE>

(4) INCOME TAXES

The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which dictates accounting and
reporting standards for recording the tax effects of differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Under SFAS 109, deferred taxes and liabilities are recorded using
enacted tax rates expected to apply to taxable income in the years such
temporary differences are expected to reverse.

F-10
<PAGE> 64

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision (benefit) for income taxes includes the following:

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current --
Federal............................................. $ 923 $(1,511) $ 1,049
State............................................... 508 (178) 176
------- ------- -------
Total current provision (benefit)........... 1,431 (1,689) 1,225
------- ------- -------
Deferred --
Federal............................................. (1,421) 1,511 (1,096)
State............................................... (209) 178 (129)
------- ------- -------
Total deferred provision (benefit).......... (1,630) 1,689 (1,225)
------- ------- -------
Total provision (benefit)................... $ (199) $ -- $ --
======= ======= =======
</TABLE>

The statutory federal income tax rate was 34% for the years ended December
31, 1993, 1994 and 1995. Reasons for the difference between the income tax
expense reported in the statements of operations and the amount computed by
applying the statutory federal income tax rate to earnings before income taxes
are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ ----- -----
<S> <C> <C> <C>
Statutory tax rate..................................... (34.0)% (34.0)% 34.0%
Increase (decrease) due to:
State taxes.......................................... 57.3 (3.2) 5.7
Losses of subsidiaries not consolidated in tax
return............................................ 19.9 5.3 8.7
Other nondeductible expenses......................... 50.9 5.6 15.8
Valuation allowance on net deferred tax assets....... -- 47.2 (64.2)
Benefit of favorable resolution of RAR............... (194.1) -- --
Utilization of net loss carryovers................... -- (20.9) --
------ ----- -----
Effective tax rate..................................... (100.0)% --% --%
====== ===== =====
</TABLE>

Net deferred tax assets and liabilities as of December 31, 1994 and 1995,
along with the changes during the year, are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 CHANGE 1995
------------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current --
Warranty reserves............................... $ 571 $ (286) $ 285
Inventory reserves.............................. 1,323 320 1,643
Bad debt reserves............................... 181 227 408
Accrued vacation................................ 298 (36) 262
Other accrued liabilities....................... 452 (307) 145
Other........................................... -- 97 97
Less -- Valuation allowance..................... (1,806) 1,210 (596)
------- ------ ------
Net current deferred tax asset.................... $ 1,019 1,225 $2,244
======= ------ ======
</TABLE>

F-11
<PAGE> 65

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 CHANGE 1995
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Noncurrent --
Accelerated depreciation for tax................ $ (26) 10 $ (16)
Software capitalization......................... (362) 25 (337)
Amortization of intangibles..................... 266 (169) 97
Tax credits..................................... 950 (399) 551
Deferred service contracts...................... -- 250 250
Other........................................... 167 32 199
Less -- Valuation allowance..................... (995) 251 (744)
------- ------ ------
Net noncurrent deferred tax asset................. $ -- -- $ --
======= ------ ======
Net changes in deferred taxes..................... $1,225
======
</TABLE>

The amounts recorded as net current deferred tax assets as of December 31,
1995 represent the amount of tax benefits of existing net deductible temporary
differences and tax credits. The Company has available research and development
credits for tax purposes of approximately $416,000 and alternative minimum tax
credits of $135,000 expiring at various dates through 2009. Realization is
dependent on generating sufficient taxable income prior to the expiration of the
tax credits. Although realization is not assured, management believes it is more
likely than not that these deferred tax assets, net of the valuation allowance,
will be realized. During 1994, the Company recorded a valuation allowance on its
deferred tax assets of $2,801,000 due to the unfavorable results of the
Company's operations during 1994. During 1995, the Company reduced its valuation
allowance by $1,461,000 due to its improving results of operations and projected
future operating results. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

The domestic versus foreign component of the Company's earnings (loss)
before income taxes is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................. $ (83) $(4,829) $2,958
Foreign.................................................. (116) (811) (681)
----- ------- ------
Total.................................................... $(199) $(5,640) $2,277
===== ======= ======
</TABLE>

A reconciliation of the Company's consolidated income (loss) before taxes
for financial statement purposes to estimated consolidated taxable income is as
follows:

<TABLE>
<CAPTION>
1994 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Earnings (loss) before income taxes............................. $(5,640) $2,277
Difference between earnings (loss) before income taxes and
taxable income --
State income taxes............................................ (178) (47)
Permanent differences......................................... 318 329
Net changes in temporary differences.......................... 1,473 632
------- ------
Taxable income (loss)........................................... $(4,027) $3,191
======= ======
</TABLE>

F-12
<PAGE> 66

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt as of December 31, 1994 and 1995, and
March 31, 1996 consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to bank under revolving line of credit
agreements........................................ $ 5,784 $ 2,643 $ 3,970
Unsecured promissory note payable, interest payable
monthly at 8.5%; due September 30, 1996........... 864 386 260
Noncompetition agreement payable, discounted at 6%,
subject to upward adjustment for inflation; due in
September 1996.................................... 1,637 829 844
Capitalized lease obligations; interest rates
ranging from 3.5% to 17%; monthly principal and
interest payments due in varying amounts through
October 1997; secured by leased equipment......... 1,067 791 724
Other............................................... 89 73 72
------- ------- -------
9,441 4,722 5,870
Less -- Current maturities.......................... (7,580) (4,344) (5,689)
------- ------- -------
Long-term debt...................................... $ 1,861 $ 378 $ 181
======= ======= =======
</TABLE>

Line of Credit Agreements

The Company has a bank revolving credit agreement which, pursuant to 1994
and 1995 amendments, has a final maturity of February 1, 1997 with interest at
the bank's prime rate plus 1% (9.3% at March 31, 1996). The amendments also
provided for an annual facility fee equivalent to 1% of the maximum loan limit.
Maximum borrowing is $15.0 million, subject to further restriction based upon
eligible receivables, inventory and Company liquidation value, as determined by
the bank. At March 31, 1996, maximum borrowing availability was approximately
$15.0 million, with approximately $11.0 million not used.

Borrowings under this agreement were approximately $5,784,000, $2,643,000
and $3,970,000 at December 31, 1994 and 1995 and March 31, 1996, respectively,
and are secured by inventory, accounts receivable and fixed assets of the
Company.

The following is a summary of certain terms and balances for the total of
these line of credit agreements for the years ended 1993, 1994 and 1995:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at end of period............................ $6,809 $ 5,784 $2,643
Weighted average interest rate at end of period..... 6.1% 9.5% 9.5%
Maximum amount outstanding during the period........ $8,842 $10,947 $7,636
Average amount outstanding during the period(i)..... $6,245 $ 8,409 $3,409
Weighted average interest rate during the
period(ii)........................................ 6.1% 8.1% 9.8%
</TABLE>

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

(i) The average amount outstanding during each year is a 13 month average,
utilizing balances as of the beginning of the year and the 12 subsequent
month ends.

F-13
<PAGE> 67

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(ii) The weighted average interest rate during the period was computed by
calculating a 13 month average interest rate for each line of credit
arrangement, utilizing rates as of the end of the previous year and the 12
subsequent month ends, multiplying this rate by the average borrowings
under the respective lines of credit, and dividing the resulting sum by the
average amount outstanding under all lines of credit.

Five-year maturities of notes payable and long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
-----------------------
<S> <C>
1996....................................... $4,344
1997....................................... 246
1998....................................... 69
1999....................................... 37
2000....................................... 26
------
Total.............................. $4,722
======
</TABLE>

(6) RESTRUCTURING PROVISIONS

During 1993, the Company recorded approximately $796,000 for costs relating
to corporate-wide restructuring and cost reduction programs, including the
relocation of the Bloom subsidiary to Denver, Colorado, and the realignment of
the Company's service operations.

During 1994, the Company recorded approximately $2,419,000 for
restructuring expenses. The provision included costs related to the writedown of
inventory for discontinued products, severance costs and a customer enhancement
program.

(7) PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of $.01 par value
preferred stock, which shares may be issued in one or more series and with such
powers, preferences and rights as the Company's Board of Directors may
determine. During the second quarter of 1995, the Company issued 1,333,333
shares of Series D Convertible Preferred Stock to GE Medical Systems ("GEMS")
for $10 million. The preferred stock is non-voting and not redeemable, bears no
stated dividend, has a $7.50 per share preference upon liquidation and is
convertible into common stock on a one-for-one basis (subject to customary
anti-dilution protection) at the option of the holder. The terms of the
investment restrict GEMS to 25% ownership of Fischer and, under certain change
of control conditions, permit GEMS to exchange its preferred stock for rights to
independently manufacture Tilt C systems.

(8) EMPLOYEE BENEFIT PLANS

1991 Stock Option Plan

In June 1991, the Company adopted the 1991 Stock Option Plan ("1991 Plan")
which authorized the granting of incentive and nonqualified stock options to
acquire up to 300,000 shares (increased to 500,000 in April 1993) of the
Company's common stock by employees and consultants of the Company. Exercise
terms for the options granted are determined by the Board of Directors at the
time the options are granted. Incentive stock options may be granted at an
exercise price not less than the fair market value on the date of grant with a
maximum option term of 10 years. The 1991 Plan also permits the granting of
stock appreciation rights. The fair value of each option grant is estimated, for
disclosure purposes, on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in 1995:
no dividend yield; expected volatility of 74%; risk free interest rates of
5.97%; and expected life of 5.7 years.

F-14
<PAGE> 68

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's 1991 stock option plan as of
December 31, 1993, 1994, and 1995 and the three months ended March 31, 1996 and
the changes during those periods is as follows:

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------------------- ENDED MARCH
1993 1994 1995 31, 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at January 1...... 288,725 330,700 396,225 895,625
Granted..................... 159,500 142,500 624,000 --
Exercised................... -- -- (7,000) (37,625)
Canceled.................... (117,525) (76,975) (117,600) (6,500)
------------ ------------ ------------ ------------
Outstanding at end of
period...................... 330,700 396,225 895,625 851,500
============ ============ ============ ============
Exercisable at end of
period...................... 73,875 122,588 143,375 104,750
============ ============ ============ ============
Weighted average fair value of
options granted during
period...................... N/A N/A $ 5.18 $ --
============ ============ ============ ============
Range of exercise prices...... $5.50-$11.00 $3.88-$11.00 $4.00-$11.00 $4.00-$11.00
============ ============ ============ ============
Weighted average exercise
price at end of period...... $ 7.30 $ 6.27 $ 8.34 $ 8.44
============ ============ ============ ============
Weighted average exercise
period at end of period..... 9.1 years 8.8 years 9.3 years 8.4 years
============ ============ ============ ============
</TABLE>

In December 1995, the Company's Board of Directors granted 430,000 options
to employees at an exercise price of $10.00 per share, 330,000 of which will
qualify as incentive stock options for Internal Revenue Code purposes after
shareholder approval of an increase in authorized options under the 1991 Plan.
Of these options, 400,000 options vest when the market value of the Company's
stock has reached targeted price levels for a period of 45 consecutive trading
days, or 9 years and 11 months from the date of grant, whichever is earlier, and
the remaining 30,000 options vest over a four year vesting period.

1993 Directors' Stock Option Plan

In February 1993, the Company adopted a Directors' Stock Option Plan ("1993
Directors' Plan") for nonemployee directors of the Company. The 1993 Directors'
Plan authorizes the granting of nonqualified options to acquire up to 100,000
shares of common stock at a price not less than fair market value on the date of
grant. The 1993 Directors' Plan allows for automatic annual grants upon each
year of a director's service. The stock options issued under the 1993 Directors'
Plan may be exercised at any time from date of grant, with a maximum option term
of five years.

F-15
<PAGE> 69

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's 1993 Directors' Stock Option Plan
as of December 31, 1993, 1994, and 1995 and the three months ended March 31,
1996 and the changes during those periods is as follows:

1993 1994 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at January 1......... -- 16,000 34,000 46,000
Granted........................ 16,000 18,000 18,000 18,000
Exercised...................... -- -- (6,000) --
Canceled....................... -- -- -- --
----------- ----------- ----------- ------------
Outstanding at end of period..... 16,000 34,000 46,000 64,000
=========== =========== =========== ============
Exercisable at end of period..... 16,000 34,000 46,000 64,000
=========== =========== =========== ============
Weighted average fair value of
options granted during
period......................... N/A N/A $ 1.76 $ 5.98
=========== =========== =========== ============
Range of exercise prices......... $7.25-$8.75 $6.50-$8.75 $4.00-$8.75 $4.00-$13.38
=========== =========== =========== ============
Weighted average exercise price
at end of period............... $ 8.56 $ 7.47 $ 6.40 $ 8.36
=========== =========== =========== ============
Weighted average exercise period
at end of period............... 5.0 years 4.5 years 4.0 years 3.5 years
=========== =========== =========== ============
</TABLE>

Employee Stock Purchase Plan

In December 1991, the Board of Directors adopted an Employee Stock Purchase
Plan, effective for the plan year beginning January 1, 1992. Under the plan, the
Company is authorized to issue up to 200,000 shares of common stock to its
fulltime employees, nearly all of whom are eligible to participate. Under the
terms of the plan, employees can have from 2% to 5% of their salary withheld to
purchase the Company's common stock. The purchase price of the stock is 85% of
the lower of its beginning-of-the-year or end-of-the-year market price. Under
the plan, the Company sold 29,692 shares, 22,072 shares and 24,522 shares to
employees for the years ended December 31, 1993, 1994 and 1995, respectively.
The fair value of each option grant is estimated, for disclosure purposes, on
the date of grant using the Black-Scholes model with the following assumptions
for 1995: no dividend yield; an expected life of one year; expected volatility
of 74%; and a risk free interest rate of 5.2%. The weighted average fair value
of those shares granted in 1995 was $5.89 per share.

The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, as all options have
been granted with an exercise price equal to the fair value of the Company's
common stock on the date of grant. The Company adopted SFAS 123 for disclosure
purposes in 1995. For SFAS 123 purposes, the fair value of each option grant and
stock purchase right has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
<S> <C> <C>
Risk-free interest rate.................................. 5.96% 5.18%
Dividend rate............................................ 0% 0%
Expected volatility...................................... 74% 74%
Expected life............................................ 5.02 years 1.00 years
</TABLE>

F-16
<PAGE> 70

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Using these assumptions, the fair value of the stock options granted in
1995 and the three months ended March 31, 1996 was approximately $1,239,000 and
$81,000, respectively, which would be amortized as compensation expense over the
vesting period of the options. Had compensation cost been determined consistent
with SFAS 123, utilizing the assumptions detailed above, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts (in thousands, except per share data).

<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net earnings
As reported.............................................. $2,277 $1,073
Pro forma................................................ $1,828 $ 930
Net earnings per common and common equivalent share
As reported.............................................. $ .36 $ .15
Pro forma................................................ $ .29 $ .13
</TABLE>

1985 Stock Option Plan

The Company's 1985 Stock Option Plan authorized the granting of incentive
and nonqualified stock options. Upon approval of the 1991 Stock Option Plan, the
authority of the Board of Directors to grant additional options expired. In
September 1991, outstanding options, which are generally exercisable over a
ten-year period, became fully vested. The following table summarizes the
activity in the 1985 Plan:

<TABLE>
<S> <C>
Outstanding at December 31, 1992........................................... 25,960
Exercised (at $.78 per share).............................................. (11,153)
-------
Outstanding at December 31, 1993........................................... 14,807
Exercised (1,282 shares at $.78 per share and 3,205 shares at $2.81 per
share)................................................................... (4,487)
-------
Outstanding at December 31, 1994........................................... 10,320
Exercised.................................................................. --
-------
Outstanding at December 31, 1995........................................... 10,320
Exercised (at $.78 per share).............................................. (6,410)
Canceled................................................................... (3,910)
-------
Outstanding at March 31, 1996.............................................. --
=======
</TABLE>

1991 Directors' Stock Option Plan

In June 1991, the Company adopted a Directors' Stock Option Plan ("1991
Directors' Plan") for nonemployee directors of the Company. The 1991 Directors'
Plan authorized the granting of nonqualified options to acquire 50,000 shares of
common stock at a price not less than the fair market value on the date of
grant. No options were granted under the 1991 Directors' Plan during 1993, 1994
or 1995. During 1993, 3,000 options issued at $11 per share were canceled. At
December 31, 1994 and 1995 and March 31, 1996, 6,000 options remained
outstanding which were exercisable at $11.00 to $13.38 per share.

401(k) Plan

In 1985, the Company established The Fischer Imaging Employee Capital
Accumulation Plan, which is governed by Section 401(k) of the Internal Revenue
Code. Employees with a minimum of six months of service are eligible for the
plan. The Company makes discretionary contributions which vest over a four-year

F-17
<PAGE> 71

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

period. Total Company contributions were approximately $150,000, $0, and
$120,000, for the years ended December 31, 1993, 1994 and 1995, respectively.

Incentive Compensation Plan

The Company has an incentive compensation plan under which management
employees, including the Company's executive officers, receive cash bonuses. The
amounts of such bonuses are determined based upon the Company's sales growth,
profitability and employees' performances as compared to performance objectives
established by the Board of Directors. During the years ended 1993, 1994 and
1995, the Company accrued bonuses of approximately $137,000, $144,000 and
$110,000, respectively, under this plan.

(9) FOREIGN ACTIVITIES

The Company operates in a single industry segment with operations in the
U.S., Europe and Australia. The following is a summary of the Company's foreign
operations (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, ---------------------
----------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
U. S. Operations:
Domestic........................ $65,963 $56,267 $58,548 $11,904 $16,846
Export (primarily to Europe).... 5,845 9,958 13,939 3,736 2,140
Foreign Operations:
Europe.......................... -- 1,399 2,829 465 586
Australia....................... 1,524 849 1,434 520 501
Transfers between geographic
areas........................... 961 1,634 2,796 826 943
Eliminations....................... (961) (1,634) (2,796) (826) (943)
------- ------- ------- ------- -------
Total...................... $73,332 $68,473 $76,750 $16,625 $20,073
======= ======= ======= ======= =======
Earnings (loss) from operations:
U.S................................ $ 1,072 $(3,293) $ 3,629 $ (71) $ 1,733
Europe............................. (280) (674) (682) (126) (137)
Australia.......................... (162) (323) (103) 22 (14)
Eliminations....................... 27 (47) 50 -- (50)
------- ------- ------- ------- -------
Total...................... $ 657 $(4,337) $ 2,894 $ (175) $ 1,532
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1993 1994 1995 1996
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Identifiable Assets (in thousands):
U.S....................................... $56,617 $47,544 $56,924 $58,472
Europe.................................... 167 1,667 2,214 1,767
Australia................................. 533 885 1,062 1,284
Eliminations.............................. (766) (3,207) (4,550) (4,626)
------- ------- ------- -------
Total............................. $56,551 $46,889 $55,650 $56,897
======= ======= ======= =======
</TABLE>

Transfers between geographic areas are recorded on the basis of
intercompany prices established by the Company.

F-18
<PAGE> 72

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) RELATED PARTY TRANSACTIONS

The Company leases its manufacturing and administrative facility from JN
Properties (a general partnership whose partners include the Company's
chairman/chief executive officer and another stockholder/director of the
Company). The lease, which expires in July 2012, provides for adjustments of
base rent in 1995, 2000, 2005 and 2010 based on the then fair market rental
value of the premises. The increases are subject to a 7% maximum increase in
each adjustment year. Effective January 1, 1996, the annual rent increased from
$696,000 to $744,000. All taxes, insurance and maintenance expenses of the
facility are the responsibility of the Company.

In the second quarter of 1995, the Company issued 1,333,333 shares of
Series D Convertible Preferred Stock to GEMS (see Note 7), representing a 19%
ownership interest in the Company. GEMS is also a significant customer,
providing revenues to the Company of approximately $7.9 million or 10.3% and
$3.7 million or 18.4% of total revenues, in 1995 and the three months ended
March 31, 1996, respectively.

(11) COMMITMENTS AND CONTINGENCIES

The Company leases buildings (Note 10) and equipment under various
operating lease agreements which provide for the following minimum future lease
payments:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996......................................... $ 1,666
1997......................................... 1,617
1998......................................... 1,585
1999......................................... 1,569
2000......................................... 1,596
Thereafter................................... 9,961
-------
Total.............................. $17,994
=======
</TABLE>

Total rent expense was $1,570,000, $1,635,000 and $1,705,000 in 1993, 1994
and 1995, respectively.

The Company is subject to periodic inspections by the U.S. Food and Drug
Administration ("FDA") whose primary purpose is to audit the Company's
compliance with Good Manufacturing Practices ("GMP"). In December 1994, the
Company's Denver facility was subject to a compliance audit and was issued an
Inspection Observations letter, Form 483, as well as a warning letter,
concerning some of its manufacturing processes. In addition, in August 1995, the
Company's Chicago facility was subject to a compliance audit and was issued an
Inspection Observations letter, Form 483, as well as a warning letter, issued in
September 1995, concerning some of its manufacturing processes. The Company
believes it has rectified the deficiencies noted by the FDA. While the Company
believes that FDA observations and warning letters are becoming more routine,
such observations and warning letters may have a material adverse effect on the
Company if it is not able to comply.

The Company is also actively contesting various lawsuits in which it has
been named as defendant. In management's opinion, the effect of these disputes,
if any, will not have a significant effect on the accompanying consolidated
financial statements.

(12) INVESTMENTS AND ACQUISITIONS

Tetrad Corporation

In March 1993, the Company purchased 476,191 shares of Series B preferred
stock of Tetrad Corporation ("Tetrad"), an interoperative diagnostic ultrasound
system manufacturer. The shares of Series B preferred stock, which are not
readily marketable, and a subsequent note receivable resulting from the
Company's participation in a 1995 bridge financing, are accounted for at cost
which, as of December 31, 1995,

F-19
<PAGE> 73

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

equaled $550,000. During September 1995, continuing softness in the markets for
its products caused Tetrad to reorganize operationally and financially. Under
terms of the reorganization, which included the surrender of shares held by all
outside investors other than the Company and voluntary reduction in bank debt,
the Company maintained its ownership position. The Company believes that pending
contracts for further development work should provide Tetrad with the financial
capacity to continue the development and commercialization of its promising
technology base. Therefore, although near term developments could prove
otherwise, the Company believes its investment in Tetrad is not impaired and,
accordingly, has not provided any reserve for the possible reduction in the
long-term value of its investment.

Bloom Associates, Ltd.

In September, 1992, the Company acquired the capital stock of Bloom
Associates, Ltd. of Reading, Pennsylvania for $4.3 million. The acquisition,
accounted for as a purchase, resulted in goodwill of $2.5 million which is being
amortized on a straight-line basis over 14 years.

In connection with the purchase, the Company entered into a ten-year
noncompetition agreement with Mr. Murray Bloom, the founder and former chairman
and chief executive officer of Bloom. Under the covenant not to compete
agreement, Mr. Bloom was to receive a total of $4.0 million, subject to upward
inflation adjustments, over a five-year period. The noncompete obligation was
discounted at a 6% effective interest rate, with amortization of the original
discount reported as interest expense in the accompanying consolidated
statements of operations. The Company and Mr. Bloom also entered into a
five-year employment agreement. In 1994, the noncompetition agreement was
amended to accelerate the payments to Mr. Bloom, in consideration for which, the
total amount owed to Mr. Bloom was reduced to $3.8 million to be paid through
1996.

Fischer Imaging Midwest, Inc.

During the fourth quarter of 1995, the Company reached an agreement in
principle for the acquisition of the 45% minority interest of Fischer Imaging
Midwest, Inc. in exchange for 63,162 shares of the Company's stock. The Company
accounted for this transaction, which closed in February 1996, as a purchase,
acquiring net assets with a net book value of approximately $331,000 and
recording goodwill of approximately $221,000 which is to be amortized on a
straight-line basis over 40 years. As part of the acquisition agreement, the
purchase price may be adjusted based on subsequent realization of certain
working capital assets as of June 1, 1996. The Company placed 10,000 shares in
escrow, pending the outcome of this potential purchase price adjustment.

F-20
<PAGE> 74

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGES BALANCE AT
BEGINNING (CREDITS) TO DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSE AND OTHER PERIOD
- -------------------------------------------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Accounts receivable allowances.................. $539 $ 450 $ 70 $919
==== ===== ==== ====
Year ended December 31, 1994
Accounts receivable allowances.................. $919 $ 246 $269 $896
==== ===== ==== ====
Year ended December 31, 1995
Accounts receivable allowances.................. $896 $(494) $(47) $449
==== ===== ==== ====
</TABLE>

F-21
<PAGE> 75

<TABLE>
<S> <C>
- ------------------------------------------------------ ------------------------------------------------------

PICTURE A PICTURE B
- ------------------------------------------------------ ------------------------------------------------------
Imager III multi-purpose interventional x-ray imaging EP/X(2) bi-plane x-ray imaging system (FDA clearance
system pending)
</TABLE>

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

PICTURE C
---------------------------------------------
TRAUMEX x-ray imaging system for trauma radiology
<PAGE> 76

No dealer, salesperson or any other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, any Selling Stockholder or the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby by anyone in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the affairs of the Company since the date hereof or the information herein is
correct as of any time subsequent to the date of this Prospectus.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 17
Business.............................. 23
Management............................ 42
Principal and Selling Stockholders.... 44
Description of Capital Stock.......... 46
Shares Eligible For Future Sale....... 49
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 51
Available Information................. 51
Incorporation of Certain Documents by
Reference........................... 52
Consolidated Financial Statements..... F-1
</TABLE>

1,350,000 SHARES

FISCHER IMAGING CORPORATION LOGO

Common Stock

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

P R O S P E C T U S

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

PIPER JAFFRAY INC.

NEEDHAM & COMPANY, INC.
June , 1996
<PAGE> 77

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered (all amounts are estimated
except the SEC Registration Fee and the NASD Filing Fee):

<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 6,658
National Association of Securities Dealers, Inc. Filing Fee............... 2,538
Nasdaq Additional Listing Application Fee................................. 17,500
Blue Sky Qualification Fees and Expenses (including legal fees)........... 10,000
Printing Expenses......................................................... 90,000
Legal Fees and Expenses................................................... 130,000
Accountants' Fees and Expenses............................................ 60,000
Transfer Agent and Registrar Fees......................................... 5,000
Miscellaneous Expenses.................................................... 28,304
--------
Total........................................................... $350,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Bylaws and Certificate of Incorporation provide that the
Company shall, to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all directors and
officers of the Company. Section 145 of the Delaware General Corporation Law
provides in part that a corporation shall have the power to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including
attorneys' fees) actually and reasonably incurred in defense or settlement of
any threatened, pending or completed action or suit by or in the right of the
corporation, if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
provided further that (unless a court of competent jurisdiction otherwise
provides) such person shall not have been adjudged liable to the corporation.
Any such indemnification may be made only as authorized in each specific case
upon a determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable standard
of conduct. Where an officer or a director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually or
reasonably incurred.

Additionally, the Certificate of Incorporation and Bylaws provide for
mandatory indemnification of directors to the fullest extent permitted by
Delaware law. This provision does not eliminate the liability of a director (i)
for a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
liability arising under Section 174 of the Delaware General Corporation Law
(relating to the declaration of dividends and purchase or redemption of shares
in violation of the Delaware General Corporation Law); or (iv) for any
transaction from which the director derived an improper personal benefit.

II-1
<PAGE> 78

The Company has a directors and officers insurance policy with a $5.0
million coverage limit per occurrence and in the aggregate per year.

Section 6 of the Purchase Agreement (filed as Exhibit 1.1 hereto) provides
that the Underwriters will indemnify and hold harmless the Company and each
director, officer or controlling person of the Company from and against any
liability caused by any statement or omission in the Registration Statement or
Prospectus based on certain information furnished to the Company by the
Underwriters for use in the preparation thereof.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Purchase Agreement(11)
4.1 -- Certificate of Incorporation of the Company(1)
4.2 -- Bylaws of the Company(1)
4.1 -- Amended and Restated Rights Agreement, dated as of November 3, 1994,
between the Company and American Securities Transfer, Inc. which
includes the Certificate of Designations for the Series C Junior
Participating Preferred Stock as Exhibit A and the form of Right
Certificate as Exhibit B(10)
4.2 -- Certificate of Designations for the Series D Convertible Preferred
Stock(10)
5.1 -- Opinion and Consent of Davis, Graham & Stubbs LLP(11)
10.1 -- Agreement, dated as of September 30, 1987, between the Company and
AF-Tekniska Rontgencentralen AB(1)
10.2 -- Addendum No. 1 to Agreement between the Company and ABB Tekniska
Rontgencentralen AB (previously known as AF-Tekniska Rontgencentralen
AB)(4)
10.3 -- Works Contract and Manufacturing Agreement, dated October 28, 1988,
between the Company and Storz Medical AG, as amended on January 21,
1991(2)
10.4 -- Master Purchase Agreement, dated October 1989, between the Company
and Picker International, Inc.(1)
10.5 -- Amendment, dated September 1, 1994, to the Master Purchase Agreement
between the Company and Picker International, Inc.(9)
10.6 -- Agreement, dated October 5, 1990, between the Company and Dornier
Madizintechnik GmbH(1)
10.7 -- Agreement, dated September 29, 1991, between the Company and
Diasonics, Inc.(4)
10.8 -- Cooperative Research and Development Agreement, dated September 24,
1993, between the Company and The Regents of the University of
California(9)
10.9 -- Purchase Agreement, dated October 2, 1993, between the Company and
Varian Associates Inc.(8)
10.10 -- Purchase Agreement, dated August 29, 1994, between the Company and
General Electric Company on behalf of GE Medical Systems(8)
10.11 -- Royalty Agreement, dated as of April 18, 1980, between the Company
and Jesse T. Littleton, M.D.(1)
10.12 -- Directors Stock Option Plan(1)
10.13 -- Non-Employee Director Stock Option Plan(7)
10.14 -- 1985 Stock Option Plan(1)
</TABLE>

II-2
<PAGE> 79

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.15 -- Stock Option Plan(1)
10.16 -- Employee Stock Purchase Plan(3)
10.17 -- Retention Bonus Plan(9)
10.18 -- Lease Agreement, dated as of June 12, 1992, between the Company and
the Teachers' Retirement System of the State of Illinois(8)
10.19 -- Lease Agreement, dated July 31, 1992, between the Company and JN
Properties(6)
10.20 -- Security Agreement, dated November 9, 1988, between the Company and
LaSalle National Bank, as amended on November 16, 1990(1)
10.21 -- Amendment, dated February 14, 1992, to Security Agreement between the
Company and LaSalle National Bank(4)
10.22 -- Amendment, dated August 19, 1992, to Security Agreement between the
Company and LaSalle National Bank(6)
10.23 -- Amendment, dated March 1, 1994, to Security Agreement between the
Company and LaSalle National Bank(8)
10.24 -- Loan and Security Agreement, dated December 26, 1985, between Fischer
Imaging Midwest, Inc. and American Bank of Arlington Heights and
related Promissory Note(2)
10.25 -- Purchase Agreement, dated as of September 10, 1992, between the
Company and Murray Bloom(5)
10.26 -- Non-Competition Agreement, dated September 18, 1992, between the
Company and Murray Bloom(5)
10.27 -- Amendment, dated March 1, 1994, to the Non-Competition Agreement
between the Company and Murray Bloom(9)
10.28 -- Stock Purchase Agreement, dated as of June 20, 1995, between the
Company and General Electric Company, acting through its GE Medical
Systems Division ("GE Medical Systems")(10)
10.29 -- Registration Rights Agreement, dated as of June 20, 1995, between the
Company and GE Medical Systems(10)
10.30 -- Manufacturing and License Agreement, dated as of June 20, 1995,
between the Company and GE Medical Systems(10)
10.31 -- Amendment, dated as of June 20, 1995, to Purchase Agreement, dated as
of August 29, 1994, between the Company and GE Medical Systems(10)
11. -- Calculation of Earnings per Share(12)
21. -- List of Significant Subsidiaries(11)
23.1 -- Consent of Arthur Andersen LLP(11)
23.2 -- Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)(12)
</TABLE>

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

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-41537, as filed with the Securities and Exchange
Commission (the "Commission") on July 3, 1991.

(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-41537, as filed with the Commission on
July 18, 1991.

II-3
<PAGE> 80

(3) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-44599, as filed with the Commission on December 23, 1991.

(4) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1991, as filed with the Commission on March 30, 1992.

(5) Incorporated by reference to the Company's Form 8-K as filed with the
Commission on September 18, 1992.

(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1992, as filed with the Commission on April 12, 1993.

(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-64032, as filed with the Commission on June 8, 1993.

(8) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993, as filed with the Commission on March 31, 1994.

(9) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1994, as filed with the Commission on April 14, 1995.

(10) Incorporated by reference to the Company's Form 8-K, as filed with the
Commission on July 3, 1995.

(11) Filed herewith.

(12) Previously filed.

ITEM 18. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 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 Act and
will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.

II-4
<PAGE> 81

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-2 and has duly caused this Amendment No. 2 to
the Company's Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on this 26th day of June, 1996.

FISCHER IMAGING CORPORATION

By: /s/ MORGAN W. NIELDS
-------------------------------
Morgan W. Nields
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Company's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ MORGAN W. NIELDS Chairman of the Board and June 26, 1996
----------------------------------- Chief Executive Officer
Morgan W. Nields (Principal Executive
Officer)

/s/ JAMES A. NEWCOMB* Vice President of Finance and June 26, 1996
----------------------------------- Chief Financial Officer
James A. Newcomb (Principal Financial and
Accounting Officer)

/s/ DAVID G. BRAGG, M.D.* Director June 26, 1996
-----------------------------------
David G. Bragg, M.D.

/s/ THOMAS J. CABLE* Director June 26, 1996
-----------------------------------
Thomas J. Cable

/s/ FRANK W.T. LaHAYE* Director June 26, 1996
-----------------------------------
Frank W.T. LaHaye

/s/ KINNEY L. JOHNSON* Director June 26, 1996
-----------------------------------
Kinney L. Johnson

/s/ LAWRENCE A. LEHMKUHL* Director June 26, 1996
-----------------------------------
Lawrence A. Lehmkuhl

*By: /s/ MORGAN W. NIELDS
-----------------------------------
Morgan W. Nields
Attorney-in-fact
</TABLE>

II-5
<PAGE> 82

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------------ ------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- Form of Purchase Agreement(11)
4.1 -- Certificate of Incorporation of the Company(1)
4.2 -- Bylaws of the Company(1)
4.1 -- Amended and Restated Rights Agreement, dated as of November 3, 1994,
between the Company and American Securities Transfer, Inc. which
includes the Certificate of Designations for the Series C Junior
Participating Preferred Stock as Exhibit A and the form of Right
Certificate as Exhibit B(10)
4.2 -- Certificate of Designations for the Series D Convertible Preferred
Stock(10)
5.1 -- Opinion and Consent of Davis, Graham & Stubbs LLP(11)
10.1 -- Agreement, dated as of September 30, 1987, between the Company and
AF-Tekniska Rontgencentralen AB(1)
10.2 -- Addendum No. 1 to Agreement between the Company and ABB Tekniska
Rontgencentralen AB (previously known as AF-Tekniska Rontgencentralen
AB)(4)
10.3 -- Works Contract and Manufacturing Agreement, dated October 28, 1988,
between the Company and Storz Medical AG, as amended on January 21,
1991(2)
10.4 -- Master Purchase Agreement, dated October 1989, between the Company and
Picker International, Inc.(1)
10.5 -- Amendment, dated September 1, 1994, to the Master Purchase Agreement
between the Company and Picker International, Inc.(9)
10.6 -- Agreement, dated October 5, 1990, between the Company and Dornier
Madizintechnik GmbH(1)
10.7 -- Agreement, dated September 29, 1991, between the Company and Diasonics,
Inc.(4)
10.8 -- Cooperative Research and Development Agreement, dated September 24,
1993, between the Company and The Regents of the University of
California(9)
10.9 -- Purchase Agreement, dated October 2, 1993, between the Company and
Varian Associates Inc.(8)
10.10 -- Purchase Agreement, dated August 29, 1994, between the Company and
General Electric Company on behalf of GE Medical Systems(8)
10.11 -- Royalty Agreement, dated as of April 18, 1980, between the Company and
Jesse T. Littleton, M.D.(1)
10.12 -- Directors Stock Option Plan(1)
10.13 -- Non-Employee Director Stock Option Plan(7)
10.14 -- 1985 Stock Option Plan(1)
10.15 -- Stock Option Plan(1)
10.16 -- Employee Stock Purchase Plan(3)
10.17 -- Retention Bonus Plan(9)
10.18 -- Lease Agreement, dated as of June 12, 1992, between the Company and the
Teachers' Retirement System of the State of Illinois(8)
10.19 -- Lease Agreement, dated July 31, 1992, between the Company and JN
Properties(6)
10.20 -- Security Agreement, dated November 9, 1988, between the Company and
LaSalle National Bank, as amended on November 16, 1990(1)
</TABLE>

<PAGE> 83

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------------ ------------------------------------------------------------------------- ----
<C> <S> <C>
10.21 -- Amendment, dated February 14, 1992, to Security Agreement between the
Company and LaSalle National Bank(4)
10.22 -- Amendment, dated August 19, 1992, to Security Agreement between the
Company and LaSalle National Bank(6)
10.23 -- Amendment, dated March 1, 1994, to Security Agreement between the
Company and LaSalle National Bank(8)
10.24 -- Loan and Security Agreement, dated December 26, 1985, between Fischer
Imaging Midwest, Inc. and American Bank of Arlington Heights and
related Promissory Note(2)
10.25 -- Purchase Agreement, dated as of September 10, 1992, between the Company
and Murray Bloom(5)
10.26 -- Non-Competition Agreement, dated September 18, 1992, between the
Company and Murray Bloom(5)
10.27 -- Amendment, dated March 1, 1994, to the Non-Competition Agreement
between the Company and Murray Bloom(9)
10.28 -- Stock Purchase Agreement, dated as of June 20, 1995, between the
Company and General Electric Company, acting through its GE Medical
Systems Division ("GE Medical Systems")(10)
10.29 -- Registration Rights Agreement, dated as of June 20, 1995, between the
Company and GE Medical Systems(10)
10.30 -- Manufacturing and License Agreement, dated as of June 20, 1995, between
the Company and GE Medical Systems(10)
10.31 -- Amendment, dated as of June 20, 1995, to Purchase Agreement, dated as
of August 29, 1994, between the Company and GE Medical Systems(10)
11. -- Calculation of Earnings Per Share(12)
21. -- List of Significant Subsidiaries(11)
23.1 -- Consent of Arthur Andersen LLP(11)
23.2 -- Consent of Davis, Graham & Stubbs LLP (see Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)(12)
</TABLE>

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

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-41537, as filed with the Securities and Exchange
Commission (the "Commission") on July 3, 1991.

(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-41537, as filed with the Commission on
July 18, 1991.

(3) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-44599, as filed with the Commission on December 23, 1991.

(4) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1991, as filed with the Commission on March 30, 1992.

(5) Incorporated by reference to the Company's Form 8-K as filed with the
Commission on September 18, 1992.
<PAGE> 84

(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1992, as filed with the Commission on April 12, 1993.

(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-64032, as filed with the Commission on June 8, 1993.

(8) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993, as filed with the Commission on March 31, 1994.

(9) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1994, as filed with the Commission on April 14, 1995.

(10) Incorporated by reference to the Company's Form 8-K, as filed with the
Commission on July 3, 1995.

(11) Filed herewith.

(12) Previously filed.

<PAGE> 1
EXHIBIT 1.1

________ SHARES1

FISHER IMAGING CORPORATION

COMMON STOCK

PURCHASE AGREEMENT

___________, 1996

PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
As Representatives of the several
Underwriters named in Schedule II hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402

Gentlemen:

Fisher Imaging Corporation, a Delaware corporation (the "Company")
proposes to sell ______ shares of its authorized but unissued Common Stock $.01
par value (the "Common Stock") and the stockholders of the Company named in
Schedule I hereto (herein called the "Selling Securityholders") propose to sell
an aggregate of ______ shares of Common Stock to the several Underwriters named
in Schedule II hereto (the "Underwriters") (collectively the "Firm Shares").
The Company and the Selling Securityholders also propose to grant to the
several Underwriters an option to purchase up to ______ additional shares of
Common Stock on the terms and for the purposes set forth in Section 3 hereof
(the "Option Shares"). The Firm Shares and any Option Shares purchased
pursuant to this Purchase Agreement are herein collectively called the
"Securities."

The Company and the Selling Securityholders hereby severally confirm
its agreement with respect to the sale of the Securities to the several
Underwriters, for whom you are acting as Representatives (the
"Representatives").

1. Registration Statement.

(a) A registration statement on Form S-2 (File No.
33-______) with respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the
Commission; one or more amendments to such registration statement have

__________________________________

1 Plus an option to purchase up to _______ additional
shares to cover over-allotments.
<PAGE> 2
also been so prepared and have been, or will be, so filed. Copies of such
registration statement and amendments and each related preliminary prospectus
have been delivered to you.

(b) The term Registration Statement as used in this
agreement shall mean such registration statement, including all documents
incorporated by reference therein, all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Securities (herein called a
Rule 462(b) registration statement), and, in the event of any amendment thereto
after the effective date of such registration statement shall also mean (from
and after the effectiveness of such amendment) such registration statement as
so amended (including any Rule 462(b) registration statement). The term
"Prospectus" as used in this Agreement shall mean the prospectus, including the
documents incorporated by reference therein, relating to the Securities first
filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no such
filing is required, as included in the Registration Statement) and, in the
event of any supplement or amendment to such prospectus after the effective
date, shall also mean (from and after the filing with the Commission of such
supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term "Preliminary Prospectus" as used in this
Agreement shall mean each preliminary prospectus, including the documents
incorporated by reference therein, included in such registration statement
prior to the time it becomes effective.

2. Representations and Warranties of the Company and the Selling
Securityholders.

2.1 The Company represents and warrants to, and agrees with, the
several Underwriters as follows:

(a) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission (nor, to the knowledge
of the Company, have any proceedings been instituted or threatened for that
purpose) and each Preliminary Prospectus, at the time of filing thereof, did
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading
which was not corrected in the final prospectus filed pursuant to Rule 424(b);
except that the foregoing shall not apply to statements in or omissions from
any Preliminary Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.

(b) As of the time the Registration Statement (or any
post-effective amendment thereto) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus) and at the First Closing Date
and Second Closing Date (as hereinafter defined), (A) the Registration
Statement and Prospectus (in each case, as so amended and/or supplemented) will
conform or conformed in all material respects to the requirements of the Act
and the Rules and Regulations, (B) the Registration Statement (as so amended)
will not or did not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (C) the Prospectus (as so supplemented)
will not or did not include an untrue statement of a material fact or omit to
state

-2-
<PAGE> 3
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are or were
made, not misleading; except that the foregoing shall not apply to statements
in or omissions from any such document in reliance upon, and in conformity
with, written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof. If
the Registration Statement has been declared effective by the Commission, no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceeding for that purpose has been initiated or, to the
Company's knowledge, threatened by the Commission.

(c) The financial statements of the Company, together
with the notes thereto, set forth in the Registration Statement and
Prospectuses comply in all material respects with the requirements of the Act
and fairly present the financial condition of the Company as of the dates
indicated and the results of operations and changes in cash flows for the
periods therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein); and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be
included in the Registration Statement or Prospectus. Arthur Andersen LLP, who
has expressed its opinion with respect to the financial statements and
schedules filed as a part of the Registration Statement and included in the
Registration Statement and Prospectus, are independent public accountants as
required by the Act and the Rules and Regulations.

(d) Each of the Company, Fisher Imaging Midwest, Inc.
("FIM"), Fisher Imaging Australia Ptg. Limited ("FIA"), Bloom Associates Ltd.
("Bloom") and Fisher Imaging Europe A/S ("FIE") (FIM, FIA, Bloom and FIE are
hereinafter referred to as the "Subsidiaries") been duly organized and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and its Subsidiaries has
full corporate power and authority to own its properties and conduct its
business as currently being carried on and as described in the Registration
Statement and Prospectus, and is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which it owns or leases
real property or in which the conduct of its business makes such qualification
necessary and in which the failure to so qualify would have a material adverse
effect upon its business, condition (financial and otherwise) or properties,
taken as a whole.

(e) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its Subsidiaries
has incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
has not been any change in the capital stock (other than a change in the number
of outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company or any
of its Subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
condition (financial or otherwise), business, key personnel, property, net
worth or results of operations of the Company and its Subsidiaries, taken

-3-
<PAGE> 4
as a whole or, to the Company's knowledge, in the prospects of the Company and
its Subsidiaries, taken as a whole.

(f) Except as set forth in the Prospectus, there is not
pending or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company or any of its Subsidiaries is a
party before or by any court or governmental agency, authority or body, or any
arbitrator, which would result in any material adverse change in the condition
(financial or otherwise), business, prospects, net worth or results of
operations of the Company and its Subsidiaries, taken as a whole.

(g) There are no contracts or documents of the Company or
any of its Subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have not
been so filed.

(h) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding obligation
of the Company, enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute, agreement
or instrument to which the Company is a party or by which it is bound or to
which any of its property is subject, the Company's charter or by- laws, or any
order, rule, regulation or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its properties; no consent,
approval, authorization or order of, or filing with, any court or governmental
agency or body is required for the execution, delivery and performance of this
Agreement or for the commission of the actions contemplated hereby, including
the issuance or sale of the Securities by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the Company
has full power and authority to enter into this Agreement and to authorize,
issue and sell the Securities as contemplated by this Agreement.

(i) All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common Stock, are
duly authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws (other than
such noncompliance as would not have a material adverse effect on the condition
(financial or otherwise) of the Company), were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities; the Securities which may be sold hereunder by the Company have been
duly authorized and, when issued, delivered and paid for in accordance with the
terms hereof, will have been validly issued and will be fully paid and
nonassessable; and the capital stock of the Company, including the Common
Stock, conforms to the description thereof in the Registration Statement and
Prospectus. Except as otherwise stated in the Registration Statement and
Prospectus, there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's charter, by-laws or any agreement or
other instrument to which the Company is a party or by which the Company is
bound. Neither the

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<PAGE> 5
filing of the Registration Statement nor the offering or sale of the Securities
as contemplated by this Agreement gives rise to any rights, other than those
which have been validly waived, for or relating to the registration of any
shares of Common Stock or other securities of the Company. All of the issued
and outstanding shares of capital stock of each of the Company's Subsidiaries
have been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise described in the Registration Statement
and Prospectus and except for any directors' qualifying shares, the Company
owns of record and beneficially, free and clear of any security interests,
claims, liens, proxies, equities or other encumbrances, all of the issued and
outstanding shares of such stock. Except as described in the Registration
Statement and the Prospectus, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from the Company
or any subsidiary of the Company any shares of the capital stock of the Company
or any subsidiary of the Company. The Company has an authorized and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus.

(j) The Company and each of its Subsidiaries holds, and
is operating in compliance in all material respects with, all franchises,
grants, authorizations; licenses, permits, easements, consents, certificates
and orders of any governmental or self-regulatory body required for the conduct
of its business and all such franchises, grants, authorizations, licenses,
permits, easements, consents, certifications and orders are valid and in full
force and effect, which failure to obtain or noncompliance would have a
material adverse effect on the condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole; the Company and each of its
Subsidiaries is in compliance in all material respects with all applicable
federal, state, local and foreign laws, regulations, orders and decrees, which
failure to comply would have a material adverse effect on the condition
(financial or otherwise) of the Company and its subsidiaries taken as a whole;
and the Company has all import and export licenses necessary for the conduct of
its business and is not in violation of any such laws.

(k) The Company and its Subsidiaries have good and
marketable title to all property described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all liens,
claims, security interests or other encumbrances except such as are described
in the Registration Statement and the Prospectus or except as do not materially
affect the value of such property or are not material in amount and do not
interfere in any material respect with the use of the property or the conduct
of the business of the Company; the property held under lease by the Company
and its Subsidiaries is held by them under valid, subsisting and enforceable
leases with only such exceptions with respect to any particular lease as do not
interfere in any material respect with the conduct of the business of the
Company or its Subsidiaries; the Company and each of its Subsidiaries owns or
possesses all patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets and rights necessary for the conduct of the
business of the Company and its Subsidiaries as currently carried on and as
described in the Registration Statement and Prospectus; except as stated in the
Registration Statement and Prospectus, no name which the Company or any of its
Subsidiaries uses and no other aspect of the business of the Company or any of
its Subsidiaries will involve or give rise to any infringement of, or license
or similar fees for, any patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar rights of
others material to the business or prospects of the Company and neither the
Company nor any of its Subsidiaries has received any notice alleging any such
infringement or fee.

-5-
<PAGE> 6
(l) Neither the Company nor any of its Subsidiaries are
in violation of its respective charter or by-laws or in breach of or otherwise
in default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan agreement or
any other material contract, lease or other instrument to which it is subject
or by which any of them may be bound, or to which any of the material property
or assets of the Company or any of its Subsidiaries is subject.

(m) The Company and its Subsidiaries have filed all
federal, state, local and foreign income and franchise tax returns required to
be filed and are not in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto, other than
any which the Company or any of its Subsidiaries is contesting in good faith.

(n) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be distributed by the
Company.

(o) The Common Stock of the Company is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 and is quoted
on the Nasdaq National Market; the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or removing the Common Stock from quotation on the
Nasdaq National Market, nor has the Company received notification that the
Commission or the National Association of Securities Dealers, Inc. is
contemplating terminating such registration or qualification..

(p) Other than the Subsidiaries of the Company, the
Company owns no capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust or other entity.

(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) actions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(r) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of this
Agreement or the execution of the actions contemplated hereby.

(s) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any person or
entity located in Cuba.

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<PAGE> 7
2.2 Each Selling Securityholder hereby severally represents and
warrants as follows:

(a) Each Selling Securityholder has, and immediately
prior to the Closing Date and any later date on which Option Shares are to be
purchased), each Selling Securityholder will have good and valid title to the
shares of Securities to be sold by each Selling Securityholder hereunder on
such date, free and clear of all liens, encumbrances, equities or claims; and
upon delivery of such shares and payment therefor pursuant hereto, good and
valid title to such shares, free and clear of all liens, encumbrances, equities
or claims, will pass to the several Underwriters.

(b) Each Selling Securityholder has placed in custody
under a custody agreement (the "Custody Agreement," and, together with all
other similar agreements executed by the other Selling Securityholders, the
"Custody Agreements") with ___________________ (the "Custodian"), for delivery
under this Agreement, certificates in negotiable form (with signature
guaranteed by a commercial bank or trust company having an office or
correspondent in the United States or a member firm of the New York or American
Stock Exchanges) representing the shares of Stock to be sold by each Selling
Securityholder hereunder.

(c) Each Selling Securityholder has duly and irrevocably
executed and delivered a power of attorney (the "Power of Attorney," and,
together with all other similar agreements executed by the other Selling
Securityholders, the "Powers of Attorney") appointing Morgan W. Nields and
James A. Newcomb as attorneys-in-fact, with full power of substitution, and
with full authority (exercisable by any one or more of them) to execute and
deliver this Agreement and to take such other action as may be necessary or
desirable to carry out the provisions hereof on behalf of such Selling
Securityholder.

(d) Each Selling Securityholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of this Agreement, the Power
of Attorney and the Custody Agreement by each Selling Securityholder and the
consummation by each Selling Securityholder of the transactions contemplated
hereby and thereby will not conflict with or 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 or other agreement or
instrument to which such Selling Securityholder is a party or by which such
Selling Securityholder is bound or to which any of the property or assets of
such Selling Securityholder is subject, nor will such actions result in any
violation of the provisions of the charter and bylaws, articles of partnership
or deed of trust, as applicable, of such Selling Securityholder or any statute
or any order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Securityholder or the property or assets
of such Selling Securityholder; and, except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Power of Attorney or the Custody Agreement
by such Selling Securityholder and the consummation by such Selling
Securityholder of the transactions contemplated hereby and thereby.

-7-
<PAGE> 8
(e) To the extent that any statements or omissions made
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Securityholder specifically for use therein, such Preliminary Prospectus and
the Registration Statement did, and the Prospectus and any amendments or
supplements to the Registration Statement or the Prospectus will, when they
become effective or are filed with the Commission, as the case may be, not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.

(f) Each Selling Securityholder has not taken and will
not take, directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock and each Selling
Securityholder hereby represents and warrants that its motivation for selling
Securities hereunder is not in any way related to materially adverse
information about the Company that is not disclosed in the Prospectus or is
otherwise not publicly available.

3. Purchase, Sale and Delivery of Securities.

(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell the Firm Shares to the several
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule II hereto. The purchase price for each Firm
Share shall be $_____ per share. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of Firm Shares (to be
adjusted by the Representatives to avoid fractional shares) which represents
the same proportion of the number of Firm Shares to be sold by the Company
pursuant to this Agreement as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto represents to the total number
of Firm Shares to be purchased by all Underwriters pursuant to this Agreement.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraph (c) of this Section 3 and in Section 8
hereof, the agreement of each Underwriter is to purchase only the respective
number of Firm Shares specified in Schedule II.

(b) The Firm Shares will be delivered by the Company to
you for the accounts of the several Underwriters against payment of the
purchase price therefor by certified or official bank check or other next day
funds payable to the order of the Company at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable, at 9:00 am., Minneapolis time, on
the third (3rd) full business day following the date hereof, or at such other
time as you and the Company determine so long as such date is not later than
seven full business days after such third business day, such time and date of
delivery being herein referred to as the "First Closing Date." The Firm Shares,
in definitive form and in such denominations and registered in such names as
you may request upon at least two business days' prior notice to the Company,
will be made available for checking and packaging at the offices of Piper
Jaffray Inc., Piper

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<PAGE> 9
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other
location as may be mutually acceptable, at least one business day prior to the
First Closing Date.

(c) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company, with respect to the Option Shares, hereby grants to the
several Underwriters an option to purchase all or any portion of the Option
Shares at the same purchase price as the Firm Shares, for use solely in
covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time (but not more than once) within 30 days after the effective date of
this Agreement upon notice (confirmed in writing) by the Representatives to the
Company setting forth the aggregate number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations in
which the certificates for the Option Shares are to be registered and the date
and time, as determined by you, when the Option Shares are to be delivered,
such date and time being herein referred to as the"Second Closing Date",
provided, however, that the Second Closing Date shall not be earlier than the
First Closing Date, nor earlier than the second business day after the date on
which the option shall have been exercised. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage of the total number
of Option Shares to be purchased by the several Underwriters as the number of
Firm Shares to be purchased by such Underwriter is of the total number of Firm
Shares to be purchased by the several Underwriters, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares. No Option Shares shall be sold and delivered unless the
Firm Shares previously have been, or simultaneously are, sold and delivered.

(d) The Option Shares will be delivered by the Company to
you for the accounts of the several Underwriters against payment of the
purchase price therefor by certified or official bank check or other next day
funds payable to the order of the Company at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable at 9:00 am., Minneapolis time, on
the Second Closing Date. The Option Shares, in definitive form and in such
denominations and registered in such names as you have set forth in your notice
of option exercise, will be made available for checking and packaging at the
office of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable,
at least one business day prior to the Second Closing Date.

(e) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment to the Company, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company.

4. Covenants.

The Company and each Selling Securityholder covenants and agrees with
the several Underwriters as follows:

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<PAGE> 10
(a) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you promptly
of the time when the Registration Statement or any post-effective amendment to
the Registration Statement has become effective or any supplement to the
Prospectus has been filed and of any request by the Commission for any
amendment or supplement to the Registration Statement or Prospectus or
additional information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will file a Prospectus containing the
information omitted therefrom pursuant to such Rule 430A with the Commission
within the time period required by, and otherwise in accordance with the
provisions of, Rules 424(b) and 430A of the Rules and Regulations; the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus that, in
your reasonable opinion, may be necessary or advisable in connection with the
distribution of the Securities by the Underwriters; and the Company will not
file any amendment or supplement to the Registration Statement or Prospectus to
which you shall reasonably object by notice to the Company after having been
furnished a copy a reasonable time prior to the filing.

(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any proceeding for
any such purpose; and the Company will promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such a stop order
should be issued.

(c) Within the time during which a prospectus relating to
the Securities is required to be delivered under the Act, the Company will
comply as far as it is able with all requirements imposed upon it by the Act,
as now and hereafter amended, and by the Rules and Regulations, as from time to
time in force, so as necessary to permit the continuance of sales of or
dealings in the Securities as contemplated by the provisions hereof and the
Prospectus. If during such period any event as a result of which the
Prospectus would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement the Prospectus to
comply with the Act, the Company will promptly notify you and will amend the
Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such compliance.

(d) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long as
required for the distribution of the Securities, except that the Company shall
not be required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state.

(e) The Company will furnish to the Underwriters copies
of the Registration Statement (three of which will be signed and will include
all exhibits filed therewith), each Preliminary Prospectus,

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<PAGE> 11
the Prospectus, and all amendments and supplements to such documents, in each
case as soon as available and in such quantities as you may from time to time
reasonably request.

(f) During a period of five years commencing with the
date hereof, the Company will furnish to the Representatives, and to each
Underwriter who may so request in writing, copies of all periodic and special
reports furnished to the stockholders of the Company and all information,
documents and reports filed with the Commission, the National Association of
Securities Dealers, Inc., the Nasdaq National Market or any other securities
exchange.

(g) The Company will make generally available to its
security holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.

(h) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective under the provisions of Section 9(a) hereof or is
terminated, will pay or cause to be paid (A) all expenses (including transfer
taxes allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's accountants
and counsel but, except as otherwise provided below, not including fees of the
Underwriters' counsel) in connection with the preparation, printing, filing,
delivery, and shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits thereto), the
Securities, each Preliminary Prospectus, the Prospectus, and any amendment
thereof or supplement thereto, and the printing, delivery, and shipping of this
Agreement and other underwriting documents, including Blue Sky Memoranda, (C)
all filing fees and fees and disbursements of the Underwriters' counsel
incurred in connection with the qualification of the Securities for offering
and sale by the Underwriters or by dealers under the securities or blue sky
laws of the states and other jurisdictions which you shall designate in
accordance with Section 4(d) hereof, (D) the fees and expenses of any transfer
agent or registrar, (E) the filing fees incident to any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the Securities, (F) listing fees, if any, and (G) all other costs and expenses
incident to the performance of its obligations hereunder that are not otherwise
specifically provided for herein. If the sale of the Securities provided for
herein is not consummated by reason of action by the Company pursuant to
Section 9(a) hereof which prevents this Agreement from becoming effective, or
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any other
condition of the Underwriter's obligations hereunder required to be fulfilled
by the Company is not fulfilled, the Company will reimburse the several
Underwriters for all out-of-pocket disbursements (including fees and
disbursements of counsel) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Company shall not
in any event be liable to any of the Underwriters for loss of anticipated
profits from the transactions covered by this Agreement.

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<PAGE> 12
(i) The Company will apply the net proceeds from the sale
of the Securities to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to the
sale of the Securities and the application of the proceeds therefrom as may be
required in accordance with Rule 463 of the Rules and Regulations.

(j) For a period of ___ days after the commencement of
the public offering of the Securities by the Underwriters, the Company will
not, without your prior written consent, offer for sale, sell, contract to
sell, grant any option for the sale of or otherwise issue or dispose of any
Common Stock or any securities convertible into or exchangeable for, or any
options or rights to purchase or acquire, Common Stock, except to the
Underwriters pursuant to this Agreement and except for options or rights to
acquire Common Stock issued pursuant to the stock option or stock purchase
plans described in the Prospectus or Common Stock issued pursuant to the
exercise of such options or rights..

(k) The Company either has caused to be delivered to you
or will cause to be delivered to you prior to the effective date of the
Registration Statement a letter from each Selling Securityholder, the Company's
directors and officers stating that such person and entity agrees that it, he
and she will not, without your prior written consent, offer for sale, sell,
contract to sell or otherwise dispose of any shares of Common Stock or rights
to purchase Common Stock for a period ___ days after commencement of the public
offering of the Securities by the Underwriters.

(l) The Company has not taken and will not take, directly
or indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale
of the Securities.

(m) The Company will not incur any liability for any
finder's or broker's fee or agent's commission in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.

(n) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the distribution
of the Securities by the Underwriters if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.

5. Conditions of Underwriters' Obligations.

(a) The obligations of the several Underwriters hereunder
are subject to the accuracy, as of the date hereof and at each of the First
Closing Date and the Second Closing Date (as if made at such Closing Date), of
and compliance with all representations, warranties and agreements of the
Company contained herein, to the performance by the Company of its obligations
hereunder and to the following additional conditions:

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<PAGE> 13
(i) The Registration Statement shall have become
effective not later than 5:00 pm., Minneapolis time, on the date of
this Agreement, or such later time and date as you, as Representatives
of the several Underwriters, shall approve and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been
timely made; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been
issued; no proceedings for the issuance of such an order shall have
been initiated or threatened; and any request of the Commission for
additional information (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to your
satisfaction.

(ii) No Underwriter shall have advised the Company
that the Registration Statement or the Prospectus, or any amendment
thereof or supplement thereto, contain an untrue statement of fact
which, in your opinion, is material, or omits to state a fact which,
in your opinion, is material and is required to be stated therein or
necessary to make the statements therein not misleading.

(iii) Except as contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, neither the Company nor
any of its Subsidiaries shall have incurred any material liabilities
or obligations, direct or contingent, or entered into any material
transactions, or declared or paid any dividends or made any
distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a
change in the number of outstanding shares of Common Stock due to the
issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt
of the Company, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of the
Company or any of its Subsidiaries, or any material adverse change or
any development involving a prospective material adverse change
(whether or not arising in the ordinary course of business), in the
general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of
the Company and its Subsidiaries, taken as a whole, that, in your
judgment, makes it impractical or inadvisable to offer or deliver the
Securities on the terms and in the manner contemplated in the
Prospectus.

(b) On each Closing Date, there shall have been furnished
to you, as Representatives of the several Underwriters, the opinion of Davis,
Graham & Stubbs LLP, counsel for the Company, dated such Closing Date and
addressed to you, to the effect that:

(i) Each of the Company and each of its
Subsidiaries has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. Each of the Company and each of its Subsidiaries has
full corporate power and authority to own its properties and conduct
its business as currently being carried on and as described in the
Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in
which the failure to so qualify would have a material adverse effect
upon the business, condition (financial or otherwise) or properties of
the Company and its subsidiaries, taken as a whole.

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<PAGE> 14
(ii) The capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock." All of
the issued and outstanding shares of the capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. The Securities to be issued and sold by the Company
hereunder have been duly authorized and, when issued, delivered and
paid for in accordance with the terms of this Agreement, will have
been validly issued and will be fully paid and nonassessable, and the
holders thereof. Except as otherwise stated in the Registration
Statement and Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, any shares of Common Stock pursuant to the
Company's charter, by-laws or any agreement or other instrument known
to such counsel to which the Company is a party or by which the
Company is bound. To the best of such counsel's knowledge, neither
the filing of the Registration Statement nor the offering or sale of
the Securities as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of Common
Stock or other securities of the Company, other than those rights
which have heretofore been validly waived.

(iii) All of the issued and outstanding shares of
capital stock of each of the Subsidiaries has been duly and validly
authorized and issued and are fully paid and nonassessable, and, to
the best of such counsel's knowledge, except as otherwise described in
the Registration Statement and Prospectus and except for directors'
shares, the Company owns of record and beneficially, free and clear of
any security interests, claims, liens, proxies, equities or other
encumbrances, all of the issued and outstanding shares of such stock.
To the best of such counsel's knowledge, except as described in the
Registration Statement and Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or
acquire from the Company or any of its Subsidiaries any shares of the
capital stock of the Company or any Subsidiary.

(iv) The Registration Statement has become
effective under the Act and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of such counsel, threatened by the
Commission.

(v) Other than descriptions of statutes, legal
and governmental proceedings in the Registration Statement in reliance
upon the opinion of the experts identified in (d), (e) and (f) hereof,
the descriptions in the Registration Statement and Prospectus of
statutes, legal and governmental proceedings, contracts and other
documents are accurate and fairly present the information required to
be shown; and such counsel does not know of any statutes or legal or
governmental proceedings required to be described in the Prospectus
that are not described as required, or of any contracts or documents
of a character required to be described in the Registration Statement
or Prospectus or included as exhibits to the Registration Statement
that are not described or included as required.

(vi) The Company has full corporate power and
authority to enter into this Agreement, and this Agreement has been
duly authorized, executed and delivered by the

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<PAGE> 15
Company and constitutes a valid, legal and binding obligation of the
Company enforceable in accordance with its terms (except as rights to
indemnity hereunder may be limited by federal or state securities laws
and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity); the
execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule or regulation, any
agreement or instrument to which the Company is a party or by which it
is bound or to which any of its property is subject that has been
filed with the Commission pursuant to Item 601 of Regulation S-K under
the Securities Act (the "Reviewed Agreements"), the Company's charter
or by-laws, or any order or decree known to such counsel of any court
or governmental agency or body having jurisdiction over the Company or
any of its respective properties; and no consent, approval,
authorization or order of, or filing with, any court or governmental
agency or body is required for the execution, delivery and performance
of this Agreement or for the consummation of the transactions
contemplated hereby, including the issuance or sale of the Securities
by the Company, except such as may be required under the Act or state
securities laws.

(vii) To the best of such counsel's knowledge,
neither the Company nor any of its subsidiaries is in violation of its
respective charter or by-laws. To the best of such counsel's
knowledge, neither the Company nor any of its subsidiaries is in
breach of or otherwise in default in the performance of any material
obligation, agreement or condition contained in any Reviewed Agreement
to which it is subject or by which any of them may be bound, or to
which any of the material property or assets of the Company or any of
its subsidiaries is subject.

(viii) Each Selling Securityholder has full right,
power and authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement the execution, delivery and
performance of this Agreement, the Power of Attorney and the Custody
Agreement by each Selling Securityholder and the consummation by each
Selling Securityholder of the transactions contemplated hereby and
thereby will not conflict with or 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 or other agreement
or instrument known to such counsel to which any Selling
Securityholder is a party or by which any Selling Securityholder is
bound or to which any of the property or assets of any Selling
Securityholder is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws, the articles of
partnership or the deed of trust of any such Selling Securityholder or
any statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over any
Selling Securityholder or the property or assets of any Selling
Securityholder; and, except for the registration of the Securities
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection with the
purchase and distribution of the Securities by the Underwriters, no
consent, approval, authorization or order of' or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement, the Power of Attorney or the Custody Agreement by any
Selling

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<PAGE> 16
Securityholder and the consummation by any Selling Securityholder of
the transactions contemplated hereby and thereby:

(ix) Such counsel shall also state that the
Registration Statement and the Prospectus, and any amendment thereof
or supplement thereto, comply as to form in all material respects with
the requirements of the Act and the Rules and Regulations; and on the
basis of conferences with officers of the Company, examination of
documents referred to in the Registration Statement and Prospectus and
such other procedures as such counsel deemed appropriate, nothing has
come to the attention of such counsel that causes such counsel to
believe that the Registration Statement or any amendment thereof, at
the time the Registration Statement became effective and as of such
Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus (as of its date and as of such Closing Date), as amended or
supplemented, includes any untrue statement of material or omits to
state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
it being understood that such counsel need express no opinion as to
the financial statements or other financial data included in any of
the documents mentioned in this clause.

(c) In rendering such opinion such counsel may state that
it is not licensed to practice law in Minnesota and expresses no opinion as to
the enforceability of the choice of law provision or the enforceability of any
of the terms of the Agreement under Minnesota law; that Minnesota law may
differ in important respects from California law and that such counsel has
assumed for the purpose of the opinion that Minnesota law is identical to
Delaware and Colorado law. In addition, such counsel may rely as to matters of
fact, to the extent such counsel deems reasonable upon certificates of officers
of the Company and its Subsidiaries provided that the extent of such reliance
is specified in such opinion. Such counsel need express no opinion with
respect to any matter covered in 5(d), (e) and (f) below.

(d) On each Closing Date, there shall have been furnished
to you, as Representatives of the several Underwriters, the opinion of
_____________________, patent counsel for the Company, dated such Closing Date
and addressed to you, to the effect that:

(i) The Company is listed in the records of the
Patent and Trademark Office as the holder of record of each of the
patents listed on Schedule III hereof (the "Patents") and each of the
patent applications listed on Schedule III hereof (the
"Applications"). Such counsel knows of no claims of third parties to
any ownership interest or lien with respect to any of the Patents or
Applications. To such counsel's knowledge, none of the Applications
has been rejected.

(ii) To such counsel's knowledge, the Company is
listed in the records of the appropriate foreign office as the sole
holder of record of each of the foreign applications listed on
Schedule IV. Such counsel knows of no claims of third parties to any
of such foreign applications. To such counsel's knowledge, none of
the foreign applications has been rejected.

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<PAGE> 17
(iii) The statements under the Prospectus captions
"Risk Factors-- Patents and Proprietary Rights" and "Business--Patents
and Proprietary Rights" (collectively, the "Intellectual Property
Portion") in the Registration Statement and the Prospectus and any
amendment or supplement thereto, insofar as such statements constitute
a summary of the Company's Patents and Applications are in all
material respects accurate summaries and fairly summarize in all
material respects the legal matters, documents and proceedings
relating to such Patents and Applications described therein; to the
best knowledge of such counsel, the Company owns _____ issued U.S.
patents and ____ pending U.S. applications.

(iv) Such counsel is not aware of any facts that
would lead such counsel to conclude that any of the Patents are
invalid or that any patent issued in respect of an Application would
be invalid.

(v) Except as disclosed in the Intellectual
Property Portion, such counsel is not aware that any valid patent is
infringed by the activities of the Company described in the Prospectus
or by the manufacture, use or sale of any product, device, instrument,
drug or other material made and used according to the Applications or
the Patents.

(vi) Such counsel is not aware of any material
defects of form in the preparation or filing of the Applications on
behalf of the Company. The Applications are being diligently pursued
by the Company.

(vii) Such counsel knows of no pending or
threatened action, suit, proceeding or claim by others that the
Company is infringing or otherwise violating any patents or trade
secrets.

(viii) Such counsel is not aware of any pending or
threatened actions, suits, proceedings or claim by others challenging
the validity or scope of the Applications or the Patents.

(ix) Such counsel is not aware of any infringement
on the part of any third party of the Patents, Applications, trade
secrets, know-how or other proprietary rights of the Company.

(x) Although such counsel does not and cannot
guarantee the accuracy of completeness of the statements contained in
the Intellectual Property Portion of the Registration Statement or
such portion of the Prospectus, as amended or supplemented, nothing
has come to the attention of such counsel which causes such counsel to
believe that the information contained in the Intellectual Property
Portion of the Registration Statement or any amendment thereof
contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the information contained in the Intellectual Property Portion of
the Prospectus or any supplement thereto contained or contains any
untrue statement of a material fact or omitted or

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<PAGE> 18
omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

(e) On each Closing Date, you shall have received, as
Representatives of the several Underwriters, the opinion (addressed to the
Underwriters) of ____________________, special regulatory counsel to the
Company, dated such Closing Date and in form and substance satisfactory to
counsel for the Underwriters, with conformed copies thereof for each of the
Underwriters to the effect that:

(i) The statements under the captions "Risk
Factors--Government Regulations; No Assurance of Regulatory Approval,"
Risk Factors--Healthcare Reform; Uncertainty of Patient
Reimbursement," "Business--Reimbursement" and "Business--Government
Regulations" (collectively, the "Regulatory Portion") in the
Registration Statement and the Prospectus and any amendment or
supplement thereto, to the extent that they reflect matters of law,
summaries of law or regulations, or regulatory status, are correct in
all material respects, subject to the qualifications set forth
therein.

(ii) Nothing has come to the attention of such
counsel that would lead such counsel to believe that the Regulatory
Portion of the Registration Statement, at the time it became
effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that, on
the closing date of the public offering, the information contained in
the Regulatory Portion of the Prospectus or any amendment or
supplement to the Regulatory Portion of the Prospectus contained any
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

(f) In rendering such opinion such counsel may rely as to
matters of law other than Colorado and Delaware law and federal law, upon the
opinion or opinions of local counsel provided that the extent of such reliance
is specified in such opinion and that such counsel shall state that such
opinion or opinions of local counsel are satisfactory to them and that they
believe they and you are justified in relying thereon.

(g) On each Closing Date, there shall have been furnished
to you, as Representatives of the several Underwriters, such opinion or
opinions from Wilson Sonsini Goodrich & Rosati, counsel for the several
Underwriters, dated such Closing Date and addressed to you, with respect to the
formation of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as you reasonably may
request, and such counsel shall have received such papers and information as
they request to enable them to pass upon such matters.

(h) On each Closing Date you, as Representatives of the
several Underwriters, shall have received a letter of Arthur Andersen LLP,
dated such Closing Date and addressed to you, confirming (i) that they are
independent public accountants within the meaning of the Act and are in
compliance with the applicable requirements relating to the qualifications of
accountants under Rule 2-01 of Regulation S-X of the Commission, and stating,
as of the date of such letter (or, with respect to

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<PAGE> 19
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a date
not more than five days prior to the date of such letter), the conclusions and
findings of said firm with respect to the financial information and other
matters covered by its letter delivered to you concurrently with the execution
of this Agreement, and the effect of the letter to be delivered on such Closing
Date shall be to confirm the conclusions and findings set forth in such prior
letter.

(i) On each Closing Date, there shall have been furnished
to you, as Representatives of the Underwriters, a certificate, dated such
Closing Date and addressed to you, signed by the chief executive officer and by
the chief financial officer of the Company, to the effect that:

(i) The representations and warranties of the
Company made in this Agreement are true and correct, in all material
respects, as if made at and as of such Closing Date, and the Company
has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such Closing
Date;

(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof
or the or the qualification of the Securities for offering or sale has
been issued, and no proceeding for that purpose has been instituted
or, to the best of their knowledge, is contemplated by the Commission
or any state or regulatory body; and

(iii) The signers of said certificate have
carefully examined the Registration Statement and the Prospectus, and
any amendments thereof or supplements thereto, and (A) the
Registration Statement, or any amendment thereof, does not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (B) since the effective date of the Registration Statement
there has occurred no event required to be set forth in an amended or
supplemented prospectus which has not been so set forth, (C)
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, neither the Company nor
any of its Subsidiaries has incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions, not in the ordinary course of business, or declared or
paid any dividends or made any distribution of any kind with respect
to its capital stock, and except as disclosed in the Prospectus, there
has not been any change in the capital stock (other than a change in
the number of outstanding shares of Common Stock due to the issuance
of shares upon the exercise of outstanding options or warrants), or
any material change in the short-term or long-term debt, or any
issuance of options, warrants, convertible securities or other rights
to purchase the capital stock, of the Company, or any of its
Subsidiaries, or any material adverse change or any development
involving a prospective adverse change (whether or not arising in the
ordinary course of business), in the general condition (financial or
otherwise), business, key personnel, property, prospects, net worth or
results of operations of the Company and its Subsidiaries, taken as a
whole, and (D) except as stated in the Registration Statement and the
Prospectus, there is not pending, or, to the

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<PAGE> 20
knowledge of the Company, threatened or contemplated, any action, suit
or proceeding to which the Company or any of its Subsidiaries is a
party before or any court or governmental agency, authority or body,
or any arbitrator, which might result in any material adverse change
in the condition (financial or otherwise), business, prospects or
results of operations of the Company and its Subsidiaries, taken as a
whole.

(j) The Company shall have furnished to you and counsel
for the Underwriters such additional documents, certificates and evidence as
you or they may have reasonably requested.

(k) All such opinions, certificates, letters and other
documents will be in compliance with the provisions hereof only if they are
satisfactory in form and substance to you and counsel for the Underwriters.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and other documents as you shall reasonably request.

6. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, including the information deemed to be a part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A, if
applicable, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, 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, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent 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,
any Preliminary Prospectus, the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.

In addition to its obligations under this Section 6(a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 6(a), the Company will reimburse each Underwriter on a monthly
basis for all reasonable legal fees or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have

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<PAGE> 21
been improper, the Underwriter that received such payment shall promptly return
it to the party or parties that made such payment, together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.

(b) The Selling Securityholders agree to indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company, which consent
shall not be unreasonably withheld), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, including the information deemed to be a part of
the Registration Statement at the time of effectiveness pursuant to Rule 430A,
if applicable, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, 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, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that the Selling Securityholders shall
not be liable in any such case to the extent 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, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.

(c) Each Underwriter will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter which consent shall not be unreasonably withheld), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, 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 the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by you, or by such
Underwriter through you, specifically for use in the preparation thereof, and
will reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending against any such
loss, claim, damage, liability or action.

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<PAGE> 22
In addition to its obligations under this Section 6(b), each
Underwriter agrees, severally and not jointly, that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in this Section 6(b), it will reimburse the Company on a
monthly basis for all reasonable legal fees or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriter's obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return it to the party or parties that made such payment, together
with interest, compounded daily, determined on the basis of the prime rate (or
other commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America (the "Prime Rate"). Any such
interim reimbursement payments which are not made to the Company within 30 days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement shall be in addition to any
liabilities which the Underwriters may otherwise have.

(d) 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 indemnified 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
that it may have to any indemnified party. 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 in, and, to the extent that it shall wish, jointly with any other
indemnified party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and matter notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indeed party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that if, in the sole judgment of the Representatives, it is advisable
for the Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent
the Representatives and all Underwriters who may be subject to liability
arising from any claim in respect of which indemnity may be sought by the
Underwriters under subsection (a) of this Section 6, in which event the
reasonable fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties and reimbursed to the Underwriters as incurred
(in accordance with the provisions of the second paragraph in subsection (a)
above). An indemnifying party shall not be obligated under any settlement
agreement relating to any action under this Section 6 to which it has not
agreed in writing.

(e) If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Securityholders on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by

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<PAGE> 23
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling
Securityholders on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Securityholders on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Securityholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company and the Selling Securityholders or the Underwriters and the
parties' relevant intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were to be determined by pro rata allocation
(even if the Underwriters 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 in the first sentence of this subsection (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of 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 against any
action or claim which is the subject of this subsection (d). Notwithstanding
the provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this subsection (d), no Selling Securityholder shall be required to contribute
an amount exceeding the product of the purchase price per share as determined
in accordance this Agreement and the number of shares of Stock sold by such
Selling Stockholder. 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. The
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.

(f) The obligations of the Company under this Section 6
shall be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 6 shall be in addition to any liability
that the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each director of the Company (including any
person who, with his consent, is named in the Registration Statement is about
to become a director of the Company), to each officer of the Company who has
signed the Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.

-23-
<PAGE> 24
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof, or the
Company or any of its officers, directors, or controlling persons and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.

8. Substitution of Underwriters.

(a) If any Underwriter or Underwriters shall fail to take
up and pay for the amount of Firm Shares agreed by such Underwriter or
Underwriters to be purchased hereunder, upon tender of such Firm Shares in
accordance with the terms hereof, and the amount of Firm Shares not purchased
does not aggregate more than 10% of the total amount of Firm Shares set forth
in Schedule I hereto, the remaining Underwriters shall be obligated to take up
and pay for (in proportion to their respective underwriting obligations
hereunder as set forth in Schedule I hereto except as may otherwise be
determined by you) the Firm Shares that the withdrawing or defaulting
Underwriters agreed but failed to purchase.

(b) If any Underwriter or Underwriters shall fail to take
up and pay for the amount of Firm Shares agreed by such Underwriter or
Underwriters to be purchased hereunder, upon tender of such Firm Shares in
accordance with the terms hereof, and the amount of Firm Shares not purchased
aggregates more than 10% of the total amount of Firm Shares set forth in
Schedule I hereto, and arrangements satisfactory to you for the purchase of
such Firm Shares by other persons are not made within 36 hours thereafter, this
Agreement shall terminate. In the event of any such termination, the Company
shall not be under any liability to any Underwriter (except to the extent
provided in Section 4(h) and Section 6 hereof nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the amount of Firm Shares agreed by
such Underwriter to be purchased hereunder) be under any liability to the
Company (except to the extent provided in Section 6 hereof).

(c) If Firm Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by any other party or parties,
the Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.

9. Effective Date of this Agreement and Termination.

(a) This Agreement shall become effective at 10:00 am.,
Minneapolis time, on the first full business day following the effective date
of the Registration Statement, or at such earlier time after the effective time
of the Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall be
effective at such time as you in your discretion shall first release the

-24-
<PAGE> 25
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to
securities dealers, whichever shall first occur. By giving notice as herein
specified before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company may prevent this
Agreement from becoming effective without liability of any party to any other
party, except that the provisions of Section 4(h) and Section 6 hereof shall at
all times be effective.

(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as herein
specified at any time at or prior to the First Closing Date, and the option
referred to in Section 3(c), if exercised, may be canceled at any time prior to
the Second Closing Date, if (i) the Company shall have failed, refused or been
unable, at or prior to such Closing Date, to perform any agreement on its part
to be performed hereunder, (ii) any other condition of the Underwriters'
obligations hereunder is fulfilled, (iii) trading on the Nasdaq National Market
shall have been wholly suspended, (iv) minimum or maximum prices for trading
shall have been fixed, or maximum ranges for prices for securities shall have
been required, on the Nasdaq National Market, by order of the Commission or any
other governmental authority having jurisdiction, (v) a banking moratorium
shall have been declared by Federal, New York, Delaware or California
authorities, or (vi) there has occurred any material adverse change in the
financial markets in the United States or an outbreak of major hostilities (or
an escalation thereof) in which the United States is involved, a declaration of
war by Congress, any other substantial national or international calamity or
any other event or occurrence of a similar character shall have occurred since
the execution of this Agreement that, in your judgment, makes it impractical or
inadvisable to proceed with the completion of the sale of and payment for the
Securities. Any such termination shall be without liability of any party to
any other party except that the provisions of Section 4(h) and Section 6 hereof
shall at all times be effective.

(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company and the Selling Securityholders shall be notified promptly by you by
telephone or telegram, confirmed by letter. If the Company elects to prevent
this Agreement from becoming effective, you shall be notified by the Company by
telephone or telegram, confirmed by letter.

10. Information Furnished by Underwriters. The statements set
forth in the last paragraph of the cover page and in the table and in the first
and fifth paragraphs under the table under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.

11. Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to the Representatives
c/o Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402, except that notices given to an Underwriter
pursuant to Section 6 hereof shall be sent to such Underwriter at the address
stated in the Underwriters' Questionnaire furnished by such Underwriter in
connection with this offering; if to the Company or a Selling Securityholder,
shall be mailed, telegraphed or delivered to it at 12300 North Grant Street,
Denver, Colorado 80241 Attention:

-25-
<PAGE> 26
President. All notices given by telegram shall be promptly confirmed by
letter. Any party to this Agreement may change such address for notices by
sending to the parties to this Agreement written notice of a new address for
such purpose.

12. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal
or equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Securities
from any of the several Underwriters.

13. Governing law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota.

-26-
<PAGE> 27
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.

Very truly yours,

FISHER IMAGING CORPORATION

By:
---------------------------------
Morgan W. Nields,
Chief Executive Officer

Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.

PIPER JAFFRAY INC.

By: _________________________________
Thomas P. Schettler
Managing Director

SELLING SECURITYHOLDERS

_____________________________________

By: _________________________________
__________, Attorney-in-Fact
<PAGE> 28
SCHEDULE I

<TABLE>
<CAPTION>
Number of Firm
Selling Securityholder Shares(1)
---------------------- --------------
<S> <C>
________
________

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
========
</TABLE>
__________________________

(1) The Underwriters may purchase up to an additional ________ Option
Shares, to the extent the option described in Section 3 of the
Agreement is exercised, in the proportions and in the manner described
in the Agreement.

<PAGE> 29
SCHEDULE II

<TABLE>
<CAPTION>
Number of Firm
Underwriter Shares(1)
----------- --------------
<S> <C>
Piper Jaffray Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . __________
Needham & Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . __________

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==========
</TABLE>
__________________________

<PAGE> 30
SCHEDULE III

<TABLE>
<S> <C>
United States Patents:
---------------------
Patent Number . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent Number . . . . . . . . . . . . . . . . . . . . . . . . . .

Patent Number . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent Number . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent Number . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent Number . . . . . . . . . . . . . . . . . . . . . . . . . .

United States Patent Applications:
---------------------------------
Serial Number . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

<PAGE> 31
SCHEDULE IV

Foreign Patents:
Foreign Patent Applications:

<PAGE> 1

EXHIBIT 5.1

DAVIS, GRAHAM & STUBBS LLP

June 27, 1996

Fischer Imaging Corporation
12300 North Grant Street
Denver, Colorado 80241

Re: Sale of Up to 1,552,500 Shares of Common Stock Pursuant to a
Registration Statement on Form S-2 (File No. 333-3559)

Ladies and Gentlemen:

We are providing this opinion in connection with the registration by
Fischer Imaging Corporation, a Delaware corporation (the "Company"), of
1,552,500 shares of common stock, $.01 par value (the "Shares"), on a
Registration Statement on Form S-2 (File No. 333-3559), as filed with the
Securities and Exchange Commission on May 10, 1996, as subsequently amended on
June 13, 1996, and as subsequently amended on June 27, 1996 (the registration
statement, as so amended, the "Registration Statement").

In connection with this opinion, we have examined certain corporate
records and proceedings of the Company, including actions taken by the Company
with respect to the authorization and issuance of the Shares, and such other
matters as we deemed appropriate. Based on the foregoing, we are of the
opinion that the Shares have been duly authorized and, when sold as
contemplated in the Registration Statement, will be legally issued, fully paid
and non-assessable.

We hereby consent to the reference to this firm under the heading
"Legal Matters" in the Registration Statement, and in the Prospectus
constituting a part thereof, as the counsel who will pass upon the validity of
the Shares.

Very truly yours,

/s/ DAVIS, GRAHAM & STUBBS LLP
DAVIS, GRAHAM & STUBBS LLP

<PAGE> 1
EXHIBIT 21

LIST OF SIGNIFICANT SUBSIDIARIES
(AS DEFINED IN RULE 1-02(W) OF REGULATION S-X)

None.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Form S-2 Registration Statement.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Denver, Colorado,

June 26, 1996.