PHOTOELECTRON CORP, S-1/A, 1996-12-05

PHOTOELECTRON CORP
S-1/A, 1996-12-05
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996

REGISTRATION NO. 333-14541
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------
PHOTOELECTRON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 3845 04-3035323
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)

OF INCORPORATION) CLASSIFICATION CODE
NUMBER)
5 FORBES ROAD
LEXINGTON, MASSACHUSETTS 02173
(617) 861-2069
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

PETER E. OETTINGER, PH.D.
VICE PRESIDENT AND CHIEF OPERATING OFFICER
PHOTOELECTRON CORPORATION
5 FORBES ROAD
LEXINGTON, MASSACHUSETTS 02173
(617) 861-2069
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

COPIES OF COMMUNICATIONS TO:

LESTER J. FAGEN, ESQUIRE EDWIN L. MILLER JR., ESQUIRE
DANIEL R. AVERY, ESQUIRE TESTA, HURWITZ & THIBEAULT, LLP
GOULSTON & STORRS, P.C. HIGH STREET TOWER
400 ATLANTIC AVENUE 125 HIGH STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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 this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, 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. [_]

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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE OFFERING PRICE AMOUNT OF
TO BE REGISTERED (1) REGISTRATION FEE (1)
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<S> <C> <C>
Common Stock, $0.01 par value.... $29,900,000 $10,310
</TABLE>
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(1) Calculated pursuant to Rule 457(o). Previously paid by the Registrant upon
its initial filing of this S-1 Registration Statement.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION, DATED DECEMBER 5, 1996

PROSPECTUS

2,000,000 Shares

LOGO

Common Stock

-----------

All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Photoelectron Corporation ("Photoelectron" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $11.00 and $13.00 per share. See "Underwriting" for a discussion of
factors to be considered in determining the initial public offering price. The
Company has applied for quotation of the Common Stock on the Nasdaq Stock
Market's National Market under the symbol "PECX".

-----------

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

-----------

Following the completion of this offering, PYC Corporation and Mr. Peter M.
Nomikos, an existing stockholder, Chairman of the Board, President, Chief
Executive Officer and Treasurer of the Company, will have the ability to
significantly influence all matters requiring stockholder approval. See "Risk
Factors--Control by Peter M. Nomikos, his Affiliates and Other Existing
Stockholders," "Description of Capital Stock" and "Securities Ownership of
Management and Certain Beneficial Ownership."

-----------

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.

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
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Total (3).............................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $855,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."

-----------

The shares of Common Stock offered by this Prospectus are being offered by
the several Underwriters named herein, subject to prior sale, when, as and if
delivered to and accepted by them and subject to the right of the Underwriters
to reject orders in whole or in part. It is expected that delivery of the
shares of Common Stock offered hereby will be made in New York, New York on or
about , 1996.

-----------

Needham & Company, Inc. Dain Bosworth
Incorporated

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

DESCRIPTION OF FRONT COVER PAGE GRAPHICS:

The graphics on the front cover page consist of one drawing, with
corresponding description, located within the top half of the page, and a
series of four smaller drawings, each with description, located within the
bottom half of the page.

A caption at the top of the page reads as follows: "The Photon Radiosurgery
System (PRS). A Therapeutic X-Ray System for Treating".

The drawing within the top half of the page measures approximately 4 inches
(width) by 4 inches (length) (based on an 8 1/2 inch by 11 inch page) and is
centered roughly within the left-hand side of the page. The drawing shows a
partially cross-sectioned view of a human head, with the PRS probe directed
downward, at approximately a 45 degree angle, into the brain. The cross-
sectioned portion of the head shows the tip of the probe inserted into a
representation of a cancerous mass. An italicized description directly below
the drawing reads "Brain Tumors. The tip of the x-ray probe is guided
stereotactically to the center of the tumor. The tumor is then treated from
the inside out with the radiation substantially confined to the cancerous
tissue."

The four drawings within the bottom half of the page each represent a
spherical tumor, of approximately 1 1/4 inches in diameter, in a series
running roughly horizontally across the page. The series of drawings show the
stages of destruction of the tumor, the second drawing in the series shows the
insertion of the PRS probe into the tumor. A general caption is located above
and to the right of the series of drawings, and reads, in italics, as follows:
"Irradiation and destruction of a tumor using the Photon Radiosurgery System."
The four drawings in the series have the following four non-italicized
captions: (i) "Before treatment" (this drawing also sets forth labels showing
the "healthy tissue," and the "tumor," respectively; (ii) "Low energy x-rays
are absorbed by the tumor in a single-dose treatment typically lasting less
than 30 minutes; (this drawing also sets forth labels showing the "x-rays,"
and the "PRS probe," respectively) (iii) "Tumor destruction proceeds from
center;" and (iv) "Zone of destruction matched to tumor."

The phrase "(continued on inside back cover)" is located at the bottom of
the page.

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PHOTOELECTRON'S PHOTON RADIOSURGERY SYSTEM IS UNDER DEVELOPMENT AND HAS NOT
BEEN APPROVED OR CLEARED FOR COMMERCIAL SALE OR USE IN THE U.S. OR IN ANY
FOREIGN COUNTRY. REGULATORY APPROVAL COULD TAKE SEVERAL YEARS AND THERE CAN BE
NO ASSURANCE THAT SUCH APPROVAL WILL EVER BE OBTAINED OR, IF OBTAINED, THAT
THE COMPANY'S PHOTON RADIOSURGERY SYSTEM WILL ACHIEVE MARKET ACCEPTANCE. SEE
"RISK FACTORS--PRODUCT DEVELOPMENT RISKS; UNCERTAINTIES RELATING TO CLINICAL
TRIALS" AND "--ABSENCE OF REGULATORY CLEARANCES; UNCERTAINTY OF OBTAINING
SECTION 510(K) CLEARANCE."

ALL TRADENAMES AND TRADEMARKS APPEARING IN THIS PROSPECTUS ARE THE PROPERTY
OF THEIR RESPECTIVE HOLDERS.

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

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise specified, the information contained in
this Prospectus has been adjusted to give effect to a one-for-two reverse stock
split of the Common Stock and the Preferred Stock to be effective prior to the
closing of this offering and the conversion of each outstanding share of
Preferred Stock into Common Stock upon such closing. Unless otherwise
specified, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. As used herein, unless the context
requires otherwise, the term "Company" includes Photoelectron Corporation and
its subsidiary, Photoelectron (Europe) Ltd. The Common Stock offered hereby
involves a high degree of risk. Prospective investors should carefully consider
the risks set forth under the heading "Risk Factors."

THE COMPANY

The Company is engaged in the design, development and commercialization of
the Photon Radiosurgery System ("PRS"), a proprietary, therapeutic device for
the treatment of cancerous tumors through the application of x-ray radiation
directly to the tumor site. The PRS delivers in a single treatment a high dose
of radiation through a thin, minimally invasive, needle-like probe, which emits
from its tip precisely controlled low energy x-rays that irradiate the tumor
from the inside out. The limited penetration of low energy x-rays in tissue
substantially confines the radiation to the tumor site.

The Company believes that the PRS offers a number of advantages over
conventional radiation therapies by allowing higher radiation doses with
shorter patient treatment times. Substantial confinement of the radiation to
the tumor boundaries significantly reduces the risk of radiation exposure to
the surrounding healthy tissue and important organs or critical structures.

Cancerous tumors are expected to account for 90% of the approximately 1.3
million new U.S. cancer cases anticipated in 1996. Such tumors are most often
treated through invasive surgery, the destruction of cancerous cells by
exposure to radiation, or a combination of the two.

The most common form of treatment of cancerous tumors is by invasive surgery.
The Company believes that the PRS provides an attractive, minimally invasive
alternative to surgery, resulting in significantly less patient trauma, shorter
hospital stays and lower treatment costs than surgery. The PRS can be applied
after performing a biopsy and when desirable, use of the PRS can be coupled
with surgical procedures.

Next to surgery, radiation therapy is the most common modality of treating
cancer. Approximately 50% of all cancer patients in the U.S. receive radiation
therapy at some point during the course of their disease. Radiation can be
administered to a tumor by external beams or interstitially by inserting a
radiative source into the patient. With external beams, radiation must pass
through, and may potentially damage, healthy tissue before reaching the tumor,
whereas the PRS delivers radiation directly to the tumor site.

An established form of treatment, called brachytherapy, delivers radiation
directly to a tumor site by the insertion of radioactive isotopes. In
comparison to this form of treatment, the Company believes that the PRS offers
a greater ability to control and localize low energy radiation doses, and
avoids the costs and risks associated with the storage, handling and disposal
of radioactive materials. The Company believes that the PRS also offers
significant advantages over other forms of therapy, such as the destruction of
cancerous cells by heating, cooling or the use of laser light.

3
<PAGE>

application. The Company expects that the three basic PRS treatment methods
will be: (i) the "interstitial" irradiation of localized tumors from the inside
out; (ii) the "intracavitary" irradiation of body cavities; and (iii) the
"intraoperative" irradiation of tumors during surgery or of the beds of
surgically removed tumors in order to destroy remaining cancerous cells.

Because of the particularly sensitive nature of the brain and its surrounding
organs and critical structures, such as the optic nerves, damage from external
radiation and surgical procedures can severely harm the patient. Accordingly,
aggressive treatment of brain cancers has historically been limited. The PRS,
however, has been used to treat metastatic brain tumors in 57 patients in its
clinical trials. Although the studies are not yet complete, in the Company's
opinion, based primarily on two autopsies, the PRS has destroyed all cancerous
tissue which has been targeted with an adequate dose of radiation. Based on
these results, the Company believes that the PRS can be applied to treat
primary brain tumors and other cancerous tumors throughout the body, with
reduced risk of damage to surrounding tissue. Phase II clinical trials for the
treatment of metastatic brain tumors are currently ongoing with respect to this
application. The Company intends to submit an application under Section 510(k)
of the Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act") to the
U.S. Food and Drug Administration ("FDA") by December 18, 1996 seeking
clearance to commercialize the current model of the PRS for treatment of
metastatic brain tumors. Locally approved clinical trials for the treatment of
brain tumors are also being performed at sites in Europe and Japan. The Company
currently anticipates that the first clinical trials to determine the safety of
the PRS for treatment of breast cancer will begin in early 1997. A protocol for
human clinical trials of the PRS to treat prostate tumors has been approved by
the ethics committee of a London hospital and animal trials relating to the use
of the PRS in treating bladder tumors are currently underway in the U.S. The
Company will consider the use of the PRS for other potential applications on an
ongoing basis.

The Company's strategy is to (i) utilize its core technology for the
treatment of metastatic brain tumors and additional applications, (ii) build
relationships with medical professionals and institutions, (iii) obtain
regulatory clearance for the PRS in the U.S. and internationally, initially for
treatment of metastatic brain tumors and subsequently for other forms of
cancer, (iv) pursue commercial acceptance of the PRS in the U.S. and
internationally by relying on internal resources and collaborative
relationships to create sales and distribution capabilities, and (v) protect
its intellectual property rights.

The Company and Toshiba Medical Systems Company, Ltd. ("Toshiba") have
entered into agreements relating to performance of clinical trials, and to
future product distribution arrangements in Japan.

The Company holds nine U.S. patents and four U.S. patent applications
relating to the PRS or its constituent or ancillary components. The Company has
also obtained or filed patent applications in other selected foreign countries.

The Company was formed in 1989 as a joint venture between Thermo Electron
Corporation ("Thermo Electron") and an investment entity organized by Peter M.
Nomikos, the Company's President and Chief Executive Officer. Mr. Nomikos co-
founded Thermo Electron with George N. Hatsopoulos, Ph.D., a director of the
Company.

The Company was incorporated in Massachusetts in 1989. The Company's
principal executive offices are located at 5 Forbes Road, Lexington,
Massachusetts 02173, and its telephone number is (617) 861-2069.

4
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,000,000 shares (1)
Common Stock to be outstanding after the offering.. 6,484,666 shares (2)
Use of proceeds.................................... To fund research and
development and clinical
trials, for manufacturing
and marketing purposes and
for working capital and
other general corporate
purposes. See "Use of
Proceeds"
Nasdaq Stock Market's National Market Symbol....... PECX
</TABLE>
- --------
(1) Assumes that the Underwriters' over-allotment option is not exercised.

(2) Based upon the number of shares outstanding at September 28, 1996. Excludes
1,417,334 shares of Common Stock issuable upon exercise of warrants
outstanding at September 28, 1996 with an exercise price of $3.00 per share
and 881,249 shares of Common Stock issuable upon conversion of the
Company's 8% convertible debt outstanding at September 28, 1996 with a
weighted average conversion price of $2.28. Also excludes 812,975 shares of
Common Stock issuable upon exercise of options outstanding at September 28,
1996 with a weighted average exercise price of $4.70 per share. See Notes
6, 7, 8 and 9 of Notes to Consolidated Financial Statements, "Description
of Capital Stock," "Management--Officers and Directors," and "--Executive
Compensation" and "Certain Transactions."

5
<PAGE>

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED (1)
------------------------------------------------------------ ---------------------------
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
1991 1993 1994 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Research and development
expenses............... $ 784 $ 1,227 $ 1,727 $ 2,086 $ 3,226 $ 1,062 $ 2,263
General and
administrative
expenses............... 116 192 251 505 866 400 1,168
Net loss................ $ (974) $ (1,586) $ (2,267) $ (2,672) $ (4,117) $ (1,504) $ (3,319)
Net loss per share...... $ (0.90) $ (1.25) $ (1.55) $ (1.60) $ (2.85) $ (1.61) $ (1.73)
Pro forma net loss per
share (3).............. $ -- $ -- $ -- $ -- $ (1.02) $ -- $ (0.74)
Weighted average common
and common equivalent
shares outstanding..... 1,087 1,266 1,466 1,669 1,447 1,446 1,919
Pro forma weighted
average common and
common equivalent
shares outstanding
(3).................... -- -- -- -- 4,032 -- 4,504
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 28, 1996 (1)
-----------------------------
PRO FORMA (2) AS ADJUSTED (4)
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<S> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 4,005 $ 25,470
Total assets............ 6,037 27,502
Total long-term debt,
including current
portion................ 2,013 2,013
Deficit accumulated
during development
stage.................. (15,744) (15,744)
Total shareholders'
equity................. 3,803 25,268
</TABLE>
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(1) Derived from unaudited financial statements.

(2) Gives effect to the conversion of all of the outstanding Preferred Stock
into 2,893,562 shares of Common Stock, which will automatically occur on
the closing of this offering. The Company's Preferred Stock consists of
three separate series; 1,282,005 shares of Series A Convertible Preferred
Stock, 500,000 shares of Series B Convertible Preferred Stock, and
1,111,557 shares of Series C Convertible Preferred Stock were outstanding
as of September 28, 1996. Each share of Preferred Stock is convertible into
one share of Common Stock. See Notes 6, 7, 8 and 9 of Notes to Consolidated
Financial Statements, "Description of Capital Stock," "Management--Officers
and Directors," "--Executive Compensation" and "Certain Transactions."

(3) Includes 2,584,545 shares of Common Stock to be issued upon the conversion
of all of the outstanding preferred stock. The remaining 309,017 shares of
Common Stock to be issued upon the conversion of all outstanding preferred
stock is included in historical loss per share for all periods pursuant to
certain Securities and Exchange Commission requirements.

(4) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered hereby, at an assumed initial public offering price of $12.00 per
share after deducting the estimated underwriting discounts and commissions
and offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."

This Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.

6
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. In addition to the other information in this Prospectus,
the following factors should be considered carefully in evaluating an
investment in the shares.

EARLY STAGE OF THE COMPANY AND ITS PRODUCTS

The PRS, is still in development and no revenues have been generated from
product sales of the PRS to date, nor has the PRS been approved for commercial
use in the U.S. or elsewhere. The PRS and its related accessories and
components are currently the Company's only products. No assurance can be
given that the Company's development efforts will be successfully completed,
that required regulatory approvals will be obtained, or that the PRS, if
introduced to the commercial market, will be marketed successfully. See
"Business--Clinical Trials," "--Products and Product Development" and "--
Marketing and Sales; Collaborative Relationships."

HISTORY OF SIGNIFICANT OPERATING LOSSES; EXPECTATION OF FUTURE SUBSTANTIAL
LOSSES

The Company has experienced significant operating losses in each year since
its inception, due primarily to substantial research and development
expenditures, and as of September 28, 1996 the Company had an accumulated
deficit of approximately $15.7 million. The continued development and
commercialization of the PRS will likely result in substantial losses through
at least the middle of 1998. There can be no assurance that the PRS will ever
gain commercial acceptance, or that the Company will ever generate revenues or
achieve profitability. The Company's ability to achieve profitable operations
will be dependent in large part on whether it can successfully develop and
commercialize the PRS and/or any other products and make the transition to a
manufacturing and marketing company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

PRODUCT DEVELOPMENT RISKS; UNCERTAINTIES RELATING TO CLINICAL TRIALS

The PRS is new and, accordingly, its safety and efficacy have not yet been
fully established, and further development will be required to use the PRS in
the full range of intended applications. The PRS is still in the clinical
testing stage and such clinical testing has focused on only one application of
the PRS, the treatment of metastatic brain tumors.

Results from Phase I trials of the PRS as a treatment for metastatic brain
tumors may not be predictive of results obtained in subsequent clinical trials
or of results obtained in clinical trials for other specific applications. It
is not uncommon for medical device companies to suffer significant setbacks in
Phase II or other clinical trials, even after obtaining promising results in
Phase I or other prior trials. In addition, clinical trials of the PRS are
likely to be conducted with patients in advanced stages of cancer. These
patients could die or suffer adverse effects for reasons unrelated to the PRS,
but such events could nevertheless negatively impact clinical trial results or
regulatory approvals.

The Company has relied and will continue to rely on unaffiliated medical
institutions to perform its clinical trials in accordance with the approval
process of the FDA. There can be no assurances that the work carried out at
the institutions currently performing Phase I or II clinical trials, or that
the work carried out at any institutions performing clinical trials in the
future, will be satisfactory, or that those institutions will not cancel,
suspend or delay such trials.

Clinical trials may be delayed for a variety of reasons, including the
inability to ensure sufficient numbers of enrolled patients to meet the
clinical trial protocols. This inability can be influenced or caused by, among
other things, the rigidity of the protocols, the size of the overall patient
population, and the locations of clinical sites. The number of patients that
have completed the Company's clinical trials has been limited by a number of
factors, including the reluctance of patients or physicians to participate in
experimental clinical trials. In addition, the Company's collection of
randomized data has been made difficult by the defection from the clinical
trials of patients that wanted to receive the PRS treatment but were assigned
to the trials' non-PRS control groups. Any delays in or termination of the
Company's clinical trials could have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that clinical trials will be

7
<PAGE>

successful, that clinical trials will not be delayed, or that the PRS or any
other product will be safe or effective or capable of being successfully
developed for all intended applications. See "Business--Clinical Trials," "--
Products and Product Development" and "--Government Regulation."

ABSENCE OF REGULATORY CLEARANCES; UNCERTAINTY OF OBTAINING SECTION 510(K)
CLEARANCE

The PRS has not been approved or cleared for commercial use in the U.S. or
in any foreign country. The PRS is subject to extensive regulation in the U.S.
by the FDA and, in many instances, by comparable agencies in foreign countries
where the PRS is to be manufactured or distributed. Under the FDC Act and the
Safe Medical Devices Act of 1990 (the "SMDA"), manufacturers of medical
devices must comply with applicable provisions of the FDC Act and the SMDA and
certain associated regulations governing the safety, design, testing,
manufacturing, labeling, marketing and distribution of medical devices and the
reporting of certain information regarding the safety of medical devices. Both
the FDC Act and the SMDA require certain clearances from the FDA before
medical devices, such as the PRS, can be marketed.

Sales of medical devices outside the U.S. are subject to regulatory
requirements that vary widely from country to country. The length of time
needed to obtain approval for the sale of a particular medical device in a
foreign country may be longer, and the requirements may be more burdensome or
expensive, than that required for FDA approval. Furthermore, the export of
products manufactured by the Company will be subject to receipt of export
licenses from the U.S. Government. Such licenses are required for equipment
use in foreign clinical trials. The Company has requested and been granted
export licenses and corresponding foreign import licenses for clinical trials
in England, Japan, Australia and Germany.

The Company anticipates that it will file an application under Section
510(k) of the FDC Act with respect to the PRS for the treatment of metastatic
brain tumors by December 18, 1996. If the FDA determines that Section 510(k)
procedures are not available to the Company and the application is denied, the
Company would be required to seek FDA approval of the PRS through the
submission of a Premarket Approval ("PMA"). In addition, the Company intends
to seek Section 510(k) clearance with respect to the current version of the
PRS (the "Model 3"), and, if such clearance is obtained, to request the FDA to
extend such clearance to the version of the PRS now under development (the
"Model 4"). The Company expects that the Model 4 will be the first version of
the PRS to be made commercially available, and there can be no assurances that
any such clearance, if obtained, would be so extended. In addition, even if
the Company were to obtain all Section 510(k) clearances with respect to the
use of the PRS in the treatment of metastatic brain tumors, there can be no
assurances that the Section 510(k) procedures would be applicable to any other
treatment modality. The PMA process can be expensive, lengthy and uncertain,
often requiring several years of effort. Moreover, there can be no assurances
that the Company would be successful in obtaining FDA approval through the PMA
process. The inability of the Company to obtain clearance under Section 510(k)
with respect to any particular treatment modality would have a material
adverse effect on the Company's business, financial condition and results of
operations.

There can be no assurances that regulatory clearances will be granted for
the PRS or any other future products, that the length of time for clearance
will not be extensive, or that the cost of attempting to obtain any such
clearances will not be prohibitive. Failure to obtain or maintain requisite
governmental approvals could delay or preclude the Company from further
developing and marketing the PRS and other products. Such delays could impair
the Company's ability to generate funds from operations, which in turn would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Government Regulation."

EXTENSIVE ONGOING GOVERNMENT REGULATION

Even if regulatory clearances are obtained, such clearances may include
significant limitations on particular uses, and the FDA strictly prohibits the
marketing or sale of approved medical devices for unapproved uses. In
addition, there can be no assurance that the FDA will not impose strict
labeling requirements that limit the use of the PRS, burdensome training
requirements or other requirements as a condition of its Section 510(k)
clearance

8
<PAGE>

or PMA, under the FDC Act, any of which could limit the Company's ability to
market the PRS. Further, in order to change or modify a product following FDA
clearance, additional clearances may be required from the FDA. In addition,
any FDA clearances may be withdrawn or limited for non-compliance with
regulatory standards or the occurrence of unforeseen problems following the
initial clearance, either of which could result in restrictions, including
withdrawal of the product from the market or sanctions or fines being imposed
on the Company, which could have a material adverse effect on the Company's
business, financial condition and results of operations.

Manufacturers of medical devices are subject to strict federal regulations
regarding quality of manufacturing, including periodic FDA inspections of
manufacturing facilities to determine compliance with Good Manufacturing
Practice ("GMP") regulations, but the Company has not to date undergone such
an inspection. These regulations include design, testing, production, control,
documentation and other requirements. The FDA has publicly stated that recent
proposed changes to the GMP regulations are intended to reduce potential
design-related problems with medical devices. In addition, in order to obtain
a Communaute Europeenne Mark (a "CE Mark") for the PRS, which is required to
market the PRS within the European Union, the Company will need to comply with
standards administered by the International Standards Organization ("ISO").
There can be no assurance that the Company will be able to attain or maintain
compliance with GMP or ISO standards, or that the Company will be able to
identify and retain manufacturers on commercially acceptable terms, or at all,
or that such manufacturers, if identified, will be adequate for the Company's
long-term needs, or that they will be able to meet all relevant regulatory
requirements. Moreover, changes in methods of manufacture may require the
performance of new clinical studies under certain circumstances. Failure of
the Company to comply with, and maintain continuing compliance with, these
regulations could result in restrictions, including withdrawal of any given
product from the market or sanctions or fines being imposed on the Company,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Government
Regulation."

RAPID, UNPREDICTABLE AND SIGNIFICANT TECHNOLOGICAL CHANGE; HIGHLY COMPETITIVE
INDUSTRY

The medical device industry is subject to rapid, unpredictable and
significant technological change. The Company is subject to competition in the
U.S. and abroad from a variety of sources, including universities, research
institutions and medical device, chemical and biotechnology companies, many of
which have substantially greater technical, financial, and regulatory
resources than the Company and are better equipped to develop, manufacture and
market their products. These companies may develop and introduce products and
processes competitive with or superior to those of the Company. See
"Business--Background," "--Specific Applications of the PRS" and "--
Competitive Technologies."

DEPENDENCE ON ONE PRODUCT

The Company expects to derive substantially all of its future revenues from
the PRS. The PRS and its related accessories and components are currently the
Company's only products. The PRS and any other products will require further
development, study and regulatory approvals before they can be marketed in the
U.S. or internationally. The Company has never commercially sold any products,
and there can be no assurance that the Company's efforts will be successful or
that the PRS and its related accessories or any other product developed by the
Company will be safe or effective, approved by regulatory authorities, capable
of being manufactured in commercial quantities at acceptable costs, or
successfully introduced to the marketplace. Although the Company expects to
use its core technology to develop products in addition to the PRS and its
related accessories and components, all of such additional products are in
early stages of development, and there can be no assurance that the Company
will be able to continue as a going concern if it is forced to rely on sales
of such other additional products as its primary source of revenues. See
"Business--Specific Applications of the PRS," "--Competitive Technologies,"
"--Products and Product Development," "--Clinical Trials" and "--Government
Regulation."

ADVERSE EFFECT OF PATIENT LIFE EXPECTANCIES ON MARKETS FOR SPECIFIC PRODUCT
APPLICATIONS

To date, the Company has focused its efforts on one specific application of
the PRS, the treatment of metastatic brain tumors. Patients with metastatic
brain tumors already suffer from primary cancer which is

9
<PAGE>

separate from the metastatic brain tumors themselves. The average life
expectancy of patients with metastatic brain tumors is very short. Although
the PRS has been designed to provide either curative or palliative cancer
treatment, health care providers and third party payors may be reluctant to
undertake or authorize, or provide reimbursement for, PRS treatment of
patients whose anticipated life expectancies are below certain levels. While
the Company believes that the PRS can be used for a variety of other
applications, such as breast, prostate, bladder or skin cancer, where patient
life expectancies are higher than those for patients with metastatic brain
tumors, the Company has not yet begun human clinical trials for any of those
other applications. See "Business--Clinical Trials".

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively in the marketplace will depend,
in part, on its ability to maintain the proprietary nature of its technology.
The Company will rely on patents, trade secrets and know-how to establish and
maintain a competitive position in the marketplace. The enforceability of
medical device patents can be highly uncertain, and relevant federal court
decisions establishing the legal standards for determining the validity and
scope of patent protection are currently in transition. In a case now pending
before the United States Supreme Court, the Court has been requested to
consider whether to alter or replace the traditional standards for determining
patent infringement under the "doctrine of equivalents." There can be no
assurance that the historical legal standards applied to questions of validity
and scope of patent protection will continue to be applied or that current
defenses (as to issued patents in the field) will offer protection in the
future. Any limitation or reduction in the Company's rights to obtain or
enforce its patents could have a material adverse effect on the Company's
ability to maintain the proprietary nature of its technology.

The Company has been issued nine U.S. patents covering the PRS and ancillary
test and calibration devices and holds four U.S. patent applications. The
Company has filed foreign patent applications in selected foreign countries
which correspond to certain of its U.S. patent applications. There can be no
assurance, however, that any applications will result in issued patents, or
that once issued, the U.S. Patent and Trademark Office or a court would
resolve issues relating to the validity and scope of the patents in a manner
favorable to the Company. Also, there can be no assurance that any current or
future patents, trade secrets or know-how will afford protection against
competitors with similar technologies or processes or that any patents issued
to the Company will not be infringed upon or designed around by others, nor
can there be any assurance that others will not independently develop
proprietary technologies or processes which are the same as or substantially
equivalent to those of the Company. In addition, there can be no assurance
that the Company will not become subject to patent infringement claims or
litigation initiated by third parties. The defense and prosecution of
intellectual property suits, and related legal and administrative proceedings,
are very costly and time-consuming, and any such litigation or proceeding
would result in substantial expense to the Company and a significant diversion
of effort by the Company's technical and management personnel. Further, any
adverse determination in such litigation or proceeding could subject the
Company to significant liabilities to the third party claimants and could
prevent the Company from manufacturing or marketing its products. See
"Business--Patents and Proprietary Rights."

UNCERTAINTY OF REIMBURSEMENT BY THIRD PARTY PAYORS

The extent to which reimbursement levels for the cost of the Company's
products and related treatment are obtained from third party payors will have
a significant impact on the Company's ability to commercialize its products.
These third party payors include private insurance companies, self-insured
employers, health maintenance organizations, federal and state sources of
payment under the Medicare and Medicaid programs, and other sources. There is
no uniform policy on reimbursement among third party payors, nor are there any
assurances that the PRS or any other Company product will qualify for
reimbursement from third party payors. Foreign countries also have their own
health care reimbursement systems, and there can be no assurance that third
party reimbursement will be made available with respect to the Company's
products under any foreign reimbursement system.

10
<PAGE>

In addition, the Company's business, financial condition and results of
operations could be adversely affected by the continuing efforts of many third
party payors to reduce the costs of health care by decreasing reimbursement
rates, or limiting or prohibiting reimbursement for certain services or
devices or through other means. Furthermore, legislative proposals to reform
government health care insurance programs, including the Medicare and Medicaid
programs, could significantly impact the purchase of health care services and
products and could result in lower prices and reduced demand for the Company's
products. The Company is unable to predict whether such proposals will be
enacted, whether other health care legislation or regulation affecting the
Company's business, financial condition and results of operations may be
proposed or enacted in the future, or what effect any such legislation or
regulation would have on the Company's business, financial condition and
results of operations. See "Business--Third Party Reimbursement."

CONTROL BY PETER M. NOMIKOS, HIS AFFILIATES AND OTHER EXISTING STOCKHOLDERS

After completion of this offering, Mr. Peter M. Nomikos, Chairman of the
Board, President, Chief Executive Officer and Treasurer of the Company will
beneficially own 51.6% of the outstanding shares of Common Stock, and the
Company's principal stockholders and certain of their affiliates (including
Mr. Nomikos) will beneficially own in the aggregate 69.8% of the outstanding
shares of Common Stock. Certain principal stockholders serve as directors or
have representatives who serve as directors of the Company. As a result of Mr.
Nomikos' ownership of Common Stock coupled with the positions he holds in the
Company, Mr. Nomikos, alone or with the other principal stockholders, will
have the ability to significantly influence all matters requiring approval by
the stockholders of the Company, including the election of all directors,
acquisitions or sales of all or substantially all of the Company's stock or
assets and other extraordinary transactions. See "Management" and "Securities
Ownership of Management and Certain Beneficial Owners."

LIKELIHOOD OF SIGNIFICANT FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL
FUNDING

The Company has expended and will continue to expend substantial funds to
continue the research and development of the PRS and other potential products,
conduct clinical trials, pursue regulatory approvals, establish commercial
scale manufacturing in its own facilities or in the facilities of others, and
market the PRS or other products.

The Company's future capital requirements will depend on a variety of
factors, including the time and costs involved in obtaining FDA and other
regulatory approvals, the results of the Company's ongoing clinical trials,
the market acceptance of the PRS and any other Company products, the expense
and results of the Company's continued scientific research and development
programs, the time and costs expended in filing, prosecuting and enforcing
patent claims, and the development of competing technologies. No assurance can
be given that the necessary funds will be available to the Company on
acceptable terms, if at all. Insufficient funds may cause the Company to
delay, scale back or eliminate some or all of its research and development,
clinical marketing and manufacturing programs or to cease operations entirely.
In addition, any additional equity financings may be dilutive to the Company's
stockholders, including investors in this offering. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

LIMITED MANUFACTURING EXPERIENCE

To achieve profitability, the Company's product or products must be
manufactured in commercial quantities, in compliance with all applicable
regulatory requirements, and at acceptable costs. Production of the PRS or
other products in commercial quantities may create technical challenges for
the Company. The Company does not have and has no immediate plans to construct
a commercial scale manufacturing facility. In order to manufacture its
products in commercial quantities, the Company would have to build or gain
access to adequate facilities or would be required to enter into agreements
with other manufacturers at significant cost. The Company intends to continue
its practice of sub-contracting the fabrication of most of its electrical and
mechanical components, while maintaining internal responsibility for unit
assembly and for manufacture of certain proprietary components. To date, the
Company's manufacturing activities have consisted only of

11
<PAGE>

manufacturing investigational devices and prototype devices for use in
clinical trials. As a result, the Company has no experience manufacturing its
products in the volumes that will be necessary for the Company to achieve
significant commercial sales, and there can be no assurance that reliable,
high-volume manufacturing can be established or maintained at commercially
reasonable costs, or that the Company will be able to make the transition to
commercial production successfully. See "Business--Manufacturing."

LIMITED MARKETING EXPERIENCE

The Company currently has no marketing or sales staff, and significant
additional expenditures, management resources and time would be required to
develop such a sales staff, or to make arrangements for sale or lease of the
Company's products through third parties. As a result, the Company's current
marketing and sales strategy will rely substantially on unaffiliated third
parties to effect the sales of its products. There can be no assurance that
the Company will be able to establish a sales force or make adequate third
party arrangements for product leasing or sales or that the Company will not
have to incur significant additional expenditures, which may include the
employment of sales personnel, in order to effect the sales of its products.
See "Business--Marketing and Sales; Collaborative Relationships."

HIGH DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on its scientific personnel and senior
management. The loss of any key personnel could significantly and adversely
impact the Company's research and development efforts or strategic objectives.
Competition among medical device companies for highly skilled scientific and
management personnel is increasingly intense. In order to achieve and maintain
the Company's commercialization of the PRS, the Company will need to attract
and retain additional key personnel, and there can be no assurance that the
Company will be able to do so. The Company has no employment agreements with
any of its employees, nor has it purchased insurance on the lives of any of
its key employees. See "Business--Employees" and "Management".

POTENTIAL COMPONENT SHORTAGES; DEPENDENCE ON SOLE SOURCES OF SUPPLY

The Company expects that it will manufacture its products based on
anticipated product orders. The different lead times for the supply and
delivery of materials and components ordered by the Company for its products
can vary significantly, and the relative availability and cost of those
materials and components can fluctuate. The Company has built up and maintains
an inventory of certain components for the PRS, and seeks, where feasible, to
identify multiple suppliers of materials and components. However, if
forecasted product orders prove to be different than actual product orders,
the Company may have excess or inadequate inventory. In addition, there can be
no assurance that alternative suppliers for components can be found on a
timely basis, or at all, in the event that such alternative suppliers are
needed. Any significant delay or interruption in the Company's ability to
acquire product components and materials could have a material adverse effect
on the Company's ability to manufacture its products and therefore on its
business, financial condition and results of operations. See "Business--
Manufacturing."

PRODUCT LIABILITY EXPOSURE; POTENTIAL UNAVAILABILITY OF INSURANCE

Use of the PRS or other products, whether for commercial applications or
during clinical trials, exposes the Company to risk of medical product
liability claims in the event that such products cause injury or result in
adverse effects. There can be no assurance that the Company would have
sufficient resources to satisfy any liability resulting from these claims.
Although the Company has obtained medical product liability insurance with
respect to the clinical testing of the PRS, there can be no assurance that the
level or breadth of such insurance coverage will be sufficient to fully cover
potential claims. Such insurance is expensive, and there can be no assurance
that it will continue to be available at an acceptable cost, if at all, or
that a medical product liability claim would not adversely affect the
financial condition of the Company. Prior to commercial sale of its products,
the Company will be required to obtain product liability insurance covering
the commercial use of its products, however, there can be no assurance that
the Company will be able to obtain commercially reasonable product liability
insurance for the commercial sale or use of any product.

12
<PAGE>

ANTI-TAKOVER PROVISIONS; EFFECTS OF ISSUANCE OF PREFERRED STOCK

Certain provisions of the Company's Articles of Organization and By-Laws are
intended to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board and to delay or prevent a change in control of the Company if the
Board determines that such a change in control is not in the best interest of
the Company. These provisions could have the effect of discouraging certain
attempts to acquire the Company or to remove incumbent management even if some
or a majority of the Company's stockholders deem such an attempt to be in the
Company's best interest. As a result, these provisions could limit the price
that investors might be willing to pay in the future for shares of Common
Stock, thereby depriving stockholders of certain opportunities to sell their
stock at temporarily higher prices.

In addition, the Company will be covered by the provisions of Chapter 110F
of the Massachusetts General Laws, the Business Combination Statute. This
statute would prohibit the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a manner prescribed by the statute. A
"business combination" includes a merger, a stock or asset sale, and other
transactions resulting in a financial benefit to the interested stockholder.
The application of this statute could have the effect of delaying or
preventing a change of control of the Company.

The Board of Directors of the Company is authorized, subject to certain
limitations, to cause the Company to issue one or more series of Preferred
Stock and, to the extent permitted by Massachusetts law, to designate
variations in the relative rights and preferences between different series. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change of
control of the Company. The Company has no current plans to issue any shares
of Preferred Stock; however, there can be no assurance that the Company's
Board of Directors will not do so at some time in the future. See "Description
of Capital Stock."

NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to this offering there has been no public market for the Company's
Common Stock, and there can be no assurance that a regular trading market will
develop and continue after this offering. The initial public offering price
will be determined through negotiations between the Company and the
Underwriters, and may not be indicative of the market price of the Common
Stock following this offering. The market price of the Common Stock following
this offering may be highly volatile. Factors such as variations in the
Company's financial performance, announcements of technological innovations by
the Company, its competitors or providers of alternative products, and changes
in the economy generally, the financial markets or the health care industry,
could cause the market price of the Common Stock to fluctuate substantially.
In addition, the stock markets have experienced price and volume fluctuations
that have particularly affected medical device companies, resulting in changes
in the market prices of the stocks of many companies which may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may adversely affect the market price of the Common Stock
following this offering. See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the offering made hereby could have an adverse effect on the price of the
Common Stock, and future sales of Common Stock by existing stockholders could
also have an adverse effect on such price and on the Company's ability to
raise capital. Beginning 180 days after the date of this Prospectus, 3,773,702
shares of Common Stock will be eligible for sale in the public market upon the
expiration of lock-up agreements between the Company's stockholders and the
Underwriters, subject in some cases to the volume and other restrictions of
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
Additionally, 812,975 shares of Common Stock were subject to outstanding
options, 1,417,334 shares of Common Stock were subject to outstanding
warrants, 881,249 shares of Common Stock were issuable upon conversion of
outstanding convertible debt and an additional 175,025 shares of Common Stock
were reserved for issuance under the Company's stock option plan.
Approximately 180 days

13
<PAGE>

after the date of this Prospectus, the Company intends to register the shares
subject to outstanding options and reserved for issuance under the Company's
stock plan, which shares would then be eligible for sale in the public market,
although all of these shares and all shares acquired under employee benefit
plans by employees are subject to agreements not to sell until 180 days after
the date of this Prospectus. Holders of 1,611,557 shares of Common Stock will
have the right, under certain conditions, to participate in future Company
registrations. See "Shares Eligible for Future Sale."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution of the net tangible book value of the Common Stock from
the initial public offering price and present shareholders will receive a
substantial increase in the book value of their shares of Common Stock. Such
immediate dilution to new investors is expected to be in the amount of $8.10
per share, assuming a public offering price of $12.00 per share. In addition,
purchasers in this offering will incur additional dilution to the extent
outstanding stock options and warrants are exercised or convertible notes are
converted into capital stock. See "Dilution."

ABSENCE OF DIVIDENDS

The Company has never paid any dividends on its capital stock, including its
Common Stock, and it is currently anticipated that no cash dividends will be
paid to the holders of the Common Stock in the foreseeable future. See
"Dividend Policy."

DISCRETION OF MANAGEMENT REGARDING APPLICATION OF PROCEEDS

The Company has proposed a tentative allocation of the net proceeds expected
to be generated from this offering. This allocation is based on expenditure
estimates and approximations and does not represent a firm commitment of the
Company to distribute the proceeds strictly in compliance with such
allocation. Accordingly, the Company's management will retain broad discretion
to change the allocation of the net proceeds generated from this offering,
based on or in response to, among other things, changes in the Company's
business plans, results of research and development programs, the status of
the Company's clinical trials, the impact of laws and regulations applicable
to the Company, the Company's assessment of competing or developing
technologies, general conditions in the healthcare and cancer treatment
industries, economic trends and the Company's specific financial condition.
There can be no assurance as to whether any such anticipated proceeds will be
generated by this offering and whether such amounts will be sufficient to meet
the Company's needs. See "Use of Proceeds."

14
<PAGE>

USE OF PROCEEDS

The Company estimates that the net proceeds to be received by the Company
from the sale of Common Stock pursuant to this offering are approximately
$21.5 million ($24.8 million if the Underwriters' over-allotment option is
exercised in full) after deducting estimated underwriting discounts and
commissions and offering expenses. This estimate assumes a public offering
price of $12.00 per share.

Based on the $21.5 million figure, the net proceeds of this offering have
been tentatively allocated by the Company to be used to: (i) increase the
Company's research and development efforts in a number of cancer treatment
applications ($2.2 million); (ii) continue to expand clinical trials for the
PRS ($1.7 million); (iii) obtain regulatory approvals for the PRS ($3.2
million); (iv) enhance manufacturing and marketing capabilities ($6.7
million); and (v) provide working capital, as well as for general corporate
purposes ($7.7 million). Pending such anticipated uses, the Company plans to
invest such proceeds in interest-bearing investment grade instruments. The
Company's management will retain broad discretion to change the allocation of
the net proceeds generated from this Offering. See "Risk Factors--Discretion
of Management Regarding Application of Proceeds."

The Company believes that proceeds of this offering, together with its cash
and cash equivalents, will be sufficient to meet the capital requirements of
its existing business for at least the next two years. The Company anticipates
that additional financing will be required after the net proceeds of this
offering have been expended. There can be no assurance that such additional
financing will be available when needed or on terms acceptable to the Company,
and the Company currently has no commitments to obtain any such financing. See
"Risk Factors--Likelihood of Significant Future Capital Needs; Uncertainty of
Additional Funding" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DIVIDEND POLICY

The Company has never paid any dividends on its capital stock, including its
Common Stock. The current policy of the Company's Board of Directors is to
retain any earnings to finance the operation of the Company's business, and,
accordingly, it is anticipated that no cash dividends will be paid to the
holders of the Common Stock for the foreseeable future. See "Risk Factors--
Absence of Dividends."

<PAGE>

CAPITALIZATION

The following table sets forth the pro forma capitalization of the Company to
reflect the conversion of all Preferred Stock into Common Stock as of September
28, 1996, and such capitalization as adjusted to reflect receipt of the
estimated net proceeds from the sale of 2,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $12.00 per share. This
capitalization table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 28, 1996 (1) (3)
------------------------------
PRO FORMA AS ADJUSTED
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............ $ 448 $ 448
============= =============
Long-term debt, net of current portion....... $ 1,565 $ 1,565
Shareholders' equity:
Common stock, $0.01 par value, 15,000,000
shares authorized (2),
4,484,666 shares pro forma and 6,484,666
shares as adjusted (3)..................... 45 65
Capital in excess of par value--common
stock...................................... 19,560 41,005
Subscriptions receivable.................... (58) (58)
Deficit accumulated during development
stage...................................... (15,744) (15,744)
------------- -------------
Total shareholders' equity................. 3,803 25,268
------------- -------------
Total capitalization..................... $ 5,816 $ 27,281
============= =============
</TABLE>
- --------
(1) Derived from unaudited financial statements.
(2) Reflects increase in authorized shares to be effected prior to the closing
of the offering. See "Description of Capital Stock."

(3) Excludes 1,417,334 shares of Common Stock issuable upon exercise of
warrants outstanding at September 28, 1996 with an exercise price of $3.00
per share and 881,249 shares of Common Stock issuable upon conversion of
the Company's 8% convertible debt outstanding at September 28, 1996. Also
excludes 812,975 shares of Common Stock issuable upon exercise of options
outstanding at September 28, 1996 with a weighted average exercise price of
$4.70 per share. See Notes 6, 7, 8 and 9 of Notes to Consolidated Financial
Statements, "Description of Capital Stock," "Management--Officers and
Directors," "--Executive Compensation," "Certain Transactions" and "Use of
Proceeds."

16
<PAGE>

DILUTION

The net tangible book value of the Company at September 28, 1996 was $3.7
million or $0.82 per share of Common Stock on a pro forma basis. Pro forma net
tangible book value represents the amount of total tangible assets of the
Company less total liabilities, divided by the number of shares of Common
Stock outstanding on a pro forma basis. After giving effect to the sale of
Common Stock offered hereby (after deducting estimated underwriting discounts
and commissions and offering expenses), assuming the sale of 2,000,000 shares
of Common Stock at an assumed initial public offering price of $12.00 per
share, the adjusted net tangible book value of the Company at September 28,
1996 would have been $25.3 million, or $3.90 per share. This represents an
immediate increase in net tangible book value of $3.08 per share to existing
stockholders and an immediate dilution of $8.10 per share to new investors
purchasing shares in this offering. Dilution to new investors is determined by
subtracting the net tangible book value per share after the sale of Common
Stock offered hereby from the initial public offering price per share. The
following table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Assumed public offering price per share (1)................... $12.00
Pro forma net tangible book value per share as of September
28, 1996................................................... $0.82
Increase per share attributable to the offering............. 3.08
-----
Adjusted net tangible book value per share after the offering
(2)(3)....................................................... 3.90
------
Dilution per share to new investors (2)(3).................... $ 8.10
======
</TABLE>
- --------
(1) Assumed initial public offering price before deduction of estimated
underwriting discounts and commissions and expenses of the offering to be
paid by the Company.

(2) If the Underwriters' over-allotment option were exercised in full, the
adjusted net tangible book value per share after the offering would be
$4.22, resulting in an immediate dilution of $7.78 per share to investors
purchasing shares in this offering.

(3) If all outstanding options and warrants at September 28, 1996 to purchase
812,975 and 1,417,334 shares of Common Stock, respectively, were
exercised, in addition to the Underwriters' exercise of its over-allotment
option, the adjusted net tangible book value per share after the offering
would be $4.07, resulting in an immediate dilution of $7.93 per share to
investors purchasing in this offering.

The following table sets forth, as of September 28, 1996, on the pro forma
basis described above, the number of shares of Common Stock purchased from the
Company and the total cash consideration paid and the average price per share
paid by existing stockholders of the Company, and by investors in this
offering, based upon an assumed initial public offering price of $12.00 per
share:

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
----------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 4,484,666 69.2% $19,604,489 45.0% $ 4.37
New Investors........... 2,000,000 30.8 24,000,000 55.0 $12.00
------------ -------- ----------- -----
Total................. 6,484,666 100.0% $43,604,489 100.0%
============ ======== =========== =====
</TABLE>
- --------

(1) Gives effect to the conversion of the outstanding Preferred Stock into
2,893,562 shares of Common Stock, which will automatically occur on the
closing of this offering. See Note 7 of Notes to Consolidated Financial
Statements, "Description of Capital Stock" and "Certain Transactions."

The foregoing tables do not assume the exercise of outstanding options or
warrants, or the conversion of convertible debt. At September 28,1996,
warrants to purchase 1,417,334 shares of Common Stock were outstanding, at an
exercise price of $3.00 per share. As of September 28, 1996, there was a total
of $2,013,277 of convertible debt outstanding, with a weighted average
conversion price of $2.28 per share. At September 28, 1996, there were 812,975
shares of Common Stock issuable upon exercise of all outstanding options; of
these, 422,500 shares were then exercisable. The weighted average exercise
price of all outstanding options at September 28, 1996 was $4.70. To the
extent that these options or warrants are exercised, or this convertible debt
is converted into Common Stock, there will be further dilution to new
investors. See "Management--Executive Officers and Directors," "--Executive
Compensation," "Description of Capital Stock" and Notes 6, 7, 8 and 9 of Notes
to Consolidated Financial Statements.

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data and consolidated
balance sheet data presented below as of December 31, 1994, December 30, 1995,
and the consolidated statement of operations data presented below as of January
1, 1994, are derived from the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus, which have been audited by
Arthur Andersen LLP, independent public accountants. The selected consolidated
statement of operations data and consolidated balance sheet data presented
below as of December 28, 1991, January 2, 1993, and the consolidated balance
sheet data presented below as of January 1, 1994, are derived from the
Company's Consolidated Financial Statements and Notes thereto not included in
this Prospectus, which have been audited by Arthur Andersen LLP, independent
public accountants. The selected consolidated financial data for the nine-month
periods ended September 30, 1995 and September 28, 1996 are derived from the
Company's unaudited Consolidated Financial Statements. The financial data for
the nine-month periods ended September 30, 1995 and September 28, 1996 include
all adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for those periods. Operating results for the six months
ended September 28, 1996 are not necessarily indicative of the results that may
be expected for the entire year ended December 31, 1996. The selected
consolidated financial data set forth below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
other financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------------- ---------------------------
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28,
CONSOLIDATED STATEMENT OF 1991 1993 1994 1994 1995 1995 1996
OPERATIONS DATA: ------------ ------------ ------------ ------------- ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and development
expenses............... $ 784 $ 1,227 $ 1,727 $ 2,086 $ 3,226 $ 1,721 $ 2,263
General and
administrative
expenses............... 116 192 251 505 866 543 1,168
------- ------------ ------------ ------------ -------- -------- --------
Total operating
expenses............... 900 1,419 1,978 2,591 4,092 2,264 3,431
------- ------------ ------------ ------------ -------- -------- --------
Operating loss........... (900) (1,419) (1,978) (2,591) (4,092) (2,264) (3,431)
Interest income
(expense), net.......... (74) (167) (289) (81) (25) (67) 112
------- ------------ ------------ ------------ -------- -------- --------
Net loss................. $ (974) $ (1,586) $ (2,267) $ (2,672) $ (4,117) $ (2,331) $ (3,319)
======= ============ ============ ============ ======== ======== ========
Net loss per share....... $ (0.90) $ (1.25) $ (1.55) $ (1.60) $ (2.85) $ (1.61) $ (1.73)
======= ============ ============ ============ ======== ======== ========
Pro forma net loss per
share (2)............... -- -- -- -- $ (1.02) -- $ (0.74)
======== ========
Weighted average common
and common equivalent
shares outstanding...... 1,087 1,266 1,466 1,669 1,447 1,446 1,919
Pro forma weighted
average common and
common equivalent shares
outstanding (2)......... -- -- -- -- 4,032 -- 4,504
<CAPTION>
SEPTEMBER 28, SEPTEMBER 28,
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, 1996 1996
CONSOLIDATED BALANCE 1991 1993 1994 1994 1995 ACTUAL PRO FORMA (1)
SHEET DATA: ------------ ------------ ------------ ------------- ------------ ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 22 $ 210 $ 68 $ 1,778 $ 7,191 $ 4,005 $ 4,005
Total assets............. 133 425 526 2,949 8,703 6,037 6,037
Total long-term debt,
including current
portion................. 1,417 3,133 1,296 2,115 1,940 2,013 2,013
Deficit accumulated
during development
stage................... (1,782) (3,368) (5,636) (8,307) (12,425) (15,744) (15,744)
Total shareholders'
equity.................. (1,483) (2,798) (1,054) 575 6,493 3,803 3,803
</TABLE>
- --------

(1) Gives effect to the conversion of all outstanding preferred stock into
2,893,562 shares of Common Stock, which will occur simultaneously with the
closing of this offering. The Company's preferred stock consists of three
separate series; 1,282,005 shares of Series A Convertible Preferred Stock,
500,000 shares of Series B Convertible Preferred Stock, and 1,111,557
shares of Series C Convertible Preferred Stock were outstanding as of
September 28, 1996. Each share of preferred stock is convertible into one
share of Common Stock.

(2) Includes 2,584,545 shares of Common Stock to be issued upon the conversion
of all of the outstanding preferred stock. The remaining 309,017 shares of
Common Stock to be issued upon the conversion of all of the outstanding
preferred stock is included in historical loss per share for all periods
pursuant to certain Securities and Exchange Commission requirements.

18
<PAGE>

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

OVERVIEW

The Company is engaged in the design, development and commercialization of
the PRS, a proprietary, therapeutic device for the treatment of cancerous
tumors through the application of radiation directly into a tumor. To date,
the Company has not received any significant revenue from the sale of its
products and does not anticipate receiving any significant revenue at least
until the middle of 1998. The Company has an accumulated deficit totaling
approximately $15.7 million since its inception and expects to continue to
incur losses until such time as its commercialization efforts yield offsetting
revenues. The Company anticipates that its research and development, general
and administrative and manufacturing expenses will significantly increase
during the balance of 1996 and 1997 as it pursues the commercialization of the
PRS.

Before medical devices such as the PRS can be marketed in the U.S., FDA
approval is required. Phase II clinical trials for the treatment of metastatic
brain tumors are currently being performed. Based on the results obtained to
date in these ongoing Phase II trials, the Company intends to submit a Section
510(k) application to the FDA seeking clearance to commercialize the PRS for
treatment of metastatic brain tumors. Locally approved clinical trials for the
treatment of brain tumors are also being performed at sites in Europe and
Japan. The Company currently anticipates that clinical trials to determine the
safety of the PRS for treatment of breast cancer will begin in the U.K. in
early 1997. Based upon those trials, the Company will submit an application to
the FDA to begin human clinical trials in the U.S. The possibility of treating
topical tumors of the skin and mouth with the PRS is also being explored. A
program has begun at a U.S. hospital which the Company expects to lead to
human clinical trials with the PRS in treating Kaposi's sarcomas and other
skin malignancies. Upon obtaining all necessary regulatory approvals, the
Company intends to begin commercial sales of the PRS. The Company will
consider the use of the PRS for other potential applications on an ongoing
basis. In order to support such commercialization, the Company will experience
significant working capital and other financing needs.

If the Company receives such Section 510(k) clearance, it intends to market
and distribute its products through a combination of collaborative
relationships and in-house sales and marketing resources. The Company has
developed and will continue to develop strategic alliances with companies that
have established distribution channels in domestic and international markets.
As part of the manufacturing process, the Company intends to sub-contract the
fabrication of most of its electrical and mechanical components. The Company
is actively pursuing full functional compliance with ISO 9001 and the FDA's
GMP standards that govern quality assurance, personnel training, process
control, customer service, design control, supply management and facility and
equipment maintenance.

In the fourth quarter of 1996, the Company extended the terms of certain
options issued to four employees of the Company. These options, by their
terms, would expire but for such extension during the 180-day "lock-up period"
following the date of this Prospectus. These options were extended to a date
which is two months after the expiration of the lock up agreements. See
"Shares Eligible for Future Sale." These options are exercisable into an
aggregate of 23,500 shares of Common Stock, and none of said employees is an
officer or director of the Company. The Company recorded compensation expense
of $272,600 pursuant to Accounting Principals Board Opinion No. 25 in the
fourth quarter as a result of this extension..

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995

Research and development expenses. Research and development expenses
increased by $542,370 from $1.7 million in the first nine months of 1995 to
$2.3 million in the first nine months of 1996. These changes reflect
significant increases in activity in the Company's clinical trial efforts and
bladder and breast cancer research and development programs. A portion of the
increase in research and development expenses is attributable to pre-clinical
animal trials for the bladder application in 1996. The principal costs in
research and development were the

19
<PAGE>

Phase II clinical trials. Other factors contributing to the increase in
research and development expenses were as a result of discussions with
physicians in the U.K. to initiate clinical trials in breast tumors. Costs
were incurred in formulating the breast cancer research and trial protocol and
developing accessory equipment for the trials.

General and administrative expenses. General and administrative expenses
increased by $624,396 from $543,215 in the first nine months of 1995 to $1.2
million in the first nine months of 1996. The increase is attributable to a
growth in personnel from 16 to 25 employees and related costs. Additional
increases related to legal and professional fees related to general corporate
representation and the protection of intellectual property rights.

Interest income. Interest income increased by $179,462 from $22,633 in the
first nine months of 1995 to $202,095 in the first nine months of 1996. The
change resulted from investing the proceeds of a private placement in the
fourth quarter of 1995.

FISCAL YEAR ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994

Research and development expenses. Research and development expenses
increased by $1.1 million from $2.1 million in 1994 to $3.2 million in 1995.
In 1995, the Company extended the term of stock options to purchase 100,000
shares of Common Stock at an exercise price of $0.40 per share from seven to
twelve years. This extension resulted in the Company recording $860,000 of
compensation expense based upon an estimated fair value of $9.00 per share.
This compensation expense was allocated between research and development
expenses and general and administrative expenses. In 1995, the Company began
to increase the number of clinical sites which were conducting Phase II
clinical trials. The Company also expanded its activities outside the U.S. to
a second European site in Germany and a new site in Japan. The
commercialization of the PRS in Germany will be subject to the European
Union's Medical Devices Directive, and to the jurisdiction of the Ministry of
Health and Welfare (under the Pharmaceutical Affairs Law) in Japan. Delays in
the Company's efforts to conduct clinical trials and obtain regulatory
approvals in these countries could adversely affect the Company's financial
position and results of operations. The Company anticipates that sales of the
PRS will primarily be denominated in United States dollars, and recognizes
that the value of the United States dollar in relation to foreign currencies
could have an adverse impact on PRS sales to foreign customers. While the
Company currently has insignificant foreign currency exposure, the Company
intends to regularly monitor its foreign currency risks in connection with the
commercialization of the PRS and to take measures, including the possible
purchase of foreign currency exchange contracts, which it considers
appropriate to reduce the impact of foreign exchange fluctuations on the
Company's results of operations.

The Company and Toshiba have also entered into a Clinical Trial Agreement
dated as of December 13, 1995. Under this agreement, Toshiba has agreed to
purchase two PRS systems for use in clinical trials in Japan. Toshiba has also
agreed, subject to certain conditions and limitations, to bear overall
responsibility for the performance of the Japanese clinical trials and for
obtaining regulatory approvals in Japan. Under this agreement, Toshiba is
obligated "to bear the full cost to be incurred for any legal procedures for
conducting the Clinical Trials in Japan and for obtaining" regulatory
approvals in Japan. The Company has agreed to make available certain training
and installation services, and to provide technical information and PRS spare
parts.

Under an International Distributor Sales and Service Agreement (the "Toshiba
Agreement") between the Company and Toshiba dated December 13, 1995, the
Company has granted to Toshiba an exclusive right to sell and service the PRS
in Japan during the term of the Toshiba Agreement. Pursuant to the Toshiba
Agreement, Toshiba has agreed to provide certain training services to PRS
customers and to perform certain PRS repairs (to the extent such repairs are
not then covered by the Company warranty on the PRS). Subject to certain
termination rights, the Toshiba Agreement expires three years after all
necessary legal, regulatory or administrative approvals to import, market,
sell and use the PRS in Japan are first obtained.

20
<PAGE>

The two agreements with Toshiba described above are material to the Company,
its future financial conditions and results of operations.

General and administrative expenses. General and administrative expenses
increased by $361,672 from $505,061 in 1994 to $866,733 in 1995. The increase
is attributable to a growth in personnel from 13 in 1994 to 21 in 1995 and
related costs. The additional increases in 1995 are a function of the
allocation of the compensation expense from the stock option extension and
legal and professional fees related to general corporate representation and
the protection of intellectual property rights.

Interest income (expense). Interest expense decreased by $33,016 from
$143,661 in 1994 to $110,645 in 1995. This decrease is attributable to the
prior period conversion of debt. Interest income increased by $22,277 from
$63,473 in 1994 to $85,750 in 1995. This increase is attributable to the
receipt of offering proceeds from a private placement in the fourth quarter of
1995.

FISCAL YEAR ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994

Research and development expenses. Research and development expenses
increased by $359,490 from $1.7 million in 1993 to $2.1 million in 1994. This
change is attributable to the submission to the FDA for Phase II clinical
trials. The Company also expanded its efforts to complete a new model of the
PRS by increasing acquisitions of raw materials. In addition, the Company
began installing the PRS at hospitals in the U.S. to begin the process of
qualifying the device for clinical trials.

General and administrative expenses. General and administrative expenses
increased by $254,296 from $250,765 in 1993 to $505,061 in 1994. The increase
is attributable to a growth in personnel from nine in 1993 to thirteen in 1994
and related costs. Part of the personnel increase was to start developing
manufacturing operations. Additional increases in 1994 were due to legal and
professional fees relating to general corporate representation and the
protection of intellectual property rights, and patent expenses for foreign
coverage of issued patents.

Interest income (expense). Interest expense decreased by $149,353 from
$293,014 in 1993 to $143,661 in 1994 due to the conversion of approximately
$3.6 million principal amount of convertible notes into equity on December 31,
1993. Interest income increased by $60,245 from $3,228 in 1993 to $63,473 in
1994 resulting from the investment of the net proceeds from a private
placement.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations through the
issuance of convertible debt and Preferred and Common Stock in a series of
private placements totalling approximately $19.6 million. Consolidated working
capital was $4.1 million at September 28, 1996, compared with $7.6 million at
December 30, 1995. Included in working capital are cash and cash equivalents
of $4.0 million at September 28, 1996, compared with $7.2 million at December
30, 1995. During the first nine months of 1996, $3.1 million of cash was used
for operating activities. Prepaid expenses increased in 1996 due to costs
associated with the Company"s proposed initial public offering.

The Company used $685,463 of cash in the first nine months of 1996 for fixed
assets and leasehold improvements associated with its move to a new facility.

The Company received $629,323 of cash in the first nine months of 1996 from
the sale of Common and Preferred Stock.

The Company maintains medical product liability insurance policies with
respect to its clinical trials which the Company believes contain reasonable
deductibles and other ordinary and customary provisions. The Company believes
that these policies cover such risks in such amounts as are reasonable and
prudent under the circumstances, and the Company does not anticipate that
claims under these policies, if any, will have a material adverse impact on
the Company's liquidity or capital resources. Prior to commercial sale of its
products, the Company will be required to obtain product liability insurance
covering the commercial use of its products, however, there can be no
assurance that the Company will be able to obtain commercially reasonable
product liability insurance for the commercial sale or use of any product.

21
<PAGE>

The Company is currently involved in settlement discussions with a physician
and his employer. The Company understands that such physician believes that he
made certain contributions concerning use of the PRS to treat bladder cancer,
and that such physician believes that he is entitled to compensation for those
claimed contributions. The Company understands that such physician's employer
believes that it is entitled to a percentage interest in any amounts paid to
such physician. The position of the Company's management is that the Company
is not using any proprietary information of such physician in any device
currently under development or being sold by it. The Company's management also
believes that the outcome of this matter will not have a material effect on
the Company's financial position or results of operations.

The Company's capital requirements may change depending upon the progress of
the Company's research and development activities, progress of the clinical
trials, progress on new applications for treatment with the PRS and costs
involved with procuring and defending patents. The Company believes that
proceeds from this offering, together with its current cash and cash
equivalents, will be sufficient to meet the capital requirements of its
existing business for at least the next 24 months.

The Company's business plan calls for various applications of the PRS,
including the treatment of metastatic brain tumors, primary brain tumors, and
tumors in the breast, prostate, bladder and skin. The Company expects that the
capital requirements to complete the commercialization of the PRS to treat
metastatic brain tumors will require approximately $6.5 million from the net
proceeds of this offering. Such proceeds are needed to complete the Section
510(k) clearance, ISO 9001 approval, purchase of capital equipment for
assembly and manufacturing of components for the PRS and to support a sales
and marketing structure. At this point, the Company is not able to estimate
the capital requirements of commericalizing all applications of the PRS.

22
<PAGE>

BUSINESS

The Company is engaged in the design, development and commercialization of
the Photon Radiosurgery System ("PRS"), a proprietary, therapeutic device for
the treatment of cancerous tumors through the application of x-ray radiation
directly to the tumor site. The PRS delivers in a single treatment a high dose
of radiation through a thin, minimally invasive, needle-like probe, which
emits from its tip precisely controlled low energy x-rays that irradiate the
tumor from the inside out. The limited penetration of low energy x-rays in
tissue substantially confines the radiation to the tumor site.

The Company believes that the PRS offers a number of advantages over
conventional radiation therapies by allowing higher radiation doses with
shorter patient treatment times. Substantial confinement of the radiation to
the tumor boundaries significantly reduces the risk of radiation exposure to
surrounding healthy tissue and important organs or critical structures.

The most common form of treatment of cancerous tumors is by invasive
surgery. The Company believes that the PRS provides an attractive, minimally
invasive alternative to surgery, resulting in significantly less patient
trauma, shorter hospital stays and lower treatment costs than surgery. The PRS
can be applied after performing a biopsy and when desirable, use of the PRS
can be coupled with surgical procedures.

To date, the Company has focused its clinical efforts primarily on the
treatment of metastatic brain tumors. However, the PRS is being developed for
a variety of applications, including the treatment of primary brain tumors as
well as breast, prostate, bladder, skin and other cancers. The method of
treatment will depend on the application. The Company expects that the three
basic PRS treatment methods will be (i) the "interstitial" irradiation of
localized tumors from the inside out; (ii) the "intracavitary" irradiation of
body cavities; and (iii) the "intraoperative" irradiation of tumors or of the
beds of surgically removed tumors in order to destroy remaining cancerous
cells.

The Company and Toshiba Medical Systems Company, Ltd. ("Toshiba") have
entered into agreements relating to performance of clinical trials, and to
future product distribution arrangements in Japan.

The Company holds nine U.S. patents and four U.S. patent applications
relating to the PRS or its constituent or ancillary components. The Company
has also obtained or filed patent applications in other selected foreign
countries.

23
<PAGE>

BACKGROUND

CANCER OVERVIEW

According to the American Cancer Society, the direct medical costs incurred
in the delivery of cancer care in the U.S. will be approximately $35 billion
in 1996. Cancer care expenditures have been increasing as the number of new
cancer cases in the U.S. has increased from 785,000 in 1980 to an estimated
1,350,000 in 1996. In 1992, 23.9% of deaths in the U.S. were due to cancer,
ranking it the second leading cause of death. The incidence rate is growing at
1.8% per year. Men have a one in two lifetime risk of developing cancer and
for women the risk is one in three. The increase in cancer cases is
attributable to a number of factors, including an aging population. According
to the National Cancer Institute, people over age 65 are 10 times more likely
to develop cancer than those under age 65. In addition, environmental factors,
such as tobacco use and exposure to industrial carcinogens, continue to be
viewed as contributing to the cancer incidence rate. Approximately 554,740
deaths annually, or over 1,500 deaths daily, are currently attributable to
cancer, and approximately one out of every four deaths in the U.S. is cancer-
related.

Changing technology, earlier diagnosis, and better treatment have increased
the five-year survival rate of cancer patients from approximately 33% in 1960,
to approximately 40% in 1996. This improvement in survival rates has also
increased the demand for cancer-related products and services.

Treatment of cancer is expensive, with an annual cost per case, including
diagnosis, hospital treatment and other facility stays, usually in excess of
$10,000. Cancer patients accounted in 1993 (the latest available reporting
period) for 6% of the total days of hospital care with an average length of
stay of approximately eight days. The delivery of cancer care, as in the
healthcare market in general, has been the subject of significant cost-
containment pressures from third party payors. These pressures have driven the
development of lower cost providers and have also driven the search for
better, more cost-effective cancer treatment tools and protocols.

MAJOR CANCER TREATMENT METHODS

Surgery, radiation and chemotherapy are the traditional means of treating
cancer. While surgery and radiation focus on localized solid tumors,
chemotherapy can provide adjunctive therapy as well as address disseminated
systemic diseases, such as leukemia. Solid tumor cancers are expected to
account for greater than 90% of new cancer cases in 1996.

SURGERY

Surgical excision of tumors has historically been the preferred method of
tumor treatment. However, surgery involves highly invasive and traumatic
procedures for patients. Surgery is not an optimal or practical option in a
number of cases, including cases where tumors are difficult or impossible to
access, where a patient's medical condition does not allow for a highly
invasive procedure to be performed, or in cancer of the breast or other
locations where cosmetic factors are of concern to the patient. In addition,
the procedure of removing tissue mass surgically may either leave some
malignant cells behind or disperse them through healthy tissue.

RADIATION

Next to surgery, radiation is the dominant method of treating cancer.
Approximately 50% of all cancer patients in the U.S. receive radiation therapy
at some point during the course of their disease. An important advantage of
radiation therapy is that the radiation acts with some selectivity on cancer
cells. The absorption of radiation by a cell affects its genetic composition
and inhibits the replication of the cell, leading to its gradual death.
Cancerous cells are fast replicating and thereby are disproportionately
damaged by the radiation absorbed.

24
<PAGE>

Conventional external radiation requires the radiation to have sufficient
energy to reach the targeted tissue. Therefore, radiation originating from a
source outside the body must pass through, and may potentially damage, healthy
tissue.

Currently, the most common type of radiotherapy uses x-rays delivered by
external beams and is administered using linear accelerators ("LINACS").
LINACS are conventionally used for multiple, or "fractionated," treatments of
a tumor in up to 30 radiation sessions, or, as used more recently in the
brain, to deliver a single high dose of radiation in a procedure referred to
as stereotactic radiosurgery ("SRS"). Single-fraction LINAC treatments of
brain tumors involve a risk of overradiating a critical structure, such as the
optic nerves within the beam's path, a factor which, the Company believes, has
restricted their medical acceptance. In spite of technological refinements,
external beam radiation therapy still requires that radiation pass through
surrounding healthy tissue, resulting in the risk of damage to that tissue.

Less common methods of external radiation therapy involve the use of focused
radiation from radioactive cobalt sources and the irradiation of tumors with
proton beams. Focused cobalt radiation is generated by the Gamma Knife
manufactured by Elekta Instrument AB of Sweden. As is the case with
traditional external beam radiation, the x-rays from this device must pass
through healthy tissue prior to reaching the tumor. The Company understands
that the Gamma Knife currently costs in excess of $3 million dollars and that
its cobalt source must be replaced periodically. Proton beam treatments, in
which protons, accelerated to high speeds in a cyclotron and focused into a
variable-sized beam, have been clinically evaluated for therapy at only a few
sites. These machines cost appreciably more than the Gamma Knife, and the
Company believes that it is doubtful that many cyclotrons will be built or be
widely accessible.

In addition to external radiation therapy, radioactive seeds, probes, wires
or ribbons are sometimes inserted into a tumor ("interstitially") or into a
body cavity ("intracavitary"). This modality, known as "brachytherapy," does
not require the radiation to pass through surrounding healthy tissue, with
radiation administered slowly at lower dose rates than those used in external
beam radiation. However, the radioactive material utilized in brachytherapy
begins to decay after being implanted in the body, and is difficult to
localize or control. In addition, various state and federal laws and
regulations exist relating to the handling, storage and disposal of the
radioactive materials used in brachytherapy which require the use of shielded
containers and facilities to store and handle the materials and protect
personnel.

OTHER TREATMENTS

One cancer treatment method involves the killing of cells by significantly
changing their temperature, either upward or downward. However, this method
does not selectively differentiate between cancerous and non-cancerous cells
and is difficult to control because blood vessels exacerbate the flow of heat
away from or toward the targeted lesion. These difficulties are compounded by
the need to keep surrounding healthy tissue either sufficiently cool or warm,
depending on the method used, in order to prevent that tissue from being
destroyed. In contrast, the x-ray penetration provided by the PRS is
unaffected by blood flow, and the dose received by cells can be more
accurately defined.

Other treatments include tumor targeting and destruction by genetically
engineered drugs, the use of laser light to initiate chemical reactions that
destroy cancer cells (photodynamic therapy or "PDT"), particle beam
bombardment of malignant tumors, and the use of a device which magnetically
steers a tiny, heated metallic pellet inside the lesion to kill the diseased
cells. PDT requires the introduction of a light-sensitive drug into the
patient which is intended to preferentially concentrate in the tumor.
Irradiation of the tumor by laser light chemically destroys the cells. In
contrast to x-rays, the penetration depth of laser beams into tissue is very
limited, thereby restricting the technology to treatment of near-surface
tumors intraoperatively. Moreover, there are certain side effects associated
with the PDT drugs, with some patients remaining very sensitive to light after
the procedure. None of these treatments has yet proven more reliable than
surgery and/or radiation treatments.

25
<PAGE>

THE PRS SOLUTION

The Company believes that the PRS offers therapeutic, operational and
economic advantages over current conventional treatments.

THERAPEUTIC ADVANTAGES

Unlike external radiation sources, such as the LINAC or the Gamma Knife,
which, in order to deliver x-rays to a tumor site, require that the x-ray
beams pass through a patient's healthy tissue, the PRS's x-ray source can
inject low energy photons directly into the tumor. In this manner, radiation
can be substantially confined within the tumor boundaries thereby
significantly reducing the exposure of surrounding healthy tissue and
important organs. Interstitial delivery allows higher doses of x-rays to be
delivered to the tumor, thereby shortening aggregate treatment time to
typically less than 30 minutes, shorter than that normally required for
external therapies. With the PRS, a stronger single dose of radiation, rather
than multiple fractionated doses as prescribed with conventional external beam
therapies, can be applied. Moreover, the interstitial x-ray source of the PRS
delivers a higher dose to the tumor's central core than to its periphery.
Since, generally, a tumor's hypoxic (radiation resistant) cells occupy this
inner region, the dose distribution of the PRS is appropriate for maximum cell
destruction. Furthermore, the x-ray output of the PRS can be maintained at a
constant level, unlike, for example, radioactive isotopic seeds, which decay
after being implanted into the body. The localization of PRS radiation can
also facilitate radiation therapy for children whose cells are more actively
replicating and who are more likely to suffer side effects from external
radiation.

The Company believes that in contrast to surgery, the PRS is minimally
invasive and, due to its needle-like probe, can allow access to tumors
otherwise difficult or impossible to access surgically. The Company believes
that the minimally invasive nature of the PRS will offer advantages when
patient condition or cosmetic considerations do not allow highly invasive or
traumatic surgical interventions. For example, the Company believes that the
PRS can be used to irradiate breast cancer tumors, immediately after biopsy
confirmation of breast cancer, thereby reducing treatment delays and offering
an alternative to lumpectomy. In addition to its use on a stand-alone basis,
the Company believes that the PRS can be used in conjunction with current
therapies, for example to irradiate the "bed" of a surgically removed tumor
and to destroy remaining cancerous cells. Although the Company anticipates
that the primary applications for the PRS will involve the treatment of solid
tumors, the PRS has also been designed for treatment of certain diffuse
tumors, such as those within the lining of the bladder or other body cavities.

OPERATIONAL ADVANTAGES

The Company believes that the design of the PRS will make it portable and
easier to use than conventional external beam radiation therapy equipment.
Because the PRS treatment focuses on the tumor and the immediately surrounding
tissue, the Company anticipates that treatment planning will be shorter and
simpler than with conventional radiation treatments. In addition, unlike
conventional brachytherapy or the Gamma Knife, the PRS's low photon energy x-
ray source contains no radioactive material, thereby eliminating problems
associated with the storage, handling and disposal of radioactive materials
and the need to shield personnel and facilities. The PRS has been designed for
use immediately after confirmatory biopsies. When used in neurosurgical
applications, such as the treatment of brain tumors, the PRS probe can be
affixed to the stereotactic frame used to position the biopsy needle and then
inserted through the track left by the biopsy needle. Finally, the PRS is
being developed for use in a variety of different applications, and the
various probes being developed by the Company for these different applications
are expected to be interchangeable components of the PRS.

ECONOMIC ADVANTAGES

The Company believes that the price of the PRS to the hospital, surgical
center or other purchaser will be significantly below that of the equipment
used for conventional external radiation therapy methods currently available.
The Company believes that the combination of a biopsy with a short, one-time
treatment with the PRS, and an anticipated hospital stay of, generally, no
more than one day, will provide an appealing, minimally

26
<PAGE>

invasive and economically feasible choice of therapy for the patient. It is
anticipated that the cost of treatment with the PRS will be substantially less
than surgery, and less than or comparable to, other inpatient therapies.

The Company believes that the anticipated lower acquisition costs of the PRS
will make it potentially attractive not only to major urban teaching
hospitals, but also to smaller, regional health care providers, which
otherwise may not have adequate capital resources to purchase alternative
equipment.

SPECIFIC APPLICATIONS OF THE PRS

The Company has to date focused its clinical efforts on the treatment of
metastatic brain tumors. In addition to metastatic brain tumors, the Company
currently intends to seek clearance to conduct clinical trials to determine
the safety and efficacy of the PRS in treating primary brain tumors and tumors
in the breast, prostate, bladder and skin. The use of the PRS for any such
additional treatments will require completion of additional clinical testing
and the procurement of regulatory clearances, and therefore the U.S.
commercialization of the PRS for such treatments cannot reasonably be expected
to occur for at least two to five years or more. Depending on the nature and
location of the cancerous tumor, these additional treatment applications may
require the use of separate components or accessories in connection with the
PRS, but the Company believes that the basic core technology of the PRS will
not need to be significantly modified. The Company will consider the use of
the PRS for other potential applications on an ongoing basis. See "--Clinical
Trials."

BRAIN TUMORS

Primary brain and central nervous system tumors will account for 17,900 new
cases of cancer in 1996. Metastatic brain tumors, or secondary tumors formed
in the brain from malignant cells dispersed from distant primary tumor sites
in the body, have a much higher incidence rate. In fact, the brain is the
leading site for metastases to form; one in three cancer patients will develop
one or more such tumors prior to dying. Estimates place the figure in the
range of 150,000 to 400,000 patients annually. Due to their advanced age or
stage of their primary disease most of these patients will not benefit
sufficiently from treatment. However, about 35,000 of these patients are
thought by the Company to be candidates for therapy. While the Company to date
has focused its development and clinical efforts on the treatment of
metastatic brain tumors, it intends to explore the possibility, from a market
and regulatory standpoint, of utilizing the PRS for treatment of primary brain
tumors as well.

Aggressive treatment of metastatic brain tumors traditionally has been
limited. Patients with these tumors typically have received a fractionated
series of external beam whole brain radiation, which, because of the
cumulative effect on healthy tissue through which it passes, cannot be used to
treat subsequent tumors which frequently reoccur. Because of the particularly
sensitive nature of the brain and its surrounding critical organs and
structures, such as the optic nerves, damage from external radiation can
severely harm the patient. The PRS is particularly well-suited for this
application because of its targeted, low-energy approach. In addition,
although external beam radiotherapy is not recommended for young children
whose brains are still developing, highly confined interstitial irradiation
with the PRS may reduce the risk of radiotherapy to maturing brains. Phase I
clinical trials for the use of the PRS in treating metastatic brain tumors
have been completed, and Phase II clinical trials are currently being
performed. See "--Clinical Trials."

BREAST TUMORS

Breast cancer is the second leading cause of cancer deaths in women in the
U.S. In 1996, 184,300 new invasive cases of breast cancer are expected to be
diagnosed among women in the U.S., with an estimated 44,300 deaths. Current
conventional treatment methods for breast cancer include lumpectomies,
mastectomies, radiation, chemotherapy and hormone therapies or, as often is
the case, a combination of several of these.

The Company believes that the PRS could provide treatment for breast cancer
both interstitially (directly into the tumor) and as a post-surgical "boost"
to the tumor bed after the tumor has been removed surgically, with the goal of
destroying any malignant cells remaining in the tumor bed. The Company
currently anticipates

27
<PAGE>

that two clinical trials to ascertain the safety of the PRS for treatment of
breast cancer will begin in early 1997 in England. In one trial the PRS will
be tested to irradiate tumors interstitially immediately after their diagnoses
by stereotactic biopsies. In the other trial the PRS will be tested to
irradiate the tumor bed immediately after surgical excision of the tumor. The
Company is developing, for this intraoperative study, treatment accessories
and fixturing. See "--Clinical Trials."

PROSTATE TUMORS

Prostate cancer is the second leading cause of cancer deaths in men in the
U.S. In 1996, 317,100 new cases of prostate cancer are expected to be
diagnosed in the U.S. with an estimated 41,400 deaths. Treatment is presently
implemented by surgery and radiation; hormones and chemotherapy are other
options.

According to the latest data available, in 1993, 250,000 transurethral and
53,000 radical prostectomies were performed. In 1992 the hospital stay for a
patient with prostate cancer was on average approximately six days with an
overall cost of $12,226.

BLADDER TUMORS

In 1996, an estimated 52,900 new cases of bladder cancer are expected to
occur, with 11,700 deaths predicted. In 1992, hospitalization for a patient
with bladder cancer was on average approximately six days with an overall cost
of $12,936.

For bladder cancers, surgery alone or in combination with other treatments
is used in over 90% of cases. External beam irradiation is limited in
usefulness due to its damaging effects on the healthy tissue surrounding the
bladder. The Company has developed a means of delivering with the PRS
radiation only to the bladder lining by a noninvasive, transurethral method.
Although designed to treat diffuse malignancies extending over the entire
lining of the bladder, the apparatus is designed to be sufficiently versatile
to allow irradiation of localized bladder tumors as well. Initial animal
trials with this procedure are currently being conducted. If those trials are
successful, the Company will request, by the first half of 1997, FDA approval
of an Investigational Device Exemption ("IDE") to begin Phase I human trials.
See "--Clinical Trials."

SKIN TUMORS

In 1996, there are expected to be over 800,000 new cases of skin cancers.
Melanomas are expected to be diagnosed in 38,300 individuals. An additional
17,000 invasive nonmelanomas, mostly sarcomas such as Karposi's sarcoma (a
malignant skin tumor often suffered by AIDS patients), will occur. Currently
there are four primary methods of treatment utilized for skin cancers. Surgery
is the primary modality and used in 90% of cases. The others are radiation
therapy, electrodessication, in which tissue is destroyed by heat,
cryosurgery, in which tissue is destroyed by freezing, and laser therapy for
early skin cancer. The Company believes a significant number of cases of skin
cancers are amenable to treatment with the PRS either as an alternative to
present radiation therapies or as an adjunct to surgery.

For non-interstitial treatments, the Company has developed an x-ray
"shielding cone," which is intended, when fitted onto the PRS's probe tip, to
restrict the area of x-ray exposure to the region of the tumor being treated.
The Company has established a research site at a New York City hospital, and
intends to submit an application to the FDA to begin human clinical trials for
Kaposi's sarcoma and possibly other types of skin tumors in late 1997.

28
<PAGE>

OTHER POTENTIAL APPLICATIONS

Application of the PRS to the treatment of various types of tumors is not
necessarily limited to those described above. For example, the Company is
considering the applicability of the PRS for intraoperative treatment of
gynecological tumors (cervical and uterine malignancies), as well as for
minimally invasive therapy for lung, colon, rectal, liver, pancreatic and
nasopharyngeal cancers. For these other cancers, fixturing devices will need
to be developed, or existing fixturing devices will need to be modified, for
compatibility with the PRS. The Company intends to design its own devices, as
well as pursue relationships with fixture device manufacturers in order to
develop or modify their devices, as it has with respect to stereotactic
systems used in treating brain and breast tumors. For applications where a
direct path to the tumor site is not possible, the Company is exploring a
flexible version of the probe which will permit indirect access to the tumor
site.

BUSINESS STRATEGY

The Company's goal is to establish the PRS as the preferred means for the
treatment of cancerous tumors by utilizing its therapeutic, operational and
economic advantages over competing cancer treatment methods. In order to
achieve its objectives, the Company intends to pursue the following business
strategy:

UTILIZE CORE TECHNOLOGY FOR THE TREATMENT OF METASTATIC BRAIN TUMORS AND
ADDITIONAL APPLICATIONS. The PRS has been used to treat metastatic brain
tumors in 57 patients, and Phase II clinical trials for the treatment of these
brain tumors are currently ongoing. While the Company has focused its efforts
to date on the development of the PRS to treat metastatic brain tumors, the
Company intends to utilize and further develop its core PRS technology for
multiple applications based on specific market opportunities. The Company
expects these applications to include the treatment of primary brain tumors as
well as breast, prostate, bladder, skin and other cancers.

BUILD RELATIONSHIPS WITH MEDICAL PROFESSIONALS AND INSTITUTIONS. The
Company has developed strong relationships with prominent medical
professionals and institutions worldwide who have been involved in the
clinical testing of the PRS. The Company believes that the medical community's
acceptance of the PRS as a viable cancer treatment tool will significantly
impact the Company's ability to market the PRS. Therefore, the Company intends
to continue to foster and expand these important relationships, and to
leverage the relationships to gain market acceptance of the PRS. For example,
the Company has established a Medical Advisory Board, which will advise and
consult with the Company's Board of Directors and senior management. The
Company also plans to attend and provide presentations at conferences and
seminars, to seek and promote publication in scientific and industry journals
of articles or clinical studies relating to the PRS, and to initiate
consultations with members of the medical community regarding the PRS.

OBTAIN REGULATORY CLEARANCE FOR THE PRS IN THE U.S. AND INTERNATIONALLY.
The Company intends to seek regulatory clearances for the PRS in the U.S. and
abroad. In the U.S., the Company intends to submit a Section 510(k)
application to the FDA by December 18, 1996, on the basis of results of its
ongoing human clinical trials, which will seek limited clearance from the FDA
to commercialize the PRS for treatment of metastatic brain tumors. In
addition, the Company has initiated, and intends to continue, the process of
seeking a CE Mark for the PRS. In furtherance of its goal to obtain such a CE
Mark, the Company has retained a third party, TUV-Essen, to assist the Company
with certain aspects of the process, and the Company currently anticipates
receiving a CE Mark for the PRS by mid-1997. The Company intends to pursue
regulatory clearance in other countries as needed, and expects that it will
initially introduce the PRS in selected foreign countries where governmental
regulatory approval procedures are less burdensome and expensive than in the
U.S. In addition, the Company intends to initiate human clinical trials for
applications other than brain tumor treatment such as breast, prostate and
bladder tumor treatments, and to seek regulatory approvals for the
commercialization of those applications if the results of the underlying
clinical trials so warrant.

PURSUE COMMERCIAL ACCEPTANCE OF THE PRS IN THE U.S. AND INTERNATIONALLY.
The Company intends to pursue the rapid commercialization of the PRS in the
U.S. and abroad. The Company anticipates that it will

29
<PAGE>

continue to pursue collaborative relationships with companies that have
established distribution channels in various domestic and international market
segments, as it has with Toshiba. The Company also intends to continue its
practice of developing strategic relationships with licensors or manufacturers
of equipment or technology which can be used in connection with the PRS, such
as treatment planning software and stereotactic frames, breast biopsy tables
or other fixturing devices.

PROTECT INTELLECTUAL PROPERTY RIGHTS. The Company holds nine U.S. patents
and four U.S. patent applications relating to the PRS or its constituent or
ancillary components. The Company has also obtained two patents in Australia,
and has filed patent applications in other selected foreign countries. The
Company intends to continue to pursue its patent filing strategy and to
vigorously protect its intellectual property rights against infringement. See
"Risk Factors--Patents and Proprietary Technology."

CLINICAL TRIALS

Before medical devices such as the PRS can be marketed in the U.S.,
successful completion of clinical trials, along with FDA approval, is
required. Phase I clinical trials for the use of the PRS in treating
metastatic brain tumors have been completed, and Phase II clinical trials are
currently being performed with respect to this application. Based on the
results obtained to date in these ongoing Phase II trials, the Company intends
to submit a Section 510(k) application to the FDA seeking clearance to
commercialize the PRS for treatment of metastatic brain tumors. Locally
approved clinical trials for the treatment of brain tumors are also being
performed at sites in Europe and Japan. The Company currently anticipates that
clinical trials to determine the safety of the PRS for treatment of breast
cancer will begin in the U.K. in early 1997. Based upon those trials, the
Company will submit an application to the FDA to begin Phase I human clinical
trials. The possibility of curing topical tumors of the skin and mouth with
the PRS is also being explored. A program has begun at a U.S. hospital which
the Company expects to lead to human clinical trials with the PRS in treating
Karposi's sarcomas and other skin malignancies. The Company will consider the
use of the PRS for other potential applications on an ongoing basis.

The following table summarizes by treatment application the status of
clinical trials in the U.S., Europe and Japan:

<TABLE>
<CAPTION>
APPLICATION STATUS
----------- ------
<S> <C> <C>
Brain tumors U.S.: Phase II in process
(interstitial and as Europe: Phase II and local trials in process
post-surgery Japan: Local trials in process
radiation "boost")
Breast tumors U.S.: Trial sites under investigation*
(interstitial and as Europe: Clinical trials planned to commence in
post-surgery early 1997*
radiation "boost")
Japan: Potential trial sites under evaluation*
Prostate tumors Europe: Protocols for trials approved in London;
clinical trials expected to commence mid-
1997*
Bladder tumors U.S.: Animal trials in process; clinical trials
expected to commence late 1997*
Skin tumors U.S.: Clinical trials expected to begin in late
1997*
</TABLE>
- --------
* FDA or local approvals are needed before commencing clinical trials.

Research studies for medical devices such as the PRS are often conducted in
a phased approach. Before any commercial sales in the U.S. of the PRS can
commence, successful completion of these clinical trials, along with FDA
approval, is required.

Phase I trials are used to demonstrate feasibility, to delineate an initial
safety profile and to identify technical, procedural and clinical factors
which may be material to the successful use of the device. Phase II

30
<PAGE>

clinical trials normally are conducted on a larger population group in order
to identify possible adverse health and safety risks and to begin gathering
efficacy data. Each of the clinical trials is to be conducted pursuant to
certain standards under protocols setting forth the objectives of the study,
the parameters to be used to monitor safety during the trials, and the
efficacy criteria which are to be evaluated. In turn, each protocol must be
submitted to the FDA. The data obtained from these trials are then used to
support a Section 510(k) or other application to the FDA requesting
commercialization approval.

In 1992, the FDA granted an IDE to the Company to perform a limited number
of human clinical trials on brain tumors. Between December 1992 and April
1993, the Company completed a ten-patient Phase I clinical trial at a major
Boston teaching hospital. The results of these trials indicated that the PRS
was capable of destroying cancerous tissue in a focally defined area. Based on
these results, that hospital asked the Company to seek FDA approval to conduct
an additional series of trials in order to treat more patients while awaiting
approval of a Phase II study. As a result, four more patients were treated
with similar results.

Based on the Phase I results, the Company sought permission from the FDA to
begin Phase II trials to treat brain tumors, and such permission was granted
in March 1994. These trials are required to establish the efficacy of the PRS
relative to currently acceptable treatment methods. The Company is performing
Phase II clinical trials on the PRS at certain institutions and their
affiliated medical facilities in Boston and London. In addition, locally
approved clinical trials are being performed in Germany, London and Tokyo.
These trials enable the treatment of patients who are not eligible for the
current Phase II trials and allow the use of treatment methods and evaluation
techniques which are different than those defined in the FDA-approved IDE
protocol for this application.

To date, 57 patients have been treated with the PRS at various hospitals.
Although the studies are not yet complete, in the Company's opinion, based
primarily on pathological evidence from the only two patients autopsied to
date with multiple brain tumors, the PRS has destroyed all cancerous tissue
which has been targeted with an adequate dose of radiation. Specifically,
these autopsies indicated that the PRS-treated tumors were entirely dead while
other tumors which had undergone external beam radiation contained viable
cancer cells. While MRIs can be utilized, with certain limitations, for
determining whether tumors have been destroyed, tissue analyses from autopsies
or surgical excisions provide the most accurate means of detecting the extent
of malignant cell destruction. However, both the hospital costs and the
reluctance of the patients' relatives to provide consent limit the number of
autopsies performed. Complications that have occurred to date, such as edema,
have generally been of the type experienced by patients undergoing brain
biopsies without PRS treatment. Edema may result from mechanical, radiative or
other trauma to tissue and is generally controllable using steroids or other
conventional methods. While the Company has been encouraged by the results of
the brain tumor trials so far, these results may not be predictive of future
results in these or any other clinical trials or of results obtained in
clinical trials for other specific applications.

Based on the results of the Phase II trials to date, the Company intends to
submit certain data from these trials in support of an application to the FDA
under Section 510(k). The Company expects that this Section 510(k) application
would seek clearance from the FDA to commercialize the Company's current
version of the PRS (the "Model 3") for similar treatments of patients with
metastatic brain tumors. See "--Government Regulation." The Company expects to
submit such a Section 510(k) application by December 18, 1996. If clearance is
received from the FDA, the Company intends to then request that such clearance
be extended to cover "Model 4" of the PRS, which the Company expects will be
the first model of the PRS to be made commercially available. If such
extension of clearance were obtained the Company would begin such
commercialization of the PRS in the U.S. If any such clearance is not
obtained, the Company would have to seek approval by submission of a PMA
application in order to market the product. The PMA process is significantly
more complex, expensive and time consuming than the Section 510(k) application
process. The PMA process typically spans several years and may never result in
approval. See "Risk Factors--Absence of Regulatory Clearances; Uncertainty of
Obtaining Section 510(k) Clearance."

With respect to other potential PRS applications, the Company anticipates
that human clinical trials to ascertain the safety of the PRS for treatment of
breast cancer will begin in early 1997, and approval of those trials from the
ethics committee at the hospital at which the trials are to be conducted has
been obtained.

31
<PAGE>

A protocol for human prostate trials involving ultrasound-guided transperineal
insertion of the PRS into the prostate (using a longer PRS probe developed for
treating bladder cancer) to treat prostate lesions has been approved by the
ethics committee of a hospital in London. The Company is currently reviewing
the efficacy of combining the PRS with external beam therapy for this
application. Initial animal trials for use of the PRS in treatment of bladder
cancer are currently being conducted. If those trials are successful, the
Company will request FDA approval of an IDE to begin Phase I human trials for
diffuse, superficial bladder wall cancers, although any such approval is not
likely to be requested until late 1997. The Company has established a research
site in New York City, and expects to submit an application to the FDA to
begin human clinical trials for use of the PRS to treat Karposi's sarcoma and
other skin malignancies by late 1997.

PRODUCTS AND PRODUCT DEVELOPMENT

A complete PRS consists of (i) equipment for clinical use in treating
patients, principally consisting of the x-ray emitting probe, its electronic
control box and a standard computer-based treatment system, (ii) clinical
quality assurance equipment for use in the operating room to verify the
accuracy of the treatment, and (iii) custom equipment for use in the
laboratory to calibrate the output of the probe.

The PRS is intended to be a turn-key system. However, the Company believes
that certain PRS components or accessories will have other uses for which they
may be marketed separately. For example, the Company believes that the CCD-
microdensitometer, which is part of the PRS and which allows for testing of
radiation dosage and distribution prior to patient exposure, could be used
with conventional x-ray sources as well as with the PRS. Several prototype
units are under evaluation in the U.S. and Europe and the Company may seek
clearance to market it on a separate basis. In addition, the Company has also
designed, in support of its proprietary x-ray technology, an automated
dosimetry water tank, which provides a rapid computer-based means of measuring
the spatially distributed x-ray dose around the probe tip. While the tank was
originally designed by the Company to facilitate periodic calibration of PRS
units by hospitals, the tank can also be used to measure the dose delivered by
radioactive seeds, and the Company intends to explore further the market
potential for sales of tanks for this purpose.

The Company believes that masking the outside of the tip of the PRS probe
with a sculpted thin layer of an appropriate metal can vary the dose
distribution to conform the radiative field to more closely match the
configuration of a nonspherical tumor. The Company is investigating the
development of a "library" of masks that can be slipped over the tip of the
probe, with each mask tailored to produce a differently shaped dose
distribution. The Company is also currently considering the feasibility (from
a design, cost and market standpoint) of a PRS x-ray source which would rely
on a flexible probe in order to address endoscopically approachable body
tumors, or those "hidden" behind critical structures.

MARKETING AND SALES; COLLABORATIVE RELATIONSHIPS

The Company believes that the acceptance of the PRS by health care providers
as a viable, cost-effective alternative to conventional cancer treatment
methods will be critical to the successful commercialization of the PRS. The
Company intends to target such health care providers as hospitals, out-patient
providers, women's health centers, and small regional facilities, both within
the U.S. and abroad, as potential customers. The Company intends to market and
distribute its products through a combination of collaborative relationships
and in-house sales and marketing resources. The Company has heavily relied,
and intends to continue to heavily rely, on the pursuit of strategic alliances
with companies that have established distribution channels in domestic and
international markets.

The Company and Toshiba have entered into agreements relating to the conduct
of clinical trials in Japan, and to future product distribution arrangements
in that country. Those agreements provide that Toshiba will conduct and pay a
portion of the cost of the PRS clinical trial program in Japan, be responsible
for obtaining approval under Japan's Pharmaceutical Affairs Law to import,
market, sell and use the PRS and, once regulatory approvals are obtained,
serve as exclusive distributor for the PRS in Japan. Toshiba is purchasing
from the

32
<PAGE>

Company at a discounted price two PRS units for use in the clinical trials.
The Company has agreed to upgrade those units at no additional cost to Toshiba
once approvals are obtained to sell the PRS in Japan. Toshiba is one of the
leading medical device manufacturers and distributors in the world, and the
Company believes that Toshiba's support for the PRS will be a significant
factor in gaining acceptance for the device in the medical marketplace in
Japan. Upon entering into the clinical trial and distribution arrangement,
Toshiba purchased an equity interest in the Company which represents 4.9% of
the issued and outstanding capital stock of the Company before the
consummation of this offering.

The Company also has entered into, and plans to continue entering into,
strategic relationships with manufacturers or designers of components and
accessories relating to, or to be used in conjunction with, the PRS. The
Company believes that such relationships will enable the Company to focus its
development efforts and devote its economic resources to its core
technologies, while simultaneously providing access to those parties'
customers and distribution channels. For example, two manufacturers of
stereotactic frames, Radionics Incorporated ("Radionics") and Medical High
Tech GmbH, have adapted their frames to be compatible with the PRS, and a
third frame manufacturer has submitted designs to the Company indicating a
similar intention. In addition, a Radionics subsidiary, Radionics Software
Applications ("RSA"), has developed a version of its three-dimensional patient
treatment planning program specifically tailored for use with the PRS in
conjunction with its stereotactic frame. The Company hopes to leverage its
relationships with these third parties in order to increase market
opportunities. See "Risk Factors--Limited Marketing Experience."

MEDICAL ADVISORY BOARD

The Company has recently formed a Medical Advisory Board, which will advise
and consult with the Company's Board of Directors and senior management at
such times as the Board of Directors shall request. This advice and
consultation will relate generally to the Company's business and products,
including the PRS, as the Board of Directors deems appropriate. The Medical
Advisory Board members may be employed on a full-time basis by employers other
than the Company, and these members may have commitments to, or consulting,
advisory or other contractual relationships with, other third parties. These
third party commitments and relationships may limit the availability of the
Medical Advisory Board members to the Company, and may potentially result in
conflicts of interest. The Board of Directors has not yet convened a meeting
of the Medical Advisory Board. The following individuals have agreed to serve
as members of the Medical Advisory Board:

<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Nicholas T. Zervas, M.D. (Chair- Higgins Professor of Neurosurgery and Chief
man)............................. of the Neurosurgical Service at The
Massachusetts General Hospital, Boston,
Massachusetts.
Michael Baum, ChM. FRCS........... Professor of Surgery, Department of
Surgery, at The Institute of Surgical
Studies, University College London Medical
School, London, England.
Basil S. Hilaris, M.D., FACR...... Professor and Chairman of the Department of
Radiation Medicine at Our Lady of Mercy
Medical Center, New York Medical College,
New York City.
Christoph B. Ostertag, M.D........ Professor and Director of Department of
Stereotactic Neurosurgery at the
Neurosurgical University Clinic, Albert-
Ludwigs University, Freiburg, Germany.
Kintomo Takakura, M.D., Ph.D...... Director of Neurological Institute and
Professor and Chairman of Department of
Neurosurgery at Tokyo Women's Medical
College, Tokyo, Japan.
</TABLE>

The Company is proposing that each member of the Medical Advisory Board,
with the exception of Dr. Zervas, be issued options to purchase 1,000 shares
of the Company's Common Stock for each full year that

33
<PAGE>

such member serves on the Medical Advisory Board. The exercise price per share
for the options issued with respect to the member's first year of service on
the Medical Advisory Board is to be equal to the initial public offering price
hereunder, and the exercise price per share for the options issued with
respect to any subsequent year of service on the Medical Advisory Board is to
be the fair market value of such share (as determined by the Company's Board
of Directors) on the first day of such year of service. Each member would also
receive a fee of $1,000 per regular or special Medical Advisory Board meeting
attended in person (together with reimbursement of reasonable travel
expenses), and a fee of $500 per each such Medical Advisory Board meeting
participated in by means of conference telephone arrangements. The Company is
proposing to pay Dr. Zervas, the current Chairman of the Medical Advisory
Board, a stipend of $10,000 for each year that he serves on the Medical
Advisory Board.

PATENTS AND PROPRIETARY RIGHTS

A U.S. patent directed to the base PRS technology was issued to the Company
in October 1992. Two patents were issued to the Company in 1995 directed to
shaped radiation patterns and electron beam steering, respectively. From 1994
through 1996, three U.S. patents directed to use of the PRS to treat brain
tumors were issued to the Company. A U.S. patent, directed to a flexible probe
PRS for endoscopic purposes, was also issued to the Company in 1995. Another
U.S. patent was issued to the Company in 1996 for an apparatus for use in x-
ray dosimetry for the PRS. One U.S. patent, issued in 1996, and two pending
U.S. patent applications are directed to use of the PRS to deliver x-rays to
internal surfaces and adjoining regions of body cavities, such as the bladder,
esophagus, anal region, nasal orifice and gynecological area. One pending
application has been allowed by the Patent Office and grant of patent is
expected shortly in that application. The Company owns two other pending
patent applications relating to use of the PRS, and to the Company's CCD
microdensitometer. The Company has foreign patent applications in selected
foreign countries which correspond to certain of its U.S. patent applications.
To date, two patents corresponding to the Company's initial patent have issued
in Australia; the other foreign applications are pending. See "Risk Factors--
Patents and Proprietary Technology" and "--Rapid, Unpredictable and
Significant Technological Change; Highly Competitive Industry."

MANUFACTURING

The Company intends to continue its practice of sub-contracting the
fabrication of most of its electrical and mechanical components while
maintaining in-house responsibility for unit assembly and for manufacture of
certain proprietary components. The Company believes that this strategy can
serve to reduce administrative costs, facilitate supplier partnership, and
reduce inventory requirements. In general, the Company's procurement strategy
is to keep the number of its suppliers low while identifying as many multiple
sources as possible.

The Company intends to implement the necessary operational systems to
support the successful commercial production of the PRS and any other
products. Specifically, the Company intends to continue to pursue full
functional compliance with ISO 9001 and the FDA's GMP standards that govern,
among other things, quality assurance, personnel training, process control,
customer service, design control, supply management and facility and equipment
maintenance. See "Risk Factors--Limited Manufacturing Experience" and "--
Potential Component Shortages; Dependence on Sole Sources of Supply."

COMPETITION

The medical device industry is highly competitive. The Company believes that
there are numerous universities, research institutions and medical device,
chemical and biotechnology companies that are engaged in the development of
cancer treatment therapies. Many of these entities have substantially greater
technical, financial and regulatory resources than the Company and may be
better equipped to develop, manufacture, and market their products.

For example, in order to achieve successful commercialization, the PRS will
need to compete with the LINACS and the Gamma Knife, each of which is an
established and well-known cancer therapy within the medical community, and,
as well, with lesser known radiation therapies such as proton beam treatment
and

34
<PAGE>

brachytherapy. In addition, the Company is aware of various other cancer tumor
treatment methods currently under development; any of these methods, if
successfully developed, could have a different approach or means of
accomplishing the intended purposes of the Company's product which might
render the Company's technology uncompetitive. While the Company believes that
the PRS offers certain therapeutic, operational and economic advantages over
the cancer treatment methods likely to compete with the PRS, there can be no
assurance that the Company will be able to compete successfully within this
highly competitive market.

The Company believes that its ability to compete in the marketplace will
depend on its technological advantages and the strength of its patent
position, its ability to complete clinical trials and to obtain regulatory
approvals for its products in a timely fashion, its competence in developing
and maintaining collaborative relationships, its transition to commercial
manufacturing and marketing, and its ability to achieve and maintain a
superior cost structure relative to other competitive treatments. See "Risk
Factors--Rapid, Unpredictable and Significant Technological Change; Highly
Competitive Industry."

GOVERNMENT REGULATION

U.S.

The PRS is subject to regulation in the U.S. by the FDA and, in many
instances, by comparable agencies in foreign countries where the PRS is to be
manufactured or distributed. Under the FDC Act and the SMDA, manufacturers of
medical devices must comply with applicable provisions of the FDC Act and the
SMDA and certain associated regulations governing the safety, design testing,
manufacturing, labeling, marketing and distribution of medical devices and the
reporting of certain information regarding the safety of medical devices. Both
the FDC Act and the SMDA require certain clearances from the FDA before
medical devices, such as the PRS, can be marketed. The Company intends to
pursue a strategy intended to result in marketing clearance of as many PRS
components as possible as quickly as possible in order to maximize flexibility
in the marketing of the PRS and its components.

FDA permission to distribute a new device can be obtained in either of two
ways. The first process (which is the more comprehensive of the two) applies
to a new device that is not substantially equivalent to an existing, legally
marketed product, and requires generally that the Company establish the safety
and effectiveness of the device through specific procedures. A PMA application
must be submitted to the FDA that contains, among other things, the results of
clinical trials performed pursuant to FDA-approved protocols. The PMA
application also contains other information required under the FDC Act such as
a full description of the device and its components, a full description of the
methods, facilities and controls used for manufacturing and proposed labeling.
Finally, the manufacturing site for the device subject to the PMA must pass an
FDA preapproval inspection. The PMA process can be expensive, uncertain and
lengthy, often requiring several years to complete.

The second of the two FDA processes is available for a new or significantly
modified device which is "substantially equivalent" to an existing legally
marketed device. Such a new device may be commercially introduced when, after
submission of a premarket notification to the FDA under Section 510(k), the
FDA issues an order permitting commercial distribution. The FDA has recently
been requiring a more rigorous demonstration of substantial equivalence than
in the past. As between the two sets of procedures (the PMA approval procedure
and the Section 510(k) clearance procedure), the PMA procedures are normally
more complex and time consuming than Section 510(k) procedures, since the PMA
procedures are for products that are not comparable to any other product in
the market. However, even the Section 510(k) procedures are time-consuming and
expensive.

The Company anticipates that it will file a Section 510(k) application with
respect to the current model of the PRS for the treatment of metastatic brain
tumors by December 18, 1996. Under the Section 510(k) procedures, the Company
will be required to prove that the PRS is substantially equivalent to legally
marketed products. The Company will contend in its Section 510(k) application
that for purposes of Section 510(k), the PRS may be considered "substantially
equivalent" to, as a predicate device, a specific isotope after-loader used in
brachytherapy, the interstitial insertion of radioactive seeds, probes, wires
or ribbons into a tumor or body

35
<PAGE>

cavity. The product acceptance period for a Section 510(k) application is
normally about four to twelve months

from the date the application is deemed complete by the FDA, although there
can be no assurance that the review period will not extend beyond such period.
Even if the FDA grants Section 510(k) clearance for the current model of the
PRS, known as "Model 3," the Company will need to request that the FDA extend
Section 510(k) clearance to "Model 4" of the PRS, which is the version of the
PRS which the Company expects to commercialize. There can be no assurance that
the FDA will so extend such clearance, if obtained.

If the Company is unable to avail itself of the Section 510(k) procedures
(whether because it is unable to prove that the PRS is substantially
equivalent to existing products as described above or otherwise), it will need
to seek FDA approval under the PMA procedure. As discussed above, the
preparation of a PMA application is significantly more complex, expensive and
time consuming than the Section 510(k) procedure. Even if the Company were
able to proceed to seek PMA approval, it would need to do so based on
additional clinical tests conforming to FDA approved protocols, and such
approval would likely not be obtained, if at all, until at least 1999.

The Section 510(k) application to be filed by the Company will include all
PRS treatment components and associated laboratory equipment for calibration
and dose verification. Treatment planning software developed by a third party
manufacturer, which has not been used in clinical PRS treatments to date, will
require separate FDA clearance or approval prior to marketing in the U.S.

In addition to the clearance and approval procedures described above, the
FDA also imposes various requirements on manufacturers and sellers of medical
devices under its jurisdiction, such as labeling, manufacturing practices,
record keeping and reporting requirements. The FDA may also require the
ongoing monitoring of products which have been cleared for commercialization
under the those procedures.

The PRS has not been cleared or approved for commercial use in the U.S. or
in any foreign country. There can be no assurances that the Company's clinical
trials of the PRS will be successful, or that clearances will be granted for
the PRS or any other future products, if any, or that the length of time for
clearance will not be extensive, that the cost of attempting to obtain any
such clearances will not be prohibitive, or that the Company will have
sufficient funds to pursue such clearance. Failure to obtain or maintain
requisite governmental approvals could delay or preclude the Company from
further developing and marketing the PRS and other products. Such delays could
impair the Company's ability to generate funds from operations, which in turn
would have a material adverse effect on the Company's business, financial
condition and results of operations, even after regulatory clearance is
obtained.

Even if regulatory approvals are obtained, such approvals may include
significant limitations on particular uses. In addition, those approvals may
be withdrawn or limited for non-compliance with regulatory standards or the
occurrence of unforeseen problems following the initial approval (either of
which could result in restrictions, including withdrawal of the product from
the market or sanctions or fines being imposed on the Company).

In addition, the export of products manufactured by the Company will be
subject to receipt of export licenses from the U.S. Government. Such licenses
are required for equipment use in foreign clinical trials. The Company has
requested and been granted export licenses and corresponding foreign import
licenses for clinical trials in England, Japan, Australia and Germany. See
"Risk Factors--Absence of Regulatory Approvals" and "--Extensive Ongoing
Governmental Regulation."

FOREIGN COUNTRIES

The regulatory climate relating to the marketing of medical devices within
the European Union is currently in transition while the European Union's
Medical Device Directive is being implemented. The Medical Device Directive
(June 1993) stipulates the regulatory requirements adopted by the European
Union, pursuant to which "National Competent Authorities" approve European
commercialization of new medical products through a procedure whereby both the
products and the manufacturing facilities must conform to well defined
specifications.

36
<PAGE>

The transition period for the Medical Device Directive will end in June
1998; after the expiration of this transition period, all medical devices to
be marketed in any European Union country must first obtain a CE Mark. The CE
Mark is an international symbol of adherence to quality assurance standards.
Obtaining a CE Mark with respect to a particular medical device requires the
submission of information that is similar in certain respects to that which is
submitted to the FDA in connection with a Section 510(k) notification. In
order for the Company to sell its products in Europe, it must comply with
European Union directives relating to manufacturing and quality assurance
documentation under the ISO 9000 series standards and to the performance,
safety, and manufacture (and quality assurance) of the particular device.

In order to have the capacity to examine a large number of new products, the
National Competent Authorities have mandated Notified Bodies (nongovernmental
organizations) to act as their agents and qualify equipment in accordance with
EC standards. In October 1995, the Company engaged TUV-Essen, one of these
Notified Bodies, to act as its agent in qualifying the equipment to obtain a
CE Mark. TUV-Essen is in the process of performing a design review of the
equipment and will, after the appropriate modifications are made, test for
final approval of the system.

Sales of medical devices within other jurisdictions outside the U.S. and
Europe are subject to regulatory requirements that vary widely from country to
country. The time required to obtain approval for sale in a foreign country
may be longer or shorter than that required for FDA approval, and the
requirements may differ. There can be no assurance that the Company will be
able to obtain the necessary regulatory approvals or clearance in any given
country on a timely basis or at all, and delays in receipt of or failure to
receive such approvals could have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Risk Factors--
Absence of Regulatory Approvals" and "--Extensive Ongoing Governmental
Regulation."

THIRD PARTY REIMBURSEMENT

If regulatory approvals are obtained for commercial use of the PRS, the
potential revenues derived from marketing of the PRS will depend in large part
upon whether the PRS will qualify for reimbursement from third party payors,
including private insurance companies, self-insured employers, health
maintenance organizations and federal and state sources of payment under the
Medicare and Medicaid programs, and other sources. As a general matter, each
third party payor has developed independent criteria for determining whether a
particular device or treatment modality should be reimbursable and the Company
cannot predict whether or to what extent the PRS will gain acceptance for
reimbursement with any third party payors. However, the Company believes that
the reduced capital and operation costs of the PRS when compared to competing
modalities, together with the expected lower hospitalization costs, will
encourage third party payors to provide reimbursement for PRS-based
procedures.

In addition, many third party payors in the U.S., including the federal
Medicare program and many state Medicaid programs, are planning to shift or
have shifted to partially or fully capitated systems. Under such systems
providers receive either a fixed payment amount per diagnosis or general
treatment approach regardless of the specific treatment modality, or a fixed
payment amount to provide for all the care needs of a patient over time
regardless of illness. To the extent that the PRS is comparatively more cost
effective than existing treatment modalities, providers subject to partial or
fully capitated systems will have an incentive to utilize the PRS.

The levels of revenues and profitability of sales of medical devices may be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means and the
initiatives of third party payors with respect to the availability of
reimbursement. For example, in the U.S. there have been, and the Company
expects that there will continue to be, a number of federal and state
proposals to subject pricing or profitability of medical devices to
governmental control. Although the Company cannot predict what legislative
reforms may be proposed or adopted or what actions federal, state or private
payors for health care products may take in response to any health care reform
proposals or legislation, the existence and pendency of such proposals could
have a material adverse effect on the Company in general.

37
<PAGE>

With respect to health care reimbursement in the European Union (the "EU"),
there are presently no EU-wide reimbursement procedures; the majority of the
EU member nations each have a dominant national health service with distinct
and unique reimbursement policies and procedures. In addition, private
insurers within the EU offer a great variety of benefits. It is anticipated
that by June 1998, when the Medical Devices Directive becomes mandatory in the
EU, the principal prerequisite for reimbursing a procedure involving new
medical equipment will be obtaining a CE Mark as described in more detail
above. See "Business--Government Regulation."

Other foreign countries also have their own health care reimbursement
systems, and there can be no assurance that third party reimbursement will be
made available to the Company under any foreign reimbursement system. See
"Risk Factors--Adverse Effect of Life Expectancies on Markets for Specific
Product Applications" and "--Reimbursement by Third Party Payors."

EMPLOYEES

The Company presently has 25 employees, including a Director of Clinical
Research and Regulatory Affairs, and Production and Engineering Managers. None
of the Company's employees is covered by a collective bargaining agreement,
and the Company believes that its relationship with its employees is good. See
"Risk Factors--High Dependence on Key Personnel."

PROPERTIES

The Company currently occupies approximately 15,000 square feet of space in
a building located in Lexington, Massachusetts under a lease expiring in 2002,
and is negotiating for an additional 2,600 square feet of space in the same
building. This facility is suitable for research and development, corporate
administration and assembly of the PRS, and the Company believes that it will
be adequate to meet its foreseeable requirements through at least 1999. The
Company has an option commencing in 1999 to lease additional space in the same
building.

LEGAL PROCEEDINGS

The Company has been notified that an individual and his employer believe
that they have certain rights with regard to their understanding of the
Company's planned use of the PRS for treatment of tumors in body cavities. No
formal legal proceedings have been initiated and the Company is in discussions
with such parties. In the opinion of management, the resolution of this matter
will not have a material adverse effect upon the Company's business, financial
condition or results of operations.

There can be no assurance that future claims against the Company will not
have a material adverse effect on the Company's business, financial condition
and results of operations.

38
<PAGE>

MANAGEMENT

OFFICERS AND DIRECTORS

The officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Peter M. Nomikos................. 64 Chairman of the Board, President,
Chief Executive Officer and Treasurer
Peter E. Oettinger, Ph.D. (1).... 59 Vice President, Chief Operating Officer
and Director
John J. Crowley.................. 40 Director of Finance and Controller
William O. Flannery.............. 50 Clerk
George N. Hatsopoulos, Ph.D.
(1)............................. 69 Director
Roger D. Wellington (1).......... 69 Director
</TABLE>
- --------
(1) Members of the Audit Committee

PETER M. NOMIKOS has served as Chairman of the Board, President, Chief
Executive Officer and Treasurer of the Company since its founding in 1989. Mr.
Nomikos was a co-founder of Thermo Electron Corporation ("Thermo Electron")
where he was a director until 1976. For the past 30 years, Mr. Nomikos has
resided in London and has been involved in maritime shipping as Managing
Director of Nomikos (London) Ltd. He devotes approximately two-thirds of his
professional time to directing the overall business activities of the Company
in the U.S. and abroad. Approximatey one-third of Mr. Nomikos' professional
time is devoted to his other professional activities, including those relating
to PYC Corporation.

PETER E. OETTINGER, PH.D. has served as Vice President, Chief Operating
Officer and a Director of the Company since its founding in 1989. From 1978 to
1988, Dr. Oettinger was Manager of Research and Development of Thermo
Electron's Direct Energy Conversion Operation, and Thermo Electron's Laser
Laboratory. Dr. Oettinger has a B.S. from Cornell University, an M.S. from the
California Institute of Technology and a Ph.D. from Stanford University.

JOHN J. CROWLEY has served as the Controller of the Company since 1991.
Prior to joining the Company, Mr. Crowley was the Controller of Applications
Systems Corporation, a software company. Mr. Crowley has a B.S. in accounting
from Bentley College.

GEORGE N. HATSOPOULOS, PH.D., has served as a Director of the Company since
its founding in 1989. Dr. Hatsopoulos has been Chairman of the Board and Chief
Executive Officer of Thermo Electron and has served as a Director of Thermo
Electron since 1956. Dr. Hatsopoulos is also a Director of BBN Corporation,
Thermedics Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo
Instrument Systems Inc., Thermo Optek Inc., ThermoQuest Corporation and
ThermoTrex Corporation.

ROGER D. WELLINGTON has served as a Director of the Company since its
founding in 1989. Mr. Wellington serves as President and Chief Executive
Officer of Wellington Consultants, Inc. and Wellington Associates, Inc.,
international business consulting firms he founded in 1994 and 1989,
respectively. Prior to 1989, Mr. Wellington served for more than five years as
Chairman of the Board of Augat Inc., a manufacturer of electromechanical
components. Prior to 1988, he also held the positions of President and Chief
Executive Officer of Augat Inc. Mr. Wellington is also a Director of BBN
Corporation and Thermo Electron.

WILLIAM O. FLANNERY has served as the Clerk and General Counsel of the
Company since 1992. Mr. Flannery is engaged in the private practice of law in
Framingham, Massachusetts and serves Of Counsel to the law firm of Goulston &
Storrs, P.C., Boston, Massachusetts. Mr. Flannery served as General Counsel
for Thermo Electron from 1985 to 1992 and as its Corporate Vice President for
Administration from 1989 to 1992.

39
<PAGE>

The Company intends to expand its Board of Directors by adding two or three
outside directors. The Company also intends to seek to hire a new employee, or
promote an existing employee, to serve as the Company's Chief Financial
Officer and to hire a new employee to oversee the Company's marketing efforts.

COMMITTEES OF THE BOARD OF DIRECTORS; COMPENSATION OF DIRECTORS

The Board of Directors has appointed an Audit Committee, which has general
responsibility for supervision of financial controls as well as accounting and
audit activities of the Company. The Audit Committee has the responsibility to
annually review the qualifications of the Company's independent certified
public accountants, make recommendations to the Board of Directors concerning
the selection of the accountants and review the planning, fees and results of
the accountants' audit. The current members of the Audit Committee are Messrs.
Hatsopoulos, Oettinger and Wellington.

Outside Directors of the Company currently receive an annual stipend of
$2,000, a fee of $1,000 per regular or special Directors meeting attended in
person (together with reimbursement of reasonable travel expenses), a fee of
$500 per each such Directors meeting participated in by means of conference
telephone arrangements and a fee of $500 per any regular or special meeting of
any Committee of the Board of Directors, whether attended in person or
participated in by conference telephone arrangements (together, in the event
not coincident with a Directors meeting, with reimbursement of reasonable
travel expenses). Directors who are employees of the Company receive no
compensation as members of the Board of Directors.

EXECUTIVE COMPENSATION

The following table sets forth summary information concerning the
compensation paid by the Company to Mr. Nomikos, the Company's Chairman of the
Board, President, Chief Executive Officer and Treasurer, and Dr. Oettinger,
the Company's Vice President and Chief Operating Officer, for the fiscal year
ended December 30, 1995. No other officers or employees of the Company
received salary and bonus in excess of $100,000 for all services rendered to
the Company during the year then ended.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------
OTHER
NAME AND PRINCIPAL ANNUAL LONG-TERM ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION COMPENSATION
- ------------------ ---- -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Nomikos
Chairman of the Board,
President, Chief
Executive Officer
and Treasurer (1)..... 1995 -- -- -- -- $50,000 (2)
Peter E. Oettinger,
Ph.D.
Vice President, Chief
Operating Officer and
a Director............ 1995 $110,134 -- -- -- --
</TABLE>
- --------
(1) Although Mr. Nomikos devotes substantial time to the business of the
Company, he is also engaged in other business activities through a London-
based company.
(2) Mr. Nomikos' compensation was awarded prior to this offering in shares of
Common Stock based upon the fair market value of the Common Stock at the
beginning of the fiscal year. For fiscal 1995, Mr. Nomikos received 6,250
shares of Common Stock at an $8.00 per share value.

40
<PAGE>

The following table sets forth certain information relating to grants of
stock options made during the fiscal year ended December 30, 1995 to each of
Mr. Nomikos and Dr. Oettinger.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Nomikos........ 0 -- -- -- -- --
Peter E. Oettinger,
Ph.D................... 0 -- -- -- -- --
</TABLE>

Each of Mr. Nomikos and Dr. Oettinger received, as of December 28, 1994,
12,500 options. If the foregoing table were applied to those option grants,
(assuming the grants of options occurred in 1995) the information for Mr.
Nomikos and Dr. Oettinger would be 12,500, 9.16%, $8.00, 2002, $11.26 and
$15.59, respectively. In 1995, the term of a number of options, including
75,000 options held by Dr. Oettinger, was extended to be a total of 12 years.

The following table sets forth certain information regarding stock option
exercises during the fiscal year ended December 30, 1995 and stock options
held at such year end by Mr. Nomikos and Dr. Oettinger.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END YEAR END (1)
------------------------- -----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (1)
- ---- --------------- -------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Nomikos........ 0 -- 19,000 16,000 $ 191,000 $ 94,000
Peter E. Oettinger,
Ph.D. ................. 0 -- 125,000 22,500 1,372,500 152,500
</TABLE>
- --------
(1) Based on the assumed initial public offering price of the Common Stock
($12.00 per share), less the option exercise price.

COMPENSATION AND INSIDER PARTICIPATION

The entire Board of Directors was responsible for determining the
compensation of executive officers during fiscal 1995. Mr. Nomikos and Dr.
Oettinger, the Company's President and Chief Executive Officer, and Vice
President and Chief Operating Officer, respectively, are Directors and,
although they did not participate in deliberations relating to their own
compensation, each participated in deliberations relating to the compensation
of the other.

STOCK PLANS

1989 STOCK OPTION PLAN

The Company, effective January 20, 1989, adopted a non-qualified stock
option plan (the "Stock Option Plan") for persons selected by the Board of
Directors of the Company, including key employees, officers, directors and
consultants of the Company and its affiliates. The Stock Option Plan is
administered by the Company's Board of Directors, which determines the terms
of options granted under the plan, including the number of shares subject to
each option and the option price. In general, options which have been granted
under the plan expire no later than seven, ten or twelve years after the date
of grant and vest over a period of 45 months

41
<PAGE>

or five or seven years from the date of grant. When an optionee ceases to be a
director, employee or consultant of the Company or a subsidiary, an option
terminates either upon or shortly after termination.
Shares purchased upon the exercise of an option are subject to transfer
restrictions, which in general preclude the holder from transferring them
without the Company's consent, except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. These
transfer restrictions are to lapse 90 days after the initial public offering
of Common Stock by the Company.

The Company's Board of Directors voted on July 17, 1996 to terminate the
Stock Option Plan, and no further options may be issued under the plan after
that date. The Company has outstanding under the Stock Option Plan non-
qualified stock options to purchase a total of 824,975 shares of Common Stock
at exercise prices ranging from $0.40 to $9.00 per share.
EMPLOYEE STOCK PURCHASE PLAN

An Employee Stock Purchase Plan (the "Stock Purchase Plan") was adopted by
the Board of Directors on March 18, 1994. In 1994, the Company issued 121,000
shares of Common Stock to employees of the Company pursuant to the Stock
Purchase Plan at a price of $3.00 per share. A total of 85,500 of these shares
are fully paid and non-assessable. Consideration for the remaining 35,500
shares was in the form of promissory notes executed by the employees in favor
of the Company. These promissory notes, with an aggregate face amount of
$106,500, are being repaid by the employees through automatic bi-weekly
payroll deductions. As of September 28, 1996 $57,931 was owed under the notes,
which are scheduled to be repaid in full by April 2, 1999.

The Company's Board of Directors voted on July 17, 1996 to terminate the
Stock Purchase Plan, and no further shares may be issued under the plan after
that date.
1996 EQUITY INCENTIVE PLAN

On July 17, 1996, the Board of Directors of the Company adopted the 1996
Equity Incentive Plan (the "1996 Plan") for employees, officers, directors and
consultants of the Company and its subsidiaries, and recommended approval of
the plan by the stockholders. The 1996 Plan provides for grants of incentive
stock options to employees (including officers) of the Company, and for grants
of non-qualified stock options to such employees as well as to directors and
consultants of the Company and its subsidiaries. In addition, persons eligible
to receive non-qualified stock options can be awarded shares of Common Stock
and given the opportunity to purchase shares of Common Stock. A total of
266,775 shares of Common Stock may be issued under the 1996 Plan. To date,
91,750 stock options have been granted under the 1996 Plan.

The 1996 Plan is administered by the Board of Directors of the Company,
which may delegate any or all of its responsibilities to a Committee of two or
more Board members who, if the Company registers any class of any equity
security pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act"), must qualify as non-employee directors within the meaning of
Rule 16b-3 adopted pursuant to the Exchange Act. The plan administrator
determines the recipients and terms of all stock rights granted under the
plan, including in the case of all options, the option price. Except in the
case of some incentive stock options, as described below, the term of all
options granted under the plan may not exceed ten years.

Special rules apply to incentive stock options. The exercise price of all
incentive stock options granted under the 1996 Plan must be at least equal to
the fair market value of the Common Stock of the Company on the date of grant.
If an incentive stock option is granted to an optionee who owns stock
representing more than 10% of the voting power of the Company's outstanding
capital stock, the exercise price of the option must equal at least 110% of
the fair market value of the Common Stock on the date of grant and the maximum
term of the option cannot exceed five years. No incentive stock option may be
transferred by the optionee other than by will or the laws of descent and
distribution, and should the holder of an incentive stock option cease to be
employed by the Company and any of its subsidiaries, he or she (or his or her
estate, personal representative or beneficiary in the event of death) will no
longer be able to exercise the option to the extent of the shares not
exercisable upon termination of employment, and will have a limited period of
time after termination of employment within which to exercise the option (in
general, three months in the case of termination other than by reason of
disability or death, one year in the event of disability, and 180 days in the
event of death, unless the option expires earlier by its terms).

42
<PAGE>

At the request of an optionee, the plan administrator can take whatever
action is necessary to convert such optionee's incentive stock options into
non-qualified options. Also, an optionee's rights with respect to options and
other rights granted under the 1996 Plan are to be appropriately adjusted when
certain events occur, such as a stock dividend or split, a recapitalization,
or a merger or sale of assets.

The Board of Directors of the Company has the authority to amend or
terminate the 1996 Plan provided that, in general, no amendment may alter or
impair the rights of a grantee under any option previously granted without
that grantee's consent and shareholder approval must be obtained within 12
months before or after the Board adopts a resolution authorizing certain
actions, including the extension of the expiration date of the 1996 Plan or
the increase in the number of shares reserved for issuance under the 1996
Plan. Unless sooner terminated, the 1996 Plan will terminate on July 16, 2006.

401(K) PLAN

On April 1, 1995, the Company terminated its Simplified Employee Pension
Plan and adopted the Photoelectron Corporation 401(k) Retirement Plan, a
standardized prototype plan which is intended to qualify under Sections 401(a)
and 501 of the Code (the "401(k) Plan"). All employees who have completed
three months of service with the Company and who have attained age 21 are
eligible to participate in the 401(k) Plan, except that all employees on the
effective date of the 401(k) Plan immediately became eligible to participate.
The 401(k) Plan provides that each participant may contribute from 2% up to
15% of his or her compensation. The Company may also make discretionary
matching contributions equal to no more than 6% of each participant's
compensation. The 401(k) Plan is intended to qualify under Section 401(a) of
the Code so that contributions to the Plan, and income earned on Plan
contributions, are not taxable to participants until withdrawn from the 401(k)
Plan, and so that any contributions by the Company will be deductible by the
Company when made. Discretionary Company contributions and the investment
earnings thereon vest at the rate of 20% a year after one year of service and
become fully vested in any event at normal retirement age (age 65).

EXTENSION OF CERTAIN OPTIONS

In the fourth quarter of 1996, the Company extended the terms of certain
options issued to four employees of the Company. These options, by their
terms, would expire but for such extension during the 180-day "lock-up period"
following the date of this Prospectus. See "Shares Eligible for Future Sale."
These options are exercisable into an aggregate of 23,500 shares of Common
Stock, and none of said employees is an officer or director of the Company.
The Company recorded compensation expense of $272,600 pursuant to Accounting
Principals Board Opinion No. 25 in the fourth quarter as a result of this
extension for its fiscal quarter ending December 28, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."

43
<PAGE>

CERTAIN TRANSACTIONS

The Company utilizes certain administrative resources of Thermo Electron on
an as-needed basis without a formal contract and is charged at actual cost for
such services. The Company paid $3,120, $7,715 and $4,322 in 1993, 1994 and
1995, respectively, for these services. George N. Hatsopoulos, Ph.D., a
director of the Company, is Chairman of the Board and Chief Executive Officer
of Thermo Electron.

The Company is provided with certain services by Thermo Power Corporation, a
majority-owned subsidiary of Thermo Electron. These services include data
processing services, administrative services and machine shop services, which
are charged to the Company at actual cost. The Company paid $36,734, $267,582
and $313,942 in 1993, 1994 and 1995, respectively, for these services. As of
December 31, 1994 and December 30, 1995, $42,460 and $19,113, respectively,
was payable to Thermo Power Corporation and was included in accounts payable
in the accompanying consolidated balance sheets.

The Company entered into a Convertible Note and Warrant Purchase Agreement
dated as of May 13, 1992, as amended (the "1992 Debt Agreement"), pursuant to
which the Company sold a $4,252,000 8% Convertible Demand Note (the "1992
Note") to Peter M. Nomikos, Chairman of the Board, President, Chief Executive
Officer and Treasurer of the Company. The principal amount of the 1992 Note,
and all interest accrued thereon, is due and payable on demand. The principal
amount of the 1992 Note is convertible into Common Stock at $3.00 per share.
Currently, the aggregate principal amount outstanding under the 1992 Note is
$705,000.

In 1993, 1,282,005 shares of Common Stock were issued upon the conversion of
$3,846,015 of principal and accrued interest under the 1992 Notes. On March
18, 1994, the Company's Board of Directors approved the issuance of 1,282,005
shares of Series A Convertible Preferred Stock to Mr. Nomikos in exchange for
these shares of Common Stock. The Series A Convertible Preferred Stock will be
converted into Common Stock on a one-for-one basis upon the closing of this
offering.

The warrant purchase rights under the 1992 Debt Agreement entitle Mr.
Nomikos to acquire warrants for $0.20, pursuant to which he may purchase
shares of Common Stock at $3.00 per share. Mr. Nomikos (or his assignee)
acquired warrants to purchase 575,000 shares of Common Stock in 1993, and
warrants to purchase 235,000 shares in 1995. Mr. Nomikos did not acquire any
such warrants in 1994. At September 28, 1996, warrants to purchase an
aggregate of 1,417,334 shares of Common Stock were outstanding. All warrants
issued to date are now held by PYC Corporation.

In 1994, the Company sold an aggregate of 121,000 shares of Common Stock to
Dr. Peter Oettinger, John Crowley and other employees of the Company for $3.00
per share pursuant to the Company's Employee Stock Purchase Plan. Dr.
Oettinger, a director and officer of the Company, purchased 50,000 shares, all
of which are fully paid and nonassessable. Mr. Crowley, Controller of the
Company, purchased 10,000 shares, 5,000 of which are fully paid and non-
assessable and 5,000 of which are being paid for through bi-weekly payroll
deductions, in accordance with the terms of the Employee Stock Purchase Plan.

In 1994, the Company completed the issuance of 500,000 shares of Series B
Convertible Preferred Stock to Thermo Electron, Petronome Corporation and
other private investors at a purchase price of $8.00 per share. Thermo
Electron, a holder of more than 5% of the Company's Common Stock, purchased
43,750 shares. Petronome Corporation ("Petronome"), a corporation in which
Peter M. Nomikos has investment and voting power, purchased 55,250 shares. The
Series B Convertible Preferred Stock will be converted into Common Stock on a
one-for-one basis upon the closing of this offering.

In 1996, the Company issued 1,672,255 shares of Series C Convertible
Preferred Stock to Petronome and other private investors. The purchase price
for 27,173 of the shares acquired by Petronome and 663,944 of the shares
acquired by such other private investors was $9.00 per share, and the purchase
price for 98,222 of the shares acquired by Petronome and 320,969 of the shares
acquired by such other investors was $8.10 per share. The latter discounted
price was paid by those stockholders that had acquired the right to such
discount in connection with their purchase of Series B Preferred Stock. The
Series C Convertible Preferred Stock will be converted into Common Stock on a
one-for-one basis upon the closing of this offering.

44
<PAGE>

SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 3, 1996 and as adjusted
to reflect the sale by the Company of the shares of Common Stock offered
hereby (assuming no exercise of the Underwriters over-allotment option), by
(i) each person (or group of affiliated persons) known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock (assuming
conversion of all outstanding warrants and convertible debt, and conversion of
all Preferred Stock), (ii) each of the Company's directors, (iii) each of the
Company's executive officers who received salary and bonus in excess of
$100,000 for all services rendered during the fiscal year ended December 30,
1995, and (iv) all of the Company's executive officers and directors as a
group. Except as otherwise indicated in the footnotes to this table, the
Company believes that the persons named in this table have voting and
investment power with respect to all the shares of Common Stock indicated. The
following table also includes shares of Common Stock that the following
persons have the right to acquire within sixty (60) days.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENT OF
PRIOR TO OFFERING (1) COMMON STOCK
------------------------- ------------------------------
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS NUMBER BEFORE OFFERING AFTER OFFERING
- --------------------------------------- ------------------------- --------------- --------------
<S> <C> <C> <C>
Peter M. Nomikos....................... 4,461,097 (2) 67.2% 51.6%
Peter E. Oettinger, Ph.D. ............. 179,500 (3) 3.9 2.7
George N. Hatsopoulos, Ph.D. .......... 16,000 (4) * *
Roger D. Wellington.................... 16,000 (5) * *
Sociedad Internacional De Finanzas SA.. 371,597 8.3 5.7
Montevideo, Uruguay
Thermo Electron Corporation............ 833,334 (6) 17.9 12.5
81 Wyman Street
Waltham, Massachusetts 02254
PYC Corporation........................ 3,723,734 (7) 63.1 47.1
c/o Aegeus Shipping Co., Ltd.
TANPY Building
17-19 Akti Miaouli
Piraeus 185 35 Greece
All directors and executive officers as
a group (5 persons)................... 4,693,096 68.9 53.3
</TABLE>
- --------
* Less than 1%.

(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission. Such shares, however,
are not deemed outstanding for the purposes of computing the percentage
ownership of each other person. The number of shares beneficially owned by
a person includes shares of Common Stock subject to options held by that
person that are currently exercisable or exercisable within 60 days of
December 3, 1996. Such exercisable options are shown in the footnotes to
this table for each such person. The persons named in this table have
voting and investment power with respect to all shares of Common Stock
shown as owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.

(2) Includes 23,500 shares subject to vested options granted by the Company,
and 713,863 shares issuable upon conversion of convertible debt. Also
includes 1,417,334 shares issuable upon exercise of outstanding warrants
owned by PYC Corporation, of which Mr. Nomikos is the President. Mr.
Nomikos has been granted investment power and the authority to vote such
shares by PYC Corporation.

(3) Includes 129,500 shares subject to options granted by the Company. Also
includes 44,444 shares anticipated to be transferred to the Oettinger
Children Irrevocable Trust by the end of 1996.

(4) Includes 16,000 shares subject to options granted by the Company. Does not
include any shares owned by Thermo Electron, as to which Dr. Hatsopoulos
disclaims beneficial ownership.

(5) Includes 16,000 shares subject to options granted by the Company.

(6) Includes 170,730 shares issuable upon conversion of convertible debt owned
by Thermo Electron.
(7) Includes 1,417,334 shares issuable upon exercise of outstanding warrants.

45
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company is restating its Articles of Organization (as so restated, the
"Articles") and By-Laws (as so restated, the "By-Laws") to be effective prior
to the consummation of this offering. Upon such restatement, the authorized
capital stock of the Company will consist of 15,000,000 shares of Common
Stock, $0.0l par value, and 7,500,000 shares of Preferred Stock, $0.0l par
value.

COMMON STOCK

As of September 28, 1996, there were 4,484,666 shares of Common Stock issued
and outstanding and held of record by 37 stockholders, after giving effect to
the conversion of all outstanding shares of Preferred Stock which will occur
upon the consummation of the offering. The holders of the Company's Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor, subject to the
prior rights of holders of Preferred Stock of the Company. Upon any
liquidation of the Company, after payment of all indebtedness, the assets of
the Company will be distributed pro rata to the holders of the Common Stock
subject to such rights as may have been granted to the holders of any
outstanding Preferred Stock. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights and are entitled to one vote for
each share held of record on each matter submitted to a vote of stockholders.
All but 35,500 of the outstanding shares of Common Stock are, and the shares
of Common Stock being sold in this offering will be, upon payment of the full
consideration therefor, fully paid and nonassessable. The remaining 35,500
shares were issued in 1994 to employees pursuant to the Employee Stock
Purchase Plan and are being paid for in installments.

PREFERRED STOCK

Upon the consummation of this offering, the Board of Directors will be
authorized, subject to certain limitations, to cause the Company to issue
Preferred Stock. The Preferred Stock is so-called "blank check" preferred
stock, which authorizes the Board of Directors of the Company from time to
time to establish one or more series of Preferred Stock and, to the extent
permitted by Massachusetts law, to designate variations in the relative rights
and preferences between different series, including (i) the number of shares
to constitute each series and the distinguishing designations thereof, (ii)
the dividend rate on the shares of each series and the preferences, if any,
and the special and relative rights of the shares of each series as to
dividends, (iii) whether the shares of each series shall be redeemable and, if
redeemable, the price, terms and manner of redemption, (iv) the preferences,
if any, and the special and relative rights of the shares of each series upon
liquidation of the Company, (v) whether the shares of each series shall be
convertible into shares of any other class or series of capital stock of the
Company and, if so, the conversion price or ratio and other conversion rights,
(vi) the conditions under which the shares of each series shall have separate
voting rights or no voting rights and (vii) such other designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each series to the full extent
permitted by the laws of Massachusetts. The Company has no present plans to
issue any shares of Preferred Stock. See "Risk Factors--Anti-Takeover
Provisions; Effects of Issuance of Preferred Stock."

All Preferred Stock issued and outstanding prior to the closing of this
offering will be converted to Common Stock upon such closing.

CONVERTIBLE DEBT AND WARRANTS

The Company entered into a Subordinated Convertible Note Purchase Agreement
dated as of May 22, 1990, as amended (the "1990 Debt Agreement"), pursuant to
which the Company sold $300,000 of its 8% Subordinated Notes (the "1990
Notes"). The principal amount of the 1990 Notes, and all interest accrued
thereon, are due and payable on May 31, 1997. Upon maturity, the principal
amount of the 1990 Notes is convertible into Common Stock at $0.80 per share.

The Company entered into a Subordinated Convertible Note Purchase Agreement
dated as of July 11, 1991, as amended (the "1991 Debt Agreement"), pursuant to
which the Company sold $500,000 of its 8% Convertible

46
<PAGE>

Notes (the "1991 Notes"). The principal amount of the 1991 Notes, and all
interest accrued thereon, are due and payable on July 31, 1998. Upon maturity,
the principal amount of the 1991 Notes is convertible into Common Stock at
$3.00 per share.

The Company entered into a $4,500,000 Convertible Note and Warrant Purchase
Agreement dated as of May 13, 1992, as amended (the "1992 Debt Agreement"),
pursuant to which the Company sold a $4,252,000 8% Convertible Demand Note
(the "1992 Note"). As of June 29, 1996, a principal balance of $705,000
remains outstanding under the 1992 Note. The principal amount of the 1992
Note, and all interest accrued thereon, is due and payable on demand. The
principal amount of the 1992 Note is convertible into Common Stock at $3.00
per share.

The debt evidenced by the 1990, 1991 and 1992 Notes is subordinated to
certain senior debt, which includes all indebtedness of the Company for
borrowed money, which is not by its terms subordinate and junior to or on a
parity with the 1990, 1991 and 1992 Notes. The conversion price applicable to
the principal amount of the debt is subject to weighted average anti-dilution
protection in the event of the issuance or sale of Common Stock or other
securities of the Company at a price per share less than the applicable
conversion value under such note(s). Pursuant to the 1990, 1991 and 1992 Debt
Agreements (the "Debt Agreements"), accrued and unpaid interest is convertible
into Common Stock at a conversion value equal to the fair market value of the
Company's Common Stock on the first day of the fiscal quarter in which the
interest accrued. Prior to the effective date of this offering, fair market
value is determined based upon the most recent sale price of capital stock.
After the effective date of the offering, fair market value is based upon the
average market price over the first ten trading days of the quarter in which
the interest accrues. All accrued and unpaid interest under any of the Debt
Agreements is convertible at the option of the holder at any time, and is
automatically converted upon the conversion of any outstanding principal.

As of September 28, 1996, outstanding principal and accrued interest on the
1990, 1991 and 1992 Notes were convertible to 881,249 shares of Common Stock.

CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company's Articles and By-Laws contain certain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board and to delay or prevent a change in control of the Company if the
Board determines that such a change in control is not in the best interest of
the Company and its stockholders. These provisions could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management even if some or a majority of the Company's stockholders deem such
an attempt to be in the Company's best interest.

Consistent with Massachusetts law, the By-Laws provide that stockholders may
take action without a meeting only if all shareholders entitled to vote on the
action consent to the action in writing. The written consents must be filed
with the records of the meetings of stockholders. This provision may
discourage any other person from making a tender offer for Common Stock,
because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as
a stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders meeting and not by written consent.

The Board of Directors is permitted pursuant to the Articles to consider
special factors, such as employee welfare and the future prospects of the
Company, in determining what the Directors reasonably believe to be in the
best interests of the Company when evaluating proposed tender or exchange
offers or business combinations.

The Articles provide that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty, except to the extent such exculpation from liability is not permitted
under Massachusetts law. This provision does not prevent stockholders from
obtaining injunctive or other equitable relief against directors nor does it
shield directors from liability under federal or state securities laws. The
By-Laws provide that the Company shall indemnify its directors and officers to
the full extent permitted by law.

47
<PAGE>

The Articles provide that a majority vote of each class of stock entitled to
vote will be required for amendments to the Articles or a merger or
consolidation of the Company.

MASSACHUSETTS ANTI-TAKEOVER LAWS

The Company will be covered by the provisions of Chapter 110F of the
Massachusetts General Laws, the Business Combination Statute. Under Chapter
110F, a Massachusetts corporation with more than 200 stockholders may not
engage in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless (i) the interested stockholder
obtains the approval of the Board of Directors for the proposed business
combination prior to becoming an interested stockholder, (ii) the interested
stockholder acquires 90% of the outstanding voting stock of the corporation
(excluding shares held by certain affiliates of the corporation) at the time
it becomes an interested stockholder or (iii) the business combination is
approved at the time it is proposed by both the Board of Directors and the
holders of two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder). An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or at anytime within the prior three years did own) 5% or more of the
outstanding voting stock of the corporation. A "business combination" includes
a merger, a stock or asset sale, and other transactions resulting in a
financial benefit to the interested stockholder.

The By-Laws provide that the provisions of Chapter 110D of the Massachusetts
General Laws, the Control Share Statute, will not apply to the Company. The
Control Share Statute, however, provides that the Company may in the future
become prospectively subject to the statute by vote of its Board of Directors.
In general, if this statute were applicable, it would provide that any person
or entity that acquired 20% or more of the Company's outstanding voting stock
could not vote such stock unless the other stockholders of the Company were to
so authorize.

Chapter 156B, Section 50A, of the Massachusetts General Laws, states that a
publicly-held Massachusetts corporation must, unless electing not to be
covered by the statute, have a classified board of directors consisting of
three classes as nearly equal in size as possible, unless the corporation
elects not to be covered by Section 50A. In addition, under this statute,
directors can be removed only for cause (as defined in the statute) by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company generally entitled to vote in the election of
directors. The Company has elected not to have the provisions of this statute
apply to it. See "Risk Factors--Anti-Takeover Provisions; Effects of Issuance
of Preferred Stock."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company.

48
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 6,484,666 shares of
Common Stock outstanding (assuming no exercise or conversion of outstanding
options, warrants or convertible debt after October 31, 1996). Of these
shares, the 2,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.

SALES OF RESTRICTED SHARES

The remaining 4,484,666 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. 3,359,359 Restricted Shares will be eligible for sale
in the public market in accordance with Rule 144 under the Act beginning 90
days after the date of this Prospectus (subject to compliance with the volume
and other limitations of Rule 144 described below); substantially all of these
shares are subject to the Lock-up Agreements described below. The remaining
1,125,307 outstanding Restricted Shares will not be eligible for resale under
Rule 144 until after the expiration of a two-year holding period from the date
such Restricted Shares were acquired from the Company or an Affiliate, and may
be resold in the public market only in compliance with the registration
requirements of the Act or pursuant to a valid exemption therefrom;
substantially all of these shares are subject to Lock-up Agreements. In
addition, certain securityholders have the right to have their Restricted
Shares registered by the Company under the Securities Act as described below.

The Company, its executive officers and certain other securityholders of the
Company have agreed pursuant to certain agreements (the "Lock-up Agreements")
that they will not without the prior written consent of the underwriters,
offer, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exerciseable for any shares of
Common Stock for a period of 180 days from the date of this Prospectus.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of (i) one percent of the then outstanding shares of Common Stock
(approximately 64,800 shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of
such sale is filed. In addition, under Rule 144(k), a person who is not an
Affiliate and has not been an Affiliate for at least three months prior to the
sale and who has beneficially owned Restricted Shares for at least three years
may resell such shares without compliance with the foregoing requirements. In
meeting the two and three year holding periods described above, a holder of
Restricted Shares can include the holding periods of a prior owner who was not
an Affiliate.

The Securities and Exchange Commission has recently proposed amendments to
Rule 144 and Rule 144(k) that would permit resales of Restricted Shares under
Rule 144 after a one-year, rather than a two-year holding period, subject to
compliance with the other provisions of Rule 144, and would permit resale of
Restricted Shares by non-Affiliates under Rule 144(k) after a two-year, rather
than a three-year holding period. Assuming adoption of such amendments,
approximately 472,000 Restricted Shares will be eligible for sale in the
public market immediately after this offering pursuant to Rule 144(k),
substantially all of which shares are subject to the Lock-up Agreements, and
approximately 4,483,416 Restricted Shares will become eligible for sale in the
public market pursuant to Rule 144 beginning 90 days after the date of this
Prospectus (subject to compliance with the volume and other limitations of
Rule 144), substantially all of which shares are subject to the Lock-up
Agreements. Additional Restricted Shares will become eligible for sale under
Rule 144 from time to time.

The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register up to 1,000,000 shares of Common Stock
subject to outstanding stock options and Common Stock issued or issuable
pursuant to the Company's stock option plans and stock purchase plan. The
Company plans to file

49
<PAGE>

these registration statements within 180 days following the closing of this
offering, and such registration statements are expected to become effective
upon filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the Lock-up Agreements, to
the extent applicable.

OPTIONS

As of September 28, 1996, options to purchase a total of 812,975 shares of
Common Stock were outstanding at a weighted average exercise price $4.70 per
share; 690,100 of the shares issuable pursuant to such options are subject to
Lock-up Agreements. An additional 175,025 shares of Common Stock are available
for future grants under the Company's stock option plan. See "Management--
Stock Plans."

WARRANTS

As of September 28, 1996, warrants to purchase 1,417,334 shares of Common
Stock were outstanding, at an exercise price of $3.00 per share; all of the
shares issuable pursuant to such warrants are subject to Lock-up Agreements.

CONVERTIBLE DEBT

As of September 28, 1996, there was $2,013,277 of convertible debt
outstanding. This debt is convertible into 881,249 shares of Common Stock with
a weighted average conversion price of $2.28 per share. All such shares
issuable pursuant to the conversion of such debt are eligible for sale
pursuant to Rule 144 beginning 90 days after the date of this Prospectus
(subject to compliance with the volume and other limitations of Rule 144). All
of such shares are subject to Lock-up Agreements.

REGISTRATION RIGHTS

In the event the Company proposes to register any of its securities under
the Securities Act after the completion of this offering, certain
securityholders of the Company (the "Rightsholders") will, subject to certain
exceptions, be entitled to include shares of Common Stock held by them in such
registration. However, the managing underwriter of any such offering may
exclude for marketing reasons some or all of such Registrable Shares from such
registration. The Company is generally required to bear the expenses of all
such registrations, except underwriting discounts and commissions.

50
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions of the Underwriting Agreement,
the Underwriters named below, for whom Needham & Company, Inc. and Dain
Bosworth Incorporated are acting as representatives (the "Representatives"),
have severally agreed to purchase from the Company, and the Company has agreed
to sell to each Underwriter, the aggregate number of shares of Common Stock
set forth opposite their respective names below. The Underwriting Agreement
provides that the obligations of the Underwriters to pay for and accept
delivery of the shares of Common Stock are subject to certain conditions
precedent, and that the Underwriters are committed to purchase and pay for all
of such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Needham & Company, Inc. .............................................
Dain Bosworth Incorporated...........................................
---------
Total............................................................ 2,000,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. 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, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount
of proceeds to be received by the Company as set forth on the cover page of
this Prospectus. The Representatives have advised the Company that the
Underwriters do not intend to confirm sales of shares of the Common Stock to
any accounts over which they exercise discretionary authority.

The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of
the 2,000,000 shares offered hereby. If purchased, such additional shares will
be sold by the Underwriters on the same terms as those on which the 2,000,000
shares are being sold.

The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.

The Company has agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Needham & Company, Inc., except for the
shares of Common Stock offered hereby and except that the Company may issue
securities pursuant to the Company's stock option plans and upon the exercise
of outstanding options. The Company's officers and certain other
securityholders have agreed that they will not, directly or indirectly, offer
to sell, sell, or otherwise dispose of shares of Common Stock or any
securities convertible or exchangeable therefor, for a

51
<PAGE>

period of 180 days after the date of this Prospectus, without the prior
written consent of Needham & Company, Inc. Needham & Company, Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the lock-up agreements. See "Shares Eligible for
Future Sale."

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject any order for the purchase of shares in whole or in part.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined
by negotiations between the Company and the Representatives. The material
factors considered in such negotiations were prevailing market and economic
conditions, market valuations of other companies engaged in activities similar
to the Company, the history of and prospects for the industry in which the
Company competes, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations and the
Company's management. See "Risk Factors--No Prior Public Market; Potential
Volatility of Stock Price."

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for the
Company by Goulston & Storrs, P.C., Boston, Massachusetts. Certain legal
matters will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.

EXPERTS

The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission"), a Registration Statement on Form S-
1 under the Securities Act of 1933, as amended, with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in that Registration Statement and the exhibits and schedules
thereto. For further information with respect to the Company and such Common
Stock, reference is hereby made to the Registration Statement including the
exhibits and the schedules thereto. Statements contained in this Prospectus
and the description of any contract or other document referred to herein are
not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
also maintains a Web site that contains reports, proxy statements and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company. The address of such
Web site is http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements certified by its independent
auditors and quarterly reports for the first three quarters of each fiscal
year containing unaudited consolidated financial information.

52
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants, Arthur Andersen LLP ..... F-2
Consolidated Balance Sheets as of September 28, 1996, December 30,
1995 and December 31, 1994........................................ F-3
Consolidated Statements of Operations for the years ended December
30, 1995, December 31, 1994 and January 1, 1994, the nine months
ended September 28, 1996 and September 30, 1995 and from inception
to September 28, 1996............................................. F-4
Consolidated Statements of Cash Flows for the years ended December
30, 1995, December 31, 1994 and January 1, 1994, the nine months
ended September 28, 1996 and September 30, 1995 and from inception
to September 28, 1996............................................. F-5
Consolidated Statements of Shareholders' (Deficit) Equity at Sep-
tember 28, 1996, December 30, 1995, December 31, 1994, January 1,
1994, January 2, 1993, December 28, 1991, December 29, 1990, De-
cember 28, 1989 and at initial issuance........................... F-6
Notes to Consolidated Financial Statements......................... F-7 to F-14
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Photoelectron Corporation and
Subsidiary:

We have audited the accompanying consolidated balance sheets of
Photoelectron Corporation and subsidiary (a Massachusetts corporation in the
development stage) as of December 31, 1994 and December 30, 1995, and the
related consolidated statements of operations, shareholders' (deficit) equity
and cash flows for each of the three years ended December 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Photoelectron Corporation and subsidiary as of December 31, 1994 and December
30, 1995, and the results of their operations and their cash flows for each of
the three years ended December 30, 1995, in conformity with generally accepted
accounting principles.

/s/ Arthur Andersen LLP

Boston, Massachusetts

March 20, 1996(except with respect to the matters discussed in Note 9 as to
which the date is December 4, 1996)

F-2
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, SEPT. 28, PRO FORMA
1994 1995 1996 SEPT. 28, 1996
------------ ------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equiva-
lents................. $ 1,778,181 $ 7,191,268 $ 4,005,254 $ 4,005,254
Inventories............ 625,520 495,590 353,290 353,290
Prepaid expenses....... 68,649 121,936 334,319 334,319
Other current assets... 4,040 70,274 31,790 31,790
----------- ------------ ------------ ------------
Total current assets.. 2,476,390 7,879,068 4,724,653 4,724,653
----------- ------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment..... 211,442 255,091 287,309 287,309
Lab and production
equipment............. 196,702 288,181 420,218 420,218
Clinical site equip-
ment.................. 169,531 611,813 674,935 674,935
Furniture and fix-
tures................. 59,910 65,333 91,677 91,677
Leasehold improve-
ments................. 119,048 175,203 606,945 606,945
----------- ------------ ------------ ------------
756,633 1,395,621 2,081,084 2,081,084
Less--Accumulated de-
preciation and amorti-
zation................ 283,772 572,188 768,387 768,387
----------- ------------ ------------ ------------
472,861 823,433 1,312,697 1,312,697
----------- ------------ ------------ ------------
Total assets.......... $ 2,949,251 $ 8,702,501 $ 6,037,350 $ 6,037,350
=========== ============ ============ ============
LIABILITIES AND
SHAREHOLDERS'
(DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable....... $ 151,747 $ 204,023 $ 128,657 $ 128,657
Accrued expenses....... 81,844 51,085 15,771 15,771
Accrued payroll and
benefits.............. 25,358 14,524 76,854 76,854
Current portion of con-
vertible subordinated
notes................. 181,000 -- 448,230 448,230
Current portion of ob-
ligation under capital
leases................ 9,208 -- -- --
----------- ------------ ------------ ------------
Total current liabili-
ties................. 449,157 269,632 669,512 669,512
----------- ------------ ------------ ------------
LONG-TERM DEBT:
Convertible subordi-
nated notes and other
advances, net of cur-
rent portion.......... 1,925,169 1,940,230 1,565,047 1,565,047
----------- ------------ ------------ ------------
SHAREHOLDERS' EQUITY
(NOTES 2, 3 AND 8):
Preferred stock, $0.01
par value--
Authorized--7,500,000
shares
Issued and outstand-
ing--1,782,005,
2,881,201, 2,893,562
and none at December
31, 1994, December 30,
1995, September 28,
1996 and pro forma,
respectively.......... 17,820 28,812 28,936 --
Common stock, $0.01 par
value--
Authorized--15,000,000
shares
Issued and outstand-
ing--1,105,950,
1,583,554, 1,591,104
and 4,484,666 at De-
cember 31, 1994, De-
cember 30, 1995, Sep-
tember 28, 1996 and
pro forma, respective-
ly.................... 11,059 15,837 15,912 44,848
Capital in excess of
par value--common
stock................. 1,184,394 2,343,018 2,345,941 19,559,641
Capital in excess of
par value--preferred
stock................. 7,763,966 17,102,574 17,213,700 --
Subscription receiv-
able.................. (94,874) (573,004) (57,931) (57,931)
Deficit accumulated
during development
stage................. (8,307,440) (12,424,598) (15,743,767) (15,743,767)
----------- ------------ ------------ ------------
Total shareholders'
equity............... 574,925 6,492,639 3,802,791 3,802,791
----------- ------------ ------------ ------------
Total liabilities and
shareholders' equi-
ty................... $ 2,949,251 $ 8,702,501 $ 6,037,350 $ 6,037,350
=========== ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
--------------------------------------- -------------------------
PERIOD FROM
INCEPTION
JANUARY 1, DECEMBER 31, DECEMBER 30, SEPT. 30, SEPT. 28, (JANUARY 4, 1989)
1994 1994 1995 1995 1996 TO JUNE 29, 1996
----------- ------------ ------------ ----------- ------------ -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Expenses:
Research and
development expenses.. $ 1,726,909 $ 2,086,399 $ 3,225,530 $ 1,720,946 $ 2,263,316 $ 11,936,983
General and
administrative
expenses.............. 250,765 505,061 866,733 543,215 1,167,611 3,278,672
----------- ----------- ------------ ----------- ------------ ------------
Total operating ex-
penses................ 1,977,674 2,591,460 4,092,263 2,264,161 3,430,927 15,215,655
----------- ----------- ------------ ----------- ------------ ------------
Operating loss......... (1,977,674) (2,591,460) (4,092,263) (2,264,161) (3,430,927) (15,215,655)
----------- ----------- ------------ ----------- ------------ ------------
Interest income......... 3,228 63,473 85,750 22,633 202,095 399,691
Interest expense........ (293,014) (143,661) (110,645) (89,805) (90,337) (927,803)
----------- ----------- ------------ ----------- ------------ ------------
Interest (expense)
income, net........... (289,786) (80,188) (24,895) (67,172) 111,758 (528,112)
----------- ----------- ------------ ----------- ------------ ------------
Net loss............... $(2,267,460) $(2,671,648) $ (4,117,158) $(2,331,333) $ (3,319,169) $(15,743,767)
=========== =========== ============ =========== ============ ============
Net loss per common and
common equivalent
share................. $ (1.55) $ (1.60) $ (2.85) $ (1.61) $ (1.73)
=========== =========== ============ =========== ============
Pro forma net loss per
share................. $ -- $ -- $ (1.02) $ -- $ (0.74)
=========== =========== ============ =========== ============
Weighted average common
and common equivalent
shares outstanding..... 1,466,323 1,668,815 1,447,133 1,444,514 1,919,052
=========== =========== ============ =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED NINE MONTHS ENDED INCEPTION
--------------------------------------- --------------------------- (JANUARY 4, 1989)
JANUARY 1, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 28, TO SEPTEMBER 28,
1994 1994 1995 1995 1996 1996
----------- ------------ ------------ ------------- ------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net loss............... $(2,267,460) $(2,671,648) $(4,117,158) $(2,331,333) $(3,319,169) $(15,743,767)
Adjustments to recon-
cile net loss to net
cash used in operating
activities--
Depreciation and amor-
tization.............. 71,773 146,806 288,416 177,881 196,199 776,978
Noncash interest con-
verted to subordinated
notes................. 283,710 130,853 109,331 93,831 73,045 840,493
Noncash salary con-
verted to common
stock................. 50,000 50,000 50,000 -- -- 200,000
Noncash research and
development expense
converted to subordi-
nated notes........... -- 9,000 -- -- -- 9,000
Noncash salary stock
options extension..... -- -- 860,000 -- -- 860,000
Changes in current ac-
counts--
Inventories............ (171,372) (454,148) 129,930 66,906 142,300 (353,020)
Prepaid expenses....... 19,565 (38,804) (53,287) (363,311) (212,383) (334,319)
Other current assets... (17,542) 14,920 (66,234) (57,412) 38,484 (31,790)
Accounts payable....... 31,984 52,380 52,276 130,870 (75,366) 128,657
Accrued expenses....... 162,747 (77,590) (43,341) (2,868) 27,016 199,877
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in oper-
ating activities...... (1,836,595) (2,838,231) (2,790,067) (2,285,436) (3,129,874) (13,447,891)
----------- ----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchases of equipment
and leasehold
improvements.......... (133,141) (389,600) (638,988) (392,874) (685,463) (2,056,238)
Proceeds from sale of
equipment and
leasehold
improvements.......... -- 9,845 -- -- -- 9,845
----------- ----------- ----------- ----------- ----------- ------------
Net cash used in in-
vesting activities.... (133,141) (379,755) (638,988) (392,874) (685,463) (2,046,393)
----------- ----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Proceeds from issuance
of common stock....... -- 268,127 -- -- 18,073 585,200
Proceeds from issuance
of preferred stock.... -- 3,935,771 8,849,600 4,809,851 611,250 13,396,620
Proceeds from issuance
of subordinated
convertible notes..... 1,725,000 737,000 -- -- -- 5,322,000
Proceeds from issuance
of warrants........... 115,000 -- -- -- -- 236,453
Payments under capital
lease obligations..... (11,528) (13,120) (7,458) (6,343) -- (40,735)
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by
(used in) financing
activities............ 1,828,472 4,927,778 8,842,142 4,803,508 629,323 19,499,538
----------- ----------- ----------- ----------- ----------- ------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ (141,264) 1,709,792 5,413,087 2,125,198 (3,186,014) 4,005,254
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 209,653 68,389 1,778,181 1,778,181 7,191,268 --
----------- ----------- ----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 68,389 $ 1,778,181 $ 7,191,268 $ 3,903,379 $ 4,005,254 $ 4,005,254
=========== =========== =========== =========== =========== ============
CASH PAID FOR:
Interest............... $ -- $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ============
CASH FLOWS FROM NONCASH
FINANCING ACTIVITIES:
Conversion of salary
expense to common
stock................. $ 50,000 $ 50,000 $ 50,000 $ -- $ -- $ 250,000
=========== =========== =========== =========== =========== ============
Conversion of
convertible
subordinated notes to
common stock.......... $ 3,846,015 $ -- $ 253,402 $ -- $ -- $ 4,027,015
=========== =========== =========== =========== =========== ============
Conversion of common
stock to preferred
stock................. $ -- $ 3,846,015 $ -- $ -- -- 3,846,015
=========== =========== =========== =========== =========== ============
Capital lease obliga-
tion incurred for
equipment............. $ 11,661 $ -- $ -- $ -- $ -- $ 40,783
=========== =========== =========== =========== =========== ============
Conversion of
convertible
subordinated notes to
warrants.............. $ -- $ 47,000 $ -- $ -- $ -- $ 47,000
=========== =========== =========== =========== =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
COMMON PREFERRED DEFICIT
STOCK STOCK ACCUMULATED
PREFERRED COMMON CAPITAL IN CAPITAL IN DURING
STOCK, $0.01 STOCK, $0.01 EXCESS OF EXCESS SUBSCRIPTION DEVELOPMENT
PAR VALUE PAR VALUE PAR VALUE OF PAR VALUE RECEIVABLE STAGE
------------ ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF
COMMON STOCK........... $ -- $ 7,475 $ 291,525 $ -- $ -- $ --
Net loss............... -- -- -- -- -- (414,045)
------- -------- ---------- ----------- -------- ------------
BALANCE, DECEMBER 28,
1989................... -- 7,475 291,525 -- -- (414,045)
Net loss............... -- -- -- -- -- (394,275)
------- -------- ---------- ----------- -------- ------------
BALANCE, DECEMBER 29,
1990................... -- 7,475 291,525 -- -- (808,320)
Net loss............... -- -- -- -- -- (973,773)
------- -------- ---------- ----------- -------- ------------
BALANCE, DECEMBER 28,
1991................... -- 7,475 291,525 -- -- (1,782,093)
Issuance of common
stock................. -- 2,042 147,958 -- -- --
Issuance of warrants... -- -- 121,453 -- -- --
Net loss............... -- -- -- -- -- (1,586,239)
------- -------- ---------- ----------- -------- ------------
BALANCE, JANUARY 2,
1993................... -- 9,517 560,936 -- -- (3,368,332)
Issuance of common
stock................. -- 166 49,833 -- -- --
Conversion of convert-
ible subordinated
notes and related ac-
crued interest into
common stock.......... -- 12,820 3,833,195 -- -- --
Issuance of warrants... -- -- 115,000 -- -- --
Net loss............... -- -- -- -- -- (2,267,460)
------- -------- ---------- ----------- -------- ------------
BALANCE, JANUARY 1,
1994................... -- 22,503 4,558,964 -- -- (5,635,792)
Issuance of common
stock................. -- 1,376 411,625 -- (94,874) --
Conversion of common
stock into preferred
stock, Series A....... 12,820 (12,820) (3,833,195) 3,833,195 -- --
Issuance of preferred
stock, Series B....... 5,000 -- -- 3,930,771 -- --
Issuance of warrants... -- -- 47,000 -- -- --
Net loss............... -- -- -- -- -- (2,671,648)
------- -------- ---------- ----------- -------- ------------
BALANCE, DECEMBER 31,
1994................... 17,820 11,059 1,184,394 7,763,966 (94,874) (8,307,440)
Issuance of common
stock................. -- 64 49,938 -- 21,870 --
Issuance of preferred
stock, Series C....... 10,992 -- -- 9,338,608 (500,000) --
Extension of stock op-
tions................. -- -- 860,000 -- -- --
Net loss............... -- -- -- -- -- (4,117,158)
------- -------- ---------- ----------- -------- ------------
BALANCE, DECEMBER 30,
1995................... 28,812 15,837 2,094,332 17,102,574 (573,004) (12,424,598)
------- -------- ---------- ----------- -------- ------------
Issuance of Common
Stock................. -- 75 2,923 -- 15,073 --
Conversion of convert-
ible subordinated
notes and related ac-
crued interest into
common stock.......... -- 4,714 248,686 -- -- --
Proceeds from issuance
of Series C preferred
stock................. 124 -- -- 111,126 500,000 --
Net loss............... -- -- -- -- -- (3,319,169)
------- -------- ---------- ----------- -------- ------------
BALANCE SEPTEMBER 28,
1996................... $28,936 $ 15,912 $2,345,941 $17,213,700 $(57,931) $(15,743,767)
======= ======== ========== =========== ======== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 30, 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and Relationship to Principal Shareholders

On January 4, 1989, Photoelectron Corporation (the "Company") was founded as
a joint financing by PYC Corporation ("PYC") and Thermo Electron Corporation
("Thermo Electron"). Since inception, the majority of the Company's time and
effort has been focused on the design, development and commercialization of
the Photon Radiosurgery System ("PRS"), a proprietary, therapeutic device for
the treatment of cancerous tumors through the application of radiation
directly into a tumor. The PRS delivers radiation through a thin, minimally
invasive, needle-like probe, which emits from its tip precisely regulated x-
ray photons.

The Company is in the development stage and has yet to generate any revenues
and has no assurance of future revenues. To management's knowledge, no company
has yet marketed a salable product using technology similar to the PRS that
has been developed by the Company. Even if marketing efforts are successful,
substantial time will pass before significant revenues will be realized, and
the Company may require additional funds during this period, which may not be
available to it.

The Company completed its 14-patient Investigative Device Exemption ("IDE")
Phase I trials as required by the U.S. Food and Drug Administration ("FDA")
and received approval for the next phase of FDA review. The Company began
conducting Phase II clinical trials at U.S. hospitals in December 1994 and
enrolling Phase II clinical trial patients during 1994 and 1995. Based on the
results of the Phase II trials to date, the Company intends to submit certain
data from these trials in support of a Section 510(k) application to the FDA.
The Company expects that this Section 510(k) application would seek clearance
from the FDA to commercialize the PRS for similar treatments of patients with
metastatic brain tumors. The Company expects to submit such a Section 510(k)
application before the end of 1996. If clearance is received from the FDA, the
Company would begin such commercialization of the PRS in the U.S. If such
clearance is not obtained, the Company would have to seek approval by
submission of a Premarket Approval ("PMA") application in order to market the
product. The PMA process is significantly more complex, expensive and time
consuming than the Section 510(k) application process. The PMA process
typically spans several years and may never result in approval. Upon clearance
by the FDA of the Company's Section 510(k) or PMA application, the Company
will begin to manufacture and market the device on a commercial basis in the
U.S. Simultaneously, the Company is pursuing a CE Mark for the device, which
will allow commercialization in Europe.

On December 13, 1995, the Company and Toshiba Medical Systems Co. Ltd.
("Toshiba") entered into an agreement pursuant to which Toshiba will help to
develop and then support the clinical trials of the PRS in Japan. The
development and support of the clinical trials will include purchasing two
complete systems of the PRS for use in the clinical trials, installing and
maintaining the PRS systems and providing assistance to the physicians and
hospitals conducting the trials, including collection and analysis of clinical
data. The costs of Toshiba's support of the clinical trials will be borne by
Toshiba, and accordingly will not be reflected in the Company's financial
statements. Once regulatory approvals for the PRS are obtained, Toshiba will
serve as its exclusive distributor in Japan. Toshiba has also invested
approximately $2 million in the Company's Series C Preferred Stock offering.
Toshiba is not obligated to purchase additional shares of the Company's common
or preferred stock. (See Note 7).

Mr. Peter M. Nomikos was a co-founder of Thermo Electron in 1956. His family
maintains a beneficial ownership in Thermo Electron and its subsidiaries. As
of December 30, 1995, Mr. Peter M. Nomikos is the majority beneficial owner of
the Company. Thermo Electron and PYC are the only shareholders holding in
excess of 10% of the Company's outstanding stock. The remainder is being held
by company employees and outside investors.

F-7
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Fiscal Years

The Company has adopted a fiscal year ending on the Saturday nearest
December 31. References to 1995, 1994 and 1993 are for the fiscal years ended
December 30, 1995, December 31, 1994 and January 1, 1994, respectively.

Inventory

Inventories are stated at the lower of cost (first-in, first-out basis) or
market and include materials, labor and overhead. The Company has parts,
supplies and manufactured parts in inventory which are intended to be used and
capitalized as part of the Company's PRS that will be used in the Phase II
clinical trials.

Use of Estimates

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

Property and Equipment

The cost of additions and improvements are capitalized while maintenance and
repairs are charged to expense as incurred. The Company provides for
depreciation and amortization on the straight-line method over the estimated
useful lives of the property as follows:

<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Machinery and equip-
ment................... 5 Years
Clinical site equip-
ment................... The shorter of three years or the life of agreement
Furniture and fixtures.. 3-5 Years
Leasehold improvements.. The shorter of the term of the lease or the life of the asset
</TABLE>

Management believes that the useful lives selected result in net book values
which approximate net realizable values based upon alternate future uses.
Periodically, management reviews specific assets to verify this assertion.

Cash and Cash Equivalents

Cash and cash equivalents include the Company's operating accounts and
holdings of a money market mutual fund.

Income Taxes

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes, as of the beginning of 1989. Under SFAS No.
109, deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. The amount of deferred tax asset or liability is
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to be reflected in the tax return.

F-8
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Research and Development Expenses

Costs classified as research and development expenses in the accompanying
consolidated statements of operations are costs incurred in connection with
programs funded by the initial investment of Thermo Electron and PYC in
addition to amounts advanced under the convertible subordinated debenture
agreement and the private placements that occurred in 1994 and 1995. Research
and development expenses include the portion of indirect costs allocable to
research and development efforts based on actual labor hours incurred.

In connection with the Phase II FDA clinical trials, as well as the efforts
to obtain the CE Mark, PRS units have been provided to certain hospitals to
conduct the clinical trials. The cost of these units and the related
accumulated depreciation is included in property and equipment in the
accompanying consolidated balance sheets. The cost of the units is charged to
research and development expenses over the term of the agreements with the
hospitals.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Photoelectron (Europe) Ltd. All
material intercompany accounts and transactions have been eliminated.

Foreign Currency

All assets and liabilities of the Company's foreign subsidiary are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS No.
52, Foreign Currency Translation. Resulting translation adjustments are
reflected as a separate component of shareholders' deficit titled Cumulative
Translation Adjustment. Foreign currency transaction gains and losses included
in the accompanying consolidated statements of operations are not material for
the three years presented.

Loss Per Share

Pursuant to Securities and Exchange Commission requirements, loss per share
has been presented for all periods. Weighted average common and common
equivalent shares outstanding include the weighted average common shares
outstanding for the period and for all periods include the effect of the
assumed exercise of stock options as well as the assumed conversion of Series
C Preferred Stock issued within one year prior to the Company's proposed
initial public offering.

Fair Value of Financial Instruments

The fair value of the Company's cash and cash equivalents approximates the
recorded amounts. The fair value of the Company's convertible subordinated
notes is primarily determined by the ability to convert those notes into
common stock. The fair value of the convertible subordinated notes is
approximately $10,600,000 and approximately $7,800,000 at December 31, 1994
and 1995 based upon the estimated fair value of the underlying Common Stock.

Unaudited Interim Financial Period

The consolidated financial statements for the nine months ended September
28, 1996 and September 30, 1995 are unaudited. The statements have been
prepared by the Company on the same basis as the audited

F-9

<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

statements and include all adjustments which are, in the opinion of
management, of a normal and recurring nature and necessary for the fair
presentation of the results of operations and cash flows pursuant to the rules
and regulations of the Securities and Exchange Commission. Results of interim
periods are not necessarily indicative of results for the entire year.

(2) INCOME TAXES

The components of the deferred tax asset at December 31, 1994 and December
30, 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax asset--
Federal tax loss carryforwards........................ $ 2,484 $ 3,349
Federal tax credit carryforwards...................... 435 612
State tax loss carryforwards.......................... 660 944
State tax credit carryforwards........................ 410 573
Other, net............................................ 152 304
------- -------
4,141 5,782
Valuation allowance................................... (4,141) (5,782)
------- -------
Deferred tax asset.................................. $ -- $ --
======= =======
</TABLE>

As of December 30, 1995, the Company had federal net operating loss
carryforwards of approximately $9,800,000, state net operating loss
carryforwards of approximately $9,500,000, federal tax credit carryforwards of
approximately $612,000, and state tax credit carryforwards of approximately
$573,000. Due to the fact that the Company has sustained cumulative losses,
the potential future benefit of these attributes, which expire in the years
2004 through 2010, is fully reserved by means of a valuation allowance because
their realization is uncertain.

Certain stock transactions may result in a change of control under Sections
382 and 383 of the Internal Revenue Code of 1986, as amended; and as a result,
the net operating loss and tax credit carryforwards available to be utilized
in any given year may be limited, and certain amounts of the net operating
loss carryforwards may expire unutilized due to such limitations.

(3) EMPLOYEE BENEFIT PLAN

In April 1995, the Company terminated its Simplified Employee Pension Plan
("SEPP") and adopted a 401(k) Plan. No obligations arose from the termination
of he SEPP. The impact of the SEPP was not material to the operating results
prior to termination. The Company contributes 25% up to the first 6% of annual
earnings for each employee with at least three months of service. During 1995,
the Company contributed approximately $9,000.

(4) RELATED PARTY TRANSACTIONS

Thermo Electron Corporation

On January 4, 1989, the Company entered into a corporate service agreement
with Thermo Electron. Under this agreement, Thermo Electron provided certain
administrative services, including legal advice and services, certain employee
benefit administration, tax advice and preparation, space allocation and
utilities. This agreement terminated on December 31, 1989. The Company has
continued to utilize Thermo Electron's resources since that

F-10
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

date on an as-needed basis without a formal contract and is charged at actual
cost for such services. The Company paid $3,120, $7,715, and $4,322 in 1993,
1994 and 1995, respectively, for these services.

Thermo Power Corporation

The Company is provided with certain services by Thermo Power Corporation, a
60%-owned subsidiary of Thermo Electron. These services include data
processing services, administrative services and machine shop services, which
are charged to the Company at actual cost. The Company paid $36,734, $267,582
and $313,942 in 1993, 1994 and 1995, respectively, for these services. As of
December 31, 1994 and December 30, 1995, $42,460 and $19,113, respectively,
was payable to Thermo Power Corporation and was included in accounts payable
in the accompanying consolidated balance sheets.

Management believes that the fees charged by Thermo Electron and Thermo
Power Corporation are reasonable and such fees are representative of the
expenses the Company would have incurred on a stand-alone basis.

(5) COMMITMENTS AND CONTINGENCIES

Litigation

The Company is party to legal matters which arise in the normal course of
business. Management, after reviewing these matters with legal counsel, is of
the opinion that the resolution of these matters will not have a material
effect on the financial condition or results of operations.

Leases

The Company subleases office and research facilities under an agreement that
expires on April 1, 1997. The accompanying consolidated statements of
operations include expenses for this operating lease of $79,170, $81,028 and
$162,867 for 1993, 1994 and 1995, respectively. Future minimum payments due
under this lease are $174,183 in 1996 and $43,546 in 1997.

(6) CONVERTIBLE SUBORDINATED NOTES

On January 4, 1989, the Company issued and sold $181,000 of 8% subordinated
convertible debenture to Thermo Electron, due in 1995. The debentures are
convertible into shares of the Company's Common Stock at a conversion price of
$0.30. On December 30, 1995, Thermo Electron elected to convert its $181,000
subordinated convertible debenture and accrued interest into 471,354 shares of
Common Stock. On May 22, 1990, the Company issued and sold $125,000 and
$175,000 principal amounts of 8% subordinated convertible debentures to Thermo
Electron and Mr. Peter M. Nomikos, respectively, due in 1997. The debentures
are convertible into shares of the Company's Common Stock at a conversion
price of $0.80 Also in 1990, the Company issued and sold $52,000 principal
amount of 8% subordinated convertible debentures to Mr. Peter M. Nomikos, due
in 1997. The note is convertible into shares of the Company's Common Stock at
a conversion price of $3.00. In 1991, the Company issued and sold $448,000
principal amount of 8% subordinated convertible debentures to Mr. Peter M.
Nomikos. The debentures are convertible into shares of the Company's Common
Stock at a conversion price of $3.00. All of these debentures provide for the
conversion of accrued interest into Common Stock at the option of the holder.
The accrued interest is convertible into Common Stock at a conversion price
equal to the fair market value of the Company's common stock on the first day
of the fiscal quarter in which the interest to be converted accrued.

F-11
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On May 13, 1992, the Company entered into a $4,500,000 8% convertible
subordinated demand note and warrant purchase agreement with Mr. Peter M.
Nomikos. These notes are convertible into Common Stock at a conversion price
of $3.00 at the option of the holder, which expires seven years from the dates
of issuance. The Company has borrowed $4,252,000 in the form of a demand loan
with detachable warrant purchase rights under this agreement. The warrant
purchase rights entitle the holder to purchase warrants for $0.20. Each
warrant is exercisable upon issuance and allows the holder to purchase one
share of Common Stock at $3.00. At December 31, 1995, warrants to purchase
1,417,334 shares of the Company's Common Stock were outstanding. These
warrants expire seven years from the issuance date. All warrants purchased by
Mr. Nomikos have been accounted for as Common Stock capital in excess of par
value. All earned but unpaid interest on the subordinated convertible
debentures and demand loans are convertible into Common Stock at a conversion
price equal to the fair market value of the Company's Common Stock on the
first day of the fiscal quarter in which the interest to be converted accrued.

In 1993, 1,282,005 shares of Common Stock were issued upon the conversion of
$3,547,000 principal amount of subordinated convertible debentures and
$299,015 of related accrued interest. In 1994, these shares of Common Stock
were converted into Series A Convertible Preferred Stock (See Note 7).

(7) COMMON AND PREFERRED STOCK

On January 4, 1989, the Company authorized 6,000,000 shares of $0.01 par
value Common Stock and issued 147,488 shares to Thermo Electron and 600,000
shares to PIC at $0.40 per share. The Company authorized an additional
9,000,000 shares of Common Stock in 1994 to accommodate possible stock
issuance as a result of stock splits, note conversions and options issued
under the stock option plan and potential future stock offerings. In 1992, Mr.
Peter M. Nomikos was granted stock in lieu of compensation for 1990, 1991 and
1992 in the cumulative amount of 204,167 common shares. In 1993, 1994 and
1995, Mr. Peter M. Nomikos was granted stock in lieu of compensation in the
amount of 16,667, 16,667 and 6,250 shares of Common Stock, respectively. All
such shares were recorded as compensation expense at the estimated fair value
per share on the date that such shares were granted to Mr. Nomikos. In fiscal
1993, 1,709,340 shares of Common Stock were issued upon the conversion of
$3,846,015 of subordinated convertible debentures and accrued interest (See
Note 6).

The Company has authorized 7,500,000 shares of $0.01 par value preferred. On
March 18, 1994, the Board of Directors approved the conversion of 1,282,005
shares of Common Stock held by Mr. Peter M. Nomikos into Series A Convertible
Preferred Stock on a one-for-one basis. These shares permit the holder to
convert his or her holdings into Common Stock on a one-for-one basis. The
Series A Convertible Preferred Stock has a liquidation preference of $3.00 per
share (See Note 6).

The Company sold 500,000 shares of Series B Convertible Preferred Stock at
$8.00 per share in 1994. These shares permit the holder to convert his or her
holdings into Common Stock on a one-for-one basis. The Series B Convertible
Preferred Stock has a liquidation preference of $8.00 per share, which is
senior to the Company's Common Stock and junior to the Series A Convertible
Preferred Stock. The purchase of the Series B shares also entitled the
purchaser to rights to participate in the Company's next offering of preferred
stock at a 10% discount. The rights entitle the purchaser to this discount on
an amount of shares equal to the purchaser's pro rata participation in the
Series B offering.

The Company sold 680,005 shares of Series C Convertible Preferred Stock at
$9.00 per share in 1995. The Company also sold 419,191 additional shares of
Series C Convertible Preferred Stock in exchange for $8.10 per share. This
latter, discounted price was paid by those stockholders who acquired such
right in the Series B offering as described above. These shares permit the
holder to convert his or her holdings into Common Stock

F-12
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

on a one-for-one basis. The Series C Convertible Preferred Stock has a
liquidation preference of $9.00 per share, which is senior to the Company's
Common Stock and junior to the Series A and B Convertible Preferred Stock.

All of the Company's convertible preferred stock automatically converts to
Common Stock upon the closing of an initial public offering. In compliance
with certain Securities and Exchange Commission requirements a pro forma
balance sheet has been presented.

In 1994, the Company sold 121,000 shares of Common Stock to employees of the
Company for $3.00 per share pursuant to a one-time employee stock purchase
offering. A total of 85,500 of those shares were paid for at the time of the
offering. Consideration for the remaining 35,500 shares was in the form of
promissory notes executed by employees in favor of the Company. These notes
were in an initial aggregate amount of $106,500.

(8) STOCK OPTION PLAN

The Company has a nonqualified stock option plan for key employees,
directors and consultants, which was adopted in 1989. The stock option plan
requires that options may be granted at any price determined by the Board of
Directors. Options granted under the plan expire seven to twelve years after
the date of grant and in general vest at 20% per year. When an optionee ceases
to be an employee, director or consultant of the Company, their options
terminate either upon or shortly after termination of employment. In 1994, the
Board of Directors reserved 1,250,000 common shares for employee stock
options.

A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding, January 2, 1993....................... 352,750 $0.40-$3.00
Granted.......................................... 122,000 $3.00
------- -----------
Outstanding, January 1, 1994....................... 474,750 $0.40-$3.00
Granted.......................................... 121,750 $3.00-$8.00
------- -----------
Outstanding, December 31, 1994..................... 596,500 $0.40-$8.00
Granted.......................................... 21,000 $8.00-$9.00
------- -----------
Outstanding, December 30, 1995..................... 617,500 $0.40-$9.00
Exercisable, December 30, 1995..................... 399,250 $0.40-$8.00
======= ===========
</TABLE>

The Company accounts for stock options under Accounting Principles Board
Opinion No. 25 (APB No. 25). All stock options granted to date have been at an
exercise price equal to or greater than the fair value of the Company's Common
Stock on the date of grant. In 1995, the Company extended the term of options
to purchase 100,000 shares of Common Stock at $0.40 per share from seven to
twelve years. This extension resulted in a new measurement date under APB No.
25, and accordingly, based upon a current fair value of $9.00 per share the
Company recorded $860,000 of compensation expense. Upon exercise of options,
net proceeds, including the tax benefit realized, are credited to equity.

In December 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock
Based Compensation", which is to become effective for fiscal years beginning
after December 15, 1995. SFAS 123 requires that stock-based compensation be
recorded or disclosed at its fair value. The Company expects to continue to
account for stock-based compensation under APB 25 and accordingly will
disclose the pro forma effects on earnings per share as if SFAS 123 had been
adopted.

F-13
<PAGE>

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(9) SUBSEQUENT EVENT

In 1996, the Company entered into a new operating lease for its office and
research facilities expiring in 2002. The minimum lease payments under the new
agreement are $148,420 in 1996, $222,630 in 1997, $222,630 in 1998, $222,630
in 1999, $222,630 in 2000 and $352,500 thereafter.

On December 3, 1996, the stockholders of the Company approved a one-for-two
reverse stock split of the Company's Common Stock and Preferred Stock. All
share and per share information have been retroactively restated to reflect
this reverse stock split.

Also during the period from December 30, 1995 to September 28, 1996, options
to purchase 207,475 shares of Common Stock were granted at exercise prices
ranging from $9.00 to $12.00.

On July 17, 1996, the Board of Directors of the Company adopted the 1996
Equity Incentive Plan (the "1996 Plan") for employees, officers, directors and
consultants of the Company and its subsidiaries, and recommended approval of
the plan by the stockholders. The 1996 Plan provides for grants of incentive
stock options to employees (including officers) of the Company, and for grants
of non-qualified stock options to such employees as well as to directors and
consultants of the Company and its subsidiaries. In addition, persons eligible
to receive non-qualified stock options can be awarded shares of Common Stock
and given the opportunity to purchase shares of Common Stock. A total of
266,775 shares of Common Stock may be issued under the 1996 Plan. Of the
207,475 options to purchase shares of Common Stock granted in 1996, options to
purchase 91,750 shares of Common Stock have been granted under the 1996 plan.

In the fourth quarter of 1996, the Company extended the terms of certain
options issued to four employees of the Company. These options, by their
terms, would expire but for such extension during the 180-day "lock-up period"
following the date of the Company's Prospectus. These options were extended to
a date which is two months after the expiration of the lock-up agreements.
These options are exercisable into an aggregate of 23,500 shares of Common
Stock, and none of said employees is an officer or director of the Company. As
a result of the extension the Company recorded compensation expense of
$272,600.

F-14
<PAGE>

DESCRIPTION OF BACK COVER PAGE GRAPHICS:

The back cover page graphics consist of one photograph and two drawings,
each with a descriptive caption. The single photograph is located in the upper
left-hand corner of the page and measures approximately 2 3/4 inches (length)
by 3 3/4 inches (width) (based on a 8 1/2 inch by 11 inch page). Above the
photograph is the following caption: "The Photon Radiosurgery System (PRS)-A
Therapeutic X-Ray System for Treating. . ." The photograph shows two surgeons,
one of whom is holding the PRS. The patient to which the surgeons are adjacent
is shielded and not visible within the photograph. To the right of the
photograph is the italicized caption: "Neurosurgeons preparing to treat a
brain tumor."

The first of the two drawings is centered approximately halfway down the
length of the page along the right hand side of the page. The drawing, which
is approximately 5 inches (length) by 1 inch (width) shows the PRS with its
probe directed upwards and parallel to the margin of the page. Approximately
80% of the length of the probe is shown to lie through a tube labeled
"Urethra," with the tip of the probe within a cross sectional view of the
bladder. The various layers of the bladder representation are labeled "Bladder
Wall Cancer," "Muscle," and "Mucosa," and the cavity-conforming device shown
within the bladder is labeled as such. An italicized caption directly below
the drawing reads: "Treatment of bladder wall cancer." Directly to the left of
the drawing is the italicized "bullet" caption "Bladder Tumors."

The second of the two drawings is located within the lower left-hand corner
of the page and measures approximately 3 1/2 inches (width) by 5 inches
(length). The drawing shows the upper torso of a woman lying horizontally on a
table, with the PRS probe, attached to a fixturing device located beneath the
table, directed towards her breast. The drawing also shows the arms of an
operator adjusting the fixturing device. To the right of the drawing, near the
lower right hand corner of the picture, is the following italicized caption:
"Treatment of a breast tumor following biopsy." Directly above the drawing is
the italicized "bullet" caption "Breast Tumors."

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

<PAGE>

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 39
Certain Transactions..................................................... 44
Securities Ownership of Management and Certain Beneficial Owners......... 45
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTIC-
IPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

2,000,000 Shares

Photoelectron Corporation

Common Stock

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

PROSPECTUS

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

Needham & Company, Inc.

Dain Bosworth
Incorporated

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

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated fees and expenses incurred in connection with the offering
will be borne by the Company and are estimated to be as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 10,310
NASD filing fee.................................................... 3,490
Nasdaq National Market listing fee................................. 50,000
Printing and engraving............................................. 175,000
Legal fees and expenses (other than Blue Sky fees and expenses).... 325,000
Accounting fees and expenses....................................... 110,000
Transfer Agent and Registrar fee................................... 3,500
Blue Sky fees and expenses......................................... 15,000
Miscellaneous...................................................... 162,700
--------
Total............................................................ $855,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Articles of Organization provide that the Company's
Directors shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the
Massachusetts Business Corporation Law as in effect at the time such liability
is determined. The By-laws provide that the Registrant shall indemnify its
directors and officers to the full extent permitted by the laws of The
Commonwealth of Massachusetts.

The Underwriting Agreement (a form of which appears as Exhibit 1.1 hereto)
provides for indemnification of the Registrant's directors and officers in
certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Set forth in chronological order is information regarding the number of
shares of capital stock sold, the number of options granted by the Company,
and the amount of debt securities issued by the Company since July, 1993, the
consideration received by the Company for such shares, options and debt
instruments and information relating to the section of the Securities Act of
1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration is claimed. None
of these securities were registered under the Act. No sale of securities
involved the use of an underwriter and no commissions were paid in connection
with the sales of any securities.

1. On December 31, 1993, the Company issued 1,282,005 shares of Common
Stock to Peter M. Nomikos in exchange for the cancellation by Mr. Nomikos
of obligations of the Company totaling $3,846,015, which amount represented
the principal amount of advances previously made by Mr. Nomikos and accrued
interest on such advances as of such date. On March 18, 1994, all of these
common shares were converted by Mr. Nomikos into 1,282,005 shares of Series
A Convertible Preferred Stock. These preferred shares are convertible into
1,282,005 shares of Common Stock. The Company claims exemption from
registration for these transactions under Section 4(2) of the Securities
Act.

2. In 1994, the Company issued 121,000 shares of Common Stock to
employees of the Company for $3.00 per share pursuant to a one-time
employee stock purchase offering. A total of 85,500 of those shares are
fully paid and non-assessable. Consideration for the remaining 35,500
shares was in the form of promissory notes executed by employees in favor
of the Company, in an aggregate amount of $106,500. As of June 29, 1996
$73,409 was owed under those notes. The notes are scheduled to be repaid in
full by April 2, 1999 through automatic bi-weekly deductions. The
securities were sold pursuant to Regulation D under the Securities Act.

II-1
<PAGE>

3. In June, 1994, the Company completed the issuance of 500,000 shares of
Series B Convertible Preferred Stock to private investors at a purchase
price of $9.00 per share. These shares are convertible into 500,000 shares
of Common Stock under certain circumstances. The securities were sold
pursuant to Regulation D under the Securities Act.

4. As of June 29, 1996, the Company issued 1,110,308 shares of Series C
Convertible Preferred Stock to private investors. These shares are
convertible into 1,110,308 shares of Common Stock. The purchase price for
691,165 of these shares was $9.00 per share, and the purchase price for
419,191 of these shares was $8.10 per share. The latter, discounted price
was paid by certain stockholders that had acquired the right to such
discount in connection with their purchase of Series B Preferred Stock. The
securities were sold pursuant to Regulation D and Regulation S under the
Securities Act.

5. During the past three years, pursuant to the terms of a Convertible
Note and Warrant Purchase Agreement dated as of May 13, 1992, the Company
sold to Peter M. Nomikos the following Warrants to purchase Common Stock.
The purchase price for each warrant was $0.20 per share. The exercise price
for each warrant is $3.00 per share:

<TABLE>
<CAPTION>
DATE ISSUED SHARES
----------- -------
<S> <C>
September 29, 1993 575,000
January 27, 1995 235,000
</TABLE>

Exemption from registration for these transactions is claimed under Section
4(2) of the Securities Act.

6. During the past three years, the Company has granted the following
aggregate number of options to purchase Common Stock to employees,
directors and consultants of the Company pursuant to the Company's 1989
Stock Option Plan, or, with respect to the issuance on July 17, 1996, under
the Company's 1996 Equity Incentive Plan:

<TABLE>
<CAPTION>
GRANT DATE SHARES EXERCISE PRICE
---------- ------ --------------
<S> <C> <C>
December 1, 1993 82,500 $3.00 per share
March 18, 1994 2,500 $3.00 per share
March 21, 1994 2,500 $3.00 per share
October 25, 1994 1,250 $8.00 per share
December 28, 1994 115,500 $8.00 per share
April 28, 1995 10,000 $8.00 per share
May 26, 1995 2,000 $8.00 per share
June 1, 1995 1,500 $8.00 per share
November 27, 1995 7,500 $9.00 per share
March 18, 1996 115,725 $9.00 per share
July 17, 1996 91,750 $9.00-12.00 per share
</TABLE>

Exemption from registration for these transactions is claimed under Section
4(2) of the Securities Act.

7. During the past three years the Company has issued the following
shares of Common Stock to Peter M. Nomikos in payment of salary for such
years:

<TABLE>
<CAPTION>
DATE ISSUED SHARES YEAR CONSIDERATION RECEIVED BY COMPANY
----------- ------ ---- ---------------------------------
<S> <C> <C> <C>
January 7, 1994 16,667 1993 $50,000
January 27, 1995 16,667 1994 $50,000
October 31, 1995 6,250 1995 $50,000
</TABLE>

Exemption from registration for these transactions is claimed under Section
4(2) of the Securities Act.

8. On July 17, 1996, the Company issued Reza Esfandiari 1,250 shares of
Series C Preferred Stock, convertible into 1,250 shares of Common Stock in
exchange for consulting services valued at $11,250.

Exemption from registration for this transaction is claimed under Section
4(2) of the Securities Act.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.

(b) Financial Data Schedule is included as Exhibit 27 to this Registration
Statement. All other schedules are not required under the instructions
relating to the applicable accounting regulations of the Securities and
Exchange Commission or are inapplicable, and therefore have been omitted.

ITEM 17. UNDERTAKINGS

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

(b) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
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, 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.

(c) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closings specified in the Underwriting Agreement
certificates in such denominations and registered in such names as are
required by the Underwriters to permit delivery to each purchaser.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN LEXINGTON,
MASSACHUSETTS ON DECEMBER 5, 1996.

Photoelectron Corporation

Peter M. Nomikos
By: _________________________________

PETER M. NOMIKOS, CHAIRMAN OF THE
BOARD, PRESIDENT,

CHIEF EXECUTIVE OFFICER AND
TREASURER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

Peter M. Nomikos Director, President,
- ------------------------------------- Treasurer and Chief December 5,
PETER M. NOMIKOS Executive Officer 1996
(Principal
Executive Officer)

Peter E. Oettinger Director, Vice-
- ------------------------------------- President, and December 5,
PETER E. OETTINGER Chief Operating 1996
Officer

John J. Crowley Controller
- ------------------------------------- (Principal December 5,
JOHN J. CROWLEY Financial Officer) 1996

George N. Hatsopoulos Director
- ------------------------------------- December 5,
1996
GEORGE N. HATSOPOULOS,

BY PETER E. OETTINGER,

HIS ATTORNEY-IN-FACT

Roger D. Wellington Director
- ------------------------------------- December 5,
1996
ROGER D. WELLINGTON,

BY PETER E. OETTINGER,

HIS ATTORNEY-IN-FACT

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
***1.1 --Form of Underwriting Agreement.
*3.1 --Articles of Organization of Registrant, as amended.
***3.2 --Forms of Articles of Amendment of Registrant.
*3.3 --By-Laws of Registrant, as amended.
***3.4 --Form of By-Laws of Registrant.
***4.1 --Specimen Certificate representing the Registrant's Common
Stock.
*4.2 --Subordinated Convertible Note Purchase Agreement among
Registrant, Thermo Electron Corporation and Photoelectron
Investments Corporation of Liberia dated as of May 22,
1990, and Exhibits thereto.
*4.3 --Amendment and Waiver of Subordinated Convertible Note
Purchase Agreement among Registrant, Thermo Electron
Corporation and Photoelectron Investments Corporation of
Liberia dated as of August 1, 1996, and Exhibits thereto.
*4.4 --Amended and Restated 8% Subordinated Note Due 1997 from
Registrant to Thermo Electron Corporation in the principal
amount of $125,000 dated as of August 1, 1996.
*4.5 --Amended and Restated 8% Subordinated Note Due 1997 from
Registrant to Peter M. Nomikos in the principal amount of
$175,000 dated as of August 1, 1996.
*4.6 --Amended and Restated Convertible Note Purchase Agreement
originally dated as of July 11, 1991, among Registrant,
PYC Corporation (formerly known as Photoelectron
Investments Corporation of Liberia) and Peter M. Nomikos,
and Exhibits thereto.
*4.7 --8% Subordinated Convertible Note Due 1998 from Registrant
to Peter M. Nomikos in the principal amount of $500,000
dated as of August 8, 1996.
*4.8 --Convertible Note and Warrant Purchase Agreement between
Registrant and Peter Nomikos dated as of May 13, 1992, and
Exhibits thereto.
*4.9 --Amendment and Waiver of Convertible Note and Warrant
Purchase Agreement dated as of May 13, 1992 between
Registrant and Peter M. Nomikos, dated as of August 1,
1996 and Exhibits thereto.
*4.10 --Amended and Restated 8% Subordinated Convertible Note Due
on Demand from Registrant to Peter M. Nomikos in the
principal amount of $705,000 dated as of August 1, 1996.
***5.1 --Opinion of Goulston & Storrs--A Professional Corporation.
*10.1 --Lease Agreement dated June 12, 1996 between Lexington
Development Company Trust and Registrant.
*10.2 --Cash or Deferred Profit Sharing Plan and Trust dated
April 1, 1995, as amended, of Registrant.
*10.3 --Employee Stock Purchase Plan of Registrant and form of
Subscription Agreement.
*10.4 --1989 Employee Stock Option Plan of Registrant and forms
of Stock Option Agreements.
*10.5 --1996 Equity Incentive Plan of Registrant.
*10.6 --Form of Stock Purchase Warrant issued to certain security
holders of Registrant and Schedule of Substantially
Identical Documents from Exhibits.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
*10.7 --Stock Option Agreements variously dated between certain
directors and officers of the Registrant and the
Registrant.
*10.8 --Form of Subscription Agreement between Registrant and
purchasers of Series B Preferred Stock.
*10.9 --Form of Subscription Agreement between Registrant and
purchasers of Series C Preferred Stock.
*10.10 --Series B Subscription Agreement dated 1994 between
Registrant and Thermo Electron Corporation.
*10.11 --Series C Subscription Agreement dated December 16, 1995
between Registrant and Toshiba Medical Systems Co., Ltd.
*10.12 --Form of Registration Rights Agreement between Registrant
and holders of Series C Preferred Stock.
*10.13 --Registration Rights Agreement dated December 22, 1995
between Registrant and Toshiba Medical Systems Co., Ltd.
*10.14 --Technology Cross License Agreement dated as of January 4,
1989 between Registrant and Thermo Electron Corporation.
*10.15 --International Distributor Sales and Service Agreement
dated December 13, 1995, as amended, between Registrant
and Toshiba Medical Systems Co., Ltd.
**10.16 --Agreement dated as of February 1, 1991, as amended,
between Registrant and The General Hospital Corporation.
**10.17 --Clinical Trial Agreement dated as of August 1, 1992, as
amended, between The General Hospital Corporation,
Nicholas T. Zervas, M.D. and Registrant.
**10.18 --Investigational Treatment Agreement dated as of September
1, 1994 between The General Hospital Corporation, Rees G.
Cosgrove, M.D. and Registrant.
**10.19 --Clinical Research Agreement dated as of April 1, 1995
between The Brigham and Women's Hospital Corporation,
Peter Black, M.D. and Registrant.
**10.20 --Clinical Trial Agreement dated as of January 1, 1995
between The Tokyo Women's Medical College, Kintomo
Takakura, M.D. and Registrant.
[*]**10.21 --Clinical Trial Agreement dated December 13, 1995, as
amended, between Registrant and Toshiba Medical Systems
Co., Ltd.
**10.22 --Clinical Research Agreement dated as of November 1, 1995
between The Royal Free Hampstead (NHS), Felix Senanayake,
M.D. and Registrant.
*10.23 --Form of Lock-Up Letter with certain security holders of
Registrant.
*10.24 --Forms of Medical Advisory Board Agreements between
Registrant and members of its Medical Advisory Board.
**11.1 --Computation of net loss per share.
*21.1 --Subsidiaries of Registrant.
**23.1 --Consent of Arthur Andersen LLP.
***23.2 --Consent of Goulston & Storrs--A Professional Corporation,
counsel to Registrant (included in Exhibit 5).
*24.1 --Power of Attorney (included in signature page to this
Registration Statement).
**27.1 --Financial Data Schedule
</TABLE>
- --------

* Previously filed with the Commission on October 21, 1996

** Filed herewith

*** To be filed by amendment

[*] Confidential Treatment Requested. The confidential portions have been
omitted and filed separately with the Commission as part of an application
to the Commission for confidential treatment thereof. The omitted portions
are identified by astericks appearing within the text of the Exhibits.

<PAGE>

EXHIBIT 10.16

AGREEMENT

This agreement effective as of the 1st day of February, 1991, between
Photoelectron Corporation, a corporation of the Commonwealth of Massachusetts,
having a principal place of business at 580 Winter Street, Waltham,
Massachusetts 02254 (hereinafter "PHOTOELECTRON"), and The General
Hospital Corporation, doing business as Massachusetts General Hospital, Fruit
Street, Boston, Massachusetts 02114 (hereinafter "GENERAL")

WITNESSETH;

WHEREAS, PHOTOELECTRON has developed a miniaturized x-ray generator
("DEVICE") which has potential application in the treatment of tumors;

WHEREAS, GENERAL through Dr. Nicholas Zervas and others, has developed
certain scientific and clinical information and expertise pertaining to the
treatment of tumors and the use of animal models for evaluation of instrument
efficacy;

WHEREAS, GENERAL wishes to perform certain tests with the DEVICE in
animal models and PHOTOELECTRON desires that it do so;

02/04/91 (eal) 1
<PAGE>

NOW THEREFORE, in consideration of the premises and of the faithful
performance of the covenants herein contained, the parties hereto agree as
follows:

1. DEFINITIONS
-----------

1.1 The term "PROJECT" shall mean the animal studies described in the
Protocol attached hereto as Appendix A.

1.2 The term "PRINCIPAL INVESTIGATOR" shall mean Dr. Nicholas Zervas.

1.3 The term "INVESTIGATOR" shall mean PRINCIPAL INVESTIGATOR and any
other member of GENERAL's professional staff, graduate student, postdoctoral
fellow, undergraduate student, or employee of GENERAL who shall participate
under the direction of the PRINCIPAL INVESTIGATOR in the performance of PROJECT.

1.4 The term "RESULTS" shall mean any test results, data, and other
information produced in the performance of PROJECT.

2. OBLIGATIONS OF GENERAL AND PHOTOELECTRON
------------------------------------------

(a) During the term of this Agreement, GENERAL shall:

02/04/91 (eal) 2
<PAGE>

(i) through PRINCIPAL INVESTIGATOR and any other INVESTIGATOR
perform PROJECT;

(ii) promptly and systematically disclose to PHOTOELECTRON the
RESULTS, which PHOTOELECTRON shall be entitled to use to the
extent such use does not infringe any patent assigned or
licensed to GENERAL which is not assigned to PHOTOELECTRON.

(b) During the term of this Agreement, PHOTOELECTRON shall:

(i) provide GENERAL with DEVICE;

(ii) provide INVESTIGATORS with information and instruction
pertaining to DEVICE as needed to perform the PROJECT;

(iii) repair and maintain DEVICE as needed at GENERAL to assure its
proper functioning in the performance of the PROJECT.

02/04/91 (eal)

3
<PAGE>

(iv) to facilitate INVESTIGATORS' performance of the PROJECT,
PHOTOELECTRON shall, subject to the approval of the PRINCIPAL
INVESTIGATOR, have the right to be present at the animal studies
hereunder.

3. CONFIDENTIALITY AND PUBLICATION RIGHTS
--------------------------------------

GENERAL cannot assure confidential treatment of any PHOTOELECTRON
proprietary information that might be disclosed to GENERAL or any
INVESTIGATOR, or of RESULTS. In the event that PHOTOELECTRON wishes to disclose
to an INVESTIGATOR any information which relates to PROJECT that PHOTOELECTRON
considers confidential, PHOTOELECTRON may enter into a separate Confidentiality
Agreement with the INVESTIGATOR. Such Confidentiality Agreement must be approved
as to form by the Director, Office of Technology Affairs at GENERAL and shall
provide a means for clearly identifying the information PHOTOELECTRON considers
to be proprietary and not abridge GENERAL's or the INVESTIGATOR's traditional
rights to publish and communicate with academic colleagues regarding the results
of research conducted at GENERAL. Without limiting the generality of the
foregoing, it is understood and acknowledged that the PRINCIPAL INVESTIGATOR has
entered into a Confidentiality
4
<PAGE>

Agreement with PHOTOELECTRON, dated November 1, 1989 which is acceptable to
GENERAL.

PRINCIPAL INVESTIGATOR shall have the right to present or publish RESULTS
and shall provide an early draft of any such presentation or manuscript for
review by PHOTOELECTRON at least thirty (30) days prior to its presentation or
submission for publication. At the end of such thirty (30) days, PRINCIPAL
INVESTIGATOR shall have the right, in his/her discretion, to make such
presentation or to submit such manuscript for publication. PRINCIPAL
INVESTIGATOR and PHOTOELECTRON shall cooperate in identifying and removing any
previously identified information which is proprietary and confidential to
PHOTOELECTRON, as appropriate. It is understood, however, that GENERAL shall not
be responsible for any INVESTIGATOR's failure to remove such PHOTOELECTRON
proprietary and confidential information. Proper reference will be given to
PHOTOELECTRON as the developer of the DEVICE.

4. INVENTIONS
----------

Any INVESTIGATOR who shall make an invention, solely or jointly, in the
performance of PROJECT (hereinafter referred to as INVENTION) shall promptly
report in writing such INVENTION to PHOTOELECTRON and GENERAL and shall, upon
written request of PHOTOELECTRON given within ninety (90) days of
PHOTOELECTRON's

5
<PAGE>

receipt of such report, assign all of his or her rights, title and interest in
the INVENTION to PHOTOELECTRON.

5. LIABILITY
---------

GENERAL and PHOTOELECTRON shall each be responsible and shall hold the
other harmless for any injury to persons or damage to property to the extent
that such injury or damage is caused by the negligence or willful misconduct of
their employees or staff in carrying out the PROJECT; provided, however, that
PHOTOELECTRON will defend, indemnify and hold harmless GENERAL and its trustees,
employees and staff against any and all actions, suits, claims, demands or
prosecutions that may be brought or instituted against GENERAL and/or its
trustees, employees and staff based on or arising out of the manufacture, use,
sale or other distribution of a commercially available device by PHOTOELECTRON,
its affiliates or licensees except to the extent any such action, suit, claim,
demand or prosecution is based on the negligence or willful misconduct of
GENERAL and/or its trustees, employees or staff in the use of such device. In
the event that an assignment of an INVENTION is made pursuant to Paragraph 4
above, the provisions of this paragraph 5 shall be replaced by the provisions of
Appendix B attached hereto.

6
<PAGE>

6. TERM AND TERMINATION
--------------------

6.1 This Agreement shall have a term of one year beginning with the
EFFECTIVE DATE of this Agreement and may be extended thereafter by mutual
agreement.

6.2 If either party shall fail to faithfully perform any of its
obligations under this Agreement, the nondefaulting party may give written
notice of the default to the defaulting party. Unless such default is corrected
within thirty (30) days after such notice, the notifying party may terminate
this Agreement upon thirty (30) days prior written notice.

7. MISCELLANEOUS
-------------

7.1 Each party agrees that it will not use the name or logo of the other
party or of any employee, staff member or student of the other party in any
advertising, promotional material or sales literature, or any other publication
without the prior written approval of the party or person whose name or logo is
to be used.

7.2 This Agreement constitutes the entire understanding between the
parties with respect to the subject matter thereof, and supersedes and replaces
all prior agreements, understandings, writings and discussions between the
parties relating to said subject matter.

7
<PAGE>

7.3 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the parties or, in the case
of a waiver, by the party waiving compliance.

7.4 The obligations of the parties under Sections 3, 4, 5 and 7.1 shall
survive the termination of this Agreement.

7.5 This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.

THE PARTIES have duly executed this Agreement to be effective as of the
date first above written.

PHOTOELECTRON CORPORATION THE GENERAL HOSPITAL CORPORATION

BY: /s/ Peter M. Nomikos BY: /s/ Marvin C. Guthrie
--------------------------- ------------------------------------------

TITLE: C.E.O. TITLE: Director Office of Technology Affairs
------------------------ ---------------------------------------

DATE: Feb. 19, 1991 DATE: Feb. 8, 1991
------------------------- ----------------------------------------

I have read paragraph 3 of the foregoing Agreement and agree to comply
therewith.

By: /s/ Nicholas Zervas, M.D.
---------------------------

Name: Nicholas Zervas, M.D. Date: 2/12/91
------------------------- ----------------------------------------

8
<PAGE>

APPENDIX B
----------

9(a) PHOTOELECTRON shall indemnify, defend and hold harmless GENERAL and
its trustees, officers, medical and professional staff, employees, and agents
and their respective successors, heirs and assigns (the "Indemnities"), against
any liability, damage, loss, or expense (including reasonable attorney's fees
and expenses of litigation) incurred by or imposed upon the Indemnities or any
one of them in connection with any claims, suits, actions, demands or judgments:
(i) arising out of any theory of product liability (including, but not limited
to, actions in the form of tort, warranty, or strict liability) concerning the
DEVICE or any modification thereof; (ii) arising out of any side effect or
adverse reaction, illness or injury resulting from Indemnities' performance of
the Study and occurring to any person involved in the Study; or (iii) arising
out of damage to any property resulting from and occurring during the
Indemnities' performance of the Study. GENERAL agrees to notify PHOTOELECTRON
promptly of any such claim, suit, action, demand or judgment and GENERAL and
PRINCIPAL INVESTIGATOR agree to reasonably cooperate with PHOTOELECTRON in the
handling thereof.

(b) PHOTOELECTRON's indemnification under (a)(i) shall apply to any
liability, damage, loss or expense whether or not it is attributable to the
negligent activities of the indemnitees. PHOTOELECTRON's indemnification under
(a)(ii) and (a)(iii) shall

9
<PAGE>

not apply to any liability, damage, loss or expense to the extent that it is
attributable to the: (A) negligent activities, reckless misconduct or
intentional misconduct of the Indemnities, or (B) failure of the indemnitees to
adhere to the terms of the protocol for the Study.

(c) PHOTOELECTRON agrees, at its own expense, to provide attorneys
reasonably acceptable to the GENERAL to defend against any actions brought or
filed against any party indemnified hereunder with respect to the subject of
indemnity contained herein, whether or not such actions are rightfully brought.

10. (a) At such time as DEVICE or any modification thereof is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by PHOTOELECTRON or by a licensee, affiliate or agent of
PHOTOELECTRON, PHOTOELECTRON shall, at its sole cost and expense, procure and
maintain comprehensive general liability insurance in amounts not less than
$2,000,000 per incident and $2,000,000 annual aggregate, and naming the
Indemnitees as additional insureds. Such comprehensive general liability
insurance shall provide (i) product liability coverage and (ii) broad form
contractual liability coverage for PHOTOELECTRON's indemnification under
Paragraph 9 of this Agreement. If PHOTOELECTRON elects to self-insure all or
part of the limits described above (including deductibles or retentions which
are in excess of $250,000 annual aggregate) such self-

02/04/91 (eal)

10
<PAGE>

insurance program must be acceptable to the GENERAL and the Risk Foundation
Foundation of the Harvard Medical Institutions, Inc. The minimum amounts of
insurance coverage required under this Paragraph 10 shall not be construed to
create a limit of PHOTOELECTRON's liability with respect to its indemnification
under Paragraph 9 of this Agreement.

(b) PHOTOELECTRON shall provide GENERAL with written evidence of such
insurance upon request of GENERAL PHOTOELECTRON shall provide GENERAL with
written notice at least fifteen (15) days prior to the cancellation, non-renewal
or material change in such insurance.

(c) PHOTOELECTRON shall maintain such comprehensive general liability
insurance during (i) the period that the DEVICE or any modification thereof is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by PHOTOELECTRON or by a licensee, affiliate or agent of
PHOTOELECTRON and (ii) a reasonable period after the period referred to in
(c)(i) above which in no event shall be less than fifteen (15) years.

02/04/91 (eal)

11
<PAGE>

Appendix A

What we are proposing to test in this pilot study is the effect on tumor
growth of a new device; a Free Electron X-Ray emitter.

The addition would be to Dr. Martuza existing protocol "Genetic
-------
Alteration of Nervous System Tumors". It would be an increase of 20 rats to
- -----------------------------------
Dr. Martuza's current protocol. The additional rats would be used to determine
the effects of the irradiation, a dose response curve, and the associated
effects on adjacent tissues. Four groups of five would be used for initial dose
response estimates. Animals in each group would receive a set dose (X, 2X, 5X,
10X 50X).

Scheme: Day 1 (X-ray Irradiation). Immediate Sacrifice
Week 1 Group 2 Sacrifice
Week 2 Group 3 Sacrifice
Week 3 Group 4 Sacrifice

The X-ray source is effectively a point source at the tip of a probe
(approx 15 gauge needle). The new x-ray source is manufactured by Photoelectron
Corporation and has been reviewed by the research Patent Office.

Briefly, under anesthesia, the tumor site would be exposed as outlined in
Dr. Martuza's protocol. The x-ray source would be positioned center mass of the
tumor, and activated for various periods of time. The animal would either be
sacrificed immediately, or surgically closed and allowed to recover for up to 3
weeks. The effects of the irradiation would be evaluated both grossly (visual
sub-renal capsule assays) and by histology for changes in tumor mass and
surrounding tissues. No pain or additional distress is expected. Animals will be
sacrificed with an anesthetic overdose as indicated.

Depending the initial results, a complete application would be submitted to
the SRAC to continue the studies.

<PAGE>

January 27, 1992

Mr. Marvin C. Guthrie
Director, Office of Technology Affairs
Massachusetts General Hospital
Fruit Street
Boston, Massachusetts 02114

Re: Extension of Term of Agreement of February 1, 1991
Between Photoelectron Corporation and The General Hospital
Corporation (MGH)
----------------------------------------------------------

Dear Mr. Guthrie

Pursuant to the above-referenced Agreement Dr. Nicholas Zervas and other
members of the staff of MGH are performing animal studies in which an X-ray
source supplied by Photoelectron is being utilized to irradiate live animal
tissue. In order to complete ongoing studies, the parties desire to extend the
one year term currently specified in the Agreement. The Protocol should also be
amended to reflect the fact that MGH has conducted animal studies in
addition to those set forth in Appendix A as initially written.

Accordingly, the parties agree to amend the Agreement of February 1, 1991 as
follows:

1. The single sentence of Paragraph 6.1 is amended to read "This Agreement
shall have a term of eighteen (18) months beginning with the EFFECTIVE DATE of
this Agreement and may be extended thereafter by mutual agreement."

2. Appendix A is amended by deleting the current Appendix A and
substituting for it the document titled "Appendix A (1/27/92)", attached to and
forming part of this letter agreement.

3. Except as amended pursuant to the above-noted paragraphs 1. and 2. of
this letter agreement, all provisions of the Agreement shall remain in effect as
written.

If you agree with these amendments, please have the appropriate official of
MGH sign and date both originals of this letter in the spaces below, keep one
for your records, and return the other original to me.

<PAGE>

Mr. Marvin C. Guthrie
January 27, 1992
Page 2

Thanks for your efforts. We look forward to continued cooperation and
success in these studies.

Sincerely,

PHOTOELECTRON CORPORATION

/s/Peter M. Nomikos

Peter M. Nomikos
President and
Chief Executive Officer

Accepted and agreed:

The General Hospital

By:/s/ Marvin C. Guthrie
-------------------------------------------
Typed/Printed
Name: Marvin C. Guthrie
---------------------------------------
Title: Director Office of Technology Affairs
--------------------------------------
Date: 20 March 1992
-----------------------------------
60C

<PAGE>

Appendix A 1/27/92
-------------------

This pilot study is performed to provide data on the safety in use of, and the
radiative and thermal effects caused by, a new x-ray source. This source is
effectively a point source at the top of a thin probe. The device is
manufactured by Photoelectron Corporation and has been reviewed by the Research
Patent Office.

A series of on-going animal experiments has been, and is continuing to be,
conducted in rats and dogs. A total of 13 livers of rats were irradiated in
vivo. Surgery to expose the rat liver was performed in the neurosurgery animal
laboratory at the Massachusetts General Hospital in Boston. Livers were selected
for treatment because this organ is known to be easily accessible, relatively
large, and resistant to radiation. The probe, held firmly in a stand, was
inserted between the lobes of the liver. Continual flow of a small quantity of
saline solution along the outside of the probe lubricated the tip to eliminate
frictional damage to the liver due to the relative motion, caused by breathing,
between this organ and the probe. To insure material biocompatibility, the probe
was covered by a thin latex finger cut from a surgical glove.

In the first set of experiments, nine livers were irradiated, three of which
were for 1, 2, and 3 hours with x-rays generated by a 10 uA electron beam
accelerated in the probe to the maximum voltage of 30 kV. Similarly, three more
exposures were performed for the same durations but with beam parameters of 20kV
and 15uA, and the last three at 15 kV and 23 Micro Amphs.

In the 30 kV and 20 kV tests, x-ray emission was sufficiently intense near the
probe surface to produce small lesions by the end of the treatment. All rats
were sutured after irradiation. Those irradiated by x-rays generated with the 30
kV, 10 Micro Amphs electron beams for 1, 2 and 3 hours were sacrificed,
respectively after 7, 10 and 13 days. Complete tissue necrosis was observed in a
region around the probe ranging in diameter from 5mm for the shortest radiation
time to 10 mm for the longest. A sharp demarcation was noted between the
necrotic and normal tissues with little inflammatory response in the periphery.
In one experiment (rat irradiated for 3 hours with x-rays generated by the 20
kV, 15 Mirco Amphs beam) a thermometer was placed in contact with the probe.
During the treatment, a stable maximum rise in temperature of 9.5C was measured
(from an initial value 31C). With a saline drip of 1 drop each 2 minutes along
the probe, this increase fell slightly to 8C.

Subsequently, 3 more livers of rats were irradiated, each for 3 hours with x-
rays generated by a beam with higher current of 25 Micro Amphs accelerated to
the maximum voltage of 30 kV. These rats were sutured, and two died within the
next 11 days. The last one was sacrificed after 13 days and a similar 6-7 mm
diameter lesion was observed to have formed. In comparison to the previously
studied animal the size of this lesion was smaller than expected. A final liver
was irradiated at the same conditions as the three previous animals were. This
animal died within 3 hours of irradiation, apparently due to complications
caused by the anesthesia. An 8-9 mm lesion was seen with incomplete necrosis.

Rat C6 glioma cells were seeded subcutaneously in order to provide a test
vehicle for studying the effects of probe irradiation of tumors. Although
several tumors did grow most spontaneously regressed and disappeared before any
x-ray treatment
<PAGE>

was performed. However, it was possible to place the probe tip in contact with
one such tumor and using a 25 Micro Amphs electron beam accelerated to 30 kV x-
rays were generated for 2 hours. However, the animal died from anesthesia
complications. Tissue necrosis was observed throughout the tumor, including
within areas not irradiated by the probe, suggesting that tumor cells were being
destroyed by the rat's immune system.

A total of 4 dog brains were irradiated by the x-ray probe. Three of these were
acute dogs, sacrificed right after treatment, which had primarily been used in
other experiments. The objective of irradiating these brains was to determine
the degree to which hyperthermia might be generated by heat dissipation from the
probe.

In 2 of the dogs the probe was intradural and placed in contact with the exposed
cortex. The source was operated for 1 hour with a 25 Micro Amphs electron beam
accelerated to 30 kV. Temperature rise, as measured by a thermistor
(manufactured by Yellow Springs) placed 1-2 mm from the probe, recorded an
increase of 7 and 8C, respectively, from a starting 32 C for the 2 dogs.
Pathological examination showed no changes. In the third dog the probe was
inserted 5 mm into the brain tissue. With the source operating at the same
conditions as for the other two dogs, the thermistor measured an increase of 6C
from an initial temperature of 32 C at 1-2 mm from the probe. Subsequent
pathology tests showed no formation of necrotic tissue. Accordingly, from the
results of these three dog experiments hyperthermia should not be a contributing
process to tissue necrosis during use of the x-ray source.

A chronic fourth dog was exposed to the x-ray source operating at the same
conditions with the probe tip inserted 1.5 cm into the right lobe
(mid-frontal). From air measurements and MCNP code predictions the dose at 1 cm
from the probe center was determined to be 850 rads. This dog was sutured after
treatment and sacrificed after 1 day because it had become comatose and
hypothermic and had experienced seizures on the contralateral side. Pathological
examination revealed that in all likelihood the hypothalmus and possibly the
thalmus had been affected by the proximity of the probe to these glands. The
area around the probe showed signs of hemorrhage.

A total of 5 dog livers were irradiated by the x-ray probe. The conditions at
which the probe was operated were 30 kV, 15 Micro Amphs, 1 hour (except one
which was irradiated for 45 minutes). Two dogs were acute, and one of these (the
one irradiated for 45 minutes) provided data on temperature rise in liver tissue
caused by thermal dissipation from the target in the probe. Thermistor
measurements 1 mm from the probe inserted 7 mm into the liver recorded a stable
increase of 2.5 C after 10 minutes, from an initial temperature of 34.5 C. After
the probe was turned off the temperature returned to its initial value.

Two other dogs were chronic, and the first of these, which had the probe
inserted 2 cm into its liver, was sacrificed after 3 days. Pathological
examination showed coagulation necrosis and hemorrhage around the probe hole,
but no radiation-induced necrosis. The other dog was irradiated on June 11, 1991
and sacrificed at the end of August. In this dog, the probe had been inserted at
one site 2 cm from a hepatic artery, and sequentially at a second site as well.
Each irradiation was for 1 hour. Blood samples were taken every two days to
monitor liver function. No abnormalities were observed. Pathological examination
showed well defined cell changes within a 7-9 mm diameter area of tissue. The
fifth dog
<PAGE>

irradiated in mid July was sacrificed after three months. Little necrosis was
observed.

Recent measurements have provided thermal profiles, along radii outward from the
probe tip, in three acute dog brains. One chronic dog liver was irradiated and
another will be done to determine if there are any long term damaging effects
due to the observed minor hyperthermia. A few additional tests, radiative and
thermal, may be performed in rats, rabbits, or dogs, as necessary.

Briefly, under anesthesia, the animal tissue is exposed according to accepted
protocols. The x-ray source is positioned with the tip either between lobes of
the liver or within liver or brain tissue and activated for various periods of
time (one to three hours). The animal is sacrificed either immediately, or
surgically closed and allowed to recover for up to three months. The effects of
irradiation are evaluated both grossly and histologically. No pain or
additional distress is expected to the animal. Animals are sacrificed with an
anesthetic overdose.

<PAGE>

EXHIBIT 10.17

CLINICAL TRIAL AGREEMENT

Agreement made as of the first day of August, 1992, between The General
Hospital Corporation, a not-for-profit corporation doing business as
Massachusetts General Hospital having a principal place of business at Fruit
Street Boston, Massachusetts 02114 ("General"), Nicholas T. Zervas, M.D.,
Department of Neurosurgery, Massachusetts General Hospital, Boston,
Massachusetts 02114 ("Princiapl Investigator") and Photoelectron Corporation, a
corporation having an office at 400-1 Totten Pond Road, Waltham, Massachusetts
02254 ("Company").

1. Principal Investigator agrees to conduct a clinical study of
Miniaturized X-Ray Generator (hereinafter referred to as the "Study Device") in
accordance with the study protocol entitled "Investigational Plan for
Preliminary Trials of Model IXR-2 Photonic Radiosurgery Source", a copy of which
is attached hereto as Exhibit A (hereinafter referred to as the "Study"). In the
event of any conflict between Exhibit A and the provisions of this Agreement,
the provisions of this Agreement shall govern.

2. The Study will be conducted by Principal Investigator at General with
the prior approval and ongoing review of all appropriate and necessary review
authorities and in accordance with all federal, state and local laws and
regulations. Principal Investigator shall provide Company with written evidence
of review and approval of this Study by General Institutional Review Board prior
to the initiation of the Study and of the Board's continuing review and approval
of the Study whenever it is reviewed, but at least once per year. All volunteers
will meet the legal age requirements of the Commonwealth of Massachusetts, the
state in which the Study is to be conducted.

3. Principal Investigator will furnish Company with the data resulting
from the Study in signed case report forms within a reasonable time after
completion of each case and Company shall have the unrestricted right to use
such data. Study records shall be made available to Company representatives upon
request for comparison with case report forms. Such records will also be made
available upon request for review by representatives of the U.S. Food and Drug
Administration. Records of the study including either the original or a copy of
all volunteer consent forms shall be retained in conformance with applicable
federal regulations.

4. Principal Investigator will be free to publish the results of the Study
subject only to the provisions of Paragraph 5 regarding Company's confidential
information. Company will be furnished with a copy of any proposed publication
for review and comment prior to submission for publication, for manuscripts, at
least thirty (30) days prior to submission, and for abstracts, at least seven
(7) days prior to submission. At the expiration of

1
<PAGE>

such thirty (30) day or seven (7) day period, Principal Investigator may proceed
with submission for publication.

5. It is understood that General cannot assure confidential treatment of
any information that may be disclosed to any General staff member, employee or
student. In the event that Company wishes to disclose to any General personnel
any information which relates to the Study that Company considers confidential,
Company may enter into a separate Confidentiality Agreement with such General
personnel. Such Confidentiality Agreement must be approved as to form by the
Director, Office of Technology Affairs, General and shall provide a means for
clearly identifying the information Company considers to be proprietary and not
abridge the traditional rights of General or General personnel to publish and
communicate with academic colleagues regarding the results of research conducted
at General.

6. General and Company agree that Company shall have an opportunity to
acquire by assignment all rights to each invention which constitutes a new use
or modification of the Study Device and is made by General personnel, solely or
jointly, in the performance of the Study (hereinafter referred to as
"Invention"). Each Invention shall be promptly reported in writing to Company
and to General and Company shall have ninety (90) days following receipt of
such report to submit a written request to General to acquire rights to the
reported Invention. In the event Company so elects to acquire rights to an
Invention, General shall promptly obtain from General personnel appropriate
assignments of all rights in the Invention held by such personnel and thereafter
shall assign all its rights to Company.

7. The term of this Agreement shall be one (1) year from the date hereof.
Any party hereto shall have the right to terminate the Study and this Agreement
at any time upon thirty (30) days prior written notice thereof to the other
parties. In the event of termination, the amount of the reimbursement under
Paragraph 9(e) by Company to support the Study shall be appropriately prorated.
The obligations of the parties under Paragraphs 3,4,5,6,8,10,11 and 13 shall
survive the termination of this Agreement.

8. At the completion or early termination of the Study, an accounting will
be made of the clinical supplies provided for the Study by Company and any such
supplies remaining shall be returned to Company.

9. Company agrees to support this Study by: (a) providing a Study Device
to the Principal Investigator; (b) providing the Principal Investigator with
information and instruction pertaining to the Study Device and personnel to
operate the Study Device as needed to perform the Study; (c) repairing,
maintaining, and modifying the Study Device as needed during the Study; (d)
monitoring the Study; and (e) providing General with a research

7/22/92

2
<PAGE>

grant for one-half the salary of a nurse designated by General to assist
subjects participating in the Study for a period of one (1) year in the amount
of Thirty-Seven Thousand dollars ($37,000) which includes indirect costs in the
amount of Four Thousand Seven Hundred Seventy dollars ($4770), payable to
General as follows:

Eighteen Thousand Five Hundred Dollars ($18,500) upon execution of this
Agreement; and,

Eighteen Thousand Five Hundred Dollars ($18,500) on February 1, 1993.

Checks should be made payable to "The General Hospital Corporation" and
sent, along with a letter indicating the name of the Principal Investigator and
the specific clinical trial agreement for which the funds are intended, to:

Director
Office of Technology Affairs
Massachusetts General Hospital
Thirteenth Street Building 149, Suite 1101
Charlestown, MA 02129

10. (a) Company shall indemnify, defend and hold harmless General and its
trustees, officers, medical and professional staff, employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss, or expense (including reasonable attorney's fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or any one
of them in connection with any claims, suits, actions, demands or judgments: (i)
arising out of any theory of product liability (including, but not limited to,
actions in the form of tort, warranty, or strict liability) concerning the Study
Device or any modification thereof developed pursuant to this Agreement and made
by Company or a licensee, affiliate or agent of Company; (ii) arising out of any
side effect or adverse reaction, illness or injury resulting from Indemnitees'
performance of the Study and occurring to any person involved in the Study; or
(iii) arising out of damage to any property resulting from and occurring during
the Indemnitees' performance of the Study. General agrees to notify Company
promptly of any such claim, suit, action, demand or judgment and General and
Principal Investigator agree to permit Company to control the defense and
disposition thereof (including, without limitation, all decisions to litigate,
settle or appeal) and further agree to reasonably cooperate with Company in the
handling thereof. Company agrees to keep General informed of the progress in the
defense and disposition of such claims and to consult with General with regard
to any settlement thereof which Company proposes to enter into.

(b) Company's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is

7/22/92

3
<PAGE>

attributable to the: (i) negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees; or (ii) failure of the Indemnitees to
adhere to the terms of the protocol for the Study.

(c) Company agrees, at its own expense, to provide attorneys reasonably
acceptable to the General to defend against any actions brought or filed
against any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.

11. (a) At such time as the Study Device or any modification thereof is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Company or by a licensee, affiliate or agent of
Company, Company shall, at its sole cost and expense, procure and maintain
comprehensive general liability insurance in amounts not less than $2,000,000
per incident and $2,000,000 annual aggregate and naming the Indemnitees as
additional insureds, with respect to claims arising out of Indemnitees'
performance of, or involvement in, the Study, except those claims attributable
to (i) or (ii) of subparagraph 10(b) of this Agreement. Such comprehensive
general liability insurance shall provide (i) product liability coverage and
(ii) broad form contractual liability coverage for Company's indemnification
under Paragraph 10 of this Agreement. If Company elects to self-insure all or
part of the limits described above (including deductibles or retentions which
are in excess of $250,000 annual aggregate) such self-insurance program must be
acceptable to the General and the Risk Management Foundation of the Harvard
Medical Institutions, Inc. The minimum amounts of insurance coverage required
under this Paragraph 11 shall not be construed to create a limit of Company's
liability with respect to its indemnification under Paragraph 10 of this
Agreement.

(b) Company shall provide General with written evidence of such insurance
upon request of General. Company shall provide General with written notice
at least fifteen (15) days prior to the cancellation, non-renewal or material
change in such insurance.

(c) Company shall maintain such comprehensive general liability insurance
during (i) the period that the Study Device or any modification thereof is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Company or by a licensee, affiliate or agent of Company
and (ii) a reasonable period after the period referred to in (c)(i) above which
in no event shall be less than five (5) years.

12. The terms of this Agreement can be modified only by a writing which is
signed by General, Principal Investigator and Company.

13. No party to this Agreement shall use the name of any

7/22/92

4
<PAGE>

other party or of any staff member, employee or student of any other party or
any adaptation thereof in any advertising, promotional, sales literature or
publicity or in any non-scientific publication without the prior written
approval of the party or individual whose name is to be used. For General,
such approval shall be obtained from the Director of News and Public Affairs and
for Company, from its Chief Executive Officer.

14. The provisions of this Agreement shall be interpreted under the laws of
the Commonwealth of Massachusetts.

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

<TABLE>
<CAPTION>
PHOTOELECTRON CORPORATION THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No: 042 697 983)
<S> <C>

BY: Peter M. Nomikos BY: Marvin C. Guthrie
----------------------------- -----------------------------------
TITLE: President TITLE: Director,
-------------------------- -------------------------------
Office of Technology Affairs
-------------------------------
DATE: AUG __,1992 DATE: 7/31/92
-------------------------------- ---------------------------------

PRINCIPAL INVESTIGATOR

/s/ Nicholas T. Zervas, M.D.
--------------------------------------
Nicholas T. Zervas, M.D.

DATE: 9/10/92
---------------------------------
</TABLE>

7/22/92

5
<PAGE>

AMENDMENT TO CLINICAL TRIAL
AGREEMENT EFFECTIVE AUGUST 1, 1992
BETWEEN PHOTOELECTRON CORPORATION, THE GENERAL
HOSPITAL CORPORATION AND NICHOLAS T. ZERVAS, M.D.

Effective August 1, 1993, The General Hospital Corporation, a not-for-
profit corporation doing business as Massachusetts General Hospital, having
its principal place of business at Fruit Street, Boston, MA 02114
("General"), Nicholas T. Zervas, M.D., Department of Neurosurgery,
Massachusetts General Hospital, Boston, MA 02114 ("Principal Investigator")
and Photoelectron Corporation, a corporation having an office at 400-1 Totten
Pond Road, Waltham, Massachusetts 02254 ("Company") agree, for good and valuable
consideration to amend the Clinical Trial Agreement effective August 1, 1992
("Agreement") as follows:

1. In Paragraph 1 of the Agreement, the words "Model IXR-2 and Model Mark
2 of the" shall be inserted after the words "clinical study of".

2. In paragraph 1 of the Agreement, the following words shall be added as
the last sentence: "The parties agree that the Study shall also include the use
of the Study Device by the Principal Investigator for the treatment and follow-
up of not more than ten (10) additional patients on a compassionate use basis."

3. In paragraph 7 of the Agreement, the words "one (1) year from the date
hereof" shall be replaced with the words "until the execution of a clinical
trial agreement between General, Company and Principal Investigator for a
Phase II trial of the Study Device, or for two (2) years from the date hereof,
whichever shall first occur."

4. Beginning with the Effective Date of this Amendment, Company shall
provide General with a research grant for one-half the salary of a nurse
designated by General to assist subjects participating in the Study which
shall be payable as monthly payments of Three Thousand Eighty-Three Dollars and
Thirty-Three Cents ($3,083.33) per month for the term of the Agreement (as such
term is amended pursuant to the immediately foregoing paragraph 3 of this
Amendment).

8/20/93

1
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Amendment to the Agreement
to be duly executed.

<TABLE>
<CAPTION>
PHOTOELECTRON CORPORATION THE GENERAL HOSPITAL CORPORATION
<S> <C>
BY: /s/ Peter M. Nomikos BY: Marvin C. Guthrie
--------------------------------- --------------------------------
TITLE: President & CEO TITLE: Director, Office of
----------------------------- ---------------------------
Technology Affairs
DATE: Nov. 12, 1993 DATE: 11/8/93
------------------------------- ------------------------------

PRINCIPAL INVESTIGATOR

/s/ Nicholas T. Zervas, M.D.
-----------------------------------
Nicholas T. Zervas, M.D.

DATE: [DATE APPEARS HERE]
------------------------------
</TABLE>

8/20/93

<PAGE>

EXHIBIT 10.18

INVESTIGATIONAL TREATMENT AGREEMENT

Agreement made as of the first day of September, 1994 (the "Effective
Date") between The General Hospital Corporation, a not-for-profit corporation
doing business as Massachusetts General Hospital having a principal place of
------------------------------
business at Fruit Street, Boston, Massachusetts 02114 ("General"), Rees G.
Cosgrove, M.D., Department of Neurosurgery, Massachusetts General Hospital,
Boston, Massachusetts 02114 ("Principal Investigator") and Photoelectron
Corporation, a corporation having an office at 400-1 Totten Pond Road, Waltham,
Massachusetts 02254 ("Company").

1. Principal Investigator agrees to participate as an investigator in an
investigational treatment study of Model 3 of the Photon Radiosurgery System
(hereinafter referred to as the "Study Device") in accordance with the multi-
institution study protocol entitled "A Study of the Safety and Efficacy of the
Photon Radiosurgery System in the Treatment of Brain Metastases", a copy of
which is attached hereto as Exhibit A (hereinafter referred to as the "Study").
In the event of any conflict between Exhibit A and the provisions of this
Agreement, the provisions of this Agreement shall govern. That portion of Study
that is carried out at General is hereinafter referred to as "Institutional
Study." The Principal Investigator also agrees to adhere to the Standard
Operating Procedures for the Study as mandated by the FDA and to operate and
maintain the Study Device according to the instructions provided by Company.

2. The Institutional Study will be conducted by Principal Investigator at
General with the prior approval and ongoing review of all appropriate and
necessary review authorities and in accordance with all federal, state and local
laws and regulations. Principal Investigator shall provide Company with written
evidence of review and approval of this Study by General Institutional Review
Board prior to the initiation of the Institutional Study and of the Board's
continuing review and approval of the Study whenever it is reviewed, but at
least once per year. All volunteers will meet the legal age requirements of the
Commonwealth of Massachusetts; the state in which the Study is to be conducted.

3. Principal Investigator will furnish Company or its designated Study
Monitor with the data resulting from the Institutional Study in signed case
report forms within a reasonable time after completion of each form and Company
shall have the unrestricted right to use such data including, but only to the
extent that subjects' consents have been obtained, the subjects' names, any
identifying information, and any audiotapes, photographs or other likenesses.
The case report forms to be used will be those supplied by Company. Patient
records shall be made available to Company representatives upon request for
comparison with case report forms. Such records will also be made available
upon request for review by representatives of the U.S. Food and Drug

1
<PAGE>

Administration. Records of the study including either the original or a copy of
all volunteer consent forms shall be retained in conformance with applicable
federal regulations.

4. It is understood that this Study is a multicentre investigation and
that a publication of results from all sites is expected to be made in
accordance with paragraph 5. After submission of the multicenter results for
publication, notification by Company that such a submission is no longer
planned, or twelve (12) months after termination of the Study at all sites,
whichever shall first occur, the Principal Investigator will be free to publish
the results of the Institutional Study subject only to the provisions of
Paragraph 7 regarding Company's confidential information. Company will be
furnished with a copy of any proposed publication for review and comment prior
to submission for publication, for manuscripts, at least thirty (30) days prior
to submission, and for abstracts, at least seven (7) days prior to submission.
At the expiration of such thirty (30) day or seven (7) day period, Principal
Investigator may proceed with submission for publication.

5. Since the Study is to be carried out at a number of institutions, a
minimum of one journal article describing the analyzed results from all
institutions will be submitted for publication at the conclusion of the Study.
Such manuscript(s) will bear as authors, among others, all Principal
Investigators of the Study. The order of authors will be as follows: Those who
design and implement the Study will be first; individuals from the institution
contributing the most patients will be listed next; the principal investigator
and other individuals at the institution contributing the second largest number
of patients will be next; and so on.

6. At the conclusion of the Study and after such time as a minimum of one
multi-authored, multi-institution journal article has been published, all
Principal Investigators from all institutions participating in the Study who
have treated with the Study Device the number of anticipated patients as
described in paragraph 15 will be given complete access to all of the patient
data accrued in the Study.

7. It is understood that General cannot assure confidential treatment of
any information that may be disclosed to any General staff member, employee or
student. However, the Principal Investigator agrees that, for a period of five
(5) years from the Effective Date of this Agreement, the Principal Investigator
will not disclose to any third party information which the Principal
Investigator receives from Company which is in writing and designated as
confidential or, if disclosed orally, is designated as confidential at the time
of disclosure and confirmed in writing as confidential within twenty-one (21)
days of such disclosure, or use such information for any purpose other than the
purpose of

2
<PAGE>

conducting the Study, obtaining any required review of the Study or its conduct,
or in the sound judgment of Principal Investigator, ensuring proper medical
treatment of any patient or subject. Such information shall not be considered
confidential nor subject to this Agreement if it: (i) was in Principal
Investigator's possession prior to receipt thereof from Company as shown by
written records; (ii) is already available or becomes available to the public
through no fault of Principal Investigator; (iii) was received by Principal
Investigator from a third party having a right to disclose it; (iv) is developed
by or on behalf of Principal Investigator; or (v) was ordered disclosed as a
matter of law.

8. General and Company agree that Company shall have an opportunity to
acquire by assignment all rights to each invention which constitutes a new use
or modification of the Study Device and is made by General personnel, solely
or jointly, in the performance of the Institutional Study (hereinafter referred
to as "Invention"). Each Invention shall be promptly reported in writing to
Company and to General and Company shall have ninety (90) days following
receipt of such report to submit a written request to General to acquire
rights to the reported Invention. In the event Company so elects to acquire
rights to an Invention, General shall promptly obtain from General personnel
appropriate assignments of all rights in the Invention held by such personnel
and thereafter shall assign all its rights to Company.

9. This Agreement shall have an initial term of two (2) years from the
Effective Date and thereafter the term of this Agreement shall automatically
renew for additional one (1) year periods until such time as one party notifies
the other parties in writing at least thirty (30) days prior to the anniversary
of the Effective Date that the Agreement should not be renewed. Any party hereto
shall have the right to terminate the Institutional Study and this Agreement at
any time upon thirty (30) days prior written notice thereof to the other
parties. The obligations of the parties under Paragraphs 3,4,5,6,7,8,
12,13,14,17,18 and 20 shall survive the termination of this Agreement.

10. Company will provide the following equipment and other supplies to
General: two Model 3 X-ray sources (each including internal radiation
monitor), a Control Box System, a 486DX Laptop Computer with applications
software, colour HP printer, photodiode array, probe straightener, external
radiation monitor and various clinical accessories, an ionization chamber, an
electrometer with computer interface, and an IBM-compatible computer and a
number of calibration accessories, a dosimetry water tank with control
electronics, applications software, a radiochromic film reader, dosimetry
phantoms and dosimetry accessories (collectively, the "Equipment"). The parties
acknowledge that at the time of execution of this Agreement the price of the
Equipment, with Warranty and Service Contract, is approximately $544,400.

9/22/94
<PAGE>

11. Company agrees to support this Institutional Study by: (a) providing a
Study Device including all Equipment listed in paragraph 10 above at no charge
to General (b) providing the Principal Investigator with information and
instruction pertaining to the Study Device and its operation as needed to
perform the Study; (c) repairing, maintaining, and modifying the Study Device as
needed during the Institutional Study; (d) monitoring the Institutional Study;
and (e) providing General with a research grant for one-half the salary of a
nurse/coordinator designated by General for the term of this Agreement. The
responsibilities of the nurse/coordinator will include overseeing the collection
and assembly of data generated by the Institutional Study, frequent
correspondence with the Study Monitor, scheduling of patient visits, and
supervision of the follow-up of each patient by shepherding patients through
their visits with various physicians and to different diagnostic procedures.
Payment to General for one-half the salary of the nurse/coordinator in the
amount of $51,538.87 per year, which includes salary of $33,290.40, fringe
benefits (20.95%) in the amount of $6974.34 and indirect costs (28%) in the
amount of $11,274.13. Payment will be made in equal quarterly payments in the
amount of $12,884.72.

The checks should be made payable to "The General Hospital Corporation"
and sent, along with a letter indicating the name of the Principal Investigator
and the specific agreement for which the funds are intended, to:

Director
Office of Technology Affairs
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1101
Charlestown, MA 02129

12. At the completion of enrollment and treatment of twenty-five (25)
patients with the Study Device in the Institutional Study, all Equipment listed
in paragraph 10 above will become assets of General.

13. In the event the Institutional Study is terminated early (prior to the
treatment of twenty-five (25) Institutional Study patients with the Study
Device), an accounting will be made of the Equipment provided for the
Institutional Study by Company and any such Equipment remaining shall be
returned to Company on a pro rata basis based upon the number of patients
treated with the Study Device as agreeable to both General and Company. In
addition, the amount of the research grant under Paragraph 11(e) by Company to
support the Institutional Study shall be appropriately prorated based upon the
duration of the Agreement.

14. It is understood that during the term of this Agreement, in the
interest of device integrity and patient safety, the Study Device will be used
for no purpose other than the Institutional

9/22/94
<PAGE>

Study without the written permission of the Director of Clinical Trials at
Company. After the term of this Agreement, any Equipment that remains at the
General may be used for any purpose consistent with any applicable federal,
state or local laws or regulations.

15. It is anticipated that General will treat a minimum of ten (10)
eligible patients with the Study Device, per year, following the Effective Date
of this Agreement. Failure to treat at least twenty (20) eligible patients with
the Study Device during the two years following the Effective Date of this
Agreement may result in termination of the Institutional Study at [*****] in
accordance with paragraph 9 and the pro rated return of Equipment as provided
for in paragraph 13.

16. The covers may not be removed from any of the Equipment listed in
paragraph 10 by non-Company personnel with the sole exception of the Control Box
System which may be opened for testing only in order to switch from manual to
computer control of the system. Adherence to this policy will both protect the
interests of the Company and ensure that all Study patients are treated with
equipment that has met the same standards.

17. (a) Company shall indemnify, defend and hold harmless General and its
trustees, officers, medical and professional staff, employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss, or expense (including reasonable attorney's fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or any one
of them in connection with any claims, suits, actions, demands or judgments:
(i) arising out of any theory of product liability (including, but not limited
to, actions in the form of tort, warranty, or strict liability) concerning the
Study Device or any modification thereof developed pursuant to this Agreement
and made by Company or a licensee, affiliate or agent of Company; (ii) arising
out of any side effect or adverse reaction, illness or injury resulting from
Indemnitees' performance of the Study and occurring to any person involved in
the Study; or (iii) arising out of damage to any property resulting from and
occurring during the Indemnitees' performance of the Study; or (iv) arising out
of the negligence of the Study Monitor designated by Company. General agrees to
notify Company promptly of any such claim, suit, action, demand or judgment and
General and Principal Investigator agree to permit Company to control the
defense and disposition thereof (including, without limitation, all decisions to
litigate, settle or appeal) and further agree to reasonably cooperate with
Company in the handling thereof. Company agrees to keep General informed of the
progress in the defense and disposition of such claims and to consult with
General with regard to any settlement thereof which Company proposes to enter
into.

(b) Company's indemnification under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is

5
<PAGE>

(c) Company agrees, at its own expense, to provide attorneys reasonably
acceptable to the General to defend against any actions brought or filed against
any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.

18. (a) At such time as the Study Device or any modification thereof is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Company or by a licensee, affiliate or agent of
Company, Company shall, at its sole cost and expense, procure and maintain
comprehensive general liability insurance in amounts not less than $2,000,000
per incident and $2,000,000 annual aggregate and naming the Indemnitees as
additional insureds, with respect to claims arising out of Indemnitees'
performance of, or involvement in, the Institutional Study, except those claims
attributable to (i) or (ii) of subparagraph 17(b) of this Agreement. Such
comprehensive general liability insurance shall provide (i) product liability
coverage and (ii) broad form contractual liability coverage for Company's
indemnification under Paragraph 17 of this Agreement. If Company elects to self-
insure all or part of the limits described above (including deductibles or
retentions which are in excess of $250,000 annual aggregate) such self-insurance
program must be acceptable to the General and the Risk Management Foundation of
the Harvard Medical Institutions, Inc. The minimum amounts of insurance coverage
required under this Paragraph 18 shall not be construed to create a limit of
Company's liability with respect to its indemnification under Paragraph 17 of
this Agreement.

(b) Company shall provide General with written evidence of such insurance
upon request of General. Company shall provide General with written notice at
least fifteen (15) days prior to the cancellation, non-renewal or material
change in such insurance.

(c) Company shall maintain such comprehensive general liability insurance
during (i) the period that the Study Device or any modification thereof is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Company or by a licensee, affiliate or agent of Company
and (ii) a reasonable period after the period referred to in (c) (i) above which
in no event shall be less than five (5) years.

19. The terms of this Agreement can be modified only by a writing which
is signed by General, Principal Investigator and Company.

20. No party to this Agreement shall use the name of any

6
<PAGE>

other party or of any staff member, employee or student of any other party or
any adaptation thereof in any advertising, promotional, sales literature or
publicity or in any non-scientific publication without the prior written
approval of the party or individual whose name is to be used. For General,such
approval shall be obtained from the Director of Public Affairs and for Company,
from its Chief Executive Officer.

21. Any notices to be delivered by either party to the others shall be
delivered as follows: if to General, to Director, Office of Technology Affairs,
Massachusetts General Hospital, Thirteenth Street, Building 149, Suite 1101,
Charletown, MA 02129; if to Principal Investigator, to Rees G. Cosgrove, M.D.,
Department of Neurosurgery, Massachusetts General Hospital, Fruit Street,
Boston, MA, and if to Company to Jacquelyn C. Yanch, Photoelectron Corporation,
400-1 Totten Pond Road, Waltham MA 02254.

22. The provisions of this Agreement shall be interpreted under the laws
of the Commonwealth of Massachusetts.

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

PHOTOELECTRON CORPORATION THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No: 042 697 983)

BY: /s/Jacquelyn Yanch BY: /s/ Marvin C. Guthrie
-------------------------------- ------------------------------
Jacquelyn Yanch, Ph.D. Marvin C. Guthrie

TITLE: Director of Clinical TITLE: Vice President for Patents
--------------------------- --------------------------
Trials Licensing and Industry
--------------------------- --------------------------
Sponsored Research
--------------------------

DATE: 12 October 1994 DATE: 10/24/94
---------------------------- ----------------------------

PRINCIPAL INVESTIGATOR

BY: /s/Peter Oettinger /s/ Rees G. Cosgrove, M.D.
------------------------------- ----------------------------------
Peter Oettinger, Ph.D. Rees G. Cosgrove, M.D.

TITLE: Chief Operating Officer
---------------------------
DATE: 10/3/94
----------------------------------
DATE: October 12, 1994
-----------------------------

<PAGE>

EXHIBIT 10.19

PeC Photoelectron Corporation
- --------------------------------------------------------------------------------
400-1 Totten Pond Road, Waltham, MA 02154
(617) 290-5366 . FAX (617) 290-0595

CLINICAL RESEARCH AGREEMENT
---------------------------

Agreement made as of the first day of April, 1995, between The Brigham and
Women's Hospital Corporation, having a principal place of business at Francis
Street, Boston, Massachusetts 02115 ("Brigham") Peter Black, MD, Department of
Neurosurgery, Brigham and Women's Hospital, Boston Massachusetts 02115
("Principal Investigator"), and Photoelectron Corporation, a corporation having
an office at 400-1 Totten Pond Road, Waltham, Massachusetts, 02154 ("Company").

1. The Principal Investigator agrees to participate as an investigator in a
clinical study of the Model 3 Photon Radiosurgery System (hereinafter referred
to as the "Study Device") in accordance with the multi-institution study
protocol entitled "A Study of the Safety and Efficacy of the Photon Radiosurgery
System in the Treatment of Brain Metastases", a copy of which is attached hereto
as Exhibit A (hereinafter referred to as "Study"). That portion of Study that is
carried out at Brigham is hereinafter referred to as "Institutional Study". The
Principal Investigator agrees to adhere to the Standard Operating Procedures for
the Study as mandated by the FDA and to operate and maintain the Study Device
according to the instructions provided by Company. In the event of any conflict
between Exhibit A and the provisions of this Agreement, the provisions of this
Agreement shall govern.

2. The Institutional Study will be conducted by the Principal Investigator at
Brigham with the prior approval and ongoing review of all appropriate and
necessary review authorities and in accordance with all federal, state and local
laws and regulations. The Principal Investigator shall provide Company with
written evidence of review prior to the initiation of the Institutional Study
and of the Board's continuing review and approval of the Institutional Study
whenever it is reviewed, but at least once per year. All volunteers will meet
the legal age requirements of the Commonwealth of Massachusetts, the state in
which the Institutional Study is to be conducted.

3. Principal Investigator will furnish Company or its designated Study Monitor
with the data resulting from the Institutional Study in signed, completed case
report forms within one (1) month after the completion of each patient contact
and Company shall have the unrestricted right to use such data including, the
subjects' names, any identifying information, and any audiotapes, photographs or
other likenesses, but only to the extent that subjects' consent have been
obtained. The case report forms to be used will be those supplied by Company.
Patient records shall be made available to Company representatives upon request
for comparison with case report forms. Such records will also be made available
upon request for review by representatives of the US. Food and Drug
Administration. Records of the study including either the original or a copy of
all volunteer consent forms shall be retained in conformance with applicable
federal regulations.
<PAGE>

4. It is understood that the Study is a multi-center investigation and a
publication of results from all sites is expected. After submission of multi-
center results for publication, or notification by Company that such a
submission is no longer planned, or twelve (12) months after termination of the
Study at all sites, whichever shall occur first, the Principal Investigator
shall be free to publish the results of the Institutional Study, subject only to
the provisions of Paragraph 7 regarding Company's confidential information.
Company will be furnished with a copy of any proposed publication for review
and comment prior to submission for publication, for manuscripts, at least
thirty (30 ) days prior to submission, and for abstracts, at least seven (7)
days prior to submission. At the expiration of such thirty (30) or seven (7) day
period, Principal Investigator may proceed with submission for publication.

5. In addition, since the Study is to be carried out at a number of
institutions, a minimum of one journal article describing the analyzed results
from all institutions will be submitted for publication at the conclusion of the
Study. Such manuscript(s) will bear as authors, among others, all Principal
Investigators of the Study. The order of authors will be as follows: those who
design and implement the Study will be first; individuals from the institution
contributing the most patients will be listed next; the Principal Investigator
and other individuals at the institution contributing the second largest number
of patients will be next; and so on.

6. At the conclusion of Study and after such time as a minimum of one multi-
authored, multi-institution journal article has been published, all Principal
Investigators from all institutions participating in the Study will be given
complete access to all of the patient data accrued in the Study.

7. It is understood that Brigham cannot assure confidential treatment of any
information that may be disclosed to any Brigham staff member, employee or
student. However, the Principal Investigator agrees that, for a period of five
years from the date of this agreement, the Principal Investigator will not
disclose to any third party information which the Principal Investigator
receives from Sponsor which is in writing and designated as confidential or, if
disclosed orally, is designated as confidential at the time of disclosure and
confirmed in writing as confidential within twenty-one (21) days of such
disclosure, or use such information for any purpose other than the purpose of
conducting the Study, obtaining any required review of the Study or its conduct,
or in the sound judgment of Principal Investigator, ensuring proper medical
treatment of any patient or subject. Such information shall not be considered
confidential nor subject to this Agreement if it: (1) was in Principal
Investigator's possession prior to receipt thereof from Sponsor as shown by
written records; (ii) is already available or becomes available to the public
through no fault of Principal Investigator; (iii) was received by Principal
Investigator from a third party having a right to disclose it; (iv) is developed
by or on behalf of Principal Investigator independent of any disclosure
hereunder, or (v) was ordered disclosed as a matter of law.
<PAGE>

8. Brigham shall promptly disclose to Company any discovery or invention
("Invention") made in the performance of the Study by Brigham or its
investigators or its other personnel, solely or jointly with personnel of
Company. If either Brigham Company desires to obtain patent protection for
any such Invention, the parties will meet and confer to determine the
advisability thereof and the responsibility for the filing, prosecution and
costs thereof. Brigham shall be the sole owner, either by reason of written
agreement, Brigham's policies, or otherwise by operation of law, of all such
Inventions made solely by its investigators or its other personnel. Brigham and
Company shall jointly own all of such Inventions made jointly by personnel of
Company and investigators or other personnel of Brigham.

Brigham hereby grants to Company a royalty-free, non-exclusive license to each
Invention solely owned by Brigham which is made in the performance of the Study
and which results from the research contemplated by Exhibit A. For new
inventions not contemplated by the Study protocol, and for any invention for
which Company would like exclusivity, Company shall have one hundred eighty
(180) days following receipt by Company of a disclosure of an Invention, to
submit a written request to Brigham to acquire an exclusive, royalty-bearing
license to all of Brigham's rights to the disclosed Invention. Following such
request, Brigham and Company shall negotiate for an exclusive or non-exclusive
worldwide commercialization license to all rights that Brigham may have in any
such Invention for the protectable life of the Invention, on reasonable terms
and conditions to be negotiated at such time. If the parties are unable to reach
agreement for any such license after six (6) months of good faith negotiations,
then for eighteen (18) months thereafter Company shall remain entitled to
exercise a right of first refusal with respect to Brigham's rights to any such
Invention as follows: Before accepting an offer from, or making an offer to, a
third party on terms more favorable than those last offered to Company to
acquire rights in such Invention, Brigham shall inform Company of such offer
and shall allow Company a period of thirty (30) days in which to elect whether
to acquire Brigham's right to the invention under such terms as are offered to
or by Brigham.

9. This Agreement shall remain in force until the completion of Study, subject
to annual review at a minimum. Any party hereto shall have the right to
terminate the Study and this Agreement at any time upon thirty (30) days prior
written notice thereof to the other parties. In the event of termination, the
amount of the reimbursement under Paragraphs 10 and 11(e) by Company to support
the Study shall be appropriately prorated. The obligations of the parties under
Paragraphs 3,4,7,8,13,17,18,20 and 21 shall survive the termination of this
Agreement,

10. Equipment and other supplies provided by the Company include the following:
two Model 3 X-ray sources (each including internal radiation monitor), a Control
Box System, a 486DX Laptop Computer with applications software, colour HP
printer, photodiode array, probe straightener, external radiation monitor and
various clinical accessories, an ionization chamber, an electrometer with
computer interface, an IBM-compatible computer and a number of calibration
accessories, a dosimetry water tank with control electronics, applications
software, a radiochromic film reader, dosimetry phantoms and dosimetry
accessories.
<PAGE>

11. Company agrees to support this institutional Study by: (a) providing a Study
Device including all equipment and supplies listed in paragraph (10) above at no
charge to Brigham (b) providing the Principal Investigator with information and
instruction pertaining to the Study Device and its operation as needed to
perform the Institutional Study; (c) repairing, maintaining, and modifying the
Study Device as needed during the Institutional Study; (d) monitoring the
Institutional Study; and (e) providing Brigham with a research grant for one-
half the salary, plus fringe benefits, plus indirect costs, of a
nurse/coordinator designated by Brigham during the Institutional Study. The
actual amount payable to Brigham for the nurse/coordinator will be contingent
upon the salary of the individual hired for the position, but will not exceed a
maximum total amount in the first year of this Agreement of $57,513.18, which
includes maximum salary of $34,049.60, maximum fringe benefits at twenty-seven
per cent (27%) of salary in the amount of $9,193.39 and maximum indirect costs
at thirty-three per cent (33%) of salary plus fringe benefits in the amount of
$14,270.19. The maximum total amount in subsequent years may be increased by no
more than five per cent (5%).

Payments will be made quarterly by way of a check made out to Brigham and
Women's Hospital. Checks will be sent to: Research Administration
Attention: Keith A. Marcotte
Brigham and Women's Hospital
10 Vining Street
Boston, MA 02115

The responsibilities of the nurse/coordinator will include overseeing the
collection and assembly of data generated by the Institutional Study, frequent
correspondence with the Study Monitor, scheduling of patient visits, and
supervision of the follow-up of each patient by shepherding patients through
their visits with various physicians and to different diagnostic procedures.

12. At the completion of enrollment and treatment of twenty-five (25) patients
with the Study Device, all supplies and equipment listed in paragraph (10) above
will become assets of Brigham. Clinical use of the Study Device other than for
the Institutional Study or for any other study of which Company is the Sponsor
and Brigham is a participating clinical site, shall become the responsibility
of Brigham. These responsibilities include complying with all applicable
regulations of the United States Food and Drug Administration (FDA),
particularly those regulations pertaining to clinical use of investigational
devices.

13. If the Institutional Study is terminated early (prior to treatment of
twenty-five (25) patients with the Study Device), an accounting will be made of
the clinical equipment and supplies provided for the Institutional Study by
Company and any such supplies remaining shall be returned to Company on a pro
rata basis agreeable to both Brigham and Company. In addition, the amount of
the research grant under Paragraph 11(e) by Company to support the Institutional
Study shall be appropriately prorated based on the duration of the Agreement.

14. It is understood that, in the interest of device integrity and patient
safety, the Study Device will be used for no purpose other than the
Institutional Study without the written permission of the Director of Clinical
Research and Regulatory Affairs at Company.
<PAGE>

15. It is agreed that Brigham will treat a minimum of ten (10) eligible
patients per year with the Study Device, and is expected to treat a minimum of
twenty (20) patients in the two years following the date of this Agreement.
Failure to treat at least ten eligible patients per year with the Study Device
may result in termination of the Institutional Study at Brigham in accordance
with paragraph 9 and the return of equipment as provided for in paragraph 13.

16. The covers may not be removed from any of the equipment listed in paragraph
(10) by non-Company personnel with the sole exception of the Control Box System
which may be opened for testing only in order to switch from manual to computer
control of the system. Adherence to this policy will both protect the interests
of the Company and ensure that all Study patients are treated with equipment
that has met the same standards.

17. (a) Company shall indemnify, defend and hold harmless Brigham and its
trustees, officers, medical and professional staff, employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss, or expense (including reasonable attorney's fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or any one
of them in connection with any claims, suits, actions, demands or judgments:
(i) arising out of any theory of product liability (including, but not limited
to, actions in the form of tort, warranty, or strict liability) concerning the
Study Device or any modification thereof developed pursuant to this Agreement
and made by Company or a licensee, affiliate or agent of Company; (ii) arising
out of any side effect or adverse reaction, illness or injury resulting from
Indemnitees' performance of the Institutional Study and occurring to any person
involved in the Institutional Study; or (iii) arising out of damage to any
property resulting from and occurring during the Indemnitees' performance of the
Institutional Study.

Brigham agrees to notify Company promptly of any such claim, suit, action,
demand or judgment and Brigham and Principal Investigator agree to permit
Company to control the defense and disposition thereof (including without
limitation, all decisions to litigate, settle or appeal) and further agree to
reasonably cooperate with Company in the handling thereof. Company agrees to
keep Brigham informed of the progress in the defense and disposition of such
claims and to consult with Brigham with regard to any settlement thereof which
Company proposes to enter into.

(b) Company's indemnification under (a) above shall not apply to any liability,
damage, loss or expense to the extent that it is attributable to the:
(i) negligent activities or misconduct of any of the Indemnitees, or
(ii) failure of any of the Indemnities to adhere to the terms of the protocol
for the Study or the Standard Operating Procedures or to operate the Study
Device according to instructions provided by Company.

(c) Company agrees, at its own expense, to provide attorneys reasonably
acceptable to Brigham to defend against any actions brought or filed against
any party indemnified hereunder with respect to the subject of indemnity
contained herein, whether or not such actions are rightfully brought.
<PAGE>

18. (a) At such time as the Study Device or any modification thereof is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Company or by a licensee, affiliate or agent of
Company, Company shall, at its sole cost and expense, procure and maintain
comprehensive general liability insurance in amounts not less than $2,000,000
per incident and $2,000,000 annual aggregate and naming the Indemnitees as
additional insureds, with respect to claims arising out of Indemnitees'
performance of, or involvement in, the Institutional Study, except those claims
attributable to (i) or (ii) of subparagraph 17 (b) of this Agreement. Such
comprehensive general liability insurance shall provide (i) product liability
coverage and (ii) broad form contractual liability coverage for Company's
indemnification under Paragraph 17 of this Agreement. If Company elects to self-
insure all or part of the limits described above (including deductibles or
retentions which are in excess of $250,000 annual aggregate) such self-insurance
program must be acceptable to Brigham and the Risk Management Foundation of the
Harvard Medical Institutions, Inc. The minimum amount of insurance coverage
required under this Paragraph 18 shall not be construed to create a limit of
Company's liability with respect to its indemnification under Paragraph 17 of
this Agreement.

(b) Company shall provide Brigham with written evidence of such insurance upon
request of Brigham. Company shall provide Brigham with written notice at least
fifteen (15) days prior to the cancellation, non-renewal or material change in
such insurance.

(c) Company shall maintain such comprehensive general liability insurance during
(i) the period that the Study Device or any modification thereof is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Company or by a licensee, affiliate or agent of Company
and (ii) a reasonable period after the period referred to in (c)(i) above which
in no event shall be less than five (5) years.

19. The terms of this Agreement can be modified only by a writing which is
signed by Brigham, Principal Investigator and Company.

20. Except for disclosure of each party's support for this clinical study,
neither party to this Agreement shall use the name of the other party or of the
Principal Investigator, any staff member, employee or student of the other party
or any adaptation thereof in any publicity without the prior written approval of
the party or individual whose name is to be used.

21. Any notices to be delivered by either party to the others shall be delivered
as follows: if to Brigham to Vice President, Office of Research Administration,
Brigham and Women's Hospital, 10 Vining Street, Boston, MA 02115, if to
Principal Investigator to Peter Black, MD, Neurosurgery Department,
Brigham and Women's Hospital, 75 Francis Street, Boston, MA 02115, if to
Company to Thomas Varricchione, Photoelectron Corporation, 400-1 Totten Pond
Road, Waltham MA 02154.

22. The provisions of the Agreement shall be interpreted under the laws of the
Commonwealth of Massachusetts.
<PAGE>

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

PHOTOELECTRON CORPORATION BRIGHAM AND WOMEN'S HOSPITAL

BY: /s/Thomas R. Varricchione BY: /s/ Keith A. Marcotte
-------------------------- ----------------------------
THOMAS R. VARRICCHIONE KEITH A. MARCOTTE
DIRECTOR, CLINICAL RESEARCH VICE PRESIDENT
AND REGULATORY AFFAIRS RESEARCH ADMINISTRATION

DATE: 14 April 1995 DATE: 4/24/95
------------------------ --------------------------

BY: /s/Peter Oettinger BY: /s/Peter Black
-------------------------- ---------------------------
PETER OETTINGER, PH.D. PETER BLACK, M.D.
VICE PRESIDENT AND PRINCIPAL INVESTIGATOR
CHIEF OPERATING OFFICER

DATE: 14 April, 1995 DATE: April 21, 1995
------------------------ ---------------------

<PAGE>

EXHIBIT 10.20

CLINICAL TRIAL AGREEMENT

Agreement made as of the first day of Jan, 1995, between The Tokyo Women's
-----------------
Medical College having a principal place of business at 8-1, Kawada-Cho,
- ---------------
Jhinjuku-ku, Tokyo 162, Japan ("Medical College"), Kintomo Takakura, MD,
Professor and Chairman, Department of Neurosurgery, Neurological Institute,
Tokyo Women's Medical College, 8-1, Kawada-Cho Jhinjuku-ku, Tokyo 162, Japan
("Principal Investigator"), and Photoelectron Corporation, a corporation having
an office at 400-1 Totten Pond Road, Waltham, Massachusetts, 02254 USA
("Company").

1. The Principal Investigator agrees to participate as an investigator in a
clinical study of Model 3 Miniature X-ray Source of the Photon Radiosurgery
System (hereinafter referred to as the "Study Device") in accordance with the
multi-institution study protocol entitled "A Study of the Safety and Efficacy
of the Photon Radiosurgery System in the Treatment of Brain Metastases", a copy
of which is attached hereto as Exhibit A (hereinafter referred to as "Study").
In the event of any conflict between Exhibit A and the provisions of this
Agreement, the provisions of this Agreement shall govern. That portion of Study
that is carried out at Medical College is hereinafter referred to as
"Institutional Study". The Principal Investigator also agrees to adhere to the
Standard Operating Procedures for the Study as mandated by the FDA and to
operate and maintain the Study Device according to the instructions provided by
Company.

2. The Institutional Study will be conducted by the Principal Investigator at
Medical College with the prior approval and ongoing review of all appropriate
and necessary review authorities at Medical College and in accordance with all
Japanese laws and regulations. The Principal Investigator shall provide Company
with written evidence of review of the Study by the Medical College Ethics
Committee prior to the initiation of the Institutional Study and of the Ethics
Committee's continuing review and approval of the Institutional Study whenever
it is reviewed, but at least once per year. All volunteers will meet the legal
age requirements of Japan, the country in which the Institutional Study is to be
conducted.

3. Principal Investigator will furnish Company or its designated Study Monitor
with the data resulting from the Institutional Study in signed case report forms
within fourteen working days after the completion of each form and Company shall
have the unrestricted right to use such data including, but only to the extent
that subjects' consent have been obtained to use the subjects' names, any
identifying information, and any audiotapes,
<PAGE>

photographs or other likenesses. The case report forms to be used will be those
supplied by Company. Patient records shall be made available to Company
representatives upon request for comparison with case report forms. Such records
will also be made available upon request for review by representatives of the
U.S. Food and Drug Administration. Records of the study including either the
original or a copy of all volunteer consent forms shall be retained both by
Company and by Medical College.

4. It is understood that this study is a multicentre investigation and a
publication of results from all sites is expected. After submission of
multicentre results for publication, or notification by Company that such a
submission is no longer planned, or twelve (12) months after termination of the
Study at all sites, whichever shall first occur the Principal Investigator shall
be free to publish the results of the Institutional Study subject only to the
provisions of Paragraph 7 regarding Company's confidential information. Company
will be furnished with a copy of any proposed publication for review and comment
prior to submission for publication, which for manuscripts, is at least thirty
(30) days prior to submission, and for abstracts, is at least seven (7) days
prior to submission. At the expiration of such a thirty (30) or seven (7) day
period, Principal Investigator may proceed with submission for publication.

5. In addition, since the Study is to be carried out at a number of
institutions, a minimum of one journal article describing the analyzed results
from all institutions will be submitted for publication at the conclusion of the
Study. Company will be responsible for coordinating the manuscript(s). Such
manuscript(s) will bear as authors, among others, all principal investigators of
the Study. The order of authors will be as follows: those who design and
implement the Study will be first; the principal investigator and other
individuals from the institution contributing the most patients will be listed
next; the principal investigator and other individuals at the institution
contributing the second largest number of patients will be next; and so on.

6. At the conclusion of Study and after such time as the multi-authored, multi-
institution journal article referred to in paragraph (5) has been published, all
principal investigators from all institutions participating in the Study who
have treated the number of anticipated patients with the Study Device as
described in paragraph 13, will be given complete access to all of the patient
data accrued in the Study, provided such access does not conflict with such laws
and practices as may be applicable. Access to data will not be provided in the
case of early termination of the Institutional Study.

7. In order to effectively complete the Institutional Study, it may be
necessary or desirable for the parties to disclose proprietary, trade secret
and/or other confidential information (herein "Confidential Information") to one
another. Each party agrees that any such Confidential Information disclosed to
it or to its employees shall be used only in connection with the legitimate
purposes of this Agreement; shall be safeguarded with the same care normally
afforded such Confidential Information in the possession, custody, or control of
the party receiving the Confidential Information provided, however, that the
disclosing party specifies in writing the nature and identity of the
Confidential Information and the manner and time of disclosure. The foregoing
shall not apply when,
<PAGE>

after and to the extent the Confidential Information disclosed; i) becomes
generally available to the public through no fault of the receiving party;
ii) was already known to the receiving party at the time of disclosure as
evidenced by written records in the possession of the receiving party prior to
such time or; (iii) is subsequently received by the receiving party in good
faith from a third party without breaching any confidential obligation between
the third party and the disclosing party.

8. Medical College and Company agree that Company shall have an option to
acquire by assignment, at nominal expense to Company, all rights to each,
invention which constitutes a new use, or modification of the Study Device and
is made by Medical College personnel, solely or jointly, in the performance of
the Study (hereinafter referred to as "Invention"). Each Invention shall be
promptly reported in writing to Company and to Medical College, and Company
shall have ninety (90) days following receipt of such report to submit a written
request to Medical College to acquire rights to the reported Invention. In the
event Company so elects to acquire rights to an Invention, Medical College shall
promptly obtain from Medical College personnel appropriate assignments of all
rights in the Invention held by such personnel and thereafter shall assign all
its rights to Company.

9. This Agreement shall remain in force until the completion of Institutional
Study. Any party hereto shall have the right to terminate the Study and this
Agreement at any time upon thirty (30) days prior written notice thereof to the
other parties. The obligations of the parties under Paragraphs 2,3,4,5,6,7,8,
12,14,15,17,18 and 19 shall survive the termination of this
Agreement.

10. Company will provide the following equipment and other supplies to Medical
College: two Model 3 X-ray sources (each including internal radiation monitor),
a Control Box System, a 486DX Laptop Computer with applications software, colour
HP printer, photodiode array, probe straightener, external radiation monitor and
various clinical accessories, an ionization chamber, an electrometer with
computer interface, an IBM-compatible computer and a number of calibration
accessories, a dosimetry water tank with control electronics, applications
software, a radiochromic film reader, dosimetry phantoms and dosimetry
accessories (collectively, the "Equipment"). All Equipment provided by Company
will remain assets of Company. It is understood that Company will have access to
the Equipment at any time.

11. Company agrees to support this Institutional Study by: (a) providing the
Equipment for the duration of the Institutional Study at no charge to Medical
College (b) providing the Principal Investigator with information and
instruction pertaining to the Study Device and its operation as needed to
perform the Institutional Study; (c) repairing, maintaining, and modifying the
Study Device as needed during the Institutional Study; and (d) monitoring the
Institutional Study.

12. At the completion of the Institutional Study, the Equipment will be
returned to Company.
<PAGE>

13. It is anticipated that Medical College will treat a minimum of ten
(10) eligible patients with the Study Device, per year, following the date of
this agreement. Failure to treat at least ten patients per year with the Study
Device may result in termination of the Institutional Study at Medical College
in accordance with paragraph 9.

15. The covers and casings may not be removed from any of the Equipment by non-
Company personnel with the sole exception of the Control Box System which may be
opened for testing only in order to switch from manual to computer control of
the system. Adherence to this policy will both protect the interests of the
Company and ensure that all Study patients are treated with equipment that has
met the same standards.

16. The terms of this Agreement can be modified only by a writing which is
signed by Medical College, Principal Investigator and Company.

17. No party to this Agreement shall use the name of any other party or of any
staff member, employee or student of any other party or any adaptation thereof
in any advertising, promotional, sales literature, or publicity or in any non-
scientific publication without the prior written approval of the party or
individual whose name is to be used. For Medical College, such approval shall be
obtained from the Director of News and Public Affairs and for Company, from its
Chief Executive Officer.

18. Any notices to be delivered by either party to the others shall be
effective if delivered by registered mail, return receipt requested or by
facsimile transmission as follows: if to Medical College to __________________
_____________________________, if to Principal Investigator to Kintomo Takakura,
MD, Professor and Chairman, Department of Neurosurgery, Neurological Institute,
Tokyo Women's Medical College, 8-1, Kawada-Cho, Shinjuku-Ku, Tokyo 162, Japan,
(fax: 81-3-3341-0613) if to Company to Jacquelyn C. Yanch, PhD, Photoelectron
Corporation, 400-1 Totten Pond Road, Waltham MA USA 02254 (fax 617-290-0595).

19. The provisions of the Agreement shall be interpreted under the laws of the
Commonwealth of Massachusetts.
<PAGE>

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

PHOTOELECTRON CORPORATION THE TOKYO WOMEN'S MEDICAL COLLEGE

BY: /s/ Peter Oettinger BY: /s/ Saichi Hosoda, M.D.
------------------------------ --------------------------------
PETER OETTINGER, PH.D Saichi Hosoda, M.D.
CHIEF OPERATING OFFICER Director of Tokyo Women's
Medical College Hospital
DATE: November 28, 1994
---------------------------- DATE: December 2, 1994
------------------------------

PRINCIPAL INVESTIGATOR:

/s/ Kintomo Takakura, M.D.
---------------------------------------
Kintomo Takakura, M.D.

DATE: December 1, 1994
------------------------------

<PAGE>

EXHIBIT 10.21

(Note: This Exhibit 10.21 has had certain information omitted. Such omitted text
has been identified by astericks, and has been filed separately with the
Commission in connection with an application to the Commission for confidential
treatment thereof.)

PHOTOELECTRON CORPORATION

CLINICAL TRIAL AGREEMENT

THIS AGREEMENT, effective this 13 day of December 1995, by and between
Photoelectron Corporation, a Massachusetts corporation having its principle
place of business at 400-1 Totten Pond Road, Waltham, Massachusetts 02154,
U.S.A. (hereinafter called the "Company"), and Toshiba Medical Systems Co.,
Ltd., a Japanese corporation having its principal place of business at 26-5, 3-
Chome, Hongo, Bunkyo-ku, Tokyo 113 Japan (hereinafter called the "Distributor").

WHEREAS, on this date the parties are entering into the International
Distributor Sales and Service Agreement (hereinafter called the "Distribution
Agreement"), pursuant to which the Company is appointing the Distributor as the
exclusive distributor for the Photon Radiosurgery System in Japan.

WHEREAS the Company and the Distributor shall jointly conduct clinical trials
(hereinafter called "Clinical Trials") of the Photon Radiosurgery System in
Japan with the objective of obtaining all necessary legal, regulatory, or
administrative approvals to import, market, sell, and use Photon Radiosurgery
System in Japan (hereinafter called "Approvals") under Section 14 (Approval to
Import) of the Japanese Pharmaceutical Affairs Law ("PAL").

NOW THEREFORE, The parties agree as follows:

ARTICLE I DEFINITIONS

1.01 All capitalized terms used in this Agreement shall have the meanings
assigned to them in the Distribution Agreement unless otherwise defined under
this Agreement.

ARTICLE II SALES TO DISTRIBUTOR

2.01 Purchase of PRS Units for Clinical Trials

A. The Distributor agrees to purchase from the Company two complete systems
of the Photon Radiosurgery System consisting of the following items (hereinafter
called the "PRS") for use in the Clinical Trials to be conducted in Japan with
regard to the treatment of metastatic brain tumors and other agreed upon tumor
types. The purchase price for each PRS shall be U.S.$ *** (together with
applicable taxes and other transfer fees imposed by Japanese or
<PAGE>

United States law), which represents a **** discount from the Company's current
list price. The Distributor shall pay for each system no later than thirty (30)
days after the Distributor has received and inspected each system.

1. PRS probes (2) 8. E1ectrometer
2. PRS control box 9. Ionization chamber
3. Probe adjuster 10. Dosimetry computer
4. Photodiode array 11. Dosimetry tank control electronics
5. External radiation monitor 12. Dosimetry tank
6. Sterilization tray 13. Radiochromic film reader
7. Laptop computer 14. Phantom

The Company agrees to negotiate with Radionics Inc. to sell to the Distributor
its stereotactic frame to be used with the PRSs in the Clinical Trials at a
discount price.

B. Both units of the PRS shall be sold "FOB" Boston (as such term is defined
by the International Chamber of Commerce, INCOTERMS (3d.ed. 1990)). The Company
shall use reasonable efforts to obtain, at its own expense, any export or other
official authorization and carry out or satisfy any other formalities necessary
for the transportation and exportation of the two PRS units from the United
States. The Distributor shall use reasonable efforts to obtain, at its own
expense, any authorization necessary for the importation of the two PRS units to
Japan and their use in the Clinical Trials.

C. The Company shall package the PRS in an appropriate manner for shipment to
the Distributor in Japan and in accordance with such packaging requirements as
the Distributor may reasonably request in consideration of the laws and shipping
customs of Japan.

D. The Company and the Distributor shall mutually cooperate to ensure that the
PRS complies with all local laws, standards, regulations applicable to use of
the PRS in the Clinical Trials.

E. When the Approvals have been obtained the Company shall refurbish and
upgrade the two units of the PRS to make them saleable and conform to the then
existing current models at no additional charge to the Distributor.

2.02 Warranties on Products. The Company warrants both units of the PRS and
Parts and Accessories (hereinafter called "Products") delivered to the
Distributor in accordance with the attached Schedule A (such warranty is
hereinafter referred to as the "Company Limited Warranty"). The Company Limited
Warranty is the only warranty applicable to the Products delivered in accordance
with this Agreement.
<PAGE>

2.03 Product Liability/Patent Indemnification

A. The Company agrees to indemnify and defend the Distributor, its parent
company, subsidiaries affiliates and Clinical Trials sites, and their respective
agents, representatives and employees (the "Distributor Group") from and
against any and all claims, proceedings, causes of action and suits
(hereinafter, collectively "Claims") (i) arising out of personal injury, death
and/or property damage in connection with the use of a Product (excluding any
uses of Products for purposes other than those approved), or (ii) which is based
on any claim that any part of the Products or the sale or use thereof by the
Distributor under this Agreement infringes any patent, any copyright, trade
secret, any trade name, any trademark or intellectual property of any third
party; subject to the Distributor giving the Company prompt written notice upon
discovery of each Claim and except to the extent such Claims occur as a result
of the negligent or willful acts or omissions of any member of the Distributor
Group. The Company shall control the defense of any such Claim and shall pay all
costs of any such defense (including the attorney's fees required to be incurred
by the Distributor Group in such action) and all judgments, awards and
settlement amounts incurred as a result of such Claims. The Distributor shall
give the Company reasonable assistance in the defense or settlement of the
Claims. It is understood that the Company shall have the sole discretion to
determine the terms of settlement of any Claim.

Notwithstanding the foregoing, the Company shall have no liability under this
Section 2.03 for any claim by a third party that the use of a Product caused
personal injury, death or property damage or infringes any patent, copyright,
trade secret or other intellectual property right in any of the following
circumstances: (i) the Product was altered or modified by any member of the
Distributor Group or any third party without prior authorization of the Company
and such alteration or modification resulted in or is the basis for the third
party claim; (ii) the Distributor or any third party used the Product in
combination with any component, apparatus or software not furnished or
authorized by the Company and such combination resulted in or is the basis for
the third party claim; (iii) the Product was used in a manner for which it was
not designed or specified or otherwise inconsistent with the clinical trial
protocol or procedures prepared by the supervisors of the Clinical Trials and
approved by the Company and the Japanese Government (hereinafter called the
"Protocols"); or (iv) any member of the Distributor Group owns an intellectual
property right or has a license which precludes it from being held responsible
for the claim of infringement.

2.04 Force Majeure. Neither party shall be liable in any manner for failure or
delay to fulfill all or part of this Agreement directly or indirectly, owing to
an act of God, governmental orders or restriction, war, threat of war, warlike
conditions, hostilities, sanctions, mobilization, blockade, embargo, detention,
revolution, riot, looting, strike, lockout, labor action, accident, or any other
causes or circumstances beyond its reasonable control.

2.05 Limit on Liability. EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN
THIS ARTICLE II, IN NO EVENT SHALL THE COMPANY BE LIABLE TO ANY
MEMBER OF THE DISTRIBUTOR GROUP FOR SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, BUT NOT LIMITED
TO, LOSS OF PROFIT, LOSS OF BUSINESS OPPORTUNITY, LOSS OF REVENUE
<PAGE>

OR GOODWILL ARISING FROM ANY BREACH OR OTHER FAILURE BY THE COMPANY UNDER THIS
AGREEMENT.

ARTICLE III THE CLINICAL TRIAL PROGRAM

3.01 Site of Clinical Trials. The initial site for the Clinical Trials shall be
at The Tokyo Women's Medical College in Tokyo, Japan under the supervision of
Professor Kintomo Takakura, M.D. as Principal Investigator. The Distributor
shall select the second clinical trial site taking into consideration the future
marketing strategy for the PRS in Japan and give a written notification to the
Company.

3.02 Responsibilities of the Distributor in the Clinical Trials. The
Distributor shall have the following responsibilities in the Clinical Trials to
be conducted in Japan:

A. The Distributor shall be responsible for installing and maintaining the
PRS systems to be used in the Clinical Trials and exercise reasonable efforts to
obtain all necessary legal, regulatory or administrative approvals for
conducting the Clinical Trials.

B. The Distributor shall bear the full cost to be incurred for any legal
procedures for conducting the Clinical Trials in Japan and for obtaining all
Approvals.

C. The Distributor shall use its reasonable efforts to cause the Clinical
Trials to be conducted in accordance with the Protocols.

D. The Distributor shall advise the Company concerning the requirements for
obtaining approval to import, market, sell, use and obtain reimbursement for the
PRS in Japan in accordance with the PAL and any other applicable legal,
regulatory or administrative requirements.

E. The Distributor shall provide such assistance to the hospitals and
physicians conducting the Clinical Trials in Japan as they or the Company may
reasonably request from time to time. Such assistance shall include the
collection and analysis of clinical data in compliance with the PAL and U.S.
Food and Drug Administration requirements.

3.03 Responsibilities of the Company in the Clinical Trials. The Company shall
have the following responsibilities in the Clinical Trials to be conducted in
Japan:

A. Prior to commencement of and during the Clinical Trials the Company shall
provide at no charge reasonable training at the Company's headquarters to the
Distributor's personnel with respect to the installation, operation and
maintenance of the PRS. The Distributor shall be responsible for all out of
pocket travel expenses (meals, airfare, hotel, local transportation, etc.)
incurred by its representatives in connection with such training.
<PAGE>

B. The Company shall provide at no charge all technical information
including, but not limited to, the following, to the extent necessary to comply
with the requirements of PAL:

(1) technical information detailing the development of the PRS;
(2) technical information concerning shape (size), structure, and composition
materials of the PRS;
(3) technical information concerning the manufacture and testing of the PRS;
(4) technical information concerning the performance and effectiveness of the
PRS;
(5) technical information concerning the operation and use of the PRS;
(6) technical information concerning the stability and safety (as mechanically,
electronically, biologically, radioactivity wise) of the PRS;
(7) technical information concerning the status of clinical trials in the U.S.
or other countries;
(8) installation and operation manuals; and
(9) other documents required by the Japanese Ministry of Health and Welfare;

and other assistance as the Distributor may reasonably request, which shall
include sending appropriate engineering personnel to Japan if the Company deems
such action necessary. The Company shall be responsible for all out of pocket
travel expenses (meals, airfare, hotel, local transportation, etc.) incurred by
its representatives in providing such assistance.

C. The Company shall provide on-site installation supervision and training at
no charge at the first clinical trial site and the second clinical trial site,
if reasonably requested by the Distributor. The Company shall be responsible for
all out of pocket travel expenses (meals, airfare, hotel, local transportation,
etc.) incurred by its representatives in providing such assistance.

D. The Company will also provide the Distributor with all necessary spare
parts for the PRS during the Clinical Trials. For the Clinical Trials to be
conducted smoothly, the Company agrees to consign to the Distributor a
reasonable amount of accessories, supplies and spare parts. At the time when the
Clinical Trials are completed, both parties agree to discuss what to do with the
unused portion of the accessories, supplies and spare parts.

E. The Company shall be responsible for approving all Protocols to be
utilized in connection with the Clinical Trials.

F. The Company shall be responsible for and bear the full cost to be incurred
in any necessary modifications of the PRS for successfully concluding the
Clinical Trials and for obtaining the Approvals.
<PAGE>

3.04 Trademarks and Service Marks

A. The Company or its affiliated companies are the exclusive owners of the
various trademarks, service marks, names, and designs (herein called "Marks")
used in connection with the Products.

B. The Distributor is granted the non-exclusive right of displaying the Marks
in Japan in connection with performing its obligations under this Agreement. The
Marks may be used as part of the name under which the Distributor's business is
conducted only with the prior written approval of the Company. The Distributor
will change or discontinue the use of any Mark upon the written request of the
Company. No member of the Distributor Group may use any Mark or Product name
without the Company's prior written permission.

C. Upon termination of this Agreement, unless allowed by the Distribution
Agreement, the Distributor will immediately discontinue or cause to be
discontinued at its expense, all use of Marks. Thereafter, the Distributor will
not use, either directly or indirectly, any Marks or any other confusingly
similar marks in a manner likely to cause confusion or mistake or to deceive the
public.

3.05 Proprietary Information. Unless superseded or continued by terms of the
Distribution Agreement, during the term of this Agreement and four (4) years
thereafter, the Distributor shall receive and keep in confidence all proprietary
information concerning the Products and the Company's business including, but
not limited to, trade secrets, business and marketing plans and other
specialized information which might be disclosed to or learned by the
Distributor. After the termination of this Agreement, the Distributor shall
return all property belonging to the Company and shall keep all proprietary
information in confidence and shall not use or disclose any such information for
its own purposes or for the benefit of any third party without the prior
written consent of the Company.

Unless superseded or continued by terms of the Distribution Agreement, during
the term of this Agreement and four (4) years thereafter, the Company shall
receive and keep in confidence all proprietary information concerning the
Distributor's products and business including, but not limited to, trade
secrets, business and marketing plans and other specialized information which
might be disclosed to or learned by the Company. After termination of this
Agreement, the Company shall return all property belonging to the Distributor
and shall keep all proprietary information in confidence and shall not use or
disclose any such information for its own purposes or for the benefit of any
third party without the prior written consent of the Distributor.

ARTICLE IV TECHNICAL RIGHTS

4.01 No License Granted to Distributor. Nothing in this Agreement shall be
deemed or construed to create or grant to the Distributor any license or other
rights in or to the PRS, any other Product or any component thereof except as
expressly set forth in this Agreement.
<PAGE>

4.02 Ownership of Improvements; Fixtures. All improvements, upgrades or
modifications to the PRS, any other Product or any component thereof developed
by the Distributor by the use of proprietary information of the Company which is
made available to the Distributor under this Agreement or the Distribution
Agreement, shall be solely owned by the Company, and the Distributor agrees to
execute or to cause to be executed such documents and to take or to cause to be
taken such other actions as the Company may deem necessary or desirable to
confirm its ownership of such improvements, upgrades or modifications. All
improvements, upgrades or modifications developed by the Distributor in a manner
other than described in the preceding sentence, including any interfacing
fixture, between the PRS and the frame or any other device for use with the PRS,
shall be solely owned by the Distributor. The Distributor will promptly notify
the Company in the event the Distributor or any of its affiliated companies
develop any improvements, upgrades or modifications to the PRS, any other
Product or any component thereof. The Distributor will grant to the Company a
worldwide, non-exclusive license to utilize any such improvements, upgrades or
modifications developed by the Distributor in connection with the PRS outside
the Territory at a commercially reasonable royalty.

ARTICLE V TERMINATION

5.01. Termination of Agreement

A. The initial term of this Agreement shall commence on the execution of this
Agreement and shall expire on the date when (i) the Distributor has obtained all
necessary Approvals, (ii) it is decided after every reasonable effort has been
made by both parties that the Clinical Trials cannot be successfully completed,
or as otherwise agreed to by the parties. This Agreement may also be canceled at
any time by either party upon thirty (30) days prior written notice upon breach
of any material term or condition of this Agreement, and this Agreement shall be
deemed terminated at the end of such thirty (30) day period if such breach is
not cured before such date.

B. The parties expressly acknowledge that no franchise, partnership or joint
venture relationship exists or is intended to exist between the parties hereto
during the term of this Agreement.

C. Termination of this Agreement will not release the Distributor or the
Company from the obligation to pay any amounts owing the other.

D. In case of termination pursuant to Section 5.01 A (ii) above, the
Distributor may at its own discretion, request that the Company make a
reasonable effort to resell to another customer, for the US $*** paid by the
Distributor, the two (2) sets of the PRS used in the Clinical Trials.

ARTICLE VI GENERAL PROVISIONS

6.01 No Agent or Legal Representative Status. This Agreement does not make
either party the agent or legal representative of the other for any purpose
whatsoever, nor does it grant either
<PAGE>

party any authority to assume or to create any obligation on behalf of or in the
name of the other. Neither party owes the other any fiduciary obligation.

6.02 Distributor's Responsibility for Its Operation. Except as provided
otherwise in this Agreement, the Company has no liability in connection with the
establishment or conduct of the Distributor's expenditures, liabilities and
obligations incurred or assumed by the Distributor in connection with the
Distributor's responsibilities under this Agreement.

6.03 Taxes. The Distributor will pay all Japanese taxes and will file required
tax returns related to the purchase of the PRS under this Agreement and will
hold the Company harmless from any claims or demands made by any taxing
authority with respect thereto.

6.04 Notices. Any notice, demand or request required or permitted to be given
hereunder shall be in writing, shall be in English, shall be sent to the address
or facsimile number set forth below, and shall be given by registered or
certified mail, internationally recognized courier service (e.g. Federal
Express, DHL), or by facsimile. Any such notice, demand or request shall be
deemed effective (i) five (5) days after having been deposited in the mail,
first class airmail postage prepaid for overseas notice, three (3) days for
domestic notices, (ii) three (3) days after deposit with an internationally
recognized courier service, or (iii) upon receipt if delivered by facsimile.

If to the Company:

Address: 400-1 Totten Pond Road
Waltham, Massachusetts, U.S.A. 02154
Attention: President
Facsimile Number: 617-290-0595

If to the Distributor:

Address: 26-5, 3-Chome, Hongo, Bunkyo-ku
Tokyo 113 Japan
Attention: President
Facsimile Number: 03 (3813) 7625

6.05 No Implied Waivers. The failure of either party to require performance by
the other party of any provisions hereof will in no way effect the right to
require such performance at any time thereafter, nor will the waiver by either
party of a breach of any provisions hereof.
<PAGE>

6.06 Assignment of Rights or Delegation of Duties. Neither this Agreement, nor
the rights or obligation of either party hereunder, may be sold, assigned or
otherwise transferred without the prior written approval of the other party.

6.07 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts, U.S.A. applicable
to contracts made, accepted and performed wholly within The Commonwealth of
Massachusetts, without application of principles of conflicts of laws. The
parties agree to submit to the jurisdiction of the courts of The Commonwealth of
Massachusetts should any dispute arise with respect to the interpretation or
enforcement of this Agreement.

6.08 Official Language. The official language of this Agreement shall be in
English, provided, however, that a Japanese translation of this Agreement shall
be prepared for the Distributor's reference.

6.09 Sole Agreement of Parties. Except as otherwise provided or referred to
herein, neither party has made any promises to the other, and there are no other
agreements or understandings, either oral or in writing, between the parties
affecting this Agreement or relating to the subject matter covered by this
Agreement. This Agreement cancels and supersedes all previous agreements
between the parties that relate to any matters covered herein.

6.10 Amendments. No agreement between the Company and the Distributor which
relates to matters covered herein, and no change, addition to (except the
filling in of blank lines) or deletion of any printed portion of this Agreement,
will be binding unless it is approved in writing and signed by the duly
authorized representatives of both parties.

IN WITNESS WHEREOF, the parties hereto through their respective duly authorized
representatives have executed and delivered the Agreement as of the date first
above written.

TOSHIBA MEDICAL SYSTEMS PHOTOELECTRON CORPORATION
CO., LTD.
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
By:-------------------- By:----------------------
Title: President Title: President & CEO
Dec 22, 1995 Dec 26, 1995
- ----------------------- -------------------------
Date Date
<PAGE>

SCHEDULE A

COMPANY'S LIMITED WARRANTY
--------------------------

The Company warrants to the Distributor that during the Clinical Trials, the
Company shall, at its option, either repair any defective Product or provide
without charge to the Distributor all replacement Parts necessary to correct any
such Product which proves to be defective and shall pay all shipping and labor
expenses associated with such replacement.

THIS LIMITED WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, AND THE COMPANY EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES.

NEITHER PARTY SHALL BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY, UNDER ANY
CIRCUMSTANCES, FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL OR INCIDENTAL DAMAGES
WHATSOEVER, INCLUDING ANY COSTS, EXPENSES, LOST PROFITS OR ANY OTHER CLAIMED
LOSSES HOWEVER DESIGNATED.

[SIGNATURE APPEARS HERE]
<PAGE>

[PEC PHOTOELECTRON CORPORATION LETTERHEAD APPEARS HERE]

December 13, 1995

Mr. Shigeyasu Kurihara
President
Toshiba Medical Systems Co., Ltd.
26-5, 3-Chome, Hongo, Bunyo-ku
Tokyo 113
JAPAN

Dear Mr. Kurihara:

Schedule C to The International Distributor Sales and Service Agreement between
Photoelectron Corporation and Toshiba Medical Systems Co., Ltd. provides that
the discount rate on the sale of Products by Photoelectron to Toshiba Medical
shall be negotiated "at the proper time".

We hereby confirm to you that the minimum discount rate to be provided to
Toshiba Medical with respect to its purchases of the PRS and other Products will
be *** below Photoelectron's US retail list price. The actual amount of the
discount will be established in future negotiations between us.

Sincerely,

/s/ Peter M. Nomikos

Peter M. Nomikos
President and Chief Executive Officer
Photoelectron Corporation

as confirmed by,

/s/ Shigeyasu Kurihara

Shigeyasu Kurihara
President
Toshiba Medical Systems Company, Ltd

<PAGE>

EXHIBIT 10.22

CLINICAL RESEARCH AGREEMENT

Agreement made as of 1st November 1995 between The Royal Free Hampstead (NHS)
Trust, a not-for-profit corporation having a principal place of business at Pond
Street, Hampstead, London, England ("Trust"), Felix Senanayake, M.D., Department
of Radiotherapy and Oncology, The Royal Free Hospital, Pond Street, London,
England ("Investigator"), and Photoelectron Corporation, a corporation having an
office at 400-1 Totten Pond Road, Waltham, Massachusetts 02154, United States
("Sponsor").

1. Investigator agrees to act as Principal Investigator at Trust's The Royal
Free Hospital for clinical study of the Photon Radiosurgery System (Herinafter
referred to as the "Study Device"), including study in accordance with the
multi-institution study protocol entitled "A Study of the Safety and Efficacy of
the Photon Radiosurgery System in the Treatment of Brain Metastases" (as amended
from time to time) and other studies as mutually agreed to by the parties of
this Agreement (hereinafter referred to as "Studies"). In the event of any
conflict between protocols for the Studies and the provisions of this Agreement,
the provisions of this Agreement shall govern. That portion of multi-institution
studies that are carried out by Trust are hereinafter referred to as
"Institutional Studies". Investigator agrees to comply with all appropriate
regulatory and ethical requirements for the conduct of Studies by Trust,
including those mandated by regulatory authorities of the United Kingdom and the
United States Food and Drug Administration (where applicable), to adhere to
Standard Operating Procedures for the Studies, and to maintain the Study Device
according to the instructions provided by Sponsor.

2. The Institutional Studies will be conducted by Investigator at Trust with
the prior approval and ongoing review of all appropriate and necessary review
authorities and in accordance with all English laws and regulations.
Investigator shall provide Sponsor with written evidence of review of the
Studies by Trust's Ethics Committee prior to the start of Institutional Studies
and of the Ethics Committee's continuing review and approval of the
Institutional Studies whenever it is reviewed, but at least once per year. All
study subjects will meet the legal age requirements of England, the country in
which the Institutional Studies are conducted.

3. Investigator will furnish Sponsor or its designated Study Monitor with all
data resulting from Institutional Studies in signed case report forms and in
other mutually agreed upon forms within one month after completion of a study
event. Sponsor shall have the unrestricted right to use such data including, to
the extent that subjects' consent have been obtained, subjects' names, any
identifying information, and any visual recordings, audio recordings, electronic
recordings, or other likenesses. Case report forms to be used will be those
supplied by Sponsor. Patient records shall be made available to Sponsor's
representatives upon request for comparison with case report forms. Such records
will also be made available upon request for review by representatives of
English, European Union, and United States FDA regulatory authorities. Records
of the Studies, including either the original or a copy of all Informed Consent
Forms of subjects of the Studies, shall be retained in conformance with all
applicable regulations.
<PAGE>

4. It is understood that certain of the Studies are multi-center investigations
and publication of results from all participating sites is expected.
Investigator shall be free to publish results of Institutional Studies after
submission of multi-center results for publication, subject only to the
provisions of Paragraph 7 regarding Sponsor's confidential information, only
when notification is given by Sponsor to Trust that such a submission is no
longer planned or twelve (12) months after the termination of a multi-center
Study at all sites, whichever shall occur first. Sponsor will be furnished with
a copy of any proposed presentation of information from the Studies for review
and comment prior to submission for any form of public dissemination, in the
case of manuscripts and such for publication at least thirty (30) days prior to
submission and in the case of abstracts and such at least seven (7) days prior
to submission. At the expiration of either the thirty(30) or seven (7) day
period, whichever applies, Investigator may proceed with submission for
presentation.

5. A minimum of one journal article describing the analyzed results of each of
the Studies will be submitted for publication at the conclusion of each Study.
In addition, since any multi-center Study is to be carried out at a number of
institutions, a minimum of one journal article describing the analyzed results
from all institutions will be submitted for publication at the conclusion of
each such Study. Such manuscript(s) will bear as authors, among others, all
Investigators of the Study. The order of authors will be as follows: those who
design and implement the Study will be first; the Investigator and other,
individuals from the institution contributing the largest number of patients
will be listed next; the Investigator and other individuals from the institution
contributing the second largest number of patients will be next; and so on.

6. At the conclusion of any multi-center Study and after such time as a minimum
of one multi-authored, multi-institution journal article has been published, all
Investigators from all participating institutions will be given complete access
to all of the patient data accrued in the Study.

7. In order to effectively complete an Institutional Study, it may be necessary
or desirable for the parties to disclose proprietary, trade secret and/or other
confidential information (hereinafter referred to as "Confidential Information")
to one another. Each party agrees that any such Confidential Information
disclosed to it or to its employees shall be used only in connection with the
legitimate purposes of this Agreement, shall be safeguarded with same care
normally afforded such Confidential Information in the possession, custody, or
control of the party receiving the Confidential Information, provided, however,
that the disclosing party specifies in writing the nature and identity of the
Confidential Information and the manner and time of disclosure. The foregoing
shall not apply when, after and to the extent the Confidential Information
disclosed:
A) becomes generally available to the public through no fault of the receiving
party,
B) was already known to the receiving party at the time of disclosure as
evidenced by written records in the possession of the receiving party prior
to such time, or
C) is subsequently received by the receiving party in good faith from a third
party without breaching any confidential obligation between the third party
and the disclosing party.
<PAGE>

8. Trust and Sponsor agree that the Sponsor shall have the opportunity to
acquire by assignment all rights to each invention which constitutes a new use
or modification of the Study Device and is made by Trust personnel, solely or
jointly, in the performance of the Studies (hereinafter referred to as
"Invention"). Each Invention shall be promptly reported in writing to Sponsor
and to Trust, and Sponsor shall have ninety (90) days following receipt of such
report to submit a written request to Trust to acquire rights to the reported
Invention. In the event Sponsor so elects to acquire rights to an Invention,
Trust shall promptly obtain from Trust personnel appropriate assignments of all
rights in the Invention held by such personnel and thereafter shall assign all
its rights to Sponsor.

9. This Agreement shall remain in force until the completion of Studies. Any
party hereto shall have the right to terminate the Studies and this Agreement at
any time upon thirty (30) days prior written notice thereof to the other
parties. The obligations of the parties under Paragraphs 2, 3, 4, 7, 8, 14, 15,
16, 18, 19 and 20 shall survive the termination of this Agreement.

10. Equipment and other supplies provided by Sponsor include the following: two
Model 3 X-ray sources (each including internal radiation monitor), a Control Box
System, a 486DX Laptop Computer with applications software, color printer,
photodiode array, probe straightener, external radiation monitor and various
clinical accessories, an ionization chamber, an electrometer with computer
interface, an IBM-compatible computer and a number of calibration accessories, a
dosimetry water tank with control electronics, applications software, a
radiochromic film reader, dosimetry phantoms and dosimetry accessories. All
equipment provided by Sponsor will remain assets of Sponsor. It is understood
that Sponsor will have access to the equipment at any time.

11. Sponsor agrees to support the Institutional Studies by:
A) providing a Study Device including all equipment and supplies listed in
Paragraph 10 above at no charge to Trust for the duration of the treatment
phase of the Studies;
B) providing Investigator with information and instruction pertaining to the
Study Device and its operation as needed to perform the Institutional
Studies;
C) repairing, maintaining and modifying the Study Device as needed during the
Institutional Studies;
D) monitoring the Institutional Studies; and
E) providing Trust with a research grant in the amount of (Pounds)10,500 to
be used to support the salary, fringe benefits and indirect costs of a
Data Coordinator designated by Trust for the one-year period of November
1, 1995 to October 31, 1996, and, with prior consent of Sponsor, to pay
for reasonable expenses of travel and other activity by Trust personnel to
further the legitimate purposes of this Agreement. The responsibilities of
the Data Coordinator will include overseeing the collection and assembly
of data generated by the Institutional Studies, frequent correspondence
with the Study(ies) Monitor, scheduling of patient visits, and supervision
of the follow-up of each patient by shepherding patients through their
visits with various physicians and to different diagnostic procedures.
Payment to Trust of this research grant of (Pounds)l0,500 will be made by
Sponsor in quarterly payments of (Pounds)2,625 on or about October 1,
1995, January 1, 1996, April 1, 1996, and July 1, 1996.
<PAGE>

12. All equipment and supplies listed in Paragraph 10 remain assets of Sponsor.
At the completion of the treatment phase of the Studies, all equipment and
supplies listed in Paragraph 10 above will be returned to Sponsor.

13. It is agreed that Trust will treat a minimum of twenty (20) eligible
patients with the Study Device by the end of the period of this Agreement, which
number includes those patients treated in the period of the prior Agreement
between the parties to this Agreement. Failure to treat at least twenty (20)
eligible patients with the Study Device by the end of the term of this Agreement
may result in termination of the Institutional Studies at Trust and return of
all Study Device equipment and supplies to Sponsor.

14. It is agreed, in the interest of patient safety, regulatory compliance, and
device integrity, that the Study Device will be used for no purpose other than
the Institutional Studies without the written permission of the Director of
Clinical Research and Regulatory Affairs at Sponsor.

15. It is agreed that all maintenance, repair or modification of the Study
Device equipment and supplies listed in Paragraph 10 will be carried out by
Sponsor personnel. The covers may not be removed from any of the equipment
listed in Paragraph 10 by non-Sponsor personnel. The only exceptions to this
restriction may be the removal of cover(s) for the performance of procedures
under the direct supervision of Sponsor personnel, such as testing or switching
from manual to automated control. Adherence to this policy will ensure that all
patients treated with the Study Device are treated with equipment that has met
the same standards and will protect the interests of Sponsor and Trust.

16. Terms and conditions regarding indemnification issues are found in Addendum
A and have been agreed to by all parties.

17. The terms of this Agreement can only be modified in writing in a document
signed by Trust, Investigator and Sponsor.

18. No party to this Agreement shall use the name of any other party or of any
staff member, employee or student of any other party or any adaptation thereof
in any advertising, promotional, sales literature, or publicity or in any non-
scientific publication without the prior written approval of the party or
individual whose name is to be used. For Trust, such approval shall be obtained
from the Director of News and Public Affairs, and for Sponsor, from its Chief
Executive Officer.

19. Any notices to be delivered by either party to the others shall be delivered
as follows: if to Trust to ------------------------------------------------; if
to Investigator to Felix Senanayake, MD, Department of Radiotherapy and
Oncology, The Royal Free Hospital, Pond Street, Hampstead, London, England; and
if to Sponsor to Thomas R. Varricchione, MBA, RRT, Photoelectron Corporation,
400-1 Totten Pond Road, Waltham, Massachusetts 02154, USA.
<PAGE>

20. The provisions of this Agreement shall be interpreted under the laws of the
United Kingdom.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day, month and year first written above.

Photoelectron Corporation The Royal Free Hampstead NHS Trust

BY: /s/Thomas R. Varricchione BY:
--------------------------- ---------------------------
Thomas R. Varricchione, MBA, RRT (Name)
Director, Clinical Research and (Title)
Regulatory Affairs

DATE: 2 October 1995 DATE:
------------------------- -------------------------

BY: BY:
--------------------------- ---------------------------
Peter E. Oettinger, Ph.D. Felix Senanayake, MD
Chief Operating Officer Investigator, The Royal
Free Hospital

DATE: DATE:
------------------------- -------------------------
<PAGE>

Addendum A to Agreement between The Royal Free Hampstead NHS Trust, Felix
Senanayake, M.D. and Photoelectron Corporation, November 1, 1995 - October 31,
1996

1. The Royal Free Hampstead NHS Trust ("Trust"), Felix Senanayake, MD
("Investigator") and Photoelectron Corporation ("Sponsor") have entered into an
Agreement ("Agreement") that Trust and Investigator will conduct sponsored
Institutional Studies involving patients of the Trust, in the manner defined in
the Agreement between the parties and in protocols for the Studies, as amended
from time to time with the written agreement of Investigator and Sponsor.
Sponsor confirms that it is a term of its Agreement with Trust and Investigator
that Investigator shall obtain all necessary approvals of the appropriate Human
Research Ethics Committee and shall resolve with Trust any issues of a revenue
nature.

2. Trust agrees to participate by allowing the Studies to be undertaken on its
premises, utilizing such facilities, personnel and equipment as Investigator may
reasonably need for the purposes of the Studies.

3. In consideration of such participation by Trust, and subject to Paragraph 4
below, Sponsor indemnifies and holds harmless Trust and its employees and agents
against all claims and proceedings (to include any settlements or ex gratia
payments made with the consent of the parties hereto and reasonable legal and
expert costs and expenses) made or brought (whether successfully or otherwise):
A) by or on behalf of Subjects taking part in the Studies (or their
dependents) against Trust or any of its employees or agents for personal
injury (including death) to Subjects arising out of or relating to the
administration of the product(s) under investigation or any clinical
intervention or procedure provided for or required by the Study Protocol to
which the Subjects would not have been exposed except for their
participation in the Studies;
B) by Trust, its employees or agents or by or on behalf of a Subject for a
declaration concerning the treatment of a Subject who has suffered such
personal injury.

4. The above indemnity by Sponsor shall not apply to any such claim or
proceeding:

4.1 to the extent that such personal injury (including death) is caused by the
negligent or wrongful acts or omissions or breach of statutory duty of
Trust, its employees or agents;

4.2 to the extent that such personal injury (including death) is caused by the
failure of Trust, its employees or agents to conduct the Studies in
accordance with agreed upon Protocols;

4.3 unless as soon as reasonably practicable following the receipt of notice of
such claim or proceeding, Trust shall have notified Sponsor in writing of it
and shall, upon Sponsor's request, and at Sponsor's cost, have permitted
Sponsor to have full care and control of the claim or proceeding using legal
representation of its own choosing.

4.4 If Trust, its employees, or agents shall have made any admission in respect
of such claim or proceeding or taken any action relating to such claim or
proceeding prejudicial to the defence of it without the written consent of
Sponsor such consent not to be unreasonably withheld provided that this
condition shall not be treated as breached by any statement properly made by
Trust, it employees, or agents in connection with the operation of Trust's
internal complaint procedures, accident reporting procedures or disciplinary
procedures or where such statement is required by law.
<PAGE>

Addendum A to Agreement between The Royal Free Hampsted NHS Trust, Felix
Senanyake, M.D. and Photoelectron Corporation, November 1, 1995 - October 31,
1996

5. Sponsor shall keep Trust and its legal advisors fully informed of the
progress of any such claim or proceeding, will consult fully with Trust on the
nature of any defence to be advanced and will not settle any such claim or
proceeding without prior consultation with Trust.

6. Without prejudice to the provisions of Paragraph 4.3 above, Trust will use
its reasonable endeavors to inform Sponsor promptly of any circumstance
reasonably thought likely to give rise to any such claim or proceeding of which
it is directly aware and shall keep Sponsor reasonably informed of developments
in relation to any such claim or proceeding even where Trust decides not to make
a claim under this indemnity. Likewise, Sponsor shall use its reasonable
endeavors to inform Trust of any such circumstance and shall keep Trust
reasonably informed of developments in relation to any such claim or proceeding
made or brought against Sponsor alone.

7. Trust and Sponsor will each give to the other such help as may reasonably be
required for the efficient conduct and prompt handling of any claim or
proceeding by or on behalf of Subjects (or their dependents) or concerning such
a declaration as is referred to in Paragraph 3(B) above.

8. Without prejudice to the foregoing if injury is suffered by a Subject while
participating in the Studies, Sponsor agrees to operate in good faith the
Guidelines published in 1991 by The Association of the British Pharmaceutical
Industry and entitled "Clinical Trial Compensation Guidelines" (where the
Subject is a patient) and the Guidelines published in 1988 by the same
Association and entitled "Guidelines for Medical Experiments in non-patient
Human Volunteers" (where the Subject is not a patient) and shall request
Investigator to make clear to the Subjects that the Studies are being conducted
subject to the applicable Association Guidelines.

9. For the purpose of this indemnity, the expression "agents" shall be deemed
to include without limitation any nurse or other health professional providing
services to Trust under a contract for services or otherwise and any person
carrying out work for Trust under such a contract connected with such of Trust's
facilities and equipment as are made available for the Studies under Paragraph 2
above.

10. This indemnity shall be governed by and construed in accordance with English
law.

Signed on behalf of:

Photoelectron Corporation The Royal Free Hampstead NHS Trust

BY: BY:
--------------------------- ---------------------------
Peter E. Oettinger, Ph.D. (Name)
Chief Operating Officer (Title)

DATE: DATE:
------------------------- -------------------------

<PAGE>

EXHIBIT 11.1

PHOTOELECTRON CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C> <C>
Proforma
Computation of Primary Loss Per Share
Net loss ($973,773) ($1,586,239) ($2,267,460) ($2,671,648) ($4,117,158) ($4,117,158)

Shares
Weighted average shares outstanding 747,500 926,146 1,126,500 1,328,992 1,107,310 1,107,310
Add: Shares issuable from assumed exercise
of stock options and warrants and conversion
of other common stock equivalents issued
within one year prior to the filing of this
registration statement 339,823 339,823 339,823 339,823 339,823 339,823

Add: Shares issuable from assumed conversion
of the preferred stock upon closing of
the offering 2,584,545
----------- ------------- ------------- ------------- ------------- -------------
Weighted average common and common
equivalents shares outstanding 1,087,323 1,265,969 1,466,323 1,668,815 1,447,133 4,031,678
----------- ------------- ------------- ------------- ------------- -------------
Loss per share:
Net loss ($.90) ($1.25) ($1.55) ($1.60) ($2.85) ($1.02)
----------- ------------- ------------- ------------- ------------- ------------
Computation of Fully Diluted Loss Per Share
Net loss ($973,773) ($1,586,239) ($2,267,460) ($2,671,648) ($4,117,158) ($4,117,158)

Shares:
Weighted average shares outstanding 747,500 926,146 1,126,500 1,328,992 1,107,310 1,107,310

Add: Shares issuable from assumed exercise
of stock options and warrants and
conversion of other common stock
equivalents 339,823 339,823 339,823 339,823 339,823 339,823

Add: Shares issuable from assumed conversion
of the preferred stock upon closing of
the offering 2,584,545
----------- ------------- ------------- ------------- ------------- ------------
Weighted average common and common
equivalents shares outstanding 1,087,323 1,265,969 1,466,323 1,668,815 1,447,133 4,031,678
----------- ------------- ------------- ------------- ------------- ------------
Loss per share:
Net loss ($.90) ($1.25) ($1.55) ($1.60) ($2.85) ($1.02)
----------- ------------- ------------- ------------- ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended
September 28, 1996
Nine Months Ended Pro Forma
-------------------------------------- -----------------
September 30, 1995 September 28, 1996
<S> <C> <C> <C>
Computation of Primary Loss Per Share
Net loss ($2,331,333) ($3,319,169) ($3,319,169)

Shares
Weighted average shares outstanding 1,106,001 1,579,229 1,579,229
Add: Shares issuable from assumed exercise
of stock options and warrants and conversion
of other common stock equivalents issued
within one year prior to the filing of this
registration statement 339,823 339,823 339,823

Add: Shares issuable from assumed conversion
of the preferred stock upon closing of
the offering 2,584,545
-------------- -------------- --------------
Weighted average common and common
equivalents shares outstanding 1,445,824 1,919,052 4,503,597
-------------- -------------- --------------
Loss per share:
Net loss ($1.61) ($1.73) ($.74)
-------------- -------------- --------------
Computation of Fully Diluted Loss Per Share
Net loss ($2,331,333) ($3,319,169) ($3,319,169)

Shares:
Weighted average shares outstanding 1,106,001 1,579,229 1,579,229

Add: Shares issuable from assumed exercise
of stock options and warrants and
conversion of other common stock
equivalents 339,823 339,823 339,823

Add: Shares issuable from assumed conversion
of the preferred stock upon closing of the
offering 2,584,545
-------------- -------------- --------------
Weighted average common and common
equivalents shares outstanding 1,445,824 1,919,052 4,503,597
-------------- -------------- --------------
Loss per share:
Net loss ($1.61) ($1.73) ($.74)
-------------- -------------- --------------

$0.00 $0.00 $0.00
</TABLE>

<PAGE>

EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report and all references to our Firm included in or made a part of
Photoelectron Corporation's Registration Statement on Form S-1.

/s/ Arthur Andersen LLP
-----------------------------
Arthur Andersen LLP

Boston, Massachusetts
December 4, 1996

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PHOTOELECTRON'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-30-1995 DEC-28-1996
<PERIOD-START> JAN-01-1995 DEC-31-1995
<PERIOD-END> DEC-30-1995 SEP-28-1996
<CASH> 7,191,268 4,005,254
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 495,590 353,290
<CURRENT-ASSETS> 7,879,068 4,724,653
<PP&E> 1,395,621 2,081,084
<DEPRECIATION> 572,188 768,387
<TOTAL-ASSETS> 8,702,501 6,037,350
<CURRENT-LIABILITIES> 269,632 669,512
<BONDS> 1,940,230 1,565,047
0 0
28,812 28,936
<COMMON> 15,837 15,912
<OTHER-SE> 6,447,990 3,757,943
<TOTAL-LIABILITY-AND-EQUITY> 8,702,501 6,307,350
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,225,530 2,263,316
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 110,645 90,337
<INCOME-PRETAX> (4,117,158) (3,319,169)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,117,158) (3,319,169)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,117,158) (3,319,169)
<EPS-PRIMARY> (2.85) (1.73)
<EPS-DILUTED> (2.85) (1.73)

</TABLE>